<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12261
------------------------
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal executive
offices)
</TABLE>
212-757-3333
Registrant's telephone number, including area code
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
Class Outstanding at November 3, 2000
--------------------------------------- ---------------------------------------
Common Stock, $.01 Par Value 20,305,061
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year. These
financial statements should be read in conjunction with the summary of
significant accounting policies and the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,020 $ 14,305
Accounts receivable (less allowance for doubtful accounts
of $3,415 and $3,193 at September 30, 2000 and
December 31, 1999, respectively)........................ 294,579 261,263
Inventories............................................... 292,174 313,571
Other current assets...................................... 35,273 38,325
---------- ----------
Total current assets.................................... 630,046 627,464
Property, plant and equipment, net.......................... 536,585 513,914
Long-term investments and other assets...................... 80,266 65,586
Goodwill (less accumulated amortization of $44,292 and
$28,616 at September 30, 2000 and December 31, 1999,
respectively)............................................. 777,310 793,390
---------- ----------
Total assets............................................ $2,024,207 $2,000,354
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 159,799 $ 140,369
Current portion of long-term debt......................... 88,842 85,831
Accounts payable.......................................... 163,798 147,290
Accrued expenses.......................................... 92,715 92,425
---------- ----------
Total current liabilities............................... 505,154 465,915
Long-term debt, less current portion........................ 1,145,683 1,170,143
Minority interest in subsidiary............................. 9,587 13,205
Other long-term liabilities................................. 110,480 104,124
---------- ----------
Total liabilities....................................... 1,770,904 1,753,387
---------- ----------
Company-obligated Mandatorily Redeemable Trust Convertible
Preferred Securities of Superior Trust I holding solely
convertible debentures of the Company (net of discount)... 134,685 133,959
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 35,000,000 shares
authorized; 21,082,615 and 20,980,101 shares issued at
September 30, 2000 and December 31, 1999,
respectively............................................ 211 210
Capital in excess of par value............................ 40,186 38,765
Accumulated other comprehensive deficit................... (8,511) (5,447)
Retained earnings......................................... 105,875 98,623
---------- ----------
137,761 132,151
Shares of common stock in treasury, at cost; 828,300
shares at September 30, 2000 and December 31, 1999...... (19,143) (19,143)
---------- ----------
Total stockholders' equity.............................. 118,618 113,008
---------- ----------
Total liabilities and stockholders' equity............ $2,024,207 $2,000,354
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales................................................... $504,317 $522,450
Cost of goods sold.......................................... 423,992 426,032
-------- --------
Gross profit.............................................. 80,325 96,418
Selling, general and administrative expenses................ 38,449 36,061
Amortization of goodwill.................................... 5,267 5,173
Nonrecurring and unusual charges............................ 3,915 --
-------- --------
Operating income.......................................... 32,694 55,184
Interest expense............................................ (32,231) (29,971)
Other income (expense), net................................. 2,060 (2,114)
-------- --------
Income before income taxes, distributions on preferred
securities of Superior Trust I and minority interest.... 2,523 23,099
Provision for income taxes.................................. (1,540) (9,436)
-------- --------
Income before distributions on preferred securities of
Superior Trust I and minority interest.................. 983 13,663
Distributions on preferred securities of Superior Trust I... (3,789) (3,763)
-------- --------
Income (loss) before minority interest.................... (2,806) 9,900
Minority interest in net loss of subsidiary................. 1,221 1,057
-------- --------
Net income (loss)....................................... $ (1,585) $ 10,957
======== ========
Net income (loss) per share of common stock:
Basic................................................... $ (0.08) $ 0.54
======== ========
Diluted................................................. $ (0.08) $ 0.52
======== ========
Weighted average shares outstanding:
Basic................................................... 20,252 20,239
======== ========
Diluted................................................. 20,252 20,936
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales................................................... $1,547,426 $1,543,977
Cost of goods sold.......................................... 1,282,784 1,246,089
---------- ----------
Gross profit.............................................. 264,642 297,888
Selling, general and administrative expenses................ 115,474 114,350
Amortization of goodwill.................................... 15,695 14,487
Nonrecurring and unusual charges............................ 12,727 4,552
---------- ----------
Operating income.......................................... 120,746 164,499
Interest expense............................................ (95,940) (88,640)
Other income, net........................................... 1,696 929
---------- ----------
Income before income taxes, distributions on preferred
securities of Superior Trust I, minority interest and
extraordinary (loss).................................... 26,502 76,788
Provision for income taxes.................................. (11,876) (32,117)
---------- ----------
Income before distributions on preferred securities of
Superior Trust I, minority interest and extraordinary
(loss).................................................. 14,626 44,671
Distributions on preferred securities of Superior Trust I... (11,348) (7,519)
---------- ----------
Income before minority interest and extraordinary
(loss).................................................. 3,278 37,152
Minority interest in (earnings) losses of subsidiaries...... 3,974 (1,199)
---------- ----------
Income before extraordinary (loss)........................ 7,252 35,953
Extraordinary (loss) on early extinguishment of debt, net... -- (1,617)
---------- ----------
Net income.............................................. $ 7,252 $ 34,336
========== ==========
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................... $ 0.36 $ 1.76
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.08)
---------- ----------
Net income per basic share of common stock.......... $ 0.36 $ 1.68
========== ==========
Diluted:
Income before extraordinary (loss).................... $ 0.36 $ 1.71
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.08)
---------- ----------
Net income per diluted share of common stock........ $ 0.36 $ 1.63
========== ==========
Weighted average shares outstanding:
Basic................................................... 20,216 20,418
========== ==========
Diluted................................................. 20,312 21,086
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER
COMPREHENSIVE --------------------- EXCESS COMPREHENSIVE RETAINED
INCOME SHARES AMOUNT OF PAR DEFICIT EARNINGS
------------- ---------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999............ 20,980,101 $210 $38,765 $(5,447) $ 98,623
Employee stock purchase plan............ 102,514 1 1,047
Compensation expense related to options
and grants............................ 374
Comprehensive income:
Net income............................ $ 7,252 7,252
Foreign currency translation
adjustment.......................... (3,064) (3,064)
-------
Total comprehensive income.............. $ 4,188
======= ---------- ---- ------- ------- --------
Balance at September 30, 2000........... 21,082,615 $211 $40,186 $(8,511) $105,875
========== ==== ======= ======= ========
<CAPTION>
TREASURY STOCK
-------------------
SHARES AMOUNT TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1999............ (828,300) $(19,143) $113,008
Employee stock purchase plan............ 1,048
Compensation expense related to options
and grants............................ 374
Comprehensive income:
Net income............................ 7,252
Foreign currency translation
adjustment.......................... (3,064)
Total comprehensive income..............
-------- -------- --------
Balance at September 30, 2000........... (828,300) $(19,143) $118,618
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary (loss)........................ $ 7,252 $ 35,953
Adjustments to reconcile income before extraordinary
(loss) to net cash provided by operating activities:
Depreciation and amortization......................... 46,613 42,916
Amortization of deferred financing costs.............. 4,068 4,081
Provision for deferred taxes.......................... 5,084 3,468
Minority interest in earnings (losses) of
subsidiary.......................................... (3,974) 1,199
Change in assets and liabilities:
Accounts receivable................................. (32,670) (62,255)
Inventories......................................... 21,812 18,007
Other current and non-current assets................ 6,974 20,587
Accounts payable and accrued expenses............... 18,202 21,329
Other, net.......................................... (2,853) 1,573
-------- ---------
Cash flows provided by operating activities................. 70,508 86,858
-------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ -- (908)
Capital expenditures...................................... (60,237) (46,418)
Customer loans............................................ (25,524) (21,473)
Net proceeds from the sale of assets...................... 5,827 2,741
Other..................................................... 1,417 --
-------- ---------
Cash flows used for investing activities.................... (78,517) (66,058)
-------- ---------
Cash flows from financing activities:
Short-term borrowings, net................................ 19,430 39,700
Borrowings (repayments) under revolving credit facilities,
net..................................................... 8,086 (11,281)
Long-term borrowings...................................... 44,594 219,455
Debt issuance costs....................................... -- (6,294)
Repayments of long-term borrowings........................ (71,366) (247,636)
Dividends on common stock................................. -- (3,718)
Purchase of treasury stock................................ -- (12,893)
Other, net................................................ 980 1,265
-------- ---------
Cash flows provided by (used for) financing activities...... 1,724 (21,402)
-------- ---------
Net decrease in cash and cash equivalents................... (6,285) (602)
Cash and cash equivalents at beginning of period............ 14,305 16,110
-------- ---------
Cash and cash equivalents at end of period.................. $ 8,020 $ 15,508
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest.................................... $80,139 $ 79,453
======= ========
Cash paid (received) for income taxes, net of refunds..... $ 9,628 $ (1,290)
======= ========
Acquisition of Essex minority interest:
Net assets acquired including goodwill.................... $ 83,044
Minority interest in subsidiary........................... 50,246
--------
Issuance of Company-obligated Mandatorily Redeemable Trust
Convertible Preferred Securities of Superior Trust I
holding solely convertible debentures of the Company
(net of discount of $33,323)............................ $133,290
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Superior TeleCom Inc. and its majority owned
subsidiaries (collectively, unless the context otherwise requires, "Superior" or
the "Company"). Certain reclassifications have been made to the prior period
presentation to conform to the current period presentation.
On January 25, 2000, the Company declared a 3% stock dividend to
stockholders of record on February 3, 2000 which was issued on February 11,
2000. All references to common shares (except shares authorized) and to per
share information in the condensed consolidated financial statements have been
adjusted to reflect the stock dividend on a retroactive basis.
2. INVENTORIES
At September 30, 2000 and December 31, 1999, the components of inventories
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ 57,646 $ 50,618
Work in process............................................. 45,741 42,150
Finished goods.............................................. 208,631 233,142
-------- --------
312,018 325,910
LIFO reserve................................................ (19,844) (12,339)
-------- --------
$292,174 $313,571
======== ========
</TABLE>
Inventories valued using the LIFO method amounted to $158.9 million and
$167.3 million at September 30, 2000 and December 31, 1999, respectively.
3. COMPREHENSIVE INCOME
The components of comprehensive income for the three and nine months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss)............................... $(1,585) $10,957 $ 7,252 $34,336
Foreign currency translation adjustment......... (524) 86 (3,064) 1,509
Additional minimum pension liability............ -- -- -- (1,340)
------- ------- ------- -------
Comprehensive income (loss)..................... $(2,109) $11,043 $ 4,188 $34,505
======= ======= ======= =======
</TABLE>
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
4. ACQUISITIONS
ESSEX ACQUISITION
On November 27, 1998, the Company completed a cash tender offer for 81% of
the outstanding common stock of Essex International Inc. ("Essex"), at an
aggregate cash tender value of $770 million. On March 31, 1999, the Company
acquired the remaining outstanding common stock of Essex through the issuance of
approximately $167 million (face amount) of 8 1/2% Company-obligated Mandatorily
Redeemable Trust Convertible Preferred Securities of Superior Trust I holding
solely convertible debentures of the Company. The sole assets of Superior Trust
I are the $171.8 million (principal amount) of convertible debentures of the
Company, which bear interest at an annual rate of 8 1/2%. The convertible
debentures mature on March 30, 2014.
The acquisition of Essex 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 dates of
acquisition. The purchase price was allocated based upon assessments of the fair
values of assets and liabilities at the dates of acquisition, which included
accruals for planned consolidations, overhead rationalization and loss
contingencies. The excess of the purchase price over the net assets acquired is
being amortized on a straight-line basis over 40 years.
PRO FORMA FINANCIAL DATA
Unaudited condensed pro forma results of operations for the nine months
ended September 30, 1999, which give effect to the March 31, 1999 acquisition of
the remaining 19% of the outstanding common stock of Essex as if it had occurred
on January 1, 1999, are presented below. The pro forma amounts reflect
acquisition-related purchase accounting adjustments, including adjustments to
depreciation and amortization expense 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 transaction had taken place at the beginning of the period
presented or of the future results of operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
--------------------------
(IN THOUSANDS,
EXCEPT FOR PER SHARE DATA)
<S> <C>
Net sales................................................... $1,543,977
Income before income taxes, distributions on preferred
securities of Superior Trust I, minority interest and
extraordinary (loss)...................................... 75,998
Income before extraordinary (loss).......................... 34,633
Extraordinary (loss) on early extinguishment of debt, net... (1,617)
----------
Net income applicable to common stock....................... $ 33,016
==========
Net income per diluted share of common stock:
Income before extraordinary (loss)........................ $ 1.65
Extraordinary (loss) on early extinguishment of debt,
net..................................................... (0.08)
----------
Net income per diluted share of common stock............ $ 1.57
==========
</TABLE>
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
5. RESTRUCTURING ACCRUAL
ESSEX
Since the completion of the acquisition of Essex, the Company has been
involved in the consolidation and integration of manufacturing, corporate and
distribution functions of Essex into Superior. As a result, the Company
initially accrued as part of the Essex acquisition purchase price a
$29.7 million provision, which included $11.8 million of employee termination
and relocation costs, $11.9 million of facility consolidation costs,
$4.4 million of management information system project termination costs, and
$1.6 million of other exit costs. During 1999, the Company revised its estimate
and, as a result, increased the provision for employee termination and
relocation costs, facility consolidation costs, and other exit costs by
$6.1 million, $0.2 million and $1.3 million, respectively, and decreased the
provision for management information system project termination costs by
$1.4 million. The net increase to the accrual of $6.2 million was reflected as
an increase in goodwill. As of September 30, 2000, $17.1 million, $9.8 million,
$3.0 million and $2.6 million have been incurred and paid related to employee
termination and relocation costs, facility consolidation costs, management
information system project termination costs and other exit costs, respectively.
The provision for employee termination and relocation costs was primarily
associated with selling, general and administrative functions within Essex. The
provision for facility consolidation costs included both manufacturing and
distribution facility rationalization and the related costs associated with
employee severance. The restructuring resulted in the severance of approximately
1,100 employees. All significant aspects of the plan are complete.
SUPERIOR ISRAEL
During 1999, the Company's 50.2% owned Israeli subsidiary, Superior Cables
Limited ("Superior Israel"), recorded a $1.3 million restructuring charge, which
included a provision for the consolidation of manufacturing facilities. As of
September 30, 2000, $1.3 million has been incurred and paid. The restructuring
actions eliminated approximately 35 positions, most of which were manufacturing
related employees. All aspects of the restructuring plan are complete.
During the three months ended September 30, 2000, Superior Israel recorded a
$1.8 million restructuring charge for further consolidation of manufacturing
facilities. The restructuring actions will result in the elimination of
approximately 107 positions, most of which are manufacturing related employees.
All aspects of the restructuring plan are expected to be completed by
March 2001.
11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
6. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
nine months ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings (loss) per common share..... $(1,585) 20,252 $(0.08) $10,957 20,239 $0.54
======= ====== ======= =====
Dilutive impact of stock options........... -- 697
------ ------
Diluted earnings (loss) per common share... $(1,585) 20,252 $(0.08) $10,957 20,936 $0.52
======= ====== ====== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share before
extraordinary (loss)..................... $ 7,252 20,216 $ 0.36 $35,953 20,418 $1.76
======= ====== ======= =====
Dilutive impact of stock options and
grants................................... 96 668
------ ------
Diluted earnings per common share before
extraordinary (loss)..................... $ 7,252 20,312 $ 0.36 $35,953 21,086 $1.71
======= ====== ====== ======= ====== =====
</TABLE>
The Company has excluded the assumed conversion of the Trust Convertible
Preferred Securities from the earnings per share calculation for the three and
nine month periods ended September 30, 2000 and 1999 as the impact would be
anti-dilutive.
As a publicly-traded company, Superior Israel has certain stock options
outstanding pursuant to stock option plans in existence prior to its acquisition
by the Company. At September 30, 2000 and 1999, the dilutive impact of such
stock options to the Company's earnings per share calculation was immaterial.
7. NONRECURRING AND UNUSUAL CHARGES
The Company incurred nonrecurring and unusual charges of $3.9 million and
$12.7 million during the three and nine month periods ended September 30, 2000,
respectively. These charges related principally to the close down of plants,
consolidation of production capacity and related costs in the Company's building
wire (Electrical) operations and in the Company's Superior Israel operations.
Such costs included relocation of equipment, training of new employees and
production inefficiencies associated with the consolidation. The Company
incurred nonrecurring and unusual charges of $4.6 million during the nine month
period ended September 30, 1999, which were primarily associated with the
evaluation and termination of a management information system project at Essex.
12
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
8. BUSINESS SEGMENTS
The Company's reportable segments are strategic businesses that offer
different products and services to different customers. These segments are
communications, original equipment manufacturer ("OEM") and electrical. The
communications segment includes (i) outside plant 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, Internet connectivity and other
applications. The OEM segment includes magnet wire and related products. The
electrical segment includes building, industrial wire and cable, and automotive
wire.
The Company evaluates segment performance based on a number of factors, with
operating income being the most critical. Intersegment sales are generally
recorded at cost, are not significant and, therefore, have been eliminated
below.
Operating results for each of the Company's three reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's condensed consolidated statements of operations and balance
sheets.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Communications............................. $214,127 $182,743 $ 637,761 $ 574,629
OEM........................................ 150,206 154,176 468,609 447,358
Electrical................................. 139,984 185,531 441,056 521,990
-------- -------- ---------- ----------
$504,317 $522,450 $1,547,426 $1,543,977
======== ======== ========== ==========
Operating income (loss):
Communications............................. $ 29,158 $ 32,029 $ 95,128 $ 104,671
OEM........................................ 16,899 21,471 59,137 63,024
Electrical................................. (326) 10,653 7,816 31,001
Corporate and other........................ (3,855) (3,796) (12,913) (15,158)
Amortization of goodwill................... (5,267) (5,173) (15,695) (14,487)
Nonrecurring and unusual charges........... (3,915) -- (12,727) (4,552)
-------- -------- ---------- ----------
$ 32,694 $ 55,184 $ 120,746 $ 164,499
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Total assets:
Communications............................................ $ 558,982 $ 510,537
OEM....................................................... 304,730 274,103
Electrical................................................ 289,448 323,154
Corporate and other (including goodwill).................. 871,047 892,560
---------- ----------
$2,024,207 $2,000,354
========== ==========
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Superior TeleCom Inc. (together with its subsidiaries, unless the context
otherwise requires, "Superior" or the "Company") manufactures a broad portfolio
of wire and cable products grouped into the following primary industry segments:
(i) communications; (ii) original equipment manufacturer ("OEM"); and
(iii) electrical. The Communications Group includes communications wire and
cable products sold to telephone companies, distributors and systems
integrators, principally in North America. In addition, included within the
Communications Group is the Company's 50.2% owned Israeli subsidiary, Superior
Cables Limited ("Superior Israel"), which manufactures a range of wire and cable
products in Israel, including communications cable, power cable and other
industrial and electronic wire and cable products. The OEM Group includes magnet
wire and accessory products for motors, transformers and electrical controls
sold primarily to OEMs. The Electrical Group includes building and industrial
wire for applications in commercial and residential construction and industrial
facilities, and to a lesser degree, automotive and specialty wiring assemblies
for automobiles and trucks.
Industry segment financial data (including sales and operating income by
industry segment) for the three and nine month periods ended September 30, 2000
and 1999 is included in Note 8 to the accompanying condensed consolidated
financial statements.
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 as the Company, in most cases, has the
ability to adjust prices billed for its products to properly match the copper
cost component of its inventory shipped.
RESULTS OF OPERATIONS--THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AS
COMPARED TO THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999
Consolidated sales for the quarter ended September 30, 2000 were
$504.3 million, a decrease of 3.5% as compared to sales of $522.5 million for
the quarter ended September 30, 1999. Adjusted for a constant cost of copper,
the sales decline in the September 2000 quarter as compared to the
September 1999 quarter was approximately 7.5%. The reduction in copper-adjusted
sales for the September 30, 2000 quarter was due to lower sales in the Company's
Electrical and OEM Groups partially offset by comparative sales growth in the
Company's Communications Group.
Communications Group sales for the September 30, 2000 quarter were
$214.1 million, an increase of 13.2% on a copper-adjusted basis over the
September 30, 1999 quarter. Sales growth in the current quarter as compared to
the prior year period was due to a 90.8% increase in sales of broadband products
(which include fiber optic, copper premise and composite cables), with such
product line reaching an annualized revenue rate of approximately
$170.0 million. Sales growth in this product line was the result of strong
industry demand trends as well as market share gains attributable to recent
capacity additions, new product introductions and broadened marketing and sales
activities. September 30, 2000 quarterly sales of copper outside plant (OSP)
cables, which are used principally by telephone companies in the local loop
segment of the telephony network, were approximately equivalent to
copper-adjusted sales for the prior year September quarter despite a comparative
decline in the current quarter associated with the loss of business under a
major customer contract. This volume decline was offset by overall industry
demand growth and increased sales in the distributor and international market.
14
<PAGE>
OEM Group sales were $150.2 million for the quarter ended September 30,
2000, reflecting a copper-adjusted decline of 6.2% as compared to the
September 30, 1999 quarter. The current quarter comparative sales decline
reflected softening demand for magnet wire from the Company's major OEM
customers due principally to industry-wide economic slowdown, particularly in
the construction, refrigeration, consumer durables and automotive sectors. The
Company believes that the impact of end market demand slowdown was exacerbated
by inventory reductions at several major customers.
Electrical Group sales were $140.0 million for the September 30, 2000
quarter, representing a decline of 29.3% on a copper-adjusted basis as compared
to the quarter ended September 30, 1999. Sales volume in the Electrical Group
was impacted by lower available productive capacity, a condition which has
existed throughout 2000 as the Company has been in the process of relocating and
consolidating manufacturing equipment and balancing capacity in its building
wire operations. The Company does anticipate a modest increase in production
capacity as it completes its equipment relocation and capacity consolidation
efforts and, subject to end market demand, improving sales volume levels.
For the nine month period ended September 30, 2000 consolidated sales were
$1.547 billion, as compared to sales of $1.544 billion for the nine month period
ended September 30, 1999. Adjusted for a constant cost of copper, sales declined
in the September 30, 2000 nine month period by 5.3% as compared to the prior
year nine month period. The comparative reduction in copper-adjusted sales was
due to a decline of 22.5% in Electrical Group sales partially offset by an
increase of 6.7% in Communications Group sales.
Gross profit for the September 30, 2000 quarter was $80.3 million, a decline
of $16.1 million as compared to gross profit of $96.4 million for the quarter
ended September 30, 1999. The gross profit percentage in the September 2000
quarter was 15.9%, a decline on a copper-adjusted basis of 170 basis points, as
compared to the prior year September quarter. The decline in gross profit and
gross profit percentage was principally attributable to the Electrical Group,
where comparative pricing pressures, lower sales and higher per unit production
costs negatively impacted the gross profit and margin. Also impacting gross
profit in all business segments during the current quarter were increased raw
material, freight and fuel costs, most of which were not recoverable through
price adjustments due to competitive market factors.
Gross profit for the nine month period ended September 30, 2000 was
$264.6 million, a decline of 11.2% as compared to the prior year nine month
period. The comparative reduction in gross profit was principally the result of
lower sales and lower gross profit margins in the Electrical Group associated
with the aforementioned productivity and production efficiency issues.
Selling, general and administrative expense ("SG&A expense") for the
September 30, 2000 quarter was $38.4 million, an increase of 6.6% as compared to
SG&A expense of $36.1 million for the September 30, 1999 quarter, with such
increase reflecting higher selling and marketing expenses to support the sales
growth of the Communications Group broadband product line as well as higher SG&A
expense at Superior Israel resulting from acquisitions completed in late 1999.
For the nine months ended September 30, 2000, SG&A expense increased 1.0% to
$115.5 million, as compared to the prior year nine month period ended
September 30, 1999. SG&A expense for the September 30, 2000 nine month period
included a comparative decline attributable to the impact of corporate
restructuring and overhead expense reductions initiated principally in the
second quarter of 1999, offset by the aforementioned higher expense levels in
the September 30, 2000 quarter.
The Company incurred nonrecurring and unusual charges of $3.9 million and
$12.7 million for the three and nine month periods ended September 30, 2000,
respectively. The current period nonrecurring and unusual charges related
principally to the close down of plants, consolidation of production capacity
and related costs in the building wire (Electrical) operations and in the
Company's Superior Israel operations. For the nine month period ended
September 30, 1999, the Company incurred
15
<PAGE>
nonrecurring and unusual charges of $4.6 million, which were primarily
associated with the integration of the acquired Essex operations.
Operating income for the September 30, 2000 quarter was $32.7 million.
Before nonrecurring and unusual charges, operating income was $36.6 million, a
decline of $18.6 million as compared to the September 30, 1999 quarter. For the
nine month period ended September 30, 2000, operating income (before
nonrecurring and unusual charges) was $133.5 million, a decline of
$35.6 million as compared to the nine month period ended September 30, 1999. The
comparative decline in operating income for the current year three and nine
month periods was principally attributable to lower sales and margins in the
Electrical Group and the impact of increased raw material and other costs
impacting all of the Company's business segments.
Interest expense for the three and nine month periods ended September 30,
2000 was $32.2 million and $95.9 million, respectively, representing an increase
of $2.3 million and $7.3 million, respectively, over the prior year three month
and nine month periods. The increase in interest expense was the result of
higher short-term (LIBOR) interest rates in the current period and, to a lesser
degree, higher borrowings at Superior Israel associated with acquisition related
debt.
Other income, (net) amounted to $2.1 million and $1.7 million for the three
and nine months ended September 30, 2000, respectively, with such income being
primarily due to currency translation gains at Superior Israel on certain debt
linked to non-functional currencies (principally Euro-linked), as well as gains
on sale of certain fixed assets and investments.
For the three and nine month periods ended September 30, 2000, the Company
recorded income of $1.2 million and $4.0 million, respectively, related to the
common equity minority interest component (49.8%) of losses incurred by Superior
Israel for such periods. For the prior year three month period the Company
recorded minority interest income of $1.1 related to Superior Israel losses. For
the nine month period ended September 30, 1999 the Company recorded a minority
interest charge of $1.2 million reflecting the common equity minority interest
component (19%) of Essex net income for the March 31, 1999 quarter, reduced by
the minority interest component of Superior Israel's net loss for the
September 30, 1999 nine month period.
Net income before nonrecurring and unusual charges for the quarter ended
September 30, 2000 was $0.2 million or $0.01 per diluted share as compared to
net income of $11.0 million or $0.52 per diluted share for the quarter ended
September 30, 1999. For the nine month period ended September 30, 2000, net
income before nonrecurring and unusual charges was $14.3 million or $0.71 per
diluted share as compared to income before nonrecurring, unusual and
extraordinary charges of $38.5 million or $1.83 per diluted share for the nine
months ended September 30, 1999. The reduction in net income in the current year
three and nine month periods was due to lower operating income combined with the
impact of rising interest rates and higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, the Company generated
$70.5 million in cash flows from operating activities. Cash flows from operating
activities consisted of $59.0 million in operating cash flow (net income plus
non-cash charges) and $11.5 million in cash flow provided by net working capital
reductions, including a $21.8 million inventory reduction (7.0% reduction)
resulting from the Company's efforts to lower overall inventory levels and
increase inventory turns, particularly in its building wire operations. Cash
used for investing activities amounted to $78.5 million and consisted
principally of capital expenditures and pre-arranged long-term loans made by
Superior Israel ("Superior Israel Customer Loans") to one of Superior Israel's
principal customers. Cash provided by financing activities amounted to
$1.7 million. The major components were a net increase in borrowings of Superior
Israel of $29.7 million (including $25.5 million related to Superior Israel
Customer Loans) and other net debt reductions of $29.0 million.
16
<PAGE>
The Company finances its operating activities and other capital requirements
(principally capital expenditures) from operating cash flow and funding
availability under Superior's $1.15 billion credit agreement (the "Credit
Agreement") and Superior Israel's credit facilities (the "Israel Credit
Agreements"). Total undrawn funding availability under the Credit Agreement and
the Israel Credit Agreements amounted to $153.5 million and $11.2 million,
respectively, at September 30, 2000.
In addition to financing provided by the Company's credit facilities, the
Company has financing availability under a receivable securitization program
providing for up to $160.0 million in short-term financing (subject to the level
of contractually defined eligible receivables) through the issuance of secured
commercial paper. At September 30, 2000, $159.8 million was outstanding under
this program.
The Company's principal debt service commitments for the next 12 months
amount to $88.8 million and capital expenditures are expected to approximate
$40.0-$45.0 million. Management anticipates that the Company will continue to
generate positive cash flows from operating activities over the next twelve
months and that such operating cash flows plus excess funds available under the
Company's credit facilities will be sufficient to fund its aforementioned debt
service obligations and its estimated capital expenditure levels.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue 00-10--ACCOUNTING FOR SHIPPING AND HANDLING FEES AND
COSTS. The EITF consensus establishes guidance on the income statement
classification of amounts charged to customers for shipping and handling, as
well as for costs incurred related to shipping and handling. The EITF concluded
that amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. The EITF consensus also requires an
entity to disclose the amount of shipping and handling costs and the line item
on the income statement which includes such costs if the costs are not included
in cost of sales and are significant. This consensus is effective for the fourth
quarter of 2000 and requires reclassification of prior period financial
statements presented for comparative purposes to comply with the classification
guidelines of the consensus. The Company anticipates that the changes in
classification in the statement of operations will not be material.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB 101") which provides the SEC's views regarding revenue recognition in
financial statements, including income statement presentation and disclosure.
SAB 101 clarifies that revenue generally is realized or realizable when
pervasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the seller's price to the buyer is fixed or determinable and
collectibility is reasonably assured. The SEC subsequently released SAB 101B
deferring implementation of SAB 101 to the fourth quarter of 2000. The Company
is currently in compliance with the provisions of SAB 101.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk primarily relates to interest rates on
long-term debt. There have been no material changes in market risk since
December 31, 1999.
------------------------
EXCEPT FOR THE HISTORICAL INFORMATION HEREIN, THE MATTERS DISCUSSED IN THIS
FORM 10-Q INCLUDE FORWARD- LOOKING STATEMENTS THAT MAY INVOLVE A NUMBER OF RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED ON A NUMBER OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, RISKS IN PRODUCT AND TECHNOLOGY
DEVELOPMENT, MARKET ACCEPTANCE OF NEW PRODUCTS AND CONTINUING PRODUCT DEMAND,
PREDICTION AND TIMING OF CUSTOMER ORDERS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, AND 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.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
10.1* Amendment No. 3 and Waiver, dated as of March 13, 2000, to
the Amended and Restated Credit Agreement, dated as of
November 27, 1998, among Superior Telecommunications Inc.,
Essex Group Inc., the guarantors named therein, various
lenders, Bankers Trust Company, as administrative agent,
Merrill Lynch & Co., as documentation agent and Fleet
National Bank, as syndication agent.
10.2* Amendment No. 4, dated as of September 30, 2000, to the
Amended and Restated Credit Agreement, dated as of
November 27, 1998, among Superior Telecommunications Inc.,
Essex Group Inc., the guarantors named therein, various
lenders, Bankers Trust Company, as administrative agent,
Merrill Lynch & Co., as documentation agent and Fleet
National Bank, as syndication agent.
10.3* Amendment No. 3, dated as of May 1, 1999, to the Services
Agreement between The Alpine Group, Inc. and Superior
TeleCom Inc.
27* Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None.
------------------------
* Filed herewith
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
SUPERIOR TELECOM INC.
Date: November 14, 2000 By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
CHIEF FINANCIAL OFFICER AND TREASURER
(duly authorized officer and principal
financial and accounting officer)
</TABLE>
19
