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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
MAY 1, 1998 TO DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-12261
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SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1790 BROADWAY 10019-1412
New York, New York (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code 212-757-3333
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
At March 26, 1999, the registrant had 20,092,747 shares of common stock, par
value $.01 per share, outstanding, and the aggregate market value of the
outstanding shares of voting stock held by non-affiliates of the registrant on
such date was approximately $185 million based on the closing price of $18.5625
per share of such common stock on such date.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Company's Annual Meeting of Stockholders in Part III of
this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, the "Company" or "Superior") is the largest wire and cable
manufacturer in the United States and the third-largest in the world. The
Company manufactures a broad portfolio of wire and cable products with primary
applications in the communications, original equipment manufacturer ("OEM") and
electrical markets. The Company is a leading manufacturer and supplier of
communications wire and cable products to telephone companies, distributors and
system integrators; magnet wire and insulation materials for motors,
transformers and electrical controls as well as automotive and specialty wiring
assemblies for automobiles and trucks; and building and industrial wire for
applications in commercial and residential construction and industrial
facilities. The Company operates 44 manufacturing facilities in the United
States, Canada, United Kingdom and Israel.
ORGANIZATIONAL HISTORY
The Company was incorporated in July 1996 as a wholly-owned subsidiary of
The Alpine Group, Inc. ("Alpine"). On October 2, 1996, Alpine completed a
reorganization (the "Reorganization") whereby all of the issued and outstanding
common stock of two of Alpine's wholly-owned subsidiaries, Superior
Telecommunications Inc. ("STI") and DNE Systems, Inc. ("DNE"), were contributed
to the Company.
On October 17, 1996, the Company completed an initial public offering (the
"Offering") of 9.4 million shares of its common stock (the "Common Stock") at a
price of $10.24 per share, the net proceeds of which were used to reduce
outstanding bank debt and pay Alpine certain previously declared dividends. In
November 1996, the underwriters of the Offering exercised their over-allotment
option to purchase an additional 1.4 million shares of Common Stock. The Company
used the net proceeds of approximately $13.3 million to repurchase 0.7 million
shares of its Common Stock for approximately $8.1 million, with the balance used
to reduce bank debt. As a result of the Offering, Alpine's common stock
ownership position in the Company was reduced to its current ownership position
of approximately 50.1%.
The Company effected a five-for-four stock split on February 2, 1998 and
again on February 3, 1999. All references herein to shares of common stock
(except shares authorized) and to per share information have been adjusted to
give effect to these stock splits on a retroactive basis.
RECENT SIGNIFICANT GROWTH
Over the past four years, the Company (including its predecessors) has led a
consolidation of the North American copper wire and cable industry. In May 1995,
STI acquired the North American copper telecommunications wire and cable
operations of Alcatel N.A. Cable Systems, Inc. and Alcatel Canada Wire, Inc.
With this acquisition, the Company became the largest North American
manufacturer of copper telephone wire and cable.
On November 27, 1998, a newly formed wholly-owned subsidiary of the Company
acquired approximately 81% of the outstanding shares of common stock of Essex
International Inc. ("Essex") through a cash tender offer for an aggregate price
of approximately $770 million (the "Essex Acquisition"). Essex, through its
subsidiaries, manufactures and distributes wire and cable and insulation
products, including magnet wire and insulation materials for electromechanical
devices, building wire for commercial and residential construction applications,
copper communications wire and cable, industrial wire and automotive wire. As a
result of the acquisition of Essex, the Company is now a diversified supplier of
a variety of wire and cable products and, based on current annualized sales
levels, is the largest wire and cable manufacturer in North America and the
third largest wire and cable manufacturer in the world.
In connection with the Essex Acquisition, the Company amended and restated
its bank credit facility and entered into a new $200.0 million Senior
Subordinated Credit Agreement. These credit facilities
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provide for total borrowings of up to $1.35 billion. Approximately $1.2 billion
of the total proceeds available under these credit facilities were used to
finance the cash tender offer, including the refinancing of certain indebtedness
of the Company and Essex, and to pay related fees and expenses. The remainder is
available for the working capital requirements of the Company.
On March 31, 1999, it is anticipated that Essex will merge with a
wholly-owned subsidiary of the Company. In the merger, holders of the remaining
19% of the outstanding shares of common stock of Essex will each receive 0.64
shares (in the aggregate $167 million liquidation value) of an 8 1/2% trust
convertible preferred security of Superior Trust I, a Delaware business trust in
which the Company owns all the common equity interests, for each share of Essex
common stock owned. Upon completion of the merger, Essex will become a
wholly-owned subsidiary of the Company.
During 1998, the Company also expanded its presence in international
markets. On May 5, 1998, the Company acquired 51% of the issued and outstanding
shares of common stock of Cables of Zion United Works Ltd. ("Cables of Zion")
for approximately $25.0 million in cash. Cables of Zion is an Israel-based cable
and wire manufacturer whose primary products include fiber and copper
communications wire and cable and power cable. Cables of Zion products are sold
primarily into the Israeli and European markets.
On December 31, 1998, the Company, through Cables of Zion, acquired the
business and certain operating assets of Cvalim--The Electric Wire & Cable
Company of Israel Ltd. ("Cvalim") and its wholly-owned subsidiary, Dash Cable
Industries (Israel) Ltd., for approximately $41.2 million in cash. The Cvalim
acquisition was financed in Israel with an $83.0 million credit facility. Cvalim
is the leading Israeli manufacturer of electrical, communications and industrial
wire and cable products. As a result of these acquisitions, Cables of Zion is
the dominant wire and cable manufacturer in Israel with an approximate 70%
market share. The Company believes that expanding its operational presence in
Israel will enable it to participate further in the growing communications wire
and cable markets in Europe and the Middle East. The operations of Cables of
Zion (including the acquired operations of Cvalim) are hereinafter referred to
as "Superior Israel".
BUSINESS LINES
Prior to the acquisition of Essex and Superior Israel, the Company's product
sales were comprised almost entirely of communications wire and cable. With the
Essex acquisition, the Company broadened its product lines into the OEM segment
(principally magnet wire, automotive wire and related products) and into
electrical wire (low voltage building wire and industrial wire). With the
Superior Israel acquisition, the Company added additional communications wire
and cable product sales on an international basis (including fiber optic cable),
along with low, medium and high voltage power cable, as well as other wire and
cable product lines.
The following table sets forth unaudited dollar amounts and percentages of
sales of each of the Company's major business lines on a historic basis for the
calendar years ended December 31, 1997 and 1998, and on a pro forma basis for
the year ended December 31, 1998, assuming Essex and Superior Israel were
acquired on January 1, 1998:
<TABLE>
<CAPTION>
ACTUAL 1997 ACTUAL 1998 PRO FORMA 1998
-------------------- -------------------- --------------------
SALES % SALES % SALES %
--------- --- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Communications............................................ $ 496.1 100% $ 502.5 77.6% $ 658.7 30.6%
OEM....................................................... -- -- 48.6 7.5 622.2 28.9
Electrical................................................ -- -- 53.2 8.2 702.7 32.6
Superior Israel........................................... -- -- 43.5 6.7 172.0 7.9
--------- --- --------- --- --------- ---
$ 496.1 100% $ 647.8 100% $ 2,155.6 100%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
For more detailed financial information relating to the Company's business
segments, see "Item 7-- Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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COMMUNICATIONS GROUP
The Company's Communications Group focuses on two areas of the North
American communications wire and cable market: (i) outside plant ("OSP") wire
and cable for voice and data transmission in the local loop portion of the
telecommunications infrastructure and (ii) datacom, or premise, wire and cable
used within homes and offices for local area networks ("LANs"), Internet
connectivity and other applications. Through six geographically dispersed plants
the Company has annual production capacity in North America of approximately 170
billion conductor feet ("bcf") for OSP and datacom copper wire and cable.
Additionally, through Superior Israel, the Company has an additional seven bcf
of production capacity for OSP and datacom products. The Company is currently
the largest manufacturer of copper communications cable in North America (which
is the Company's primary market) and the largest worldwide manufacturer of
copper OSP wire and cable products. On a pro forma basis (including a full year
impact from the Essex Acquisition), net sales of OSP and datacom products for
the year ended December 31, 1998 were $578 million and $60 million,
respectively.
The Communications Group also includes the operations of DNE. DNE designs
and manufactures data communications equipment, integrated access devices and
other electronic equipment for defense, government and commercial applications.
DNE's net sales are not significant in relation to the total net sales of the
Communications Group.
OSP PRODUCTS
Copper wire and cable are the most widely-used media for voice and data
transmission in the local loop portion of the telecommunications infrastructure
operated by the local exchange carriers ("LECs"), which include the regional
Bell operating companies ("RBOCs") and the independent telephone operating
companies. The local loop is the segment of the telecommunications network that
connects the customer's premises to the nearest telephone company switching
center or central office. The Company believes that copper will continue to be
the leading transmission medium in the local loop due to factors such as: the
installed base of copper cable and associated switches, connectors and other
accessory components represent an investment of over $150 billion that must be
maintained by the LECs; the lower installation and maintenance costs of copper
compared to optical fiber and other media; technological advances, such as
integrated services digital networks ("ISDN") and various digital subscriber
line ("xDSL") technologies that increase the bandwidth of the installed local
loop copper network; the increasing demand by consumers for affordable enhanced
services, which, because of technological advances, can be supported by the
copper-based local loop; and the increasing demand for affordable multiple
residential access lines.
Demand for copper communications wire and cable is dependent on several
factors, including: the rate at which new access lines are installed in homes
and businesses; the level of infrastructure spending for items such as
road-widenings and bridges, which generally necessitates replacement of existing
utilities, including telephone cable; and the level of general maintenance
spending by the LECs. The installation of new access lines is, in turn,
partially dependent on the level of new home construction and expansion of
business and, increasingly in recent years, on demand for additional telephone
lines and lines dedicated to facsimile machines and computer modems which are
used for, among other purposes, business communications and access to the
Internet.
The local loop comprises approximately 173 million residential and business
access lines in the United States. The installed base of copper wire and cable
and associated switches and other components utilized in the local loop
represents an investment of over $150 billion that must be maintained by the
LECs. Although other media, such as fiber optic cable, are used for trunk lines
between central offices and for feeder lines connecting central offices to the
local loop, substantially all local loop lines and systems continue to be
copper-based. The Company believes that in the local loop, copper-based networks
require significantly lower installation and maintenance costs than other
alternative networks (such as fiber optics).
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Installation of fiber optic systems is both capital and labor intensive, and
deployment of fiber optic systems generally has been limited to trunk and feeder
lines and wide area network configurations, where the density of voice and data
traffic make such systems cost efficient.
Copper usage in the local loop continues to be supported by technological
advances that expand the use and bandwidth of the installed local loop copper
network. These advances include ISDN and xDSL technologies. These technologies,
together with regulatory developments and increased competition among service
providers, have accelerated the demand for and the introduction of new high
speed and bandwidth-intensive telecommunications services, such as integrated
voice and data, broadcast and conference quality video, Internet, high speed LAN
to LAN connectivity, and other specialized, bandwidth-intensive applications.
The most recent technological advance is xDSL technology. xDSL technology,
which includes ADSL and HDSL, has increased the bandwidth capacity of copper
networks in the local loop through sophisticated digital multiplexing and
modulation techniques. xDSL technology currently expands the bandwidth
transmission capacity over twisted pair copper wire in the local loop from
56,000 bps to over 8 million bps, depending on distance.
ADSL transmits interactive video and data services, including video on
demand, on-line shopping, banking and other data services, as well as Internet
access, over the existing copper-based local loop, requiring substantially less
investment of capital and labor than alternative technologies such as fiber
optics. ADSL is asymmetric in that it is high bandwidth in one direction and
lower bandwidth in the other. This arrangement is intended primarily to support
one-way high bandwidth applications, such as the provision of broadcast quality
video into the home. HDSL, as opposed to ADSL, provides high bandwidth
transmission in both directions over the copper-based network. In contrast to
fiber optic cable systems, HDSL uses a minimal amount of power on the remote end
of the line, making the traditional power supplied by copper communications wire
sufficient for its use. ISDN is a set of digital transmission signaling
protocols and interfaces that provides end-to-end digital connectivity to
support a wide range of services. ISDN service over the existing copper local
loop is expanding due to the increased demand for digital telecommunications
applications such as remote office connectivity and Internet access.
While these rapid and significant technological advances continue to
increase the use and bandwidth of the copper local loop network, optical fiber
is gradually being deployed in the feeder network as a funnel to support the
emerging high bandwidth digital copper loops. The Company has developed an
optical fiber cable product line that includes local loop feeder cables for OSP
applications. The Company has expanded its manufacturing capability for fiber
optic cables for these applications, although sales of these products are not
yet significant.
The Company manufactures a wide variety of OSP wire and cable products. The
Company's copper-based OSP products include distribution cable and service wire
products, ranging in size from a single twisted pair wire to a 4,200-pair cable.
To a much lesser extent, the Company also manufactures fiber optic cable for OSP
applications.
The basic unit of virtually all copper OSP wire and cable is the "twisted
pair," a pair of insulated conductors twisted around each other. Twisted pairs
are bundled together to form communications wire and cable. The Company's copper
OSP wire and cable products are differentiated by design variations, depending
on where the cable is to be installed. Wire and cable products used for direct
underground burial are designed to be water resistant and are filled with
compounds to prevent moisture from penetrating the cable structure. The
individual copper wires utilize either polyethylene or polypropylene insulation.
Wire and cable products used for underground duct or aerial applications, where
water penetration is not a major concern, are designed with polyethylene
insulation and no filling compound. The copper communications wire and cable
products normally have metallic shields for mechanical protection and
electromagnetic shielding, as well as an outer polyethylene jacket.
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One element of the Company's strategy in the Communications Group is to
continue to expand into performance enhanced wire and cable products that
provide opportunities for growth both within and outside the Company's basic
market. The Company has acquired or developed, or is in the process of
developing, a number of new products, including (i) hybrid products combining
twisted-pair copper wires with coaxial or fiber optic cable for distribution
service, (ii) a broad band "extra terrestrial" cable to support new technologies
within the OSP segment and (iii) fiber optic cables used for trunking and feeder
applications in the local loop and for trunking and distribution applications in
LANs. The fiber optic OSP cables can be used in a variety of installations such
as aerial, buried and underground conduit and can be configured with two to over
400 fibers, which are typically single mode fibers. These cables are sold to
traditional customers, such as LECs, as well as new customers, such as
competitive local exchange carriers, inter-exchange carriers and competitive
access providers.
The Company has historically been a key supplier of OSP wire and cable to
the RBOCs and the two major independent telephone companies (GTE Corporation and
Sprint Corporation). It is estimated that the RBOCs, GTE and Sprint comprise
approximately 80% of the approximate $1.4 billion North American copper OSP
market. The remaining 20% of the North American market is comprised of more than
1,200 smaller independent telephone companies. In recent years, the Company has
not been a major supplier to the smaller independent telephone companies due to
capacity constraints and lack of established distributor relationships. However,
the recent Essex Acquisition provides the Company both the capacity and the
established distributor network to address this market.
On a proforma basis for the year ended December 31, 1998 (including a full
year impact from the Essex Acquisition), 74% of the Company's OSP net sales were
to the RBOCs and the two major independent telephone companies, 23% of net sales
were primarily to other telephone companies and data product distributors in
North America and 3% of net sales (excluding sales of Superior Israel) were made
outside of North America.
The Company sells to the RBOCs and the two major independent telephone
companies on a direct basis through a sales force of six salespersons. With the
acquisition of Essex, the Company's OSP wire and cable products are increasingly
being sold through original equipment manufacturers, as well as domestic and
international distributors and sales representatives. The Company, through
Superior Israel, also sells its fiber optic, OSP and datacom copper wire and
cable products to Bezeq, the Israeli telephone company, and other customers and
distributors in Israel, the United Kingdom, Europe and South America.
The Company's sales to the major telephone operating companies are generally
pursuant to multi-year supply agreements in which the customer agrees to have
the Company supply a certain percentage of the customer's OSP wire or cable
needs during the term of the agreement. Typically customers are not required to
purchase any minimum quantities of product under these agreements. The Company
currently has multi-year agreements with four of the five RBOCs and with the two
major independent telephone companies. During the eight months ended December
31, 1998, sales to Sprint Corporation, Bell Atlantic, and GTE Corporation
accounted for 13.9%, 12.9% and 10.5% of the Company's net sales, respectively.
No other single customer accounted for more than 10% of net sales.
DATACOM PRODUCTS
Datacom wire and cable is used within buildings to connect
telecommunications devices (telephones, facsimile machines and computer modems)
to the telecommunications network and in commercial buildings to provide
connectivity for LANs. Rapid technological advances in communication and
computer systems have created increasing demand for greater bandwidth
capabilities in wire and cable products. The Company expects demand for datacom
wire and cable products to increase significantly in the future, particularly as
new office buildings are constructed, existing office buildings are upgraded to
accommodate advanced network requirements and multiple residential access lines
for facsimile machines, home offices and access to the Internet are installed.
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There are two primary applications for communications wiring systems within
buildings: voice applications (estimated at 15% of new wiring system investment)
and data applications (estimated at 85% of new wiring system investment). The
primary voice application consists of networking telephone stations. The primary
data application is LANs, which require the wired interconnection of
workstations and peripherals (printers, file servers, etc.) to form a network.
Four major types of cables are currently deployed in datacom applications:
(i) LAN copper twisted pair (unshielded twisted pair ("UTP") and shielded
twisted pair ("STP")), (ii) LAN fiber optic cable, (iii) LAN coaxial cable and
(iv) voice twisted copper pair. The Company anticipates that UTP and fiber optic
cable will provide the most significant growth opportunities due to increasing
demands in the datacom market for cost-effective, high bandwidth solutions.
Continued high growth for new LAN installations, as well as voice system
upgrades, has resulted in increased demand for LAN twisted pair UTP cables,
particularly Category 5 cables. Category 5 cables have made it possible for UTP
to compete with fiber and LAN twisted pair STP for high-speed LAN applications.
The other large component of the datacom segment is fiber optic cable, which
meets the needs of communications services requiring bandwidth capabilities
greater than can be provided by Category 5 cable.
The Company's current datacom wire and cable product offerings include voice
grade twisted pair, UTP and LAN fiber optic cable. The Company's UTP product
offerings include Category 5 cables ranging in size from four pair to 25-pair
cable. These cables are designed and manufactured for use in both plenum
(vertical) and riser (horizontal) applications. The Company has recently
developed and has begun marketing and sales of LAN fiber optic cables. These
cables, which may be used for LAN trunking or distribution applications, contain
from one to 144 fibers (typically multi-mode fiber) and are used in plenum and
riser applications within buildings.
The Company's datacom wire and cable products are sold primarily through
major national and international distributors, smaller regional distributors and
representatives who in turn resell to contractors, international and domestic
telephone companies and private overseas contractors for installation in the
industrial, commercial and residential markets.
The datacom wire and cable market is fragmented, with nearly 25 datacom wire
and cable manufacturers in North America and more than 75 worldwide. Major
suppliers in North America include Lucent Technologies Inc. and Cable Design
Technologies Corporation, which companies offer a turnkey system offering. Other
manufacturers such as the Company, Berk-Tek (an Alcatel Company), Belden Inc.,
CommScope Inc. and General Cable Corporation offer an engineering specification
oriented approach to the market. The remaining manufacturers employ a high
volume, low cost approach through well established distributor relationships.
The Company estimates the North American market for datacom wire and cable
products, similar to those manufactured by the Company to be approximately $1.7
billion.
The Company is also proceeding with an expansion of its manufacturing
capabilities for both copper UTP and fiber optic cable products. The Company
intends to increase its manufacturing capabilities for these products throughout
1999 with an anticipated increase in sales and market share.
DNE
DNE designs and manufactures data communications equipment, integrated
access devices and other electronic equipment for defense, government and
commercial applications. It is the largest supplier to the U.S. defense forces
of data and voice multiplexers used in tactical secure military applications.
Multiplexers are integrated access devices that combine several
information-carrying channels into one line, thereby permitting simultaneous
multiple voice and data communications over a single line. DNE also produces
military avionic products, including switches, dimmers, relays and other
electronic controllers, sensors and aerial refueling amplifiers. DNE net sales
comprise less than 5% of the Communications Group's net sales.
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OEM GROUP
The Company's OEM Group manufactures and sells magnet wire, automotive
wiring and other related products to major OEM's for use in motors,
transformers, electrical controls and automobile and truck harnesses. Through
its Essex Brownell distribution business, the Company also distributes its
magnet wire and related insulation and purchased products to smaller OEM's and
repair and refurbishing contractors.
The OEM Group operates 15 manufacturing plants and 33 warehousing and
distribution locations in North America. Additionally, in 1998 Essex (prior to
its acquisition by the Company) acquired BICC's UK-based magnet wire operations
("Essex/Connellys"). The Essex/Connellys acquisition provides the Company with
European magnet wire capacity to service certain of the Company's existing North
American customers which have major European operations. This acquisition also
provides the Company an opportunity to participate in growth through an
anticipated consolidation of magnet wire manufacturers in the European market.
MAGNET WIRE
The Company is the leading supplier of magnet wire in the North American
market. On a pro forma basis (including a full year impact from the Essex
Acquisition), net sales of magnet wire for the year ended December 31, 1998 were
$376 million.
The North American market demand for magnet wire has experienced continued
growth since 1990. Sales growth in the magnet wire industry is driven by
increasing demand for electrical devices containing motors for, among other
things, home appliances and automobiles. Additionally, continuing consumer
pressure and federal government mandates for higher energy efficiency are
resulting in increased utilization of magnet wire within individual motors or
electrical converter devices. Strong consumer demand for greater numbers of
electrical convenience items in homes, offices and vehicles has resulted in
increased sales of household appliances and increased use of electric motors and
coils in cars and trucks.
Due to the substantial initial capital costs associated with magnet wire
production, the importance of consistent quality, stringent technological
requirements and the cost efficiencies achieved by larger magnet wire producers,
significant industry consolidation has occurred during the past ten years in the
North American magnet wire industry. In addition, the percentage of domestic
magnet wire produced by independent magnet wire manufacturers, such as the
Company, has grown as the manufacturing capacity of captive magnet wire
producers (electrical equipment manufacturers who internally produce their own
magnet wire) has declined as a result of outsourcing over the last several
years.
The Company offers a comprehensive line of magnet wire products, including
over 500 types of magnet wire used in a wide variety of applications. Magnet
wire is the wire that is wound into coils of electromagnetic devices, including
motors, alternators, coils, transformers, control devices and power generators.
Electromagnetic devices are found in numerous industrial, household and
automotive applications.
New magnet wire products have been introduced recently that will further
enhance the Company's position as one of the technological and development
leaders in the industry. Specifically, the Company has recently introduced the
Ultra Shield-TM- Plus wire which is a superior rated magnet wire now used by
many global motor manufacturers in inverter drive applications where high
voltage spikes are encountered. Other new products include
Soderon-Registered Trademark-/180 and Soderex-Registered Trademark-/180, two new
magnet wires that are used in automotive and appliance controls in higher
temperature applications. These products allow for increased throughput with
faster soldering times than conventional high temperature type products. In
addition, the Company has also introduced a new DuPont
Nemon-Registered Trademark-(/)/910 wrapped magnet wire conductor for
liquid-filled transformer applications as a replacement for low temperature
paper wrap. The Company is also a leader
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in product palletizing and packaging with a focus on ease of handling, reduced
freight damage, environmental disposal issues and cost reduction.
The Company's magnet wire products are sold to OEM's, aftermarket repair
facilities, coil manufacturers and distributors. Products are marketed
nationally through an internal sales force and through the Company's Essex
Brownell distribution business, along with an external distribution network.
Products are also marketed internationally through authorized distributors.
As previously mentioned, the magnet wire market in North America is
concentrated, with a small number of large manufactures. The Company believes it
is the largest supplier of magnet wire in the North American market.
AUTOMOTIVE WIRE
The Company's automotive wire products include primary wire for use in
engine and body harnesses, ignition wire, battery cable and specialty wiring
assemblies. On a pro forma basis, (including a full year impact from the Essex
Acquisition), net sales of automotive wire products for the year ended December
31, 1998 amounted to $78 million. The automotive primary wire market has
experienced growth over the last decade due to steady production levels of new
vehicles and an increase in the installation of electrical options in vehicles,
which deliver increased safety, convenience and engine performance to the
consumer. These electrical options include power windows, supplemental restraint
systems, digital displays, keyless entry, traction control, electronic
suspension and anti-lock brakes. The Company expects the trend of additional
electronic features to grow, thereby increasing demand for automotive wire.
Further, the increasing demand for copper wire content in vehicles has made it
essential to use finer-gauge, thinner wall, higher temperature insulation coated
wire, which requires significant advanced product development and manufacturing
technologies.
The Company sells automotive wire products primarily to tier-one motor
vehicle manufacturer suppliers. Automotive wire products are marketed through an
internal sales force and manufacturers' representatives.
INSULATION AND PURCHASED PRODUCTS
The Company's insulation products consist of various electrical insulations
used in a wide variety of applications by OEM's and repair and refurbishing
contractors. These insulation products include electrical grade tubing and
sleeving marketed under the Suflex brand, mica sheet and mica electrical tapes
marketed under the U.S. Samica brand, fabricated mica segments marketed under
the Macallen brand, as well as engineered electrical insulation materials,
manufactured and marketed under the Active Industries business.
The Company's insulation products are sold directly to OEM's, to various
authorized distributors for resale or through the Company's internal
distribution group (Essex Brownell). Generally, insulation products are sold to
the same customers that use magnet wire. The Company has a distinct competitive
advantage in that it is the only major North American producer of magnet wire
that also manufactures and distributes high quality electrical insulations. On a
pro forma basis (including a full year impact from the Essex Acquisition), net
sales of insulation and purchased product for the year ended December 31, 1998
amounted to $128 million.
These products and all products within the OEM business are supported by an
internal distribution organization, Essex Brownell. Essex Brownell was formed
when the Company acquired the Brownell distribution business in 1995. Essex
Brownell focuses on selling Essex manufactured products into the motor repair
and secondary OEM markets. This distribution organization also distributes many
purchased materials from other insulation manufacturers.
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ELECTRICAL GROUP
The Company's Electrical Group manufacture and distributes a complete line
of building wire products as well as a line of industrial wire products. On a
pro forma basis (including a full year impact from the Essex Acquisition), net
sales of building wire and industrial wire products for the year ended December
31, 1998 were $594 million and $109 million, respectively. The Electrical Group
operates ten manufacturing plants in the United States with annual production
capacity of approximately 510 million copper equivalent pounds.
Building wire products include a wide variety of thermoplastic and thermoset
insulated wires for the commercial and industrial construction markets and
service entrance cable, underground feeder wire and nonmetallic jacketed wire
and cable for the residential construction market. These products are generally
installed behind walls, in ceilings and underground. Industrial wire products
include appliance wire, motor lead wire, submersible pump cable, power cable,
bulk flexible cord, power supply cord sets, welding cable and recreational
vehicle wire.
The Company is the leading manufacturer in North America of copper building
wire products used in commercial and residential applications. The Company
estimates that the building wire market has grown, on average, approximately
3-5% per annum over the past five years. Sales growth in the building wire
industry has resulted primarily from renovation activity, as well as new
nonresidential and residential construction. Both new construction and
renovation growth are being affected by the increased number of circuits and
amperage handling capacity needed to support the increasing demand for
electrical services. In addition, there has been a greater wiring density
required in new construction and renovation projects to provide for the
electrical needs of appliances such as trash compactors, microwave ovens, air
conditioners, entertainment centers, lighting and climate controls, specialty
and task lighting, electric garages and outdoor lighting systems. New home
automation and computer systems contribute to the cable and wire increased
density requirements in new and renovation construction as well. The average new
home is also increasing in size and thus influencing sales growth in this
industry.
The building wire industry has experienced significant consolidation in
recent years, declining from approximately 28 manufacturers in 1980 to eight
primary manufacturers in 1998. The Company believes this consolidation is due
primarily to cost efficiencies achieved by the larger building wire producers as
they capitalize on the benefits of vertical integration and of manufacturing,
purchasing and distribution economies of scale.
In the industrial wire market, the Company has a significantly smaller
market position than in the building wire industry. Factors impacting sales
growth in this market include the construction and expansion of manufacturing
plants, mine expansion and consumer spending for hard goods. Due to the
diversity of product offerings within this industry, the Company's competition
is fragmented across product lines and markets served.
The Company sells its electrical wire and cable products nationally through
an internal sales force and through manufacturers' representatives. Its customer
base is large and diverse, consisting primarily of wholesale electrical and
specialty distributors, consumer product retailers and hardware wholesalers. No
single customer accounts for more than 10% of the Company's net sales in the
Electrical Group.
Prior to 1998, the Company served the wholesale electrical and specialty
distributors through a network of over 30 service centers and stocking locations
in the United States. In 1998, Essex (prior to its acquisition by the Company)
began an initiative to consolidate the service centers and stocking locations
into a smaller number of strategically located regional distribution centers
("RDC's"). These RDC's will provide for centralized stocking of "off-the-shelf"
products, including substantially all of the Company's building and industrial
wire products. To a lesser degree, these RDC's will provide regionally
centralized distribution for communication wire and cable and magnet wire (and
related insulation) products. Two RDC's have been opened to date. The Company
intends to establish additional RDC's over the next
10
<PAGE>
18-month period in order to be in the position to virtually eliminate all of its
remaining remote stocking locations. The Company believes that implementation of
the RDC approach will improve customer service through shorter lead times and
improved order fill rates, and will result in overall reductions in inventory
carrying costs as well as reductions in freight costs and warehousing and
distribution expense.
SUPERIOR ISRAEL
As previously discussed, during 1998 the Company acquired 51% of the
outstanding common stock of Cables of Zion, an Israeli wire and cable company.
Cables of Zion, in a subsequent transaction, acquired the business and certain
operating assets of Cvalim. With the consolidation of these two businesses,
Superior Israel (collectively the operations of Cables of Zion and Cvalim), is
the largest Israeli wire and cable manufacturer with an approximate 70% share of
the Israeli wire and cable market.
Superior Israel's pro forma revenues (assuming a full year impact of the
Cables of Zion and Cvalim acquisitions) for the year ended December 31, 1998
amounted to $172 million. Major product offerings include: (1) communications
cable, including copper and optical fiber OSP and datacom products similar to
those manufactured by the Communications Group; (2) high and medium voltage
power cable utilized by power utilities, and (3) industrial and automotive wire
and cable. Superior Israel also owns 80% of Premier Cable Ltd., a UK based
distributor of communications cable and related products.
Superior Israel's major customers include the two largest public utilities
in Israel: Bezek (the largest Israeli telephone company) and IEC (the largest
Israeli power utility). Product export sales (outside of Israel) amounted to 20%
of total pro forma sales for the year ended December 31, 1998. The major export
markets include Europe, Latin America and Southeast Asia.
Superior Israel currently operates seven manufacturing plants in Israel. As
a result of the combination of the operations of Cables of Zion and Cvalim, the
Company expects to consolidate certain manufacturing facilities and
administrative functions. This restructuring will result in closure of two
manufacturing facilities, closure of administrative offices in Rishon Lezion,
and elimination of 30 administrative personnel.
RAW MATERIALS AND MANUFACTURING
The principal raw materials used by the Company in the manufacture of its
wire and cable products are copper, aluminum, bronze, steel, optical fibers and
plastics, such as polyethylene and polyvinyl chloride. Copper rod is the most
significant raw material used in the Company's manufacturing process. The
Company estimates it is the largest North American consumer of copper rod with
over 900 million pounds used annually in its production process. Due to the
importance of copper to its business, the Company maintains a centralized metals
operations that manages copper procurement and provides vertical integration in
the production of copper rod and in scrap recycling.
The Company maintains five copper rod continuous casting units,
strategically located in proximity to many of its major wire producing plants to
minimize freight costs. These facilities convert copper cathode into copper rod
which is then shipped and utilized directly in the Company's manufacturing
operations. Through these continuous casting units, the Company is able to
produce approximately 65% of its copper rod requirements.
In addition to converting copper cathode into copper rod, the Company's
metal processing center also processes copper scrap (both internally generated
scrap as well as scrap purchased from other copper wire producers). Copper scrap
is processed in rotary furnaces, which also have refining capability to remove
impurities. The Company uses a continuous casting process to convert scrap
material directly into copper rod. Management believes that internal reclamation
of scrap copper provides greater control over the cost to recover the Company's
principal manufacturing by-product.
11
<PAGE>
The Company purchases copper cathode and, to the extent not provided
internally, copper rod from a number of copper producers and metals merchants.
Generally, copper cathode and rod purchases are pursuant to contracts which
extend for a one year period and are normally based on the COMEX price, plus a
premium to cover transportation and payment terms. Additionally, the Company, to
a limited extent, utilizes COMEX fixed price futures contracts to manage its
commodity price risk. The Company does not hold or issue such contracts for
trading purposes.
Historically, the Company has had adequate supplies of copper and other raw
materials available to it from producers and merchants, both foreign and
domestic. In addition, competition from other users of copper has not affected
the Company's ability to meet its copper procurement requirements. Although the
Company has not experienced any shortages in the recent past, no assurance can
be given that the Company will be able to procure adequate supplies of its
essential raw materials to meet its future needs.
The cost of copper has been subject to considerable volatility over the past
several years. Fluctuations in the cost of copper have not had a material impact
on profitability due to the ability of the Company in most cases to adjust
product pricing in order to properly match the price of copper billed with the
copper cost component of its inventory shipped.
The Company's manufacturing strategy is primarily focused on maximizing
product quality and production efficiencies while maintaining a high level of
vertical integration through internal production of its principal raw materials.
In addition to copper rod, the Company is also vertically integrated in the
production of magnet wire enamels and extrudable polymeric compounds. The
Company believes one of its primary cost and quality advantages in the magnet
wire business is the ability to produce most of its enamel and copper rod
requirements internally. Similarly, the Company believes its ability to develop
and produce PVC and rubber compounds, which are used as insulation and jacketing
materials for many of its building wire, communication wire, automotive and
industrial wire products, provides competitive advantages because greater
control over the cost and quality of essential compounds used in production can
be achieved. These operations are supported by the Company's metallurgical,
chemical and polymer development laboratories.
EXPORT SALES
The Company's export sales during the eight months ended December 31, 1998
and the fiscal year ended April 30, 1998 were $18.2 million and $10.9 million,
respectively. Export sales on a pro forma basis (assuming a full year impact
from the Essex, Cables of Zion and Cvalim acquisitions) for the year ended
December 31, 1998 were $33.1 million. The Company' primary markets for export
sales are Latin America and Europe.
BACKLOG; RETURNS
Backlog in the communications wire and cable segment typically consists of
4-8 weeks of sales depending on seasonal issues. The Company's other product
lines have no significant order backlog because they follow the industry
practice of manufacturing products on an ongoing basis to meet customer demand
on a just-in-time basis. The Company believes that the ability to supply orders
in a timely fashion is a competitive factor in the markets in which it operates.
Historically, sales returns have not had a material adverse effect on the
Company's results of operations.
COMPETITION
The market for wire and cable products is highly competitive. Each of the
Company's businesses competes with at least one major competitor. However, due
to the diversity of the Company's product lines as a whole, no single competitor
competes with the Company across the entire spectrum of the Company's product
lines. The Company's diversity of products and diversity of end users insulates
it from adverse conditions in any one business unit or any one product line.
12
<PAGE>
Many of the Company's products are made to industry specifications, and
therefore, may be interchangeable with competitors' products. The Company is
subject to competition in many markets on the basis of price, delivery time,
customer service and its ability to meet specialty needs. The Company believes
it enjoys strong customer relations resulting from its long participation in the
industry, emphasis on customer service, commitment to quality control,
reliability and substantial production resources. Furthermore, the Company's
distribution networks enable it to compete effectively with respect to delivery
time.
RESEARCH AND DEVELOPMENT
In response to the changing requirements of the communications industry, the
Company established a product development center during the fourth quarter of
fiscal 1997. This 60,000 square foot facility is located in Kennesaw, Georgia
and is dedicated to defining and creating new wire and cable systems that meet
the needs of the evolving communications networks. Recent projects include the
development of single mode and multimode fiber optic cable products for use in
LANs as well as telephone networks. Initial sales and shipments of these
products began in 1998, although they are not yet material to consolidated
sales.
The Company also has development projects underway for performance enhanced
copper-based communications wire products that are designed to meet the existing
and future needs of the telephone companies. Several of these projects have been
undertaken in conjunction with the Company's telephone company customers and
include the development of composite cables that incorporate copper twisted pair
wire and coaxial cable or optical fibers in a single cable construction. The
Company is also developing extensions of its UTP product line for certain LAN
datacom applications, including the development of enhanced Category 5 and
Category 6 UTP products.
The Company also operates research and development facilities in Lafayette
and Fort Wayne, Indiana. Research activities at the Lafayette facility are
focused on development of improved PVC and rubber compounds, which are used as
insulation and jacketing materials for many communication, automotive, building
and industrial wire products. At the Fort Wayne facility, the Company's
metallurgical and chemical labs are focused on the development of magnet wire
metal properties and processing qualities, as well as enhancement of enamels and
their application in the magnet wire manufacturing process.
Aggregate research and development expenses of the Company during the fiscal
years ended April 30, 1996, 1997 and 1998 and the eight months ended December
31, 1998 amounted to $1.4 million, $2.2 million, $3.0 million and $2.7 million,
respectively. On a pro forma basis, research and development expenses for the
year ended December 31, 1998 amounted to $5.8 million.
Although the Company holds certain trademarks, licenses and patents, none is
considered to be material to its business.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 7,700 employees.
Approximately 3,277 persons employed by the Company are represented by unions.
Collective bargaining agreements expire at various times between 1999 and 2003,
with contracts covering approximately 26% of the Company's unionized work force
due to expire at various times in 1999. The Company considers relations with its
employees to be satisfactory.
13
<PAGE>
ENVIRONMENTAL MATTERS
The manufacturing operations of the Company's subsidiaries are subject to
extensive and evolving federal, foreign, state and local environmental laws and
regulations relating to, among other things, the storage, handling, disposal,
emission, transportation and discharge of hazardous substances, materials and
waste products as well as the imposition of stringent permitting requirements.
The Company does not believe that compliance with environmental laws and
regulations will have a material effect on the level of capital expenditures of
the Company or its business, financial condition, liquidity or results of
operations. No material expenditures relating to these matters were made in
1996, 1997 or 1998. However, violation of, or non-compliance with, such laws,
regulations or permit requirements, even if inadvertent, could result in an
adverse impact on the operations, business, financial condition, liquidity or
results of operations of the Company.
ITEM 2. PROPERTIES
The Company conducts its principal operations at the facilities described
below:
<TABLE>
<CAPTION>
SQUARE
OPERATION LOCATION FOOTAGE LEASED/OWNED
- ------------------------------------- ------------------------------------- --------- ------------------------
<S> <C> <C> <C>
COMMUNICATIONS
OSP/Datacom........................ Chester, South Carolina 218,000 Owned
Hoisington, Kansas 239,000 Owned
Brownwood, Texas 328,000 Leased (expires 2013)
Tarboro, North Carolina 295,000 Owned
Winnipeg, Manitoba 190,000 Owned
Elizabethtown, Kentucky 163,000 Owned
Kennesaw, Georgia 39,000 Leased (expires 2002)
DNE................................ Wallingford, Connecticut 65,000 Leased (expires 2007)
OEM
Magnet Wire........................ Charlotte, North Carolina 26,000 Leased
Fort Wayne, Indiana 181,000 Owned
Franklin, Indiana 35,000 (a)
Franklin, Tennessee 289,000 Leased
Kendallville, Indiana 88,000 Owned
Rockford, Illinois 319,000 Owned
Vincennes, Indiana 267,000 Owned
Automotive Wire.................... Kosciusko, Mississippi 90,000 (b)
Orleans, Indiana 425,000 Owned
Insulation/Purchased Athens, Georgia 30,000 Leased
Products......................... Clifton Park, New York 22,000 Leased
Newmarket, New Hampshire
(two facilities) 132,000 Owned
Rutland, Vermont 61,000 Owned
Willowbrook, Illinois 60,000 Leased
United Kingdom..................... Huyton, Quarry, U.K. 146,000 Owned
ELECTRICAL
Building W......................... Anaheim, California 174,000 Owned
Columbia City, Indiana 400,000 Owned
Pauline, Kansas 501,000 Owned
Sikeston, Missouri 189,000 Owned
Tiffin, Ohio 260,000 Owned
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SQUARE
OPERATION LOCATION FOOTAGE LEASED/OWNED
- ------------------------------------- ------------------------------------- --------- ------------------------
<S> <C> <C> <C>
Industrial Wire.................... Florence, Alabama 129,000 Owned
Lafayette, Indiana 350,000 Owned
Pawtucket, Rhode Island 412,000 Owned
SUPERIOR ISRAEL...................... Shaar Hanegav, Israel 66,000 Owned
Eilat, Israel 53,000 Owned
Haifa, Israel 43,000 Leased (expires 2003)
Carmiel, Israel 19,000 Leased (expires 2003)
Bet-Shean, Israel 51,000 Leased (expires 2002)
Maalot, Israel 10,000 Leased (expires 2003)
Nazareth, Israel 25,000 Leased (expires 2003)
METALS PROCESSING.................... Columbia City, Indiana 75,000 Leased (expires 2003)
Jonesboro, Indiana 56,000 Owned
THERMOPLASTICS FABRICATION........... Marion, Indiana 50,000 Owned
ADMINISTRATIVE OFFICES............... Atlanta, Georgia 31,000 Leased (expires 2001)
Fort Wayne, Indiana 295,000 Owned
Rishon Lezion, Israel 2,000 Leased (expires 2000)
</TABLE>
- ------------------------
(a) The Franklin, Indiana facility is approximately 70,000 square feet, of
which 35,000 square feet is leased to Femco as a joint venture between
the Company and the Furukawa Electric Company, LTD., Tokyo, Japan
("Femco"). Femco manufactures and markets magnet wire with special
emphasis on products required by Japanese manufacturers with production
facilities in the United States.
(b) Approximately 30,000 square feet is leased.
In addition to the facilities described in the table above, the Company owns
or leases 32 warehousing and distribution facilities throughout the United
States, Canada and United Kingdom to facilitate the sale and distribution of its
products.
The Company believes that its plants are generally suitable and adequate for
the business being conducted and to service the requirements of its customers.
Capital spending plans are primarily designed to keep up with current
technology, to increase capacity in existing product lines and for cost
reduction initiatives. The extent of current utilization is generally consistent
with historical patterns, and, in the view of management, is satisfactory. The
Company does not view any of its plants as being underutilized. Most plants
operate on 24 hour-a-day schedules, on either a five day or seven day per week
basis. During 1998, the Company's facilities operated at approximately 90%
capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in certain routine litigation arising in the ordinary
course of business. While the outcome of litigation can never be predicted with
certainty, the Company does not believe that any of its existing litigation,
either individually or in the aggregate, will have a material adverse effect
upon its business, financial condition, liquidity or results of operations.
The Company's operations are subject to environmental laws and regulations
in each of the jurisdictions in which it operates governing, among other things,
emissions into the air, discharges to water, the use, handling and disposal of
hazardous substances and the investigation and remediation of soil and
groundwater contamination both on-site at Company facilities and at off-site
disposal locations. On-site contamination at certain Company facilities is the
result of historic disposal activities, including activities
15
<PAGE>
attributable to Company operations and those occurring prior to the use of a
facility by the Company. Off-site liability includes clean-up responsibilities
at various sites, to be remedied under federal or state statutes, for which the
Company has been identified by the United States Environmental Protection Agency
(the "EPA") (or the equivalent state agency) as a Potentially Responsible Party
("PRP").
Essex has been named as a PRP at a number of sites. Most of the sites for
which Essex is currently named as a PRP are covered by an indemnity from United
Technologies Corporation ("UTC") provided in connection with the February 1988
sale of Essex by UTC to Essex's previous stockholders. Pursuant to the
indemnity, UTC agreed to indemnify Essex against losses incurred under any
environmental protection and pollution control laws or resulting from, or in
connection with, damage or pollution to the environment arising from events,
operations or activities of Essex prior to February 29, 1988, or from conditions
or circumstances existing at or prior to February 29, 1988. In order to be
covered by the indemnity, the condition, event, or circumstance must have been
known to UTC prior to February 29, 1988. The sites covered by the indemnity are
handled directly by UTC and all payments required to be made are paid directly
by UTC. These sites are all mature sites where allocations have been settled and
remediation is well underway or has been completed. Essex is not aware of any
inability or refusal on the part of UTC to pay amounts that are owing under the
indemnity or any disputes between Essex and UTC concerning matters covered by
the indemnity.
UTC also provided an additional environmental indemnity, referred to as the
"basket indemnity." This indemnity relates to liabilities arising from
environmental events, conditions or circumstances existing at or prior to
February 29, 1988 that only became known to UTC in the five-year period
commencing February 29, 1988. As to such liabilities, Essex is responsible for
the first $4.0 million incurred. Thereafter, UTC has agreed to indemnify Essex
fully for any liabilities in excess of $4.0 million. To date Essex has incurred
less than $0.1 million in the basket.
Apart from the indemnified sites and those subject to the basket, Essex has
been named as a PRP or a defendant in a civil lawsuit at five sites. Operations
of STI and DNE have resulted in releases of hazardous substances or wastes at
sites currently or formerly owned or operated by such companies. STI is
presently involved in investigatory and remedial activities at one site subject
to the oversight of a state governmental authority. The Company has provided a
reserve in the amount of $1.9 million to cover its environmental contingencies
as of December 31, 1998. This accrual is based on management's best estimate of
the Company's exposure in light of relevant available information, including the
allocations and remedies set forth in applicable consent decrees, third party
estimates of remediation costs, actual remediation costs incurred, the probable
ability of other PRPs to pay their proportionate share of remediation costs, the
conditions at each site and the number of participating parties. The Company
currently does not believe that any of the environmental proceedings in which it
is involved, and for which it may be liable, will individually, or in the
aggregate, have a material adverse effect upon its business, financial
condition, liquidity or results of operations. There can be no assurance that
future developments will not alter this conclusion. None of the sites mentioned
above involves sanctions, fines or administrative penalties against the Company.
Since approximately 1990, Essex has been named as a defendant in a number of
product liability lawsuits brought by electricians and other skilled tradesmen
claiming injury from exposure to asbestos found in electrical wire products
produced many years ago. At December 31, 1998, the number of cases pending
against Essex was 61, involving approximately 232 claims. Essex's strategy is to
defend these cases vigorously. Essex believes that its liability, if any, in
these matters and the related defense costs will not have a material adverse
effect either individually, or in the aggregate, upon its business, financial
condition, liquidity or results of operations. There can be no assurance,
however, that future developments will not alter this conclusion.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
(a) Market Information
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol SUT. The following table sets forth the high and low daily closing
sales prices for the Common Stock as reported on the NYSE for fiscal 1997 (since
October 11, 1996, when the Common Stock was first traded on the NYSE), for
fiscal 1998 and for the eight months ended December 31, 1998.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended April 30, 1997:
Second quarter ended October 31, 1996........................................................ $ 11.36 $ 10.32
Third quarter ended January 31, 1997......................................................... 16.56 11.04
Fourth quarter ended April 30, 1997.......................................................... 16.08 12.64
Fiscal Year Ended April 30, 1998:
First quarter ended July 31, 1997............................................................ $ 21.00 $ 13.68
Second quarter ended October 31, 1997........................................................ 26.16 18.80
Third quarter ended January 31, 1998......................................................... 25.64 21.12
Fourth quarter ended April 30, 1998.......................................................... 34.40 24.90
Eight Months Ended December 31, 1998:
First quarter ended July 31, 1998............................................................ $ 35.50 $ 26.70
Second quarter ended October 31, 1998........................................................ 40.70 25.20
Two-month period ended December 31, 1998..................................................... 38.80 30.35
</TABLE>
(b) Holders
The Company's transfer agent is American Stock Transfer & Trust Company, 40
Wall Street, New York, New York 10005.
At March 26, 1999, 20,092,747 shares of the Common Stock were issued and
outstanding and there were approximately 3,700 record holders thereof.
(c) Dividends
On January 15, 1998, the Company's Board of Directors declared a $0.25 per
share cash dividend on the Common Stock payable quarterly at a rate of $0.0625
per share. Payment of each quarterly dividend is subject to approval by the
Board of Directors. The Company's principal credit facility contains certain
limitations on the amount of dividends the Company can pay on its common stock.
These dividend limitations are based on the Company's operating performance, and
are not expected to impact in the near future the Company's ability to continue
to pay quarterly dividends at the current dividend rate per share. Quarterly
dividends were declared during the Company's third and fourth fiscal quarters
ended January 31, 1998 and April 30, 1998, respectively, and during the first
and second fiscal quarters ended July 31, 1998 and October 31, 1998,
respectively.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are certain selected historical financial data of the
Company. This information should be read in conjunction with the Consolidated
Financial Statements of the Company and related notes thereto appearing
elsewhere herein and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected historical consolidated
financial data for, and as of the end of, each of the fiscal years in the
five-year period ended April 30, 1998 and for the eight months ended December
31, 1998 are derived from the audited consolidated financial statements of the
Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED EIGHT MONTHS
--------------------------------------------------------- ENDED
MAY 1, APRIL 30, APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1994 1995 1996 1997 1998 1998(A)
--------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(B)(C):
Net sales....................................... $ 68,510 $ 164,485 $ 410,413 $ 463,840 $ 516,599 $ 486,101
Cost of goods sold.............................. 56,250 142,114 362,854 384,271 417,358 383,106
--------- ---------- ---------- ---------- ---------- -------------
Gross profit.................................. 12,260 22,371 47,559 79,569 99,241 102,995
Selling, general and administrative expenses.... 8,884 11,632 14,223 17,166 22,181 32,333
Nonrecurring and unusual charges................ -- -- -- -- -- 13,511
Amortization of goodwill........................ 2,186 1,124 1,556 1,726 1,715 2,447
--------- ---------- ---------- ---------- ---------- -------------
Operating income.............................. 1,190 9,615 31,780 60,677 75,345 54,704
Interest expense................................ (1,879) (3,700) (17,355) (12,907) (8,090) (16,651)
Other income (expense), net..................... 76 231 404 (305) 206 (346)
--------- ---------- ---------- ---------- ---------- -------------
Income (loss) from continuing operations
before income taxes, minority interest and
extraordinary (loss)........................ (613) 6,146 14,829 47,465 67,461 37,707
Provision for income taxes...................... (521) (2,240) (6,722) (18,989) (26,786) (15,544)
--------- ---------- ---------- ---------- ---------- -------------
Income (loss) from continuing operations
before minority interest and extraordinary
(loss)...................................... (1,134) 3,906 8,107 28,476 40,675 22,163
Minority interest in earnings of subsidiaries... -- -- -- -- -- 93
--------- ---------- ---------- ---------- ---------- -------------
Income (loss) from continuing operations before
extraordinary (loss).......................... (1,134) 3,906 8,107 28,476 40,675 22,256
(Loss) from discontinued operations............. (287) (176) -- -- -- --
--------- ---------- ---------- ---------- ---------- -------------
Income (loss) before extraordinary (loss)..... (1,421) 3,730 8,107 28,476 40,675 22,256
Extraordinary (loss) on early extinguishment of
debt.......................................... -- -- (2,645) -- -- (1,243)
--------- ---------- ---------- ---------- ---------- -------------
Net income (loss)........................... $ (1,421) $ 3,730 $ 5,462 $ 28,476 $ 40,675 $ 21,013
--------- ---------- ---------- ---------- ---------- -------------
--------- ---------- ---------- ---------- ---------- -------------
Net income per share of common stock:
Basic:
Income before extraordinary (loss)............ $ 2.01 $ 1.10
Extraordinary (loss) on early extinguishment
of debt..................................... -- (0.06)
---------- -------------
Net income basic per share of common
stock..................................... $ 2.01 $ 1.04
---------- -------------
---------- -------------
Diluted:
Income before extraordinary (loss)............ $ 1.97 $ 1.07
Extraordinary (loss) on early extinguishment
of debt..................................... -- (0.06)
---------- -------------
Net income per diluted share of common
stock..................................... $ 1.97 $ 1.01
---------- -------------
---------- -------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MAY 1, APRIL 30, APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1994 1995 1996 1997 1998 1998(A)
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance Sheet Data (at end of period):
Working capital................................ $ 23,558 $ 22,750 $ 58,726 $ 47,617 $ 38,532 $ 232,397
Total assets................................... 115,338 120,127 244,065 238,108 232,243 1,886,556
Total debt, including intercompany............. 39,095 37,067 125,760 122,089 75,380 1,398,306
Total stockholders' equity..................... 48,123 49,854 51,656 44,028 82,206 91,380
</TABLE>
- ------------------------
(a) On December 15, 1998, the Company elected to change its fiscal year end
to December 31 from April 30. This change was made effective on December
31, 1998.
(b) The results of operations set forth above for the period May 1, 1994
through October 1, 1996 include the combined operations of STI and DNE on
a prospective basis from the date such entities were acquired by Alpine.
From October 2, 1996 through December 31, 1998, the results of operations
represent the consolidated results of the Company subsequent to the
Reorganization and Offering as described in Note 1 to the accompanying
consolidated financial statements.
(c) The results of operations include, on a prospective basis, the
acquisition of STI in November 1993; the acquisition of the Alcatel
Business, which was acquired by STI on May 11, 1995; the acquisition of
51% of Cables of Zion on May 5, 1998; and the acquisition of 81% of Essex
on November 27, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company manufactures a broad portfolio of wire and cable products. The
Company conducts its North American operations through three operating groups
covering the following primary industry segments: (i) communications, (ii)
original equipment manufacturer ("OEM") and, (iii) electrical. The
communications segment includes communications wire and cable products sold to
telephone companies, distributors and systems integrators. The OEM segment
includes magnet wire and insulation materials for motors, transformers and
electrical controls sold primarily to OEM's, as well as automotive and specialty
wiring assemblies for automobiles and trucks The electrical segment includes
building and industrial wire for applications in commercial and residential
construction and industrial facilities. In addition to its North American
operations, the Company (through its 51% owned subsidiary, Cables of Zion)
manufacturers a broad range of wire and cable products in Israel, including
communications cable, power cable and other industrial and electronic wire and
cable products.
Prior to the acquisitions of Essex and Cables of Zion (see Note 5 to the
consolidated financial statements), the Company's operations consisted
principally of its North American communications wire and cable business. The
Essex Acquisition, which occurred on November 27, 1998, resulted in the addition
of the OEM and electrical segment product lines as well as incremental sales of
communications wire and cable. The May 1998 acquisition of 51% of Cables of Zion
("COZ") and COZ's subsequent acquisition of its major Israeli competitor,
Cvalim, on December 31, 1998 resulted in the addition to the Company's operating
results of its Israeli operations ("Superior Israel").
The aforementioned acquisitions were accounted for under the purchase method
of accounting; accordingly, the results of operations included herein (including
the related segment data) reflect (i) the impact of the Essex operations for the
one month period ended December 31, 1998 and (ii) the impact of the Superior
Israel operations for the eight month period ended December 31, 1998.
Comparative tables reflecting operating statement data for Superior TeleCom
on a segment basis are included herein. The Company recently changed its year
end to December 31 from April 30, effective for the December 31, 1998 period. To
facilitate a meaningful comparison between periods, Table I presents the
19
<PAGE>
Company's comparative historical unaudited results of operations (including
associated industry segment data) for the twelve month periods ended December
31, 1997 and December 31, 1998 along with management's discussion and analysis
of the operating results for these periods. Table II presents audited operating
statement data (including associated industry segment data) for the fiscal years
ended April 28, 1996, April 30, 1997 and 1998 and for the eight months ended
December 31, 1998 along with management's discussion and analysis of the
operating results for these periods.
As previously mentioned, the results of operations presented in Table I and
Table II for the periods ended December 31, 1998 reflect the operating results
for Essex and Superior Israel for the period from the date of their respective
acquisitions through December 31, 1998. Comparisons to results of operations for
periods ended prior to the date of these acquisitions will be accordingly
impacted.
IMPACT OF COPPER PRICE FLUCTUATIONS ON OPERATING RESULTS
Copper is one of the principal raw materials used in the Company's wire and
cable product manufacturing. Fluctuations in the price of copper do affect per
unit product pricing and related revenues. However, the cost of copper has not
had a material impact on profitability due to the ability of the Company, in
most cases, to adjust prices billed for its products in order to match properly
the price of copper billed with the copper cost component of its inventory
shipped. In order to facilitate meaningful period-to-period comparison,
management's discussion of operating results included herein provides, in
certain instances, adjusted sales and adjusted gross margin percentage data to
reflect the cost and selling price of copper on a constant basis.
20
<PAGE>
TABLE I
CONSOLIDATED RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Net sales:
Communications Group....................................................................... $ 496,117 $ 502,542
OEM Group.................................................................................. -- 48,572
Electrical Group........................................................................... -- 53,206
Superior Israel............................................................................ -- 43,482
--------- ---------
Consolidated............................................................................. 496,117 647,802
--------- ---------
Gross profit:
Communications Group....................................................................... $ 93,002 $ 113,177
OEM Group.................................................................................. -- 8,293
Electrical Group........................................................................... -- 8,204
Superior Israel............................................................................ -- 7,073
--------- ---------
Consolidated............................................................................. 93,002 136,747
--------- ---------
Gross margin percentage:
Communications Group....................................................................... 18.8% 22.5%
OEM Group.................................................................................. -- 17.1
Electrical Group........................................................................... -- 15.4
Superior Israel............................................................................ -- 16.3
--------- ---------
Consolidated................................................................................. 18.8% 21.1%
--------- ---------
Selling, general and administrative expenses:
Communications Group....................................................................... $ 17,050 $ 20,806
OEM Group.................................................................................. -- 4,263
Electrical Group........................................................................... -- 3,778
Superior Israel............................................................................ -- 4,116
Corporate and other........................................................................ 3,498 6,419
--------- ---------
Consolidated............................................................................. 20,548 39,382
--------- ---------
Amortization of goodwill..................................................................... $ 1,719 $ 3,009
--------- ---------
Operating income (loss) (a):
Communications Group....................................................................... $ 75,752 $ 92,371
OEM Group.................................................................................. -- 4,030
Electrical Group........................................................................... -- 4,426
Superior Israel............................................................................ -- 2,957
Corporate and other........................................................................ (5,217) (9,428)
--------- ---------
Consolidated............................................................................. 70,735 94,356
Nonrecurring and unusual charges (a)......................................................... -- (13,511)
--------- ---------
Operating income after nonrecurring and unusual charges...................................... $ 70,735 $ 80,845
Interest expense............................................................................. (9,242) (18,807)
Other income (expense), net.................................................................. 208 (13)
--------- ---------
Income before income tax expense, minority interest and extraordinary (loss)................. 61,701 62,025
Provision for income taxes................................................................... (24,299) (25,368)
Minority interest in earnings of subsidiaries................................................ -- 219
--------- ---------
Income before extraordinary (loss)........................................................... 37,402 36,876
Extraordinary (loss)......................................................................... -- (1,243)
--------- ---------
Net income................................................................................... $ 37,402 $ 35,633
--------- ---------
--------- ---------
Net income per diluted share of common stock:
Income before extraordinary (loss) and nonrecurring and unusual charges.................... $ 1.82 $ 2.13
Nonrecurring and unusual charges........................................................... -- (0.35)
Extraordinary (loss) on early extinguishment of debt....................................... -- (0.06)
--------- ---------
Net income per diluted share of common stock............................................. $ 1.82 $ 1.72
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Operating income presented above excludes the impact of nonrecurring and
unusual charges of $13.5 million during the twelve months ended December
31, 1998 (see Note 15 to the Company's consolidated financial
statements).
21
<PAGE>
RESULTS OF OPERATIONS--TWELVE MONTHS ENDED DECEMBER 31, 1998
COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
Consolidated net sales for the twelve months ended December 31, 1998
reflected the revenue contribution from the Superior Israel acquisition in May
1998 and the Essex Acquisition in November 1998. Excluding the impact of these
acquisitions, both revenue and profitability during 1998 continued to improve,
reflecting strong demand and improving margins as the Company continues to focus
on (i) reducing manufacturing costs by lowering raw material prices and
improving manufacturing production efficiencies, (ii) controlling selling,
general and administrative expenses ("SG&A expenses"), and (iii) managing
working capital to enhance operating cash flow and capital available for
business expansion and debt reduction.
Consolidated net sales for the twelve months ended December 31, 1998
("1998") were $647.8 million representing an increase of $151.7 million, or
30.6%, as compared to the twelve months ended December 31, 1997 ("1997"). In the
Communications Group, net sales in 1998 were $502.5 million, representing an
increase of $6.4 million, or 1.3%, as compared to 1997 net sales of $496.1
million. The comparative increase in 1998 net sales adjusted to a constant
copper cost of $0.80 per pound was 8.9% or $40.8 million. The copper adjusted
increase in net sales of the Communications Group for 1998 included $12.4
million in net sales contributed by the acquired operations of Essex for the one
month period ended December 31, 1998. Excluding the impact of the Essex
Acquisition, the Communications Group experienced a copper adjusted increase in
net sales in 1998 of 6.2% (or $28.4 million), as compared to the same period in
the prior year. This increase in net sales reflected continued growing demand
for copper communications wire and cable products resulting from the growth in
copper-based telephone access lines and increased maintenance requirements by
its major telephone company customers.
Consolidated net sales for 1998 also included $48.6 million in net sales
from the OEM Group and $53.2 million in net sales from the Electrical Group,
with such revenues being attributable to the acquired Essex operations for the
one month period ended December 31, 1998. Superior Israel's 1998 net sales of
$43.5 million represent revenues of this segment for the period from May 1998
(the date of the Superior Israel acquisition) through December 31, 1998.
Consolidated gross profit for 1998 was $136.7 million, representing an
increase of $43.7 million, or 47.0%, as compared to 1997 gross profit of $93.0
million. The 1998 comparative increase in consolidated gross profit was aided by
the Essex and Superior Israel acquisitions, along with substantial growth in the
gross profit of the Company's existing North American communications wire and
cable business.
The Communications Group gross profit for 1998 increased $20.2 million, or
21.7%, to $113.2 million as compared to gross profit of $93.0 million in 1997.
The increase in the Communications Group gross profit during 1998 included $3.6
million in incremental gross profit contribution from the acquired Essex
operations. Excluding the contribution of Essex, the Communications Group
achieved an increase in gross profit of $16.6 million, or 17.8%, during 1998, as
compared to 1997. The Communications Group gross margin percentage based on
actual sales was 22.5% for 1998, as compared to 18.8% in 1997. Excluding the
impact of the Essex acquisition, the gross margin percentage, adjusted to a
constant copper cost of $0.80 per pound, was 22.2% in 1998 as compared to 20.4%
in 1997. The increase in the copper adjusted gross margin percentage reflects a
trend of improving margins that has continued over the past four years and, in
the current year, is attributable to (i) manufacturing cost reductions resulting
from production efficiencies, (ii) lower raw material prices, (iii) product and
customer mix and (iv) improved cost absorption resulting from increased
production volumes.
The consolidated gross profit in 1998 also included gross profit
contribution of $8.3 million (17.1% gross margin percentage) from the OEM Group,
$8.2 million (15.4% gross margin percentage) from the Electrical Group and $7.1
million (16.3% gross margin percentage) from Superior Israel.
22
<PAGE>
Consolidated SG&A expenses for 1998 increased by $18.8 million to $39.4
million, as compared to $20.5 million in SG&A expenses in 1997. The
Communications Group SG&A expenses in 1998 increased by $3.8 million, or 22.0%,
as compared to 1997. Excluding the impact of the Essex Acquisition, the
Communications Group SG&A expenses in 1998 increased by $2.9 million, or 16.9%,
which increase resulted primarily from the expansion of product development
activities and incremental staff required to support the increased level of the
Communications Group's activity. The OEM Group, the Electrical Group and
Superior Israel incurred SG&A expenses in 1998 of $4.3 million, $3.8 million and
$4.1 million, respectively. Corporate SG&A expenses increased $2.9 million to
$6.4 million in 1998 as compared to 1997, with such increase primarily
attributable to the acquired operations of Essex. The Company anticipates that
the consolidation of the acquired Essex operations, as well as the consolidation
of Superior Israel's operations (Cables of Zion and Cvalim), will result in
significant SG&A expense savings in 1999.
Consolidated operating income (excluding nonrecurring and unusual charges)
in 1998 was $94.4 million, representing an increase of $23.6 million, or 33.4%,
as compared to 1997. The Communications Group operating income during 1998
increased $16.6 million, or 21.9%, to $92.4 million, as compared to $75.8
million in 1997. Excluding the impact of the Essex Acquisition, the
Communications Group operating income increased 18.3% in 1998 as compared to
1997, with such increase attributable to internal sales growth in excess of 7%,
as well as a strong improvement in the gross margin percentage resulting from
cost reductions and other manufacturing and operating efficiencies achieved
during the year. Operating income contribution in 1998 from the OEM Group, the
Electrical Group and Superior Israel was $4.0 million, $4.4 million and $3.0
million, respectively.
The Company incurred nonrecurring and unusual charges during 1998 of $13.5
million, consisting of: (i) a $10.0 million investment advisory fee for services
provided by Alpine, including extensive consulting, financial advisory and other
services, as well as assistance in originating, structuring and negotiating the
Essex Acquisition and the Company's financing of the transaction; (ii) a $2.9
million restructuring charge recorded by Superior Israel relating to planned
manufacturing plant consolidations and overhead rationalization associated with
the acquisition of Cvalim; and (iii) $0.6 million in charges associated with the
review and evaluation of a planned implementation of a new information system.
Interest expense in 1998 was $18.8 million, representing an increase of $9.6
million, as compared to interest expense of $9.2 million in 1997. Incremental
interest expense associated with debt incurred for the Essex and Superior Israel
acquisitions amounted to approximately $11.2 million in 1998. Accordingly,
excluding the impact of acquisition indebtedness, interest expense in 1998 would
have reflected a decline of approximately $1.6 million as compared to 1997, with
such decline being attributable to debt reduction achieved through the
application of operating cash flow generated during such periods.
The provision for income taxes in 1998 was $25.4 million (an effective tax
rate of 40.9%) as compared to $24.3 million (an effective tax rate of 39.4%) in
1997. The increase in the effective tax rate in 1998 was the result of the
increase in nondeductible goodwill associated with the Essex Acquisition.
In connection with the financing of the Essex Acquisition, the Company
recorded an after-tax extraordinary charge on the early extinguishment of debt
of $1.2 million, or $0.06 per diluted share, during 1998, with such charge
representing the write-off of previously capitalized deferred financing fees.
Net income in 1998 was $35.6 million (or $1.72 per diluted share). However,
net income before nonrecurring, unusual and extraordinary charges in 1998 was
$44.1 million (or $2.13 per diluted share). This compares with net income in
1997 of $37.4 million (or $1.82 per diluted share).
23
<PAGE>
TABLE II
COMBINED UNAUDITED SEGMENT OPERATING DATA
FISCAL YEARS ENDED APRIL 30 1996, 1997 AND 1998
AND THE EIGHT MONTH PERIOD ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL EIGHT MONTHS ENDED
---------------------------------- DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Net sales:
Communications Group................................ $ 410,413 $ 463,840 $ 516,599 $ 340,841
OEM Group........................................... -- -- -- 48,572
Electrical Group.................................... -- -- -- 53,206
Superior Israel..................................... -- -- -- 43,482
---------- ---------- ---------- --------
Consolidated net sales.......................... 410,413 463,840 516,599 486,101
---------- ---------- ---------- --------
Gross profit:
Communications Group................................ $ 47,559 $ 79,569 $ 99,241 $ 79,425
OEM Group........................................... -- -- -- 8,293
Electrical Group.................................... -- -- -- 8,204
Superior Israel..................................... -- -- -- 7,073
---------- ---------- ---------- --------
Consolidated gross profit....................... 47,559 79,569 99,241 102,995
---------- ---------- ---------- --------
Gross margin percentage:
Communications Group................................ 11.6% 17.2% 19.2% 23.3%
OEM Group........................................... -- -- -- 17.1
Electrical Group.................................... -- -- -- 15.4
Superior Israel..................................... -- -- -- 16.3
---------- ---------- ---------- --------
Consolidated gross profit....................... 11.6% 17.2% 19.2% 21.2%
---------- ---------- ---------- --------
Selling, general and administrative expenses:
Communications Group................................ $ 14,223 $ 16,129 $ 18,266 $ 15,342
OEM Group........................................... -- -- -- 4,263
Electrical Group.................................... -- -- -- 3,778
Superior Israel..................................... -- -- -- 4,116
Corporate and other................................. -- 1,037 3,915 4,834
---------- ---------- ---------- --------
Consolidated.................................... 14,223 17,166 22,181 32,333
---------- ---------- ---------- --------
Amortization of goodwill................................ $ 1,556 $ 1,726 $ 1,715 $ 2,447
---------- ---------- ---------- --------
Nonrecurring and unusual charges:
Superior Israel..................................... $ -- $ -- $ -- $ 2,865
Corporate and other................................. -- -- -- 10,646
---------- ---------- ---------- --------
Consolidated.................................... $ -- $ -- $ -- $ 13,511
---------- ---------- ---------- --------
Operating income (loss):
Communications Group................................ $ 33,336 $ 63,440 $ 80,975 $ 64,079
OEM Group........................................... -- -- -- 3,892
Electrical Group.................................... -- -- -- 4,426
Superior Israel..................................... -- -- -- 92
Corporate and other................................. (1,556) (2,763) (5,630) (17,785)
---------- ---------- ---------- --------
Combined operating income....................... $ 31,780 $ 60,677 $ 75,345 $ 54,704
---------- ---------- ---------- --------
---------- ---------- ---------- --------
</TABLE>
24
<PAGE>
RESULTS OF OPERATIONS--EIGHT MONTHS ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED APRIL 30, 1998
Net sales were $486.1 million during the eight months ended December 31,
1998, representing a decrease of $30.5 million, as compared to net sales of
$516.6 million during the fiscal year ended April 30, 1998. The comparative
decrease in net sales for the eight month period ended December 31, 1998 was due
to the shorter period comparison (eight months versus twelve months) and the
impact of lower copper prices in the December 31, 1998 eight month period,
offset by (i) the inclusion of $113.9 million and $43.5 million in net sales
contributed by the acquired operations of Essex and Superior Israel.
Gross profit increased to $103.0 million during the eight month period ended
December 31, 1998, as compared to gross profit of $99.2 million for the fiscal
year ended April 30, 1998. The comparative increase in gross profit for the
eight month period ended December 31, 1998 included the gross profit
contribution of the Essex and Superior Israel acquisitions of $20.1 million and
$7.1 million, respectively, and a comparative increase in gross margin
percentage in the existing operations of the Communications Group; offset by the
impact of the shorter period comparison.
The gross margin percentage increased to 21.2% for the eight months ended
December 31, 1998, as compared to 19.2% for the fiscal year ended April 30,
1998. Contributing to the improving gross margin percentage in 1998 were lower
copper costs during the December 31, 1998 fiscal period, along with an
improvement in the copper adjusted gross margin in the existing operations of
the Communications Group. The gross margin percentage was negatively impacted
during the December 31, 1998 fiscal period by the addition of lower margin
product segments from the acquired Essex and Superior Israel operations.
SG&A expenses increased to $32.3 million during the eight month period ended
December 31, 1998, as compared to $22.2 million for the fiscal year ended April
30, 1998. The increase in SG&A expenses of $10.1 million during the eight month
period ended December 31, 1998 was due to $11.7 million and $4.1 million in
incremental SG&A expenses associated with the acquired operations of Essex and
Superior Israel, respectively, partially offset by the shorter period
comparisons.
As previously discussed, during the eight month period ended December 31,
1998, the Company incurred nonrecurring and unusual charges of $13.5 million.
Operating income was $54.7 million for the eight month period ended December
31, 1998, representing a decrease of $20.6 million, as compared to operating
income of $75.3 million for the fiscal year ended April 30, 1998. The
comparative decrease in operating income for the eight months ended December 31,
1998 reflects the shorter period comparison and the impact of the aforementioned
nonrecurring charges, offset by the operating income contribution of the
acquired operations of Essex and Superior Israel.
Interest expense was $16.7 million for the eight month period ended December
31, 1998, representing an increase of $8.6 million, as compared to interest
expense of $8.1 million during the fiscal year ended April 30, 1998. The
increase in interest expense reflects the increase in consolidated debt
associated with the Essex and Superior Israel acquisitions offset by the shorter
period.
The consolidated provision for income taxes during the eight month period
ended December 31, 1998 was $15.5 million, as compared to $26.8 million during
the fiscal year ended April 30, 1998. The effective tax rate was 41.2% for the
eight month period ended December 31, 1998, as compared to 39.7% for the fiscal
year ended April 30, 1998, with such increase in effective tax rate being due to
the increase in non-tax deductible goodwill charges during the eight month
period ended December 31, 1998.
A minority interest credit of $0.1 million was recorded during the eight
month period ended December 31, 1998; with such credit representing the 19%
minority stockholders' interest in Essex and the 49% minority stockholders'
interest in Superior Israel.
25
<PAGE>
Net income before nonrecurring, unusual and extraordinary charges during the
eight month period ended December 31, 1998 was $29.4 million, or $1.42 per
diluted share, as compared to $40.7 million, or $1.97 per diluted share, for the
fiscal year ended April 30, 1998.
The after tax impact of nonrecurring and unusual charges amounted to $7.2
million, or $0.35 per diluted share, for the eight month period ended December
31, 1998.
In connection with the financing of the Essex Acquisition, the Company
recorded an after-tax extraordinary charge on the early extinguishment of debt
of $1.2 million, or $0.06 per diluted share, during the eight month period ended
December 31, 1998, with such charge representing the write-off of previously
capitalized deferred financing fees.
RESULTS OF OPERATIONS--FISCAL 1998, FISCAL 1997 AND FISCAL 1996 COMPARISONS
The results of operations for the years ended April 30, 1998 ("fiscal
1998"), 1997 ("fiscal 1997") and 1996 ("fiscal 1996") are comprised entirely of
the operations of the Communications Group, which includes principally the
manufacture and sale of telecommunications wire and cable products in the North
American market.
In fiscal 1998, net sales were $516.6 million, representing an increase of
$52.8 million, or 11.4%, as compared to fiscal 1997 net sales of $463.8 million.
Comparative fiscal 1997 net sales reflected a similar trend, increasing by
13.0%, or $53.4 million, as compared to fiscal 1996. The comparative increase in
fiscal 1998 and fiscal 1997 net sales adjusted to a constant copper cost of
$0.80 per pound was 12.6% and 20.1%, respectively.
The increase in comparative net sales in both fiscal 1998 and fiscal 1997
resulted from a number of factors including: (1) increased demand for copper
wire and cable products due to the growth in new copper-based telephone access
lines and increased maintenance spending by several of the Company's major
telephone company customers; (2) an increase in market share in both fiscal 1998
and 1997 resulting from multi-year supply agreements entered into with several
of the Company's major telephone company customers during such periods; and (3)
the impact of price increases instituted during the latter half of fiscal 1996
on substantially all of the Company's long-term supply agreements (which supply
agreements constituted in excess of 90% of the Company's net sales).
Along with the comparative increase in net sales in fiscal 1998 and 1997,
the Company also achieved substantial growth in gross profit and a significant
increase in its gross margin percentage during such fiscal periods. In fiscal
1998, gross profit increased $19.7 million, or 24.7%, to $99.2 million, as
compared to fiscal 1997. In fiscal 1997, gross profit was $79.6 million,
representing a comparative increase in gross profit of $32.0 million, or 67.3%,
as compared to fiscal 1996. During these same fiscal periods, the gross margin
percentage (adjusted to a constant copper cost of $0.80 per pound), was as
follows: fiscal 1998, 20.7%; fiscal 1997, 18.7%; fiscal 1996, 13.4%. The
increase in copper adjusted gross margin percentage in fiscal 1998 and fiscal
1997 reflected the impact of the aforementioned price increases as well as the
impact of substantial manufacturing cost reductions and efficiencies achieved
during these fiscal years. These manufacturing cost reductions and efficiencies
resulted from the integration of acquired operations, raw material price and
cost reductions and the benefit from improved cost absorption due to increases
in production volumes.
SG&A expenses increased from $14.2 million in fiscal 1996 to $17.2 million
in fiscal 1997 and to $22.2 million in fiscal 1998. The increase in SG&A
expenses in fiscal 1997 and fiscal 1998 was attributable to: (i) costs
associated with incremental sales and marketing staff to support the increased
level of sales activity; (ii) expansion of administrative activities,
particularly in the area of information systems, to support the level of growth;
(iii) in fiscal 1997 and 1998, the expansion of product development activities,
including the establishment and staffing of a product development facility in
the fourth quarter of fiscal
26
<PAGE>
1997; and (iv) in fiscal 1998, an increase in charges pursuant to the Services
Agreement with Alpine (see Note 18 to the accompanying consolidated financial
statements).
Commensurate with the growth in net sales and gross profit, operating income
increased substantially in both fiscal 1998 and fiscal 1997. Operating income in
fiscal 1998 was $75.3 million, representing an increase of 24.2%, as compared to
fiscal 1997 operating income of $60.7 million. The comparative growth in fiscal
1997 operating income was $28.9 million, or 90.9%, as compared to fiscal 1996.
During this same period, operating income as a percentage of net sales increased
from 7.7% in fiscal 1996 to 13.1% and 14.6% in fiscal 1997 and fiscal 1998,
respectively.
Interest expense in fiscal 1996, fiscal 1997 and fiscal 1998 was $17.4
million, $12.9 million and $8.1 million, respectively. The reduction in
comparative interest expense in fiscal 1998 and fiscal 1997 reflected reduced
levels of weighted average debt in both fiscal 1998 and fiscal 1997 resulting
from positive operating cash flow applied to debt reduction during these
periods, as well as the impact of the application of certain proceeds from the
Offering (see Note 1 to the accompanying consolidated financial statements)
towards debt reductions in fiscal 1997.
The effective income tax expense rate during fiscal 1998, fiscal 1997 and
fiscal 1996 was 39.7%, 40.0% and 45.3%, respectively. The higher effective tax
rate in fiscal 1996 was due primarily to the proportionate impact of non-tax
deductible goodwill.
As a result of the substantial growth in operating income in fiscal 1998 and
fiscal 1997, along with reduction in interest expense for these same periods,
net income increased on a comparative basis by $23.0 million, or 421.3%, in
fiscal 1997 and by $12.2 million, or 42.8%, in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the eight month period ended December 31, 1998, the Company generated
$15.1 million in cash flow from operating activities, consisting of $37.1
million in income generated from operations (net income plus non-cash charges)
reduced by $22.0 million in cash flow used for net working capital changes. The
major working capital changes included a $19.6 million increase in inventories
and a $22.3 million decrease in accounts payable and accrued expenses, offset by
an $18.7 million decrease in accounts receivable. Cash used by investing
activities amounted to $1.1 billion, consisting principally of $1.1 billion in
cash paid for the acquisition of Essex, Cables of Zion and Cvalim and $28.0
million in capital expenditures. Cash provided by financing activities amounted
to $1.1 billion, consisting principally of $1.2 billion in borrowings under
various term loans, offset by $31.0 million used for debt issuance costs and
$6.1 million used for treasury share repurchases and common stock dividends.
As discussed in Note 5 to the accompanying Consolidated Financial
Statements, the Company completed a cash tender offer for the acquisition of 81%
of the outstanding common shares of Essex on November 27, 1998. In connection
with this acquisition, the Company entered into a $1.15 billion amended and
restated credit agreement (the "Credit Agreement") and a $200 million senior
subordinated credit agreement (the "Sub Notes"). Proceeds from these financing
arrangements amounting to approximately $1.15 billion were used to (i) pay $770
million, representing the cash portion of the Essex Acquisition purchase price,
(ii) refinance approximately $84 million under Superior's existing credit
facility, (iii) refinance approximately $275 million of Essex's existing debt,
and (iv) pay related transaction expenses. Obligations under the Credit
Agreement and the Sub Notes are secured by substantially all of the assets of
the Company and its domestic subsidiaries, and by the common stock of the
Company's domestic subsidiaries and 65% of the common stock of its principal
foreign subsidiaries. The Credit Agreement and Sub Notes contain customary
performance and financial covenants. At December 31, 1998, the Company had $147
million in excess availability under the Credit Agreement.
27
<PAGE>
In addition to financing provided by the Credit Agreement and Sub Notes, the
Company, through Essex, has financing availability under a receivable
securitization program providing for up to $150.0 million in short term
financing through the issuance of secured commercial paper. The receivable
securitization program expires on November 30, 1999, although it may be extended
for successive one-year periods, subject to agreement of the parties. At
December 31, 1998, $114.7 million was outstanding under this program bearing an
interest rate of 5.6%.
As discussed in Note 5 to the accompanying Consolidated Financial
Statements, the Company acquired 51% of Cables of Zion on May 5, 1998 and
financed the $25.0 million purchase price through borrowings under its existing
revolving credit facility. On December 31, 1998, Cables of Zion completed the
acquisition of all of the business and certain operating assets of Cvalim for
$41.2 million. In connection with this acquisition, Cables of Zion entered into
a $83.0 million credit facility, consisting of a $53.0 million term loan and a
$30.0 million revolving credit facility. Proceeds from this financing were used
to finance the acquisition, pay related expenses and provide for working capital
requirements of Cables of Zion. Obligations under this credit facility are
secured by all of the assets of Cables of Zion. The credit facility contains
customary performance and financial covenants. At December 31, 1998, Cables of
Zion had $29.0 million in excess availability under its revolving credit
facility.
The Company's principal debt service commitments for the next twelve months
amount to $62.6 million and capital expenditures are expected to approximate
$65.0-$75.0 million. Management anticipates that the Company will generate
sufficient cash flows from its operating activities to meet its annual principal
debt service and capital expenditure commitments. However, should any shortfall
arise due to working capital fluctuations or other factors, excess funds
available under the Company's credit facilities should be sufficient to cover
such shortfall. The Company's credit arrangements include limitations on
dividends and payments to affiliates, such as Alpine.
DERIVATIVE FINANCIAL INSTRUMENTS
To a limited extent, the Company uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. To protect the Company's anticipated cash flows from the
risk of adverse foreign currency exchange fluctuations for firm sales and
purchase commitments, the Company enters into foreign currency forward exchange
contracts. Superior's principal raw material, copper, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper price
risk with respect to copper repurchases on fixed customer sales contracts.
Forward fixed price contracts and derivative financial instruments in the form
of copper futures contracts are utilized by the Company to reduce those risks.
The Company does not hold or issue financial instruments for financial or
trading purposes. The Company is exposed to credit risk in the event of
nonperformance by counterparties for foreign exchange forward contracts, metal
forward price contracts and metals futures contracts; however, the Company does
not anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains with respect to the underlying
contracts.
YEAR 2000
OVERVIEW
The year 2000 ("Y2K") problem is the result of computer programs having been
written using two digits (rather than four) to define the applicable year, thus
not properly recognizing dates after December 31, 1999. The six-digit date
(YYMMDD) has become the standard for date representations and is embedded in a
multitude of computer programs and computer chips. Information Technology (IT)
hardware, "embedded" technology, such as microprocessors, or software that is
date-sensitive may
28
<PAGE>
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system and mechanical failures. The Company
does not manufacture or sell products with embedded technology.
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. At this time,
based upon the efforts taken to date and those yet to be taken, the Company does
not expect any serious disruptions in its business operations and, therefore,
does not anticipate any material negative effect upon its revenues or earnings
as a result of the Year 2000 issue. 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.
THE COMPANY'S STATE OF READINESS
The Year 2000 project plan, including assessment, improvement, testing and
implementation, has been established. The assessment phase is 85% complete and
should be completed in April 1999 upon receipt of all remaining vendor and
supplier Year 2000 readiness inquiries.
Assessment of the Year 2000 compliance of third parties with whom the
Company has material relationships is in process. The Company's material third
party relationships include the following:
(a) Raw material vendors: The Company's raw material purchases are through
third party raw material vendors. All mission critical raw material
vendors have responded to the Company's Year 2000 readiness inquiry;
(b) Equipment vendors: The response to the Year 2000 readiness inquiries
from equipment vendors, which includes all embedded chip equipment, is at
75%;
(c) Service providers: The response to the Year 2000 readiness inquiries
from third; party service providers, which includes utilities, phone
service and all facility related services, is at 90%; and
(d) Software vendors: The Company has upgraded all purchased software to
Year 2000 compliant version and is in the testing phase.
The responses received, thus far, from the Company's third party vendors and
suppliers indicate compliance on or before June 1999.
The preliminary assessment of internal IT and non-IT systems has been
completed. Internal non-compliant items have been identified and prioritization
of internal non-compliant items is in process. A system for tracking remediation
has been established and non-compliant items identified are expected to be
completed in April 1999. Based on the findings of the planning and assessment
phases completed to date, the Company does not believe independent verification
or validation processes will be necessary.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The current estimate of the cost of remediation and equipment and software
replacement, of which approximately 50% has been incurred to date, ranges
between $7 million and $7.25 million and is summarized below. Approximately
one-half of the remaining $3.5 million is to be paid to external parties for
purchases of new systems and equipment.
<TABLE>
<S> <C>
$5.95 million--$6.16
Code modification and testing.................................... million
$1.05 million--$1.09
Personal computer, software and other upgrades................... million
</TABLE>
29
<PAGE>
Approximately 12% of the total IT budget for 1998 and 1999 has been
allocated for code modification. Such costs are funded through cash flows from
operations and are expensed as incurred. The personal computer and purchased
software upgrades are costs incurred in the ordinary course of business and are,
therefore, typically capitalized costs.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND THE COMPANY'S CONTINGENCY PLANS
A most reasonably likely worst case Year 2000 scenario is not known at this
time. This determination will be made after the receipt of the remaining
material third party questionnaires. However, the shipment of product to
customers is expected to continue with minimal interruption and no material loss
of revenues is anticipated. The Year 2000 project has had minimal impact on the
schedule of other major IT projects.
The Company has not completed a contingency plan, however, it intends to
have such a plan completed by March 31, 1999. Each manufacturing facility will
incorporate Year 2000 into their existing disaster contingency plan. The
contingency plan will ensure that: (i) adequate levels of inventory will be on
hand to mitigate the impact of any potential short-term disruptions in
production; (ii) adequate supply of raw materials will be available from
alternate sources; and (iii) the necessary backup measures for computer
processing are identified and available.
EXCEPT FOR THE HISTORICAL INFORMATION HEREIN, THE MATTERS DISCUSSED IN THIS
ANNUAL REPORT ON FORM 10-K INCLUDE FORWARD-LOOKING STATEMENTS THAT MAY INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED
ON A NUMBER OF FACTORS, INCLUDING, BUT NOT LIMITED TO, RISKS IN PRODUCT AND
TECHNOLOGY DEVELOPMENT, MARKET ACCEPTANCE OF NEW PRODUCTS AND CONTINUING PRODUCT
DEMAND, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, CHANGING ECONOMIC
CONDITIONS, INCLUDING CHANGES IN SHORT-TERM INTEREST RATES AND FOREIGN EXCHANGE
RATES AND OTHER RISK FACTORS DETAILED IN THE COMPANY'S MOST RECENT FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily relates to interest rates on
long-term debt. For example, a one percent increase in interest rates affecting
the Company's $1.15 billion Credit Agreement and its $200 million Sub Notes
would increase annual interest expense by approximately 11.2%, or $13.4 million.
In addition, the Company has interest rate swaps on $400 million principal
amount, with a fixed LIBOR rate of 4.97%, expiring December 12, 1999 and on $200
million principal amount, with a fixed LIBOR rate of 5.07%, expiring December
12, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of December 31, 1998 and
April 30, 1997 and 1998 and for the eight months ended December 31, 1998 and
each of the three years in the period ended April 30, 1998 and the report of the
independent public accountants thereon and financial statement schedules
required under Regulation S-X are submitted herein as a separate section
following Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Company's Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1),(a)(2) See the separate section of this report following Item 14 for
a list of financial statements and schedules filed herewith.
(a)(3)Exhibits as required by Item 601 of Regulation S-K are listed in Item
14(c) below.
(b) The Company reported the cash tender offer for 81% of Essex
International Inc. in its Form 10-Q, Item 5, for the fiscal quarter ended
October 31, 1998, filed December 14, 1998, in order to fulfill the
Company's Form 8-K filing requirement.
The Company filed a Current Report on Form 8-K on December 22, 1998 with
respect to Item 8 to report its change in year end to December 31 from April 30,
effective December 31, 1998.
ITEM 14(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2(a) Stock Purchase Agreement, dated February 14, 1992, by and between Alpine and Dataproducts Corporation,
relating to the purchase of shares of capital stock of DNE (incorporated herein by reference to Exhibit
1 to the Current Report on Form 8-K of Alpine dated March 2, 1992)
2(b) Agreement and Plan of Merger, dated as of June 17, 1993 and amended on September 24, 1993, by and
between Alpine and Superior TeleTec Inc. (incorporated herein by reference to Exhibit 2 to the
Registration Statement on Form S-4 (Registration No. 33-9978) of Alpine, as filed with the Commission on
October 5, 1993)
2(c) Asset Purchase Agreement, dated as of March 17, 1995, by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc., Superior Cable Corporation and Superior TeleTec Inc. (the "Alcatel
Acquisition Agreement") (incorporated herein by reference to Exhibit 1 to the Current Report on Form 8-K
of Alpine dated May 24, 1995)
2(d) Agreement Regarding Certain Employee Benefit Plans, amending the Alcatel Acquisition Agreement, dated
June 10, 1996 (incorporated herein by reference to Exhibit 2(b) to the Annual Report on Form 10-K of
Alpine for the year ended April 30, 1996 (the "1996 Alpine 10-K"))
2(e) Amendment, dated May 11, 1995, to Asset Purchase Agreement by and among Alcatel NA Cable Systems, Inc.,
Alcatel Canada Wire, Inc., Superior Cable Corporation and Superior TeleTec Inc. (incorporated herein by
reference to Exhibit 2 to the Current Report on Form 8-K of Alpine dated May 24, 1995)
2(f) Share Purchase Agreement, dated as of May 5, 1998, by and among CLAL Industries and Investments Ltd.,
ISAL Holland B.V. and Halachoh Hane'eman Hashivim Veshmona Ltd. (incorporated herein by reference to
Exhibit 1 to the Current Report on Form 8-K of the Company dated May 5, 1998)
2(g) Agreement and Plan of Merger, dated as of October 21, 1998, by and among the Company, SUT Acquisition
Corp. and Essex International Inc. (incorporated herein by reference to Exhibit (c)(1) to the Tender
Offer Statement on Schedule 14D-1 of the Company and SUT Acquisition Corp., as filed with the Commission
on October 28, 1998)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
2(h) Asset Purchase Agreement, dated October 2, 1998, among Cables of Zion United Works Ltd., Cvalim--The
Electric Wire and Cable Company of Israel Ltd. and Dash Cable Industries (Israel) Ltd. (incorporated
herein by reference to Exhibit 1 to the Current Report on Form 8-K of the Company dated December 31,
1998 (the "Cvalim 8-K"))
<C> <S>
2(i) Amendment No. 1 to Asset Purchase Agreement, dated December 31, 1998, among Cables of Zion United Works
Ltd., Cvalim--The Electric Wire and Cable Company of Israel Ltd. and Dash Cable Industries (Israel) Ltd.
(incorporated herein by reference to Exhibit 2 to the Cvalim 8-K)
3(a) Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 (Registration No. 333-09933) of the Company, as filed with the
Commission on August 9, 1996 (as amended, the "S-1"))
3(b) Certificate of Amendment, dated July 12, 1996, to the Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.2 to the S-1)
3(c) Certificate of Amendment, dated August 6, 1996, to the Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.3 to the S-1)
3(d) By-laws of the Company (incorporated herein by reference to Exhibit 3.4 to the S-1)
4(a) Form of Amended and Restated Declaration of Trust of Superior Trust I (incorporated herein by reference
to Exhibit 4.2 to the Registration Statement on Form S-4 (Registration No. 333-68889) of the Company and
Superior Trust I, as filed with the Commission on December 14, 1998 (as amended, the "S-4"))
4(b) Form of Indenture for the 8 1/2% Convertible Subordinated Debentures of the Company (incorporated herein
by reference to Exhibit 4.3 to the S-4)
4(c) Form of Guarantee Agreement for the 8 1/2% Trust Convertible Preferred Securities of Superior Trust I
(incorporated herein by reference to Exhibit 4.4 to the S-4)
10(a) Amended and Restated Superior TeleCom Inc. 1996 Stock Option Plan (incorporated herein by reference to
Appendix D to the Joint Proxy Statement/Prospectus filed as part of the S-4)
10(b) Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the S-1)
10(c) Lease Agreement, dated as of December 16, 1993, by and between ALP(TX) QRS 11-28, Inc. and Superior
TeleTec Transmission Products, Inc. (incorporated herein by reference to Exhibit (i) to the Quarterly
Report on Form 10-Q of Alpine for the quarter ended January 31, 1994)
10(d) First Amendment to Lease Agreement, dated as of May 10, 1995, by and between ALP (TX) QRS 11-28, Inc.
and Superior TeleTec Inc. (incorporated herein by reference to Exhibit 10(o) to the Annual Report on
Form 10-K of Alpine for the year ended April 30, 1995 (the "1995 Alpine 10-K"))
10(e) Second Amendment to Lease Agreement, dated as of July 21, 1995, by and between ALP(TX) QRS 11-28, Inc.
and Superior Telecommunications Inc. (incorporated herein by reference to Exhibit 10(x) to the 1995
Alpine 10-K)
10(f) Third Amendment to Lease Agreement, dated as of October 2, 1996, by and between ALP (TX) QRS 11-28, Inc.
and Superior Telecommunications Inc. (incorporated herein by reference to Exhibit 10.8 to the S-1)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
10(g) First Amendment to Guaranty and Surety Agreement, dated as of October 2, 1996, among the Company, Alpine
and ALP (TX) QRS 11-28, Inc. (incorporated herein by reference to Exhibit 10.12 to the S-1)
<C> <S>
10(h) Employment Agreement, dated April 26, 1996, between Superior Telecommunications Inc. and Justin F.
Deedy, Jr. (incorporated herein by reference to Exhibit 10.3 to the S-1)
10(i) Employment Agreement, dated as of October 17, 1996, between the Company and Steven S. Elbaum
(incorporated herein by reference to Exhibit 10(14) to the Quarterly Report on Form 10-Q of the Company
for the quarter ended January 31, 1997)
10(j) Letter Agreement, dated October 8, 1996, between the Company and Alpine relating to a capital
contribution by Alpine to the Company (incorporated herein by reference to Exhibit 10.2 to the S-1)
10(k) Letter Agreement, dated October 2, 1996, between the Company and Alpine relating to tax indemnification
(incorporated herein by reference to Exhibit 10.5 to the S-1)
10(l) Tax Allocation Agreement, dated as of October 2, 1996, among Alpine, the Company and its subsidiaries
(incorporated herein by reference to Exhibit 10.9 to the S-1)
10(m) Exchange Agreement, dated October 2, 1996, between the Company and Alpine (incorporated herein by
reference to Exhibit 10.10 to the S-1)
10(n) Registration Rights Agreement, dated October 2, 1996, between the Company and Alpine (incorporated
herein by reference to Exhibit 10.11 to the S-1)
10(o) Services Agreement, dated October 2, 1996, between the Company and Alpine (incorporated herein by
reference to Exhibit 10.4 to the S-1)
10(p) Amendment No. 1, dated as of May 1, 1997, to the Services Agreement (incorporated herein by reference to
Exhibit 10(t) to the Annual Report on Form 10-K of the Company for the year ended April 30, 1997)
10(q) Amendment No. 2, dated as of May 1, 1998, to the Services Agreement (incorporated herein by reference to
Exhibit 10(w) to the Annual Report on Form 10-K of the Company for the year ended April 30, 1998)
10(r) 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 of Alpine, the Company,
Superior/Essex Corp. and SUT Acquisition Corp., as filed with the Commission on December 7, 1998 (the
"Schedule 13D"))
10(s) Senior Subordinated Credit Agreement, dated as of November 27, 1998, among Superior/ Essex Corp., as
borrower, the Company, 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)
10(t) Addendum No. 1 to the Application to Open an Account, dated December 29, 1998, between Cables of Zion
United Works Ltd. And Bank Hapoalim B.M. (incorporated herein by reference to Exhibit 3 to the Cvalim
8-K)
21* List of Subsidiaries
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
23(a)* Consent of Arthur Andersen LLP
<C> <S>
27* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1999
<TABLE>
<S> <C> <C>
SUPERIOR TELECOM INC.
By: /s/ STEVEN S. ELBAUM
-----------------------------------------
Steven S. Elbaum
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ STEVEN S. ELBAUM Chief Executive Officer
- ------------------------------ and Director (principal March 31, 1999
Steven S. Elbaum executive officer)
Chief Financial Officer and
/s/ DAVID S. ALDRIDGE Treasurer (principal
- ------------------------------ financial and accounting March 31, 1999
David S. Aldridge officer)
/s/ EUGENE P. CONNELL Director
- ------------------------------ March 31, 1999
Eugene P. Connell
/s/ ROBERT J. LEVENSON Director
- ------------------------------ March 31, 1999
Robert J. Levenson
/s/ CHARLES Y.C. TSE Director
- ------------------------------ March 31, 1999
Charles Y.C. Tse
/s/ BRAGI F. SCHUT Director
- ------------------------------ March 31, 1999
Bragi F. Schut
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent public accountants................................................................... F-2
Consolidated balance sheets as of April 30, 1997 and 1998 and December 31, 1998............................ F-3
Consolidated statements of operations for the years ended April 28, 1996, April 30, 1997 and 1998 and for
the eight months ended December 31, 1998................................................................. F-4
Consolidated statements of stockholders' equity for the years ended April 28, 1996, April 30, 1997 and 1998
and for the eight months ended December 31, 1998......................................................... F-5
Consolidated statements of cash flows for the years ended April 28, 1996, April 30, 1997 and 1998 and for
the eight months ended December 31, 1998................................................................. F-7
Notes to consolidated financial statements................................................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Superior TeleCom Inc.:
We have audited the accompanying consolidated balance sheets of Superior
TeleCom Inc. (a Delaware corporation) (Note 1) and subsidiaries as of April 30,
1997 and 1998 and December 31, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended April 28,
1996, April 30, 1997 and 1998 and for the eight months ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of April 30,
1997 and 1998 and December 31, 1998 and the results of their operations and
their cash flows for the years ended April 28, 1996, April 30, 1997 and 1998,
and the eight months ended December 31, 1998 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 26, 1999
F-2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 1,052 $ 9,866 $ 16,110
Accounts receivable,net.................................................. 48,099 41,108 222,568
Inventories.............................................................. 56,262 43,190 346,614
Other current assets..................................................... 4,554 6,683 44,661
---------- ---------- ------------
Total current assets................................................... 109,967 100,847 629,953
Property, plant and equipment, net......................................... 77,023 83,121 513,433
Other assets............................................................... 4,666 3,792 48,505
Goodwill, net.............................................................. 46,452 44,483 694,665
---------- ---------- ------------
Total assets........................................................... $ 238,108 $ 232,243 $1,886,556
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 43,594 $ 43,815 $ 110,737
Accrued expenses......................................................... 18,326 18,361 104,107
Short-term borrowings.................................................... -- -- 120,109
Current portion of long-term debt........................................ 430 139 62,603
---------- ---------- ------------
Total current liabilities.............................................. 62,350 62,315 397,556
Long-term debt, less current portion....................................... 120,862 74,883 1,215,594
Minority interest in subsidiaries.......................................... -- -- 64,571
Other long-term liabilities................................................ 10,868 12,839 117,455
---------- ---------- ------------
Total liabilities...................................................... 194,080 150,037 1,795,176
---------- ---------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock (12,926,536, 16,170,666 and 20,287,274 shares issued at
April 30, 1997 and 1998 and December 31, 1998, respectively)........... 129 162 203
Capital in excess of par value........................................... 27,340 27,528 28,332
Accumulated other comprehensive income (deficit)......................... (831) (1,528) (6,081)
Retained earnings........................................................ 17,390 56,044 75,043
---------- ---------- ------------
44,028 82,206 97,497
Shares of common stock in treasury....................................... -- -- (6,117)
---------- ---------- ------------
Total stockholders' equity............................................. 44,028 82,206 91,380
---------- ---------- ------------
Total liabilities and stockholders' equity........................... $ 238,108 $ 232,243 $1,886,556
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS
---------------------------------- ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
Net sales..................................................... $ 410,413 $ 463,840 $ 516,599 $ 486,101
Cost of goods sold............................................ 362,854 384,271 417,358 383,106
---------- ---------- ---------- -------------
Gross profit................................................ 47,559 79,569 99,241 102,995
Selling, general and administrative expenses.................. 14,223 17,166 22,181 32,333
Nonrecurring and unusual charges.............................. -- -- -- 13,511
Amortization of goodwill...................................... 1,556 1,726 1,715 2,447
---------- ---------- ---------- -------------
Operating income............................................ 31,780 60,677 75,345 54,704
Interest expense.............................................. (17,355) (12,907) (8,090) (16,651)
Other income (expense), net................................... 404 (305) 206 (346)
---------- ---------- ---------- -------------
Income before income taxes, minority interest and
extraordinary (loss)...................................... 14,829 47,465 67,461 37,707
Provision for income taxes.................................... (6,722) (18,989) (26,786) (15,544)
---------- ---------- ---------- -------------
Income before minority interest and extraordinary (loss).... 8,107 28,476 40,675 22,163
Minority interest in (earnings) losses of subsidiaries, net... -- -- -- 93
---------- ---------- ---------- -------------
Income before extraordinary (loss).......................... 8,107 28,476 40,675 22,256
Extraordinary (loss) on early extinguishment of debt, net..... (2,645) -- -- (1,243)
---------- ---------- ---------- -------------
Net income................................................ $ 5,462 $ 28,476 $ 40,675 $ 21,013
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
Net income per share of common stock:
Basic:
Income before extraordinary (loss)........................ $ 2.01 $ 1.10
Extraordinary (loss) on early extinguishment of debt...... -- (0.06)
---------- -------------
Net income per basic share of common stock................ $ 2.01 $ 1.04
---------- -------------
---------- -------------
Diluted:
Income before extraordinary (loss)........................ $ 1.97 $ 1.07
Extraordinary (loss) on early extinguishment of debt...... -- (0.06)
---------- -------------
Net income per diluted share of common stock.............. $ 1.97 $ 1.01
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 28, 1996, APRIL 30, 1997 AND 1998, AND THE EIGHT
MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SUPERIOR
DNE TELECOMMUNICATIONS SUPERIOR
SYSTEMS, INC. INC. TELECOM INC. CAPITAL
COMMON STOCK COMMON STOCK COMMON STOCK IN EXCESS
------------------------ ------------------------ ---------------------- OF PAR
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT VALUE
----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995.......... 750 $ 1 1,000 $ -- -- $ -- $ 45,700
Distributions to Alpine, net........... (3,446)
Total comprehensive income.............
--- ----- ----------- ----- --------- ----- -----------
Balance at April 28, 1996.......... 750 1 1,000 -- -- -- 42,254
6% Cumulative Preferred Stock issued by
Superior Telecommunications Inc...... (20,000)
October 2, 1996 Reorganization (Note
1)................................... (750) (1) (1,000) -- 6,024,048 60 20,599
Dividends paid on common stock......... (117,129)
Initial public offering of common
stock................................ 6,900,000 69 101,573
Purchase of treasury stock.............
Exchange of treasury stock for
preferred
stock of subsidiary..................
Employee stock purchase plan........... 2,488 -- 43
Total comprehensive income.............
--- ----- ----------- ----- --------- ----- -----------
Balance at April 30, 1997.......... -- $ -- -- $ -- 12,926,536 $ 129 $ 27,340
--- ----- ----------- ----- --------- ----- -----------
--- ----- ----------- ----- --------- ----- -----------
<CAPTION>
ACCUMULATED TREASURY
OTHER STOCK
COMPREHENSIVE RETAINED ----------------------
DEFICIT EARNINGS SHARES AMOUNT TOTAL
--------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995.......... $ -- $ 4,153 -- $ -- $ 49,854
Distributions to Alpine, net........... (3,446)
Total comprehensive income............. (214) 5,462 5,248
------- ----------- --------- ----------- ---------
Balance at April 28, 1996.......... (214) 9,615 -- -- 51,656
6% Cumulative Preferred Stock issued by
Superior Telecommunications Inc...... (20,000)
October 2, 1996 Reorganization (Note
1)................................... 103 (20,701) -- -- 60
Dividends paid on common stock......... (117,129)
Initial public offering of common
stock................................ 101,642
Purchase of treasury stock............. (450,000) (8,055) (8,055)
Exchange of treasury stock for
preferred
stock of subsidiary.................. 450,000 8,055 8,055
Employee stock purchase plan........... 43
Total comprehensive income............. (720) 28,476 27,756
------- ----------- --------- ----------- ---------
Balance at April 30, 1997.......... $ (831) $ 17,390 -- $ -- $ 44,028
------- ----------- --------- ----------- ---------
------- ----------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED APRIL 28, 1996, APRIL 30, 1997 AND 1998, AND THE EIGHT
MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SUPERIOR
TELECOM INC. CAPITAL ACCUMULATED
COMMON STOCK IN EXCESS OTHER
------------------------- OF PAR COMPREHENSIVE
SHARES AMOUNT VALUE DEFICIT
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at April 30, 1997........................................ 12,926,536 $ 129 $ 27,340 $ (831)
Employee stock purchase plan......................................... 7,333 1 174
Exercise of stock options............................................ 3,162 -- 46
Partial stock split.................................................. 3,233,635 32 (32)
Cash dividend declared...............................................
Total comprehensive income........................................... (697)
------------ ----- ----------- -------
Balance at April 30, 1998........................................ 16,170,666 162 27,528 (1,528)
Employee stock purchase plan......................................... 4,745 165
Exercise of stock options............................................ 52,163 680
Cash dividend declared...............................................
Purchase of treasury stock...........................................
Total comprehensive income........................................... (4,553)
Partial stock split.................................................. 4,059,700 41 (41)
------------ ----- ----------- -------
Balance at December 31, 1998..................................... 20,287,274 $ 203 $ 28,332 $ (6,081)
------------ ----- ----------- -------
------------ ----- ----------- -------
<CAPTION>
TREASURY STOCK
RETAINED ---------------------
EARNINGS SHARES AMOUNT TOTAL
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at April 30, 1997........................................ $ 17,390 -- $ -- $ 44,028
Employee stock purchase plan......................................... 175
Exercise of stock options............................................ 46
Partial stock split.................................................. --
Cash dividend declared............................................... (2,021) (2,021)
Total comprehensive income........................................... 40,675 39,978
--------- ---------- --------- ---------
Balance at April 30, 1998........................................ 56,044 -- -- 82,206
Employee stock purchase plan......................................... 165
Exercise of stock options............................................ 680
Cash dividend declared............................................... (2,014) (2,014)
Purchase of treasury stock........................................... (168,700) (6,117) (6,117)
Total comprehensive income........................................... 21,013 16,460
Partial stock split.................................................. --
--------- ---------- --------- ---------
Balance at December 31, 1998..................................... $ 75,043 (168,700) $ (6,117) $ 91,380
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS
--------------------------------- ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
Cash flows from operating activities:
Income before extraordinary (loss)............................ $ 8,107 $ 28,476 $ 40,675 $ 22,256
Adjustments to reconcile income before extraordinary (loss) to
cash provided by operating activities:
Depreciation and amortization............................... 8,451 9,295 10,045 11,926
Amortization of deferred financing costs.................... 360 609 1,059 1,046
(Benefit) provision for deferred taxes...................... (1,300) 1,419 (545) 174
Change in assets and liabilities, net of effects from
companies acquired:
Accounts receivable....................................... (2,709) 5,590 1,971 18,655
Inventories............................................... 742 1,464 12,998 (19,615)
Other current and noncurrent assets....................... 808 1,243 (213) 638
Accounts payable and accrued expenses..................... 11,309 2,425 4,756 (20,538)
Other, net................................................ 1,470 372 (1,158) 605
---------- ---------- --------- -------------
Cash flows provided by operating activities..................... 27,238 50,893 69,588 15,147
---------- ---------- --------- -------------
Cash flows from investing activities:
Acquisitions, net of cash acquired............................ (103,409) -- -- (1,104,679)
Capital expenditures.......................................... (9,786) (9,807) (18,488) (28,014)
Net proceeds from sale of assets.............................. -- 2,534 5,113 1,751
Other......................................................... 1,419 35 -- --
---------- ---------- --------- -------------
Cash flows used for investing activities........................ (111,776) (7,238) (13,375) (1,130,942)
---------- ---------- --------- -------------
Cash flows from financing activities:
Net proceeds from sale of common stock........................ -- 101,642 -- --
Short-term borrowings, net.................................... -- -- -- (12,895)
(Repayments) borrowings under revolving credit facilities,
net......................................................... (17,623) 111,657 (42,307) 8,899
Debt issuance costs........................................... (3,365) (4,122) -- (31,026)
Advances from (repayments to) Alpine, net..................... 112,571 (112,939) (439) 171
Long-term borrowings.......................................... 141,170 -- -- 1,166,200
Repayments of long-term borrowings............................ (148,237) (2,389) (3,963) (1,044)
Dividends paid on common stock................................ -- (117,129) (1,011) (2,014)
Purchase of treasury stock.................................... -- (8,055) -- (6,117)
Redemption of subsidiary preferred stock...................... -- (11,300) -- --
Other......................................................... 100 (319) 321 (135)
---------- ---------- --------- -------------
Cash flows provided by (used for) financing activities.......... 84,616 (42,954) (47,399) 1,122,039
---------- ---------- --------- -------------
Net increase in cash and cash equivalents....................... 78 701 8,814 6,244
Cash and cash equivalents at beginning of period................ 273 351 1,052 9,866
---------- ---------- --------- -------------
Cash and cash equivalents at end of period...................... $ 351 $ 1,052 $ 9,866 $ 16,110
---------- ---------- --------- -------------
---------- ---------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED EIGHT MONTHS
-------------------------------- ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- --------- --------- -------------
<S> <C> <C> <C> <C>
(NOTE 1) (NOTE 1) (NOTE 1)
Supplemental disclosures:
Cash paid for interest......................................... $ 18,620 $ 12,696 $ 7,402 $ 11,702
---------- --------- --------- -------------
---------- --------- --------- -------------
Cash paid for income taxes..................................... $ 237 $ 13,820 $ 29,440 $ 27,396
---------- --------- --------- -------------
---------- --------- --------- -------------
Non-cash investing and financing activities:
Exchange of common stock for subsidiary preferred stock:
Preferred stock acquired..................................... $ (8,055)
---------
---------
Treasury stock issued........................................ $ (8,055)
---------
---------
Acquisition of businesses:
Assets, net of cash acquired................................... $ 126,127 $ 1,599,305
Liabilities assumed............................................ (22,718) (428,097)
Minority interest in subsidiaries.............................. -- (66,529)
---------- -------------
Net cash paid.................................................. $ 103,409 $ 1,104,679
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
DESCRIPTION OF BUSINESS
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, the "Company" or "Superior") manufactures a broad portfolio
of products with primary applications in the communications, original equipment
manufacturer ("OEM"), electrical and power cable markets. The Company is a
manufacturer and supplier of telecommunications wire and cable products to
telephone companies, distributors and system integrators; magnet wire and
insulation materials for motors, transformers and electrical controls, as well
as automotive and specialty wiring assemblies for automobiles and trucks; and
building and industrial wire for applications in commercial and residential
construction and industrial facilities. The Company operates manufacturing and
distribution facilities in the United States, Canada, the United Kingdom, and
Israel.
ORGANIZATIONAL HISTORY
Superior TeleCom was incorporated in July 1996 as a wholly owned subsidiary
of The Alpine Group, Inc. ("Alpine"). At the date of incorporation, the Company
had no operations or material assets or liabilities. On October 2, 1996, Alpine
completed a reorganization (the "Reorganization") whereby 100% of the common
stock of two of Alpine's subsidiaries, Superior Telecommunications Inc. ("STI")
and DNE Systems, Inc. ("DNE"), were contributed to the Company in exchange for
100% of the shares of the Company's then outstanding common stock. Prior to the
Reorganization and pursuant to a recapitalization of STI and DNE, STI issued to
Alpine 20,000 shares of 6% Cumulative Preferred Stock (the "STI Preferred
Stock"), with a liquidation preference of $1,000 per share, and STI 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 revolving credit
facility, the net proceeds of which were used to repay the net amount of
intercompany debt owed by STI and DNE to Alpine of $87.9 million and to pay to
Alpine $63.8 million of the aforementioned dividend.
In October 1996, the Company sold 9.4 million shares of its common stock
(the "Common Stock") through an initial public offering (the "Offering") and
used the proceeds to repay $34.4 million of bank debt and to pay to Alpine the
remaining balance of the aforementioned dividend declared by STI and DNE.
In November 1996, the underwriters of the Offering exercised their
overallotment option to purchase an additional 1.4 million shares of Common
Stock. The Company used the net proceeds of approximately $13.3 million to
repurchase 0.7 million shares of Common Stock for approximately $8.1 million,
with the balance used to reduce bank debt. The repurchased shares of Common
Stock were then transferred to Alpine in exchange for $8.1 million in principal
amount of STI Preferred Stock. On February 12, 1997, STI redeemed, at face
value, an additional $11.3 million in principal amount of STI Preferred Stock.
The remaining $0.6 million of STI Preferred Stock held by Alpine is included in
other long-term liabilities in the accompanying consolidated balance sheet.
After giving effect to the exercise of the overallotment option and the
subsequent repurchase and exchange of Common Stock, Alpine's ownership interest
was reduced to 50.1%.
On November 27, 1998, the Company completed a cash tender offer for 81% of
the outstanding common shares of Essex International Inc. ("Essex") (see Note
5). The Company will acquire the remaining 19% of the Essex common stock through
the issuance of 8 1/2% trust convertible preferred securities on March 31, 1999.
F-9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION (CONTINUED)
CHANGE IN YEAR END
On December 15, 1998, the Company elected to change its year end to December
31 from April 30. This change was made effective December 31, 1998 (see Note
19).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements present the consolidated balance sheets of the
Company at April 30, 1997 and 1998 and December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended April 28, 1996 ("fiscal 1996"), April 30, 1997 ("fiscal 1997")
and 1998 ("fiscal 1998") and for the eight months ended December 31, 1998. The
fiscal 1996 and 1997 statements of operations, stockholders' equity and
financial statement disclosures include the combined operations of STI and DNE
for the periods prior to the Reorganization. All significant intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity at acquisition of 90
days or less are considered to be cash equivalents.
INVENTORIES
Inventories (with the exception of inventories at Essex) are stated at the
lower of cost or market, using the first-in, first-out ("FIFO") cost method.
Inventories at Essex are stated at the lower of cost or market, using the
last-in, first-out ("LIFO") cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided over
the estimated useful lives of the assets using the straight-line method. The
estimated lives are as follows:
<TABLE>
<S> <C>
5 to 30
Buildings and improvements.................................... years
3 to 15
Machinery and equipment....................................... years
3 to 10
Furniture and fixtures........................................ years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
GOODWILL
The excess of the purchase price over the net identifiable assets of
businesses acquired is amortized ratably over periods not exceeding 40 years.
Accumulated amortization of goodwill at April 30, 1997 and 1998 and December 31,
1998 was $4.8 million, $6.5 million and $8.9 million, respectively. The Company
periodically reviews goodwill to assess recoverability from future operations
using undiscounted cash flows.
F-10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the carrying amount exceeds undiscounted cash flows, an impairment loss would
be recognized for the difference between the carrying amount and its estimated
fair value.
OTHER ASSETS
Other assets consist primarily of deferred debt issuance costs and are being
amortized over the lives of the applicable debt instruments using the effective
interest rate method and charged to operations as additional interest expense.
AMOUNTS DUE CUSTOMERS
Included in accrued expenses at December 31, 1998 are certain amounts due
customers totaling $11.1 million, representing cash discount liabilities to
customers who meet certain contractual sales volume criteria. Such discounts are
paid periodically to those qualifying customers.
REVENUE RECOGNITION
Substantially all revenue is recognized at the time the product is shipped,
except for limited product consignments which are not reflected in revenue until
sold to the end user.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of foreign subsidiaries are
measured using local currency as the functional currency. Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at exchange
rates in effect at fiscal year-end. The resulting translation gains and losses
are charged directly to accumulated other comprehensive income, a component of
stockholders' equity, and are not included in net income until realized through
sale or liquidation of the investment. Revenues and expenses are translated at
average exchange rates prevailing during the fiscal year. Foreign currency
exchange gains and losses incurred on foreign currency transactions are included
in income as they occur.
EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the period
subsequent to the Reorganization. Diluted earnings per common share is
determined assuming the conversion of outstanding stock options and grants under
the treasury stock method. Historical earnings per common share for the periods
prior to the Offering are not presented since STI and DNE were wholly-owned
subsidiaries of Alpine.
CONCENTRATION OF CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
STI's revenues constitute 74% of consolidated revenues for the eight months
ended December 31, 1998. During fiscal 1996, 1997 and 1998 and the eight months
ended December 31, 1998, sales to the regional Bell operating companies and
major independent telephone companies represented 88%, 91%, 88% and 88% of STI's
North American net sales, respectively. At April 30, 1997 and 1998 and December
31, 1998, accounts receivable from these customers amounted to $43.0 million,
$35.9 million and $18.9 million, respectively.
F-11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts receivable includes allowances for doubtful accounts of $0.2
million, $0.2 million and $5.0 million at April 30, 1997 and 1998 and December
31, 1998, respectively.
INCOME TAXES
For U.S. federal income tax purposes, STI's and DNE's combined taxable
income was included as part of the Alpine consolidated U.S. federal return
through the date of the Reorganization. STI and DNE filed separate state income
tax returns during such periods. The Company filed (or will file) consolidated
U.S. federal income tax returns for the periods ended April 30, 1997 and 1998
and for the eight month period ended December 31, 1998.
USE OF ESTIMATES
The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1996, 1997 and 1998
consolidated financial statements to conform with the December 31, 1998
presentation.
NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These statements expanded or
modified disclosures and had no impact on the Company's consolidated financial
position, results of operations or cash flows. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which will be effective for
the Company beginning January 1, 2000, establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as either assets or liabilities in the statements of financial position and
measurement of those instruments at fair value. The Company has not yet
quantified the impact of adopting SFAS No. 133, nor the timing of, or method of
adoption, however, the Company believes the effect of adoption will not be
material.
F-12
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
At April 30, 1997 and 1998 and December 31, 1998, the components of
inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
--------- --------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Raw materials............................................ $ 10,352 $ 8,672 $ 47,519
Work in process.......................................... 10,556 8,170 45,661
Finished goods........................................... 35,354 26,348 254,099
--------- --------- ------------
56,262 43,190 347,279
LIFO reserve............................................. -- -- (665)
--------- --------- ------------
$ 56,262 $ 43,190 $ 346,614
--------- --------- ------------
--------- --------- ------------
</TABLE>
Inventories valued using the LIFO method amounted to $220.9 million at
December 31, 1998.
4. PROPERTY, PLANT AND EQUIPMENT
At April 30, 1997 and 1998 and December 31, 1998, property, plant and
equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
--------- --------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Land..................................................... $ 3,065 $ 2,851 $ 24,890
Buildings and improvements............................... 19,024 17,003 129,878
Machinery and equipment.................................. 74,342 89,540 399,520
--------- --------- ------------
96,431 109,394 554,288
Less accumulated depreciation............................ 19,408 26,273 40,855
--------- --------- ------------
$ 77,023 $ 83,121 $ 513,433
--------- --------- ------------
--------- --------- ------------
</TABLE>
Depreciation expense for fiscal 1996, 1997 and 1998 and for the eight months
ended December 31, 1998 was $6.7 million, $7.6 million, $8.3 million and $9.5
million, respectively.
5. ACQUISITIONS
ESSEX ACQUISITION
On November 27, 1998, the Company completed a cash tender offer for 81% of
the outstanding common shares of Essex, at an aggregate cash tender value of
$770 million (the "Essex Acquisition"). The Company intends, on March 31, 1999,
to acquire the remaining outstanding common shares of Essex through the issuance
of $167 million in 8 1/2% trust convertible preferred securities.
In connection with the Essex Acquisition, the Company entered into a $1.15
billion amended and restated credit facility and a $200 million senior
subordinated credit facility (the "Credit Facilities"). Proceeds from the Credit
Facilities were used to (i) pay the cash portion of the purchase price, (ii)
repay $275 million of Essex indebtedness, (iii) refinance the Company's existing
outstanding bank debt and (iv) pay related transaction expenses (see Note 8 for
a further description of the Credit Facilities).
F-13
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
The Essex Acquisition was accounted for using the purchase method and,
accordingly, the results of operations of Essex have been included in the
consolidated financial statements on a prospective basis from the date of
acquisition. The purchase price was allocated based upon preliminary assessments
of the fair values of assets and liabilities at the date of acquisition, which
includes accruals for planned consolidations, overhead rationalization and loss
contingencies. The allocation and related accruals are subject to adjustment.
The excess of the purchase price over the net assets acquired of approximately
$651 million is being amortized on a straight-line basis over 40 years.
CABLES OF ZION AND CVALIM ACQUISITIONS
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. The Company has an option through May 5, 2000 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). This acquisition (the "Cables of Zion Acquisition") was accounted
for using the purchase method and, accordingly, the results of operations of
Cables of Zion are included in the 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.
On December 31, 1998, Cables of Zion acquired the business and certain
operating assets of Cvalim-The Electric Wire and Cable Company of Israel Ltd.
("Cvalim") for an adjusted purchase price of $41.2 million. In connection with
the acquisition, Cables of Zion entered into an $83.0 million credit facility
(the "Cables of Zion Credit Facility") consisting of a $53.0 million term loan
and $30.0 million revolving line of credit. Proceeds from the Cables of Zion
Credit Facility were used to finance the acquisition, pay related fees and
expenses and provide for working capital requirements. The purchase price was
allocated based upon the estimates of the fair value of assets acquired and is
subject to adjustment.
ALCATEL ACQUISITION
On May 11, 1995, STI acquired the U.S. and Canadian copper wire and cable
business (the "Alcatel Acquisition") of Alcatel NA Cable Systems, Inc. and
Alcatel Canada Wire, Inc. (collectively, "Alcatel NA") for $103.4 million.
The Alcatel Acquisition was accounted for using the purchase method and,
accordingly, the results of operations are included in the Company's
consolidated results on a prospective basis from the date of the acquisition.
The purchase price was allocated based upon the estimated fair values of assets
and liabilities at the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired was $17.2 million and is being
amortized on a straight-line basis over 30 years.
PRO FORMA FINANCIAL DATA (UNAUDITED)
Unaudited condensed pro forma results of operations for the year ended April
30, 1998 and the eight months ended December 31, 1998, which give effect to the
Essex Acquisition and Cables of Zion
F-14
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
Acquisition as if the transactions had occurred on May 1, 1997, are presented
below. The pro forma results of operations do not include the results of
operations of Cvalim as they 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 transactions had taken place at the
beginning of the period presented or of the future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30, EIGHT MONTHS ENDED
1998 DECEMBER 31, 1998
------------- -------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales..................................................................... $ 2,277,246 $ 1,351,089
Nonrecurring and unusual charges.............................................. -- 21,343
Income before income taxes, minority interest and
extraordinary (loss)........................................................ 122,853 32,426
Income before extraordinary (loss)............................................ 50,311 10,129
Extraordinary (loss) on early extinguishment of debt.......................... -- (1,243)
Net income applicable to common stock......................................... 50,311 8,886
Net income per diluted share of common stock:
Income before extraordinary (loss).......................................... $ 2.43 $ 0.49
Extraordinary (loss) on early extinguishment of debt........................ -- (0.06)
------------- -------------------
Net income per diluted share of common stock.............................. $ 2.43 $ 0.43
------------- -------------------
------------- -------------------
</TABLE>
6. ACCRUED EXPENSES
At April 30, 1997 and 1998 and December 31, 1998, accrued expenses consist
of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
--------- ------------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Accrued wages, salaries and employee benefits............................ $ 7,191 $ 7,697 $ 32,516
Other accrued expenses................................................... 11,135 10,664 71,591
--------- ------------- ------------
$ 18,326 $ 18,361 $ 104,107
--------- ------------- ------------
--------- ------------- ------------
</TABLE>
7. SHORT-TERM BORROWINGS
At December 31, 1998, short-term borrowings consist principally of $114.7
million in borrowings under an accounts receivable securitization program which
provides for up to $150.0 million in short-term financing through the issuance
of secured commercial paper through a limited purpose subsidiary of Essex
("Essex Funding"). Under the receivable securitization program, Essex has
granted a security interest in all its trade accounts receivable to secure
borrowings under the facility. The receivable securitization program expires on
November 30, 1999, although it may be extended for successive one-year periods
subject to agreement. Borrowings under this agreement bear interest at the
lender's commercial paper rate (which approximated 5.25% at December 31, 1998)
plus 0.35%.
F-15
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT
At April 30, 1997 and 1998 and December 31, 1998, long-term debt consists of
the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
---------- --------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Senior revolving credit facility (a)........................................ $ 111,657 $ 69,350 $ 77,750
Term loan A (a)............................................................. -- -- 500,000
Term loan B (a)............................................................. -- -- 425,000
Senior subordinated notes (a)............................................... -- -- 200,000
Cables of Zion credit facility (b).......................................... -- -- 41,237
Other....................................................................... 9,635 5,672 34,210
---------- --------- ------------
Total debt................................................................ 121,292 75,022 1,278,197
Less current portion of long-term debt...................................... 430 139 62,603
---------- --------- ------------
$ 120,862 $ 74,883 $1,215,594
---------- --------- ------------
---------- --------- ------------
</TABLE>
At December 31, 1998, the fair value of the Company's debt, based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities, approximates
its recorded value. The Company has entered into a number of interest rate swap
and interest rate cap agreements in order to limit the effect of changes in
interest rates on the Company's floating rate long-term obligations. Amounts
currently due to or from interest rate swap counterparties are recorded in
interest expense in the period in which they accrue. The Company does not enter
into financial instruments for trading or speculative purposes. The fair value
of the interest rate caps and swaps reflects a gain of $1.9 million at December
31, 1998.
The aggregate principal maturities of long-term debt for the five years
subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
(IN
THOUSANDS)
1999........................................................................... $ 62,603
2000........................................................................... 79,687
2001........................................................................... 88,501
2002........................................................................... 100,214
2003........................................................................... 196,205
Thereafter..................................................................... 750,987
-------------
$ 1,278,197
-------------
-------------
</TABLE>
- ------------------------
(a) In connection with the Essex Acquisition (see Note 5), the Company
amended and restated its existing credit facilities. The amended and
restated credit facilities provide for total borrowing availability of
up to $1.35 billion, consisting of a $225.0 million revolving credit
facility, a $500.0 million term loan A facility, a $425.0 million term
loan B facility and $200.0 million in senior subordinated notes.
The revolving credit facility is available to the Company's principal
subsidiaries. Borrowings under the facility are allowable up to $225
million in the aggregate. Interest on the outstanding
F-16
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
balance is based upon LIBOR plus 3.0% or the base rate (prime) plus 2.0%
(8.63% at December 31, 1998), is payable quarterly, and matures on May
27, 2004.
The term loan A is repayable in varying installments over five and
one-half years, with interest payable quarterly based upon LIBOR plus
3.0% or the base rate (prime) plus 2.0% (8.25% at December 31, 1998),
and matures on May 27, 2004.
The term loan B is repayable in varying installments over seven years,
with interest payable quarterly based upon LIBOR plus 3.75% or the base
rate (prime) plus 2.75% (8.86% at December 31, 1998), and matures on
November 27, 2005.
The senior subordinated notes are due in November 2006. Interest for the
initial six months is LIBOR plus 4.25% or base rate (prime) plus 3.25%.
On the six month anniversary of the borrowing date, the interest rate
will increase to LIBOR plus 4.5% or base rate (prime) plus 3.50%, and on
the 12 month anniversary of the borrowing date, the interest rate will
increase to LIBOR plus 5.00% or base rate (prime) plus 4.00%. After the
12 month anniversary of the borrowing date, the interest rate will
increase at the end of each three month period by 0.25% until reaching
the maximum interest rate of LIBOR plus 5.5% or base rate (prime) plus
4.5%.
All the borrowings under the above described credit arrangements are
guaranteed by each of the Company's domestic subsidiaries. The common
stock of all domestic subsidiaries of the Company and 65% of the common
stock of its foreign subsidiaries have been pledged to secure the
guarantees. The obligations under these credit arrangements are secured
by substantially all of the assets of the Company and its domestic
subsidiaries.
(b) In connection with the December 31, 1998 acquisition of the Cvalim
assets (see Note 5), Cables of Zion entered into an $83.0 million credit
facility consisting of a $53.0 million term loan ("Cables of Zion term
loan") and a $30.0 million revolving credit facility ("Cables of Zion
revolving credit facility"). Proceeds from these facilities were used to
finance the acquisition of the Cvalim assets, pay related transaction
expenses and provide for ongoing working capital requirements. The
Cables of Zion term loan is repayable on December 31, 2008. Interest on
the Cables of Zion term loan is based upon LIBOR plus 1.0% or the
average of the gross yield to maturity of all the series of fixed rate
bonds issued by the State of Israel, listed on the Tel-Aviv stock
exchange and having a remaining maturity of 18 - 30 months, plus 1.3% or
the lending bank's wholesale rate of interest for credits linked to the
Israeli consumer price index plus 0.7%.
The Cables of Zion revolving credit facility is available up to $30.0
million in the aggregate. Interest on the outstanding balance is based
upon either LIBOR plus 0.4%, the lending bank's prime rate minus 1.1%,
or a rate to be agreed upon by the parties. The Cables of Zion credit
facility terminates on December 31, 2003. Obligations under the Cables
of Zion credit facility are secured by all of the assets of Cables of
Zion.
The above credit agreements contain certain restrictive covenants,
including, among other things, requirements to maintain certain financial
ratios, limitations on the amount of dividends the Company is allowed to pay on
its common stock and restrictions on additional indebtedness.
In connection with the amendment and restatement of the Company's credit
facility, the Company recognized an extraordinary charge on the early
extinguishment of debt of $1.2 million (net of income taxes of $0.8 million), or
$0.06 per diluted share, during the eight months ended December 31, 1998. In
fiscal 1996, the Company incurred a charge of $2.6 million (net of income taxes
of $1.7 million) for the early extinguishment of debt related to the refinancing
of certain debt incurred for the Alcatel Acquisition.
F-17
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EARNINGS PER SHARE
The computation of basic and diluted earnings per share ("EPS") for the
period from the Reorganization to April 30, 1997, the year ended April 30, 1998
and the eight months ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED
PERIOD ENDED APRIL 30, 1997 DECEMBER
YEAR ENDED APRIL 30, 1998 31, 1998
----------------------------------- ------------------------------------- ---------
NET PER SHARE NET PER SHARE NET
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME
--------- --------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic earnings per common share
before extraordinary (loss)........ $ 17,390 19,270 $ 0.90 $ 40,675 20,205 $ 2.01 $ 22,256
--------- ----- --------- ----- ---------
--------- ----- --------- ----- ---------
Dilutive impact of stock options and
grants............................. 218 478
--------- -----------
Diluted earnings per common share
before extraordinary (loss)........ $ 17,390 19,488 $ 0.89 $ 40,675 20,683 $ 1.97 $ 22,256
--------- --------- ----- --------- ----------- ----- ---------
--------- --------- ----- --------- ----------- ----- ---------
<CAPTION>
PER SHARE
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Basic earnings per common share
before extraordinary (loss)........ 20,131 $ 1.10
-----
-----
Dilutive impact of stock options and
grants............................. 595
-----------
Diluted earnings per common share
before extraordinary (loss)........ 20,726 $ 1.07
----------- -----
----------- -----
</TABLE>
As a publicly traded company, Cables of Zion has certain stock options
outstanding pursuant to stock option plans in existence prior to the
acquisition. At December 31, 1998, the dilutive impact of such stock options to
the Company's earnings per share calculation was immaterial.
10. STOCKHOLDERS' EQUITY
The Company has 25,000,000 shares of common stock authorized for issuance,
with a $0.01 par value. At April 30, 1997 and 1998 and December 31, 1998 the
Company had 12,926,536, 16,170,666 and 20,287,274 common shares issued,
respectively.
On both January 15, 1998 and January 11, 1999, the Company declared
five-for-four common stock splits, which were effected in the form of a 25%
stock dividend paid on February 2, 1998 and February 3, 1999, respectively. As a
result, 3,233,635 shares and 4,059,700 shares were issued to stockholders of
record on January 23, 1998 and January 20, 1999, respectively. All references to
common shares (except shares authorized and issued) and to per share information
in the consolidated financial statements have been adjusted to reflect the stock
split on a retroactive basis.
The Company declared a $0.25 per common share cash dividend payable
quarterly at a rate of $0.0625 per share. Payment of each quarterly dividend is
subject to approval by the Board of Directors. Cash dividends, totaling $2.0
million were declared during both fiscal 1998 and the eight months ended
December 31, 1998.
11. STOCK BASED COMPENSATION PLANS
The Company sponsors the Superior TeleCom Inc. 1996 Stock Option Plan (the
"Option Plan") which has 1,953,125 shares of common stock reserved for issuance.
At December 31, 1998, there were 136,934 shares of common stock available under
the Option Plan. Participation in the Option Plan is limited to employees and
directors of the Company. The Option Plan provides for grants of incentive and
nonincentive stock options which cannot be exercised in the first year or after
ten years from the date of grant.
The Company also sponsors the Superior TeleCom Employee Stock Purchase Plan
(the "ESPP") which allows eligible employees the right to purchase common stock
of the Company on a quarterly basis at the lower of 85% of the common stock's
fair market value on the day immediately prior to the first day of a calendar
quarter or on the last day of a calendar quarter. There are 390,625 shares of
the Company's
F-18
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
common stock reserved under the ESPP, of which 3,888 shares, 10,845 and 5,931
shares were issued to employees during fiscal 1997 and 1998 and the eight months
ended December 31, 1998, respectively.
The Company continues to account for stock-based compensation (including
options issued under the Option Plan and the ESPP) using the intrinsic value
method prescribed by APB Opinion No. 25, under which no compensation cost for
stock options is recognized for stock option awards granted at or above fair
market value. Had compensation expense been determined based on the fair value
of the stock option award at the grant date as prescribed by SFAS No. 123, the
Company's net income and basic and diluted net income per share of common stock
for the period from the Reorganization to April 30, 1997, the year ended April
30, 1998 and the eight months ended December 31, 1998 would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
PERIOD ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1998 DECEMBER 31, 1998
-------------------- -------------------- --------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income............................................... $ 17,390 $ 16,281 $ 40,675 $ 39,030 $ 21,013 $ 18,882
Basic net income per share of
common stock........................................... $ 0.90 $ 0.85 $ 2.01 $ 1.93 $ 1.04 $ 0.94
Diluted net income per share of
common stock........................................... $ 0.89 $ 0.85 $ 1.97 $ 1.89 $ 1.01 $ 0.92
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
necessarily indicative of future amounts, since the estimated fair value of
common stock options is amortized to expense over the vesting period and
additional options may be granted in future years. The fair value for these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for April
30, 1997 and 1998 and December 31, 1998, respectively: dividend yield of 0%, 1%
and 1%; expected volatility of 44%, 39% and 43%; risk-free interest rate of
6.42%, 5.53% and 4.57%; and expected life of five years, four years and four
years. The weighted average per share fair value of options granted (using the
Black-Scholes option-pricing model) during fiscal 1997 and 1998 and the eight
months ended December 31, 1998 was $4.92, $7.39 and $11.05, respectively.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Since the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-19
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK BASED COMPENSATION PLANS (CONTINUED)
The following table summarizes stock option activity for fiscal 1997 and
1998 and the eight months ended December 31, 1998:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding at April 28, 1996................................. -- $ --
Granted..................................................... 1,168,364 10.28
-----------
Outstanding at April 30, 1997................................. 1,168,364 10.28
Exercised................................................... (4,844) 10.30
Canceled.................................................... (41,393) 10.29
Granted..................................................... 75,000 21.08
-----------
Outstanding at April 30, 1998................................. 1,197,127 10.96
Exercised................................................... (64,526) 10.38
Canceled.................................................... (8,439) 30.40
Granted..................................................... 622,659 30.50
-----------
Outstanding at December 31, 1998.............................. 1,746,821 $ 17.85
-----------
-----------
</TABLE>
Information with respect to stock-based compensation plan stock options
outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
NUMBER WEIGHTED- WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE REMAINING AVERAGE NUMBER AVERAGE
EXERCISE AT DECEMBER 31, CONTRACTUAL LIFE EXERCISE EXERCISABLE AT EXERCISE
PRICES 1998 (IN YEARS) PRICE DECEMBER 31, 1998 PRICE
- ---------------------------------- ------------------- ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
$10.24............................ 1,009,385 7.77 $ 10.24 652,608 $ 10.24
$11.04............................ 48,995 7.99 11.04 30,109 11.04
$14.08............................ 27,345 8.33 14.08 8,593 14.08
$25.28............................ 46,876 8.78 25.28 15,624 25.28
$30.40............................ 567,344 9.42 30.40 -- --
$31.70............................ 46,876 9.78 31.70 -- --
---------- -------
1,746,821 8.40 17.85 706,934 10.65
---------- -------
---------- -------
</TABLE>
12. EMPLOYEE BENEFITS
Superior provides for postretirement employee health care and life insurance
benefits for a limited number of its employees. Superior established a maximum
amount it will pay per employee for such benefit; therefore, health care cost
trends do not affect the calculation of the postretirement benefit obligation or
its net periodic benefit cost.
Superior sponsors several defined benefit pension plans and an unfunded
supplemental executive retirement plan (the "SERP"). The SERP provides
retirement benefits based on the same formula as in effect under a certain
salaried employees' plan, but only takes into account compensation in excess of
amounts that can be recognized under the salaried employees' plan. The defined
benefit pension plans and the SERP generally provide for payment of benefits,
commencing at retirement (between the ages of 55 and 65), based on the
employee's length of service and earnings. Assets of the plans consist
principally of cash and cash equivalents, short-term investments, equities and
fixed income instruments.
F-20
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS (CONTINUED)
Changes in the projected benefit obligation, plan assets and funded status
of the defined benefit pension plans and the post-retirement health care
benefits plans during fiscal 1997 and 1998 and the eight months ended December
31, 1998 are presented below, along with amounts recognized in the respective
balance sheets and statements of operations:
<TABLE>
<CAPTION>
POST-RETIREMENT
DEFINED BENEFIT PENSION PLANS HEALTH CARE BENEFITS
---------------------------------- ----------------------------------
APRIL 30, DECEMBER 31, APRIL 30, DECEMBER 31,
-------------------- ------------ -------------------- ------------
1997 1998 1998 1997 1998 1998
--------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year........... $ 3,228 $ 3,772 $ 4,927 $ 1,282 $ 1,265 $ 1,994
Impact of acquisitions............................ -- -- 99,364 -- -- --
Service cost...................................... 123 134 550 43 52 44
Interest cost..................................... 256 300 792 96 129 91
Plan amendments................................... 305 -- -- -- -- --
Actuarial loss.................................... -- 858 41 -- 607 87
Impact of foreign currency exchange............... -- -- (339) -- -- --
Benefits paid..................................... (140) (137) (330) (156) (59) (42)
--------- --------- ------------ --------- --------- ------------
Benefit obligation at end of year................. $ 3,772 $ 4,927 $ 105,005 $ 1,265 $ 1,994 $ 2,174
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
Change in plan assets:
Fair value of plan assets at beginning of year.... $ 3,263 $ 3,568 $ 4,360 $ -- $ -- $ --
Impact of acquisitions............................ -- -- 77,060 -- -- --
Actual return on plan assets...................... 233 751 1,802 -- -- --
Employer contributions............................ 212 178 357 156 59 42
Impact of foreign currency exchange............... -- -- (284) -- -- --
Benefits paid..................................... (140) (137) (330) (156) (59) (42)
--------- --------- ------------ --------- --------- ------------
Fair value of plan assets at end of year.......... $ 3,568 $ 4,360 $ 82,965 $ -- $ -- $ --
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
Funded status....................................... $ (204) $ (567) $ (22,040) $ (1,265) $ (1,994) $ (2,174)
Unrecognized actuarial (gain) loss.................. (148) 247 (711) (178) 424 502
Unrecognized prior service cost..................... 383 351 322 -- -- --
--------- --------- ------------ --------- --------- ------------
Prepaid (accrued) benefit cost...................... $ 31 $ 31 $ (22,429) $ (1,443) $ (1,570) $ (1,672)
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
Amounts recognized in the consolidated balance
sheets:
Prepaid benefit cost.............................. $ 31 $ 35 $ 258 $ -- $ -- $ --
Accrued benefit liability......................... -- (4) (22,728) (1,443) (1,570) (1,672)
Additional minimum liability...................... -- (296) (322) -- -- --
Intangible asset.................................. -- 296 322 -- -- --
Impact of foreign currency exchange............... -- -- 41 -- -- --
--------- --------- ------------ --------- --------- ------------
Prepaid (accrued) benefit cost.................... $ 31 $ 31 $ (22,429) $ (1,443) $ (1,570) $ (1,672)
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
</TABLE>
F-21
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
POST-RETIREMENT
DEFINED BENEFIT PENSION PLANS HEALTH CARE BENEFITS
---------------------------------- ----------------------------------
APRIL 30, DECEMBER 31, APRIL 30, DECEMBER 31,
-------------------- ------------ -------------------- ------------
1997 1998 1998 1997 1998 1998
--------- --------- ------------ --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost...................................... $ 123 $ 134 $ 550 $ 43 $ 52 $ 44
Interest cost..................................... 256 300 792 96 129 91
Expected return on plan assets.................... (254) (281) (819) -- -- --
Amortization of prior service cost................ -- 23 17 -- 5 9
Actuarial loss.................................... -- -- 10 -- -- --
--------- --------- ------------ --------- --------- ------------
Net periodic benefit cost......................... $ 125 $ 176 $ 550 $ 139 $ 186 $ 144
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
</TABLE>
The actuarial present value of the projected pension benefit obligation and
the postretirement health care benefits obligation at April 30, 1997 and 1998
and December 31, 1998, were determined based upon the following assumptions:
<TABLE>
<CAPTION>
POST-RETIREMENT
DEFINED BENEFIT PENSION PLANS HEALTH CARE BENEFITS
---------------------------------- ----------------------------------
APRIL 30, DECEMBER 31, APRIL 30, DECEMBER 31,
-------------------- ------------ -------------------- ------------
1997 1998 1998 1997 1998 1998
--------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate....................................... 8.0% 6.5% 6.5% 7.75% 7.00% 6.75%
Expected return on plan assets...................... 8.0% 8.0% 8.0% N/A N/A N/A
</TABLE>
The Company and its subsidiaries sponsor several defined contribution plans
covering substantially all U.S. and Israeli employees. The plans provide for
limited company matching of participants' contributions. The Company's
contributions during fiscal 1996, 1997 and 1998 and the eight months ended
December 31, 1998 were $0.4 million, $0.5 million, $0.8 million and $1.5
million, respectively.
Essex also sponsored an unfunded, nonqualified deferred compensation plan
which permitted certain key management employees to annually elect to defer a
portion of their compensation and earn a guaranteed interest rate on the
deferred amounts. The total amount of participant deferrals and accrued
interest, which is reflected in other long-term liabilities, was $5.4 million at
December 31, 1998.
Israeli labor laws and agreements require the Company to pay severance pay
and/or pensions to retired employees and to terminated employees under certain
circumstances. This liability is covered mainly by regular deposits with
recognized Israeli pension and severance pay funds in the employees' names and
by purchase of insurance policies. The amounts funded are not reflected in the
consolidated balance sheet since they are not under the control and management
of the Company. The amount of liability for future Israeli employee benefits
upon retirement and the balance of liability not covered by the deposits and
insurance policies discussed above are in accordance with Israeli labor
agreements in force. These liabilities are funded by deposits in the name of the
Company with recognized Israeli severance pay funds. At December 31, 1998,
accrued Israeli employee benefits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
(IN THOUSANDS)
Funded employee benefits................................................... $ 1,295
Accrued employee benefits.................................................. (1,932)
-------
Net accrued.............................................................. $ (637)
-------
-------
</TABLE>
F-22
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The Company's provision for income tax expense (benefit) for fiscal 1996,
1997, 1998 and the eight months ended December 31, 1998 is comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------- EIGHT MONTHS ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
--------- --------- --------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal................................................... $ 7,131 $ 15,121 $ 21,586 $ 11,713
State..................................................... 891 2,128 3,261 1,193
Foreign................................................... -- 321 2,484 2,464
--------- --------- --------- -------
Total current........................................... 8,022 17,570 27,331 15,370
--------- --------- --------- -------
Deferred:
Federal................................................... (1,160) 72 (900) 624
State..................................................... (140) 4 (100) 50
Foreign................................................... -- 1,343 455 (500)
--------- --------- --------- -------
Total deferred.......................................... (1,300) 1,419 (545) 174
--------- --------- --------- -------
Total income tax expense.............................. $ 6,722 $ 18,989 $ 26,786 $ 15,544
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 35% for fiscal 1996, 1997 and 1998 and the
eight months ended December 31, 1998 because of the effect of the following
items:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------- EIGHT MONTHS ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
----------- --------- --------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Expected income tax expense at U.S. federal statutory tax
rate...................................................... $ 5,042 $ 16,613 $ 23,611 $ 13,197
State income tax expense, net of U.S. federal tax income
benefit................................................... 496 1,386 2,195 930
Taxes on foreign income at rates which differ from the U.S.
federal statutory rate.................................... -- 343 288 36
Nondeductible goodwill amortization......................... 382 382 435 856
Change in valuation allowance............................... -- -- (1,100) --
Other, net.................................................. 802 265 1,357 525
----------- --------- --------- -------
Provision for income taxes.................................. $ 6,722 $ 18,989 $ 26,786 $ 15,544
----------- --------- --------- -------
----------- --------- --------- -------
</TABLE>
At December 31, 1998, the Company's foreign subsidiaries had $5 million in
distributable earnings, exclusive of amounts that if remitted in the future,
would result in little or no tax under current laws. The Company's earnings from
foreign subsidiaries are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been made
for these earnings. Upon distribution of foreign subsidiary earnings in the form
of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries.
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax impact of temporary differences
F-23
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
arising from assets and liabilities whose tax bases are different from financial
statement amounts. A valuation allowance is established if it is more likely
than not that all or a portion of deferred tax assets will not be realized.
Realization of the future tax benefits of deferred tax assets is dependent on
the Company's ability to generate taxable income within the carryforward period
and the periods in which net temporary differences reverse.
Items that result in deferred tax assets and liabilities at April 30, 1997
and 1998 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1997 1998 1998
--------- --------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Sale leaseback............................................................. $ 1,930 $ 1,930 $ 1,930
Accruals not currently deductible for tax.................................. 1,610 1,386 16,988
Pension and post retirement benefits....................................... 591 650 6,536
Inventory reserves......................................................... 2,730 3,276 --
Other...................................................................... 171 1,532 4,193
--------- --------- ------------
Total deferred tax assets.................................................... 7,032 8,774 29,647
Less valuation allowance................................................... 1,100 -- --
--------- --------- ------------
Net deferred tax assets.................................................. 5,932 8,774 29,647
--------- --------- ------------
Deferred tax liabilities:
Inventory reserves......................................................... -- -- 9,420
Depreciation and amortization.............................................. 10,683 10,988 86,703
Other...................................................................... 591 1,261 8,710
--------- --------- ------------
Total deferred tax liabilities........................................... 11,274 12,249 104,833
--------- --------- ------------
Net deferred income tax liability........................................ $ 5,342 $ 3,475 $ 75,186
--------- --------- ------------
--------- --------- ------------
</TABLE>
14. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", which has 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
investments by stockholders and distributions to stockholders) be reported in
the Company's financial statements, and displayed with the same prominence as
other financial statement presentations. Financial statements for prior periods
have been reclassified as required. Accumulated other comprehensive income
(loss) at April 30, 1997 and 1998 and December 31, 1998 represents foreign
currency translation adjustments.
15. NONRECURRING AND UNUSUAL CHARGES
During the eight months ended December 31, 1998 the Company recorded
nonrecurring and unusual charges of $13.5 million, consisting of (i) a $10.0
million investment advisory fee paid to Alpine in connection with the
acquisition of Essex, (ii) a $2.9 million restructuring charge recorded by
Cables of Zion relating to planned manufacturing plant consolidations and
overhead rationalization associated with the acquisition of Cvalim and (iii)
$0.6 million in charges associated with the review and evaluation of a planned
implementation of a new information system.
F-24
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
The Company, to a limited extent, uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. The Company does not hold or issue financial instruments
for investment or trading purposes. The Company is exposed to credit risk in the
event of nonperformance by counterparties for foreign exchange forward
contracts, metal forward price contracts and metals futures contracts but the
Company does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally the unrealized gains or losses within the
underlying contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company engages in the sale and purchase of goods and services which
periodically require payment or receipt of amounts denominated in foreign
currencies. To protect the Company's related anticipated cash flows from the
risk of adverse foreign currency exchange fluctuations for firm sales and
purchase commitments, the Company enters into foreign currency forward exchange
contracts. At December 31, 1998, the Company had no forward exchange sales
contracts, but did have $1.9 million of Deutschemark purchase contracts whose
fair value approximated the contract amount. Foreign currency gains or losses
resulting from the Company's operating and hedging activities are recognized in
earnings in the period in which the hedged currency is collected or paid. The
related amounts due to or from counterparties are included in other liabilities
or other assets.
COMMODITY PRICE RISK MANAGEMENT
Copper, the Company's principal raw material, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper price
risk with respect to copper purchases and to firm and anticipated customer sales
contracts. Derivative financial instruments in the form of copper futures
contracts are utilized by the Company to reduce those risks.
Purchase of "long" contracts are utilized by the Company to hedge firm and
anticipated sales contracts while sales of "short" contracts are employed with
respect to copper "carryover" purchases. Copper carryover purchases represent
that portion of the Company's current month's copper purchase commitments priced
at the current month's average New York Commodity Exchange, Inc. ("COMEX")
price, but not delivered until the following month.
Purchase contracts at December 31, 1998 totaled 4.3 million copper pounds,
with contract amounts of $3.5 million and estimated fair values of $2.9 million.
Sales contracts at December 31, 1998 totaled 12.0 million copper pounds, with
contract amounts of $8.3 million and estimated fair values of $8.1 million.
Deferred and unrealized gains or losses on these futures contracts ($400,000
loss at December 31, 1998) are included within other current assets and will be
recognized in earnings in the period in which the hedged copper is sold to
customers and the underlying contracts are liquidated, when a sale is no longer
expected to occur or when the carryover is received.
17. COMMITMENTS AND CONTINGENCIES
Total rent expense under cancelable and noncancelable operating leases was
$0.7 million, $0.9 million, $1.4 million and $2.6 million for fiscal 1996, 1997
and 1998 and the eight months ended December 31, 1998, respectively.
F-25
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1998, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
(IN
THOUSANDS)
1999........................................................................... $ 14,606
2000........................................................................... 13,061
2001........................................................................... 11,059
2002........................................................................... 8,228
2003........................................................................... 7,713
Thereafter..................................................................... 8,769
-------------
$ 63,436
-------------
-------------
</TABLE>
Approximately 43% of the Company's total labor force is covered by
collective bargaining agreements. Nine collective bargaining agreements,
representing 26% of the Company's unionized labor force, are due to expire at
various times in 1999.
The Company is subject to routine lawsuits incidental to its business. In
the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse effect upon the
Company's financial position, liquidity or results of operations.
In connection with Essex's 1988 acquisition of Essex Group, Inc., United
Technologies Corporation ("UTC"), Essex's former parent, has indemnified Essex
against all losses resulting from or in connection with damage or pollution to
the environment and arising from events, operations, or activities of Essex
prior to February 29, 1988 or from conditions or circumstances existing at
February 29, 1988 known to UTC prior to February 29, 1988. The sites covered by
this indemnity are handled directly by UTC and all payments required to be made
are paid directly by UTC. UTC also provided a second environmental indemnity
which deals with losses related to environmental events, conditions or
circumstances existing at or prior to February 29, 1988, which became known
prior to February 28, 1993. As to any such losses, the Company is responsible
for the first $4 million incurred. The Company accrues for these costs when it
is probable that a liability has been incurred and the amount of the loss can be
reasonably estimated.
Essex has been named as a defendant in a limited number of product liability
lawsuits brought by electricians and other skilled tradesmen claiming injury
from exposure to asbestos found in electrical wire products produced a number of
years ago. At December 31, 1998, the number of cases pending against Essex was
61 involving approximately 232 claims. The Company's strategy is to defend these
cases vigorously.
At December 31, 1998, the Company had purchase commitments for 686.0 million
pounds of copper. This is expected to be approximately 70% of the Company's
total annual requirement. The commitments are priced based on the COMEX price in
the month of shipment. Shipments are scheduled monthly subject to the Company's
production requirements. In addition, at December 31, 1998, the Company has 48.0
million pounds of copper purchase agreements that have been priced at fixed
amounts through forward purchase contracts covered by customer sales agreements
at copper prices at least equal to the Company's copper commitment.
F-26
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1998, the Company had committed $9.3 million to outside
vendors for certain capital projects.
Certain executives of the Company have employment contracts which generally
provide minimum base salaries, cash bonuses based on the Company's achievement
of certain performance objectives, stock options and restricted stock grants of
Alpine, and certain retirement and other employee benefits. Further, in the
event of termination or voluntary resignation for "good reason" accompanied by a
change in control of Alpine, as defined, such employment agreements provide for
severance payments not in excess of two times annual cash compensation and bonus
and the continuation for stipulated periods of other benefits, as defined.
18. RELATED PARTY TRANSACTIONS
The Company and Alpine are parties to a services agreement (the "Services
Agreement") whereby Alpine agrees to provide certain financial, audit and
accounting, corporate finance and strategic planning, legal, treasury, insurance
and administrative services in return for an annual fee in addition to
reimbursement of incidental costs and expenses incurred in connection with
Alpine's provision of such services. Under the Services Agreement, Superior
TeleCom paid Alpine $623,000 during the seven months ended April 30, 1997, $2.7
million during fiscal 1998 and $1.8 million during the eight months ended
December 31, 1998.
In addition to the aforementioned Service Agreement, the Company paid Alpine
a $10.0 million investment advisory fee in connection with the Essex
Acquisition, which fee has been included in nonrecurring and unusual charges
(see Note 5).
The Company had amounts due to Alpine of $0.8 million, $0.4 million and $1.1
million, respectively, at April 30, 1997 and 1998 and December 31, 1998, which
are included in accrued expenses in the consolidated balance sheets.
19. CHANGE IN YEAR END (UNAUDITED)
The Company's unaudited results of operations for the eight months ended
December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
DECEMBER 31, 1997
----------------------------------
<S> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales..................................................................... $ 347,447
Gross profit.................................................................. 64,202
Operating income.............................................................. 48,554
Provision for income taxes.................................................... 16,878
Net income.................................................................... 25,959
Net income per basic share of common stock.................................... $ 1.28
--------
--------
Net income per diluted share of common stock.................................. $ 1.26
--------
--------
</TABLE>
F-27
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company's reportable segments are strategic businesses that offer
different products and services to different customers. These segments are
communications, OEM, electrical and Superior Israel. The communications segment
includes (i) outside plant ("OSP") wire and cable for voice and data
transmission in the local loop portion of the telecommunications infrastructure
and (ii) datacom or premise wire and cable for use within homes and offices for
local area networks ("LANs"), Internet connectivity and other applications. The
OEM segment participates in the OEM wire and cable markets, principally through
the production of magnet and automotive wire products. The electrical segment
participates in the electrical wire and cable market principally through the
production of building and industrial wire and cable. The Superior Israel
segment is an Israeli-based manufacturer of fiber, copper communications,
electrical and industrial wire and cable products and power cable, whose
operations are conducted through Cables of Zion and Cvalim.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (Note 2). The Company evaluates
segment performance based on a number of factors, but including such critical
factors as operating income and related data. Intersegment sales are generally
recorded at cost, are not significant and, therefore, have been eliminated
below.
Operating results for each of the Company's four reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's consolidated statements of operations, cash flows and balance
sheets.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------- EIGHT MONTHS ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales:
Communications (a).................................... $ 410,413 $ 463,840 $ 516,599 $ 340,841
OEM................................................... -- -- -- 48,572
Electrical............................................ -- -- -- 53,206
Superior Israel....................................... -- -- -- 43,482
---------- ---------- ---------- -------------------
$ 410,413 $ 463,840 $ 516,599 $ 486,101
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Depreciation and amortization expense:
Communications........................................ $ 6,895 $ 7,569 $ 8,330 $ 6,312
OEM................................................... -- -- -- 987
Electrical............................................ -- -- -- 716
Superior Israel....................................... -- -- -- 1,464
Corporate and other................................... 1,556 1,726 1,715 2,447
---------- ---------- ---------- -------------------
$ 8,451 $ 9,295 $ 10,045 $ 11,926
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Nonrecurring and unusual charges:
Communications........................................ $ -- $ -- $ -- $ 4
OEM................................................... -- -- -- 138
Superior Israel....................................... -- -- -- 2,865
Corporate and other................................... -- -- -- 10,504
---------- ---------- ---------- -------------------
$ -- $ -- $ -- $ 13,511
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
</TABLE>
F-28
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------- EIGHT MONTHS ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating income (loss):
Communications........................................ $ 33,336 $ 63,440 $ 80,975 $ 64,079
OEM................................................... -- -- -- 3,892
Electrical............................................ -- -- -- 4,426
Superior Israel....................................... -- -- -- 92
Corporate and other................................... (1,556) (2,763) (5,630) (17,785)
---------- ---------- ---------- -------------------
$ 31,780 $ 60,677 $ 75,345 $ 54,704
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Total assets:
Communications........................................ $ 195,651 $ 193,259 $ 186,217 $ 284,368
OEM................................................... -- -- -- 316,676
Electrical............................................ -- -- -- 322,622
Superior Israel....................................... -- -- -- 123,386
Corporate and other................................... 48,414 44,849 46,026 839,504
---------- ---------- ---------- -------------------
$ 244,065 $ 238,108 $ 232,243 $ 1,886,556
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Capital expenditures:
Communications........................................ $ 9,786 $ 9,807 $ 18,488 $ 17,919
OEM................................................... -- -- -- 3,085
Electrical............................................ -- -- -- 3,853
Superior Israel....................................... -- -- -- 1,110
Corporate and other................................... -- -- -- 2,047
---------- ---------- ---------- -------------------
$ 9,786 $ 9,807 $ 18,488 $ 28,014
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
</TABLE>
- ------------------------
(a) Five customers in the communications wire and cable segment accounted for
22%, 17%, 16%, 13% and 13% of net sales in fiscal 1996; five customers
accounted for 19%, 17%, 16%, 14% and 14% of net sales in fiscal 1997; five
customers accounted for 19%, 19%, 17%, 16% and 13% of net sales in fiscal
1998; and three customers accounted for 14%, 13%, and 11% of net sales
during the eight months ended December 31, 1998.
F-29
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. BUSINESS SEGMENTS AND FOREIGN OPERATIONS (CONTINUED)
The following provides information about domestic and foreign operations for
fiscal 1996, 1997, and 1998 and for the eight months ended December 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------- EIGHT MONTHS ENDED
APRIL 28, APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales:
United States......................................... $ 378,406 $ 421,126 $ 472,019 $ 408,020
Canada................................................ 32,007 42,714 44,580 30,749
Israel................................................ -- -- -- 43,482
United Kingdom........................................ -- -- -- 3,850
---------- ---------- ---------- -------------------
$ 410,413 $ 463,840 $ 516,599 $ 486,101
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Operating income (loss):
United States......................................... $ 31,885 $ 55,369 $ 66,722 $ 47,710
Canada................................................ (105) 5,308 8,623 7,169
Israel................................................ -- -- -- 92
United Kingdom........................................ -- -- -- (267)
---------- ---------- ---------- -------------------
$ 31,780 $ 60,677 $ 75,345 $ 54,704
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Identifiable assets:
United States......................................... $ 218,237 $ 214,071 $ 206,027 $ 1,698,749
Canada................................................ 25,828 23,240 25,858 34,363
Israel................................................ -- -- -- 123,386
United Kingdom........................................ -- -- -- 28,948
---------- ---------- ---------- -------------------
$ 244,065 $ 237,311 $ 231,885 $ 1,885,446
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
</TABLE>
F-30
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information includes the combined
operations of STI and DNE for the periods prior to the Reorganization (see Note
1). Net income per share of common stock is provided for the two full quarters,
subsequent to the Reorganization, ended January 31, 1997 and April 30, 1997, for
each of the quarters in the fiscal year ended April 30, 1998, for the fiscal
quarters ended July 31, 1998 and October 31, 1998, and for the two months ended
December 31,1998.
<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
------------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales........................................... $ 123,824 $ 122,926 $ 97,391 $ 119,699 $ 463,840
Gross profit........................................ 18,377 20,585 17,427 23,180 79,569
Operating income.................................... 14,057 15,651 12,947 18,022 60,677
Net income.......................................... $ 5,968 $ 6,947 $ 6,132 $ 9,429 $ 28,476
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Net income per basic share of common stock.......... $ .30 $ 0.47
----------- ----------
----------- ----------
Net income per diluted share of common stock........ $ .30 $ 0.46
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998 QUARTER ENDED
------------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 YEAR
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales........................................... $ 131,233 $ 139,212 $ 113,661 $ 132,493 $ 516,599
Gross profit........................................ 24,342 25,342 21,680 27,877 99,241
Operating income.................................... 18,541 19,429 15,684 21,691 75,345
Net income.......................................... $ 9,728 $ 10,502 $ 8,440 $ 12,005 $ 40,675
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Net income per basic share of common stock.......... $ 0.48 $ 0.52 $ 0.42 $ 0.59 $ 2.01
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
Net income per diluted share of common stock (a).... $ 0.47 $ 0.51 $ 0.40 $ 0.58 $ 1.97
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED TWO MONTHS
----------------------- ENDED
JULY 31 OCTOBER 31 DECEMBER 31 EIGHT MONTHS
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales................................................... $ 156,874 $ 146,097 $ 183,130 $ 486,101
Gross profit................................................ 34,296 33,472 35,227 102,995
Nonrecurring and unusual charges............................ -- -- 13,511 13,511
Operating income............................................ 25,393 25,123 4,188 54,704
Net income (loss)........................................... $ 13,159 $ 13,742 $ (5,888) $ 21,013
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
Net income (loss) per basic share of common stock........... $ 0.65 $ 0.68 $ (0.29) $ 1.04
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
Net income (loss) per diluted share of common stock......... $ 0.63 $ 0.66 $ (0.28) $ 1.01
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
</TABLE>
- ------------------------
(a) Net income per share of common stock is determined by computing a
year-to-date weighted average of the number of incremental shares included
in each quarterly net income per share calculation. As a result, the sum of
net income per share for the four fiscal quarters may not equal the net
income per share for the twelve-months ended April 30, 1998.
F-31
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
Jurisdiction
Subsidiary of Organization
- ---------- ---------------
<S> <C>
Superior TeleCom Inc. .................................... Delaware
Superior Trust I ......................................... Delaware
DNE Systems, Inc. ........................................ Delaware
DNE Manufacturing & Service Company ...................... Delaware
DNE Technologies, Inc. ................................... Delaware
Superior Essex Inc. ...................................... Delaware
Superior Telecommunications Inc. ......................... Georgia
Superior Cable Corporation ............................... Ontario
Texas SUT Inc. ........................................... Texas
Superior Cable Ltd. ...................................... Israel
Cables of Zion United Works Ltd. ......................... Israel
SUT Acquisition Corporation ............................. Delaware
Essex International Inc. (80+%) ......................... Delaware
Essex Group Inc. ......................................... Michigan
Essex Services Inc. ...................................... Delaware
Diamond Wire & Cable Company ............................ Illinois
Essex Technology Inc. .................................... Delaware
Essex International Ltd. ................................. U.K.
Temple Electrical Ltd. ................................... U.K.
Interstate Industries Holdings, Inc. ..................... Delaware
Interstate Industries, Inc. .............................. Mississippi
Essex Group Export Inc. .................................. Barbados
Essex Canada Inc. ........................................ Delaware
SX Mauritius Holding, Inc. ............................... Mauritius
Active Industries, Inc. .................................. Delaware
Essex Funding Inc. ....................................... Delaware
Essex Group Mexico, Inc. ................................. Delaware
Essex Mexico HOldings, Inc. .............................. Delaware
Essex Group Mexico, S.A. de C.V. ......................... Mexico
Grupo Essex de Mexico, S. de R.L. de C.V. ................ Mexico
</TABLE>
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 26, 1999 included in this Form
10-K, into the Company's previously filed Registration Statement File No.
333-16705.
Atlanta, Georgia
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 16,110
<SECURITIES> 0
<RECEIVABLES> 227,552
<ALLOWANCES> 4,984
<INVENTORY> 346,614
<CURRENT-ASSETS> 629,953
<PP&E> 554,288
<DEPRECIATION> 40,885
<TOTAL-ASSETS> 1,886,556
<CURRENT-LIABILITIES> 397,556
<BONDS> 0
0
0
<COMMON> 203
<OTHER-SE> 91,177
<TOTAL-LIABILITY-AND-EQUITY> 1,886,556
<SALES> 486,101
<TOTAL-REVENUES> 486,101
<CGS> 383,106
<TOTAL-COSTS> 383,106
<OTHER-EXPENSES> (346)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,651
<INCOME-PRETAX> 37,707
<INCOME-TAX> 15,544
<INCOME-CONTINUING> 22,256
<DISCONTINUED> 0
<EXTRAORDINARY> (1,243)
<CHANGES> 0
<NET-INCOME> 21,013
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.01
</TABLE>
