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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
NOVEMBER 27, 1998 1-12261
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Date of Report (Date of earliest event reported) Commission File Number
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 55-2248978
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1790 BROADWAY
NEW YORK, NEW YORK 10019-1412
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(Address of Principal Executive Offices) (Zip Code)
(212) 757-3333
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(Registrant's telephone number, including area code)
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This Current Report on Form 8-K contains financial statements required by
Item 7 of Form 8-K with respect to the acquisition by Superior TeleCom Inc. of
Essex International Inc. The acquisition was initially reported in Superior
TeleCom Inc.'s Form 10-Q for the fiscal quarter ended October 31, 1998 and filed
December 14, 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable
(b) Pro Forma Condensed Combined Financial Statements (Unaudited)
Superior TeleCom Inc. ("Superior") is providing the following unaudited
pro forma financial information to give a picture of what the results of
operations and financial position of Superior, Cables of Zion United Works
Ltd. ("Cables of Zion"), acquired May 5, 1998, and Essex International Inc.
("Essex") would have looked like, absent any operational or other changes, if
those businesses had been combined for the periods and at the dates indicated.
The unaudited pro forma condensed combined financial statements of
Superior give effect to the following, as if these acquisitions had occurred
on May 1, 1997.
(i) the acquisition of Cables of Zion and
(ii) the cash tender offer whereby Superior acquired 81% of Essex on
November 27, 1998.
The acquisitions are reflected using the purchase method of accounting
for business combinations. The pro forma adjustments have been applied to
(i) the historical financial statements of Superior for the fiscal year
ended April 30, 1998, which statements have been derived from Superior's
audited consolidated financial statements,
(ii) the unaudited condensed historical financial statements of Superior
as of October 31, 1998 and for the six months then ended,
(iii) the unaudited condensed historical financial statements of Essex
for the twelve-month period ended March 31, 1998,
(iv) the unaudited condensed historical financial statements of Essex as
of September 30, 1998 and for the six months then ended and
(v) the unaudited condensed historical financial statements of Cables of
Zion for the twelve-month period ended March 31, 1998.
The unaudited pro forma condensed combined financial information is provided
for comparative purposes only and does not purport to be indicative of the
results that actually would have been achieved if the events set forth above had
been effected on the dates indicated or of those results that may be achieved in
the future. These pro forma financial statements are based on estimates of
values and transaction costs, among other things. Accordingly, the actual
recording of the transactions can be expected to differ from these pro forma
financial statements.
On February 3, 1999, the Company effected a five-for-four stock split by
paying a stock dividend on its common stock at the rate of one share of
common stock for each four shares held of record at the close of business on
January 20, 1999. All references to Superior's shares of common stock and to
per share information in this Current Report on Form 8-K have been adjusted
to give effect to this stock dividend on a retroactive basis.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED APRIL 30, 1998 (SUPERIOR),
MARCH 31, 1998 (ESSEX) AND MARCH 31, 1998 (CABLES OF ZION)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL HISTORICAL CABLES OF PRO FORMA
SUPERIOR ESSEX ZION ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales..................................... $ 516,599 $ 1,675,969 $ 84,678 $ 2,277,246
Cost of goods sold............................ 417,358 1,343,228 70,370 134(a) 1,831,090
------------- ------------ ----------- ------------ -------------
Gross profit................................ 99,241 332,741 14,308 (134) 446,156
Selling, general and administrative
expenses.................................... 22,181 150,872 8,199 (690)(b) 179,562
(1,000)(b)
Amortization of goodwill...................... 1,715 4,233 79(a) 19,205
13,178(c)
------------- ------------ ----------- ------------ -------------
Operating income............................ 75,345 177,636 6,109 (11,701) 247,389
Interest expense.............................. (8,090) (33,946) (1,697) (80,296)(d) (124,029)
Other income (expense), net................... 206 703 (1,416) (507)
------------- ------------ ----------- ------------ -------------
Income before income taxes and
minority interest......................... 67,461 144,393 2,996 (91,997) 122,853
Provision for income taxes.................... (26,786) (58,000) (441) 30,094(e) (55,133)
------------- ------------ ----------- ------------ -------------
Income before minority interest in
subsidiary................................ 40,675 86,393 2,555 (61,903) 67,720
Minority interest in earnings of subsidiary... (79) (17,330)(f) (17,409)
------------- ------------ ----------- ------------ -------------
Net income.................................. $ 40,675 $ 86,393 $ 2,476 $ (79,233) $ 50,311
------------- ------------ ----------- ------------ -------------
------------- ------------ ----------- ------------ -------------
Net income per share of common stock:
Basic:
Basic net income per share of common
stock................................... $2.01 $2.49
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Average common shares outstanding......... 20,205,000 20,205,000
------------- -------------
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Diluted:
Diluted net income per share of common
stock................................... $1.97 $2.43
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Average common shares outstanding......... 20,683,000 20,683,000
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</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 (SUPERIOR)
AND SEPTEMBER 30, 1998 (ESSEX)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SUPERIOR ESSEX ADJUSTMENTS PRO FORMA
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................................. $ 302,971 $ 756,936 $ 1,059,907
Cost of goods sold........................................ 235,203 609,266 844,469
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Gross profit............................................ 67,768 147,670 215,438
Selling, general and administrative expenses.............. 16,368 70,697 (500)(b) 86,565
Unusual charges (1)....................................... 6,003 6,003
Amortization of goodwill.................................. 884 2,150 6,589 (c) 9,623
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Operating income........................................ 50,516 68,820 (6,089) 113,247
Interest expense.......................................... (4,270) (12,804) (44,051)(d) (61,125)
Other income (expense), net............................... (691) 1,298 607
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Income before income taxes and minority interest........ 45,555 57,314 (50,140) 52,729
Provision for income taxes................................ (18,026) (22,791) 16,500 (e) (24,317)
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Income before minority interest in subsidiary........... 27,529 34,523 (33,640) 28,412
Minority interest in earnings of subsidiary............... (628) (5,213)(f) (5,841)
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Net income.............................................. $ 26,901 $ 34,523 $ (38,853) $ 22,571
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Net income per share of common stock:
Basic:
Income before unusual charges......................... $1.33 $1.30
Unusual charges(1).................................... -- (0.18)
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Net income per basic share of common stock.......... $1.33 $1.12
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Average common shares outstanding..................... 20,151,000 20,151,000
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Diluted:
Income before unusal charges.......................... $1.30 $1.26
Unusual charges(1).................................... -- (0.17)
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Net income per diluted share of common stock........ $1.30 $1.09
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Average common shares outstanding..................... 20,736,000 20,736,000
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</TABLE>
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(1) During its quarter ended September 30, 1998, Essex recorded unusual charges
of $3,600 ($6,003 before tax) with respect to an early retirement program
offered to certain senior executives of the company and plant closing costs.
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 31, 1998 (SUPERIOR) AND SEPTEMBER 30, 1998 (ESSEX)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
SUPERIOR ESSEX ADJUSTMENTS PRO FORMA
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivelents..................................... $ 12,734 $ 7,626 $ 20,360
Accounts receivable, net...................................... 61,974 204,871 266,845
Inventories................................................... 58,679 268,377 327,056
Other curent assets........................................... 10,285 13,162 23,447
---------- ---------- ------------
Total current assets........................................ 143,672 494,036 637,708
Property, plant equipment, net.................................. 126,588 298,377 424,965
Other assets.................................................... 10,086 6,361 (1,358)(g) 45,762
(2,127)(g)
32,800 (h)
Goodwill, net................................................... 45,161 130,550 555,873 (i) 731,584
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Total assets................................................ $ 325,507 $ 929,324 $ 585,188 $ 1,840,019
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 58,265 $ 64,068 $ $ 122,333
Accrued expenses.............................................. 28,939 74,659 10,000 (i) 113,598
Notes payable to banks........................................ 157,730 (25,630)(g) 132,100
Current portion of long-term debt............................. 6,868 2,500 9,368
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Total current liabilities:.................................. 94,072 298,957 (15,630) 377,399
Long-term debt, less current portion............................ 96,222 258,892 1,189,600 (h) 1,210,244
(334,470)(g)
Minority interest in subsidiary................................. 16,283 56,809 (j) 73,092
Other long-term liabilities..................................... 19,827 72,481 92,308
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Total liabilities........................................... 226,404 630,330 896,309 1,753,043
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Stockholders equity:
Common stock.................................................. 162 302 (302)(i) 162
Capital in excess of par value................................ 28,355 198,379 (198,379)(i) 28,355
Accumulated comprehensive income.............................. (4,218) (4,218)
Retained earnings............................................. 80,921 154,434 (154,434)(i) 68,794
(2,127)(g)
(10,000)(k)
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105,220 353,115 (365,242) 93,093
Shares of common stock in treasury............................ (6,117) (54,121) 54,121 (i) (6,117)
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Total stockholders' equity.................................. 99,103 298,994 (311,121) 86,976
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Total liabilities and stockholders' equity................ $ 325,507 $ 929,324 $ 585,188 $ 1,840,019
---------- ---------- ------------ ------------
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</TABLE>
See accompanying Notes to Pro Forma Condensed Combined Financial Statements.
5
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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects the changes to historical depreciation and the incremental goodwill
amortization resulting from the acquisition of Cables of Zion which was
completed in May 1998.
(b) Reflects the elimination of management fees allocated by the controlling
shareholders of Cables of Zion ($690,000) and Essex ($1 million) for the
twelve months ended March 31, 1998. Net sales and expenses of Cables of
Zion and Essex would not have materially changed without the management
services provided by the respective controlling shareholders.
(c) Reflects the incremental goodwill amortization resulting from the
acquisition of Essex.
(d) Reflects the adjustment to interest expense resulting from debt incurred.
The effect on net income, net of tax, of a 1/8% variance in the interest
rates related to the term loans, revolving credit facility and senior
subordinated debt would be approximately $0.9 million for the twelve
months ended April 30, 1998 and approximately $0.4 million for the six
months ended October 31, 1998.
(e) Reflects the pro forma adjustment to income tax expense resulting from the
Cables of Zion and Essex transactions. The pro forma effective tax rate of
44.9% and 46.1% for the twelve months ended April 30, 1998 and the six
months ended October 31, 1998, respectively, reflects the non-deductibility
of purchased goodwill.
(f) Reflects the adjustment to minority interest in earnings of subsidiaries
to reflect (i) the 49% minority interest in Cables of Zion for the twelve
months ended April 30, 1998 and (ii) the 19% minority interest in Essex
for the twelve months ended April 30, 1998 and the six months ended
October 31, 1998.
(g) Reflects the debt extinguished in connection with the financing described in
Note (h) and the write-off of $1.4 million and $2.1 million, respectively,
in deferred financing charges previously capitalized by Essex and Superior.
(h) Represents the proceeds from Superior's initial borrowings under the new
facilities as follows:
AMOUNT
(IN MILLIONS)
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Term Loan A....................................... $ 500.0
Term Loan B....................................... 425.0
Revolving credit facility*........................ 64.6
Senior subordinated notes......................... 200.0
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$ 1,189.6
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*Total availability under Superior's revolving credit facility
amounts to $225 million.
The use of these proceeds from Superior's initial borrowings are as follows,
with no net impact to cash.
AMOUNT
(IN MILLIONS)
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Use of proceeds:
Purchase 81% of Essex common stock................ $ 722.0
Repay Essex existing long-term debt............... 270.1
Repay Superior existing long-term debt............ 90.0
Redemption of Essex unexercised stock options..... 47.5
Transaction fees and other expenses............... 60.0
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Total use of proceeds......................... $ 1,189.6
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In connection with the above facilities, Superior estimates that deferred
financing charges will amount to approximately $32.8 million.
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(i) Reflects the preliminary allocation of the purchase price to 81% of the
net assets of Essex based upon estimated fair values of such assets:
AMOUNT
(IN MILLIONS)
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Estimated acquisition cost (including $17.2m in expense)........ $ 739.2
Less: historical book values of net assets at September 30, 1998 (299.0)
Add: Minority interest in Essex................................. 56.8
Redemption of Essex unexercised stock options.............. 47.5
Accrual of expenses........................................ 10.0
Write-off of Essex's deferred financing charges............ 1.4
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Acquisition goodwill (to be amortized over 40 years)............ $ 555.9
----------
----------
(j) Reflects the 19% minority interest in Essex as of September 30, 1998.
(k) Reflects the impact to retained earnings for the $10.0 million transaction
fee paid to The Alpine Group, Inc. with respect to the Essex acquisition.
The fee paid to Alpine is a direct acquisition cost of Essex and,
accordingly, is being expensed by Superior as a nonrecurring internal
acquisition cost.
(c) Exhibits
--------
Exhibit 1 Consent of Ernst & Young LLP, independent auditors, with
respect to financial statements of Essex International Inc.
Reference is made to the exhibits to Superior's Form 10-Q for the fiscal
quarter ended October 31, 1998, which are incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 10, 1999 SUPERIOR TELECOM INC.
By: /s/ David S. Aldridge
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David S. Aldridge
Chief Financial Officer
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EXHIBIT INDEX
Exhibit 1 Consent of Ernst & Young LLP, independent auditors, with respect
to financial statements of Essex International Inc.
<PAGE>
EXHIBIT 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Current Report
on Form 8-K of Superior TeleCom Inc. of our report dated January 27,
1998, with respect to the consolidated financial statements and schedules
of Essex International Inc. included in its Annual Report (Form 10-K)
for the year ended December 31, 1997, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
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Ernst & Young LLP
Indianapolis, Indiana
February 8, 1999
