<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 JUNE 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
NEW YORK, NEW YORK 10019-1412
(Address of principal executive offices) (Zip code)
</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>
<CAPTION>
Class Outstanding at August 4, 2000
---------------------------- -----------------------------
<S> <C>
Common Stock, $.01 Par Value 20,254,315
</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, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,989 $ 14,305
Accounts receivable (less allowance for doubtful accounts
of $3,000 and $3,193 at June 30, 2000 and December 31,
1999, respectively)..................................... 310,184 261,263
Inventories............................................... 270,048 313,571
Other current assets...................................... 37,888 38,325
---------- ----------
Total current assets.................................... 626,109 627,464
Property, plant and equipment, net.......................... 529,996 513,914
Long-term investments and other assets...................... 72,883 65,586
Goodwill (less accumulated amortization of $38,880 and
$28,616 at June 30, 2000 and December 31, 1999,
respectively)............................................. 782,728 793,390
---------- ----------
Total assets............................................ $2,011,716 $2,000,354
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 160,000 $ 140,369
Current portion of long-term debt......................... 87,076 85,831
Accounts payable.......................................... 156,559 147,290
Accrued expenses.......................................... 86,200 92,425
---------- ----------
Total current liabilities............................... 489,835 465,915
Long-term debt, less current portion........................ 1,148,201 1,170,143
Minority interest in subsidiary............................. 10,674 13,205
Other long-term liabilities................................. 108,404 104,124
---------- ----------
Total liabilities....................................... 1,757,114 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)... 134,436 133,959
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 35,000,000 shares
authorized; 21,045,387 and 20,980,101 shares issued at
June 30, 2000 and December 31, 1999, respectively....... 214 210
Capital in excess of par value............................ 39,622 38,765
Accumulated other comprehensive deficit................... (7,987) (5,447)
Retained earnings......................................... 107,460 98,623
---------- ----------
139,309 132,151
Shares of common stock in treasury, at cost; 828,300
shares at June 30, 2000 and December 31, 1999........... (19,143) (19,143)
---------- ----------
Total stockholders' equity.............................. 120,166 113,008
---------- ----------
Total liabilities and stockholders' equity............ $2,011,716 $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
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales................................................... $547,217 $514,691
Cost of goods sold.......................................... 448,522 413,411
-------- --------
Gross profit.............................................. 98,695 101,280
Selling, general and administrative expenses................ 39,002 36,577
Amortization of goodwill.................................... 5,222 5,077
Nonrecurring and unusual charges............................ 2,956 2,030
-------- --------
Operating income.......................................... 51,515 57,596
Interest expense............................................ (32,511) (28,789)
Other income (expense), net................................. (1,334) 1,999
-------- --------
Income before income taxes, distributions on preferred
securities of Superior Trust I, minority interest and
extraordinary (loss).................................... 17,670 30,806
Provision for income taxes.................................. (7,351) (12,269)
-------- --------
Income before distributions on preferred securities of
Superior Trust I, minority interest and extraordinary
(loss).................................................. 10,319 18,537
Distributions on preferred securities of Superior Trust I... (3,797) (3,756)
-------- --------
Income before minority interest and extraordinary
(loss).................................................. 6,522 14,781
Minority interest in (earnings) losses of subsidiaries...... 1,934 (244)
-------- --------
Income before extraordinary (loss)........................ 8,456 14,537
Extraordinary (loss) on early extinguishment of debt, net... -- (1,617)
-------- --------
Net income.............................................. $ 8,456 $ 12,920
======== ========
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................... $0.42 $0.72
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.08)
-------- --------
Net income per basic share of common stock.......... $0.42 $0.64
======== ========
Diluted:
Income before extraordinary (loss).................... $0.42 $0.68
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.07)
-------- --------
Net income per diluted share of common stock........ $0.42 $0.61
======== ========
Weighted average shares outstanding:
Basic................................................... 20,213 20,326
======== ========
Diluted................................................. 20,316 24,951
======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales................................................... $1,043,109 $1,021,527
Cost of goods sold.......................................... 858,792 820,057
---------- ----------
Gross profit.............................................. 184,317 201,470
Selling, general and administrative expenses................ 77,025 78,289
Amortization of goodwill.................................... 10,428 9,314
Nonrecurring and unusual charges............................ 8,812 4,552
---------- ----------
Operating income.......................................... 88,052 109,315
Interest expense............................................ (63,709) (58,669)
Other income (expense), net................................. (364) 3,043
---------- ----------
Income before income taxes, distributions on preferred
securities of Superior Trust I, minority interest and
extraordinary (loss).................................... 23,979 53,689
Provision for income taxes.................................. (10,336) (22,681)
---------- ----------
Income before distributions on preferred securities of
Superior Trust I, minority interest and extraordinary
(loss).................................................. 13,643 31,008
Distributions on preferred securities of Superior Trust I... (7,559) (3,756)
---------- ----------
Income before minority interest and extraordinary
(loss).................................................. 6,084 27,252
Minority interest in (earnings) losses of subsidiaries...... 2,753 (2,256)
---------- ----------
Income before extraordinary (loss)........................ 8,837 24,996
Extraordinary (loss) on early extinguishment of debt, net... -- (1,617)
---------- ----------
Net income.............................................. $ 8,837 $ 23,379
========== ==========
Net income per share of common stock:
Basic:
Income before extraordinary (loss).................... $0.44 $1.22
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.08)
---------- ----------
Net income per basic share of common stock.......... $0.44 $1.14
========== ==========
Diluted:
Income before extraordinary (loss).................... $0.43 $1.18
Extraordinary (loss) on early extinguishment of debt,
net................................................. -- (0.08)
---------- ----------
Net income per diluted share of common stock........ $0.43 $1.10
========== ==========
Weighted average shares outstanding:
Basic................................................... 20,198 20,507
========== ==========
Diluted................................................. 20,337 21,161
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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....... 65,286 4 729
Compensation expense related to
options and grants............... 128
Comprehensive income:
Net income....................... $ 8,837 8,837
Foreign currency translation
adjustment..................... (2,540) (2,540)
-------
Total comprehensive income......... $ 6,297
======= ---------- ---- ------- ------- --------
Balance at June 30, 2000........... 21,045,387 $214 $39,622 $(7,987) $107,460
========== ==== ======= ======= ========
<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....... 733
Compensation expense related to
options and grants............... 128
Comprehensive income:
Net income....................... 8,837
Foreign currency translation
adjustment..................... (2,540)
Total comprehensive income.........
-------- -------- --------
Balance at June 30, 2000........... (828,300) $(19,143) $120,166
======== ======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 8,837 $ 24,996
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 30,652 27,870
Amortization of deferred financing costs................ 2,583 2,667
(Benefit) provision for deferred taxes.................. 3,346 (668)
Minority interest in earnings (losses) of subsidiary.... (2,753) 2,256
Change in assets and liabilities:
Accounts receivable................................... (48,704) (60,366)
Inventories........................................... 43,730 15,062
Other current and non-current assets.................. 1,187 10,349
Accounts payable and accrued expenses................. 2,580 16,596
Other, net............................................ 1,212 1,949
-------- ---------
Cash flows provided by operating activities................. 42,670 40,711
-------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ -- (908)
Capital expenditures...................................... (44,156) (28,043)
Customer loans............................................ (11,758) (14,377)
Net proceeds from the sale of assets...................... 5,722 503
Other..................................................... 1,573 (2)
-------- ---------
Cash flows used for investing activities.................... (48,619) (42,827)
-------- ---------
Cash flows from financing activities:
Short-term borrowings, net................................ 19,631 36,910
Borrowings under revolving credit facilities, net......... (115) (1,728)
Long-term borrowings...................................... 30,828 213,053
Debt issuance costs....................................... -- (6,294)
Repayments of long-term borrowings........................ (51,415) (235,808)
Dividends on common stock................................. -- (2,511)
Purchase of treasury stock................................ -- (10,932)
Other, net................................................ 704 1,088
-------- ---------
Cash flows used for financing activities.................... (367) (6,222)
-------- ---------
Net decrease in cash and cash equivalents................... (6,316) (8,338)
Cash and cash equivalents at beginning of period............ 14,305 16,110
-------- ---------
Cash and cash equivalents at end of period.................. $ 7,989 $ 7,772
======== =========
Supplemental disclosures:
Cash paid for interest.................................... $ 55,780 $ 59,664
======== =========
Cash paid for income taxes, net of refunds................ $ 6,715 $ 7,526
======== =========
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.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
TeleCom" 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 June 30, 2000 and December 31, 1999, the components of inventories were
as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................... $ 47,562 $ 50,618
Work in process....................................... 48,038 42,150
Finished goods........................................ 189,523 233,142
-------- --------
285,123 325,910
LIFO reserve.......................................... (15,075) (12,339)
-------- --------
$270,048 $313,571
======== ========
</TABLE>
Inventories valued using the LIFO method amounted to $137.0 million and
$167.3 million at June 30, 2000 and December 31, 1999, respectively.
3. COMPREHENSIVE INCOME
The components of comprehensive income for the three and six months ended
June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................ $8,456 $12,920 $8,837 $23,379
Foreign currency translation adjustment... (2,694) 444 (2,540) 1,423
Additional minimum pension liability...... -- (1,340) -- (1,340)
------ ------- ------ -------
Comprehensive income...................... $5,762 $12,024 $6,297 $23,462
====== ======= ====== =======
</TABLE>
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 six months ended
June 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>
SIX MONTHS ENDED
JUNE 30, 1999
-------------------------
(IN THOUSANDS, EXCEPT FOR
PER SHARE DATA)
<S> <C>
Net sales............................................... $1,021,527
Income before income taxes, minority interest and
extraordinary (loss).................................. 45,387
Income before extraordinary (loss)...................... 23,677
Extraordinary (loss) on early extinguishment of debt,
net................................................... (1,617)
----------
Net income applicable to common stock................... $ 22,060
==========
Net income per diluted share of common stock:
Income before extraordinary (loss).................... $1.12
Extraordinary (loss) on early extinguishment of debt,
net................................................. (0.08)
----------
Net income per diluted share of common stock.......... $1.04
==========
</TABLE>
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2000, $17.0 million, $9.5 million,
$3.0 million and $1.9 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 51% 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
June 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.
6. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three and
six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share before
extraordinary (loss)............................ $8,456 20,213 $0.42 $14,537 20,326 $0.72
====== ===== =====
Dilutive impact of stock options.................. 103 794
Impact of assumed conversion of preferred
securities of Superior Trust I.................. -- -- 2,346 3,831
------ ------ ------- ------
Diluted earnings per common share before
extraordinary (loss)............................ $8,456 20,316 $0.42 $16,883 24,951 $0.68
====== ====== ===== ======= ====== =====
</TABLE>
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
6. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARE AMOUNT
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share before
extraordinary (loss)............................ $8,837 20,198 $0.44 $24,996 20,507 $1.22
====== ===== ======= =====
Dilutive impact of stock options.................. 139 654
------ ------
Diluted earnings per common share before
extraordinary (loss)............................ $8,837 20,337 $0.43 $24,996 21,161 $1.18
====== ====== ===== ======= ====== =====
</TABLE>
The Company has excluded the assumed conversion of the Trust Convertible
Preferred Securities from the earnings per share calculation for the three and
six month periods ended June 30, 2000 and the six month period ended June 30,
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 June 30, 2000, 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 $3.0 million and
$8.8 million during the three and six month periods ended June 30, 2000,
respectively. These charges related principally to the planned close down of
plants and consolidation of production capacity in the Company's building wire
(Electrical) 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
$2.0 million and $4.6 million during the three and six month periods ended
June 30, 1999, respectively, which were primarily associated with the evaluation
of a management information system at Essex.
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.
11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
8. BUSINESS SEGMENTS (CONTINUED)
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Communications......................... $225,227 $197,823 $ 423,634 $ 391,886
OEM.................................... 157,061 146,496 318,403 293,182
Electrical............................. 164,929 170,372 301,072 336,459
-------- -------- ---------- ----------
$547,217 $514,691 $1,043,109 $1,021,527
======== ======== ========== ==========
Operating income (loss):
Communications......................... $ 37,553 $ 38,463 $ 65,970 $ 72,642
OEM.................................... 20,401 22,163 42,238 41,553
Electrical............................. 6,161 9,391 8,142 20,348
Corporate and other.................... (4,422) (5,314) (9,058) (11,362)
Unusual charges........................ (2,956) (2,030) (8,812) (4,552)
Amortization of goodwill............... (5,222) (5,077) (10,428) (9,314)
-------- -------- ---------- ----------
$ 51,515 $ 57,596 $ 88,052 $ 109,315
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Total assets:
Communications............................................ $ 530,005 $ 510,537
OEM....................................................... 300,900 274,103
Electrical................................................ 293,888 323,154
Corporate and other (including goodwill).................. 886,923 892,560
---------- ----------
$2,011,716 $2,000,354
========== ==========
</TABLE>
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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 51% 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 six month periods ended June 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 SIX MONTH PERIODS ENDED JUNE 30, 2000 AS
COMPARED TO THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999
Sales for the quarter ended June 30, 2000 were a record $547.2 million, an
increase of 6.3% as compared to sales of $514.7 million for the quarter ended
June 30, 1999. Adjusted for a constant cost of copper, the sales increase in the
June 2000 quarter as compared to the June 1999 quarter was approximately 0.1%.
The increase in copper adjusted sales for the June 30, 2000 quarter resulted
from comparative growth in sales in the Company's Communications Group,
partially offset by a comparative sales decline in the Company's Electrical
Group.
Sales for the Communications Group for the June 30, 2000 quarter were a
record $225.2 million, an increase of 8.5% on a copper adjusted basis over the
June 30, 1999 quarter, and an increase of 13.2% on a copper adjusted basis as
compared to the preceding quarter ended March 31, 2000. Sales growth in the
June 30, 2000 quarter as compared to the prior year June quarter was principally
due to a 78.5% 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 $125 million. Sales growth in this
product line is due to strong industry demand trends as well as market share
gains attributable to recent capacity additions, new product introductions and
broadened marketing and sales activities. June 30, 2000 quarterly sales of
outside plant (OSP) cables, which are sold principally to major telephone
companies, were approximately equivalent to copper adjusted sales for the prior
year June quarter; however, they reflected 13.5% sales growth on a copper
adjusted basis over sales in the preceding quarter ended March 31, 2000.
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Sales for the OEM Group were $157.1 million for the quarter ended June 30,
2000, a copper adjusted increase of 2.3% as compared to the June 30, 1999
quarter. Sales of magnet wire, the OEM Group's principal product line, increased
5.1% on a copper adjusted basis as compared to the corresponding quarter of the
prior year reflecting continuing growing demand from the Company's major OEM
customers.
Sales for the Electrical Group were $164.9 million for the June 30, 2000
quarter, representing a decline of 11.1% on a copper-adjusted basis as compared
to the quarter ended June 30, 1999. Sales volume in the Electrical Group was
impacted by lower available productive capacity, a condition which has existed
through the first six months of 2000 as the Company has been in the process of
relocating and consolidating manufacturing equipment and capacity in its
building wire operations. The Company anticipates an increase in production
capacity during the second half of 2000 as it completes its equipment relocation
and capacity consolidation efforts.
Sales for the six month period ended June 30, 2000 were $1.043 billion, an
increase of 2.1% as compared to sales of $1.022 billion for the six month period
ended June 30, 1999. Adjusted for a constant cost of copper, sales actually
declined in the June 30, 2000 six month period by 4.2% as compared to the prior
year six month period. The comparative reduction in copper adjusted sales for
the current year six month period was due to a comparative decline of 19.1% in
Electrical Group sales and lower comparative sales in the March 31, 2000 quarter
of Communications Group OSP cable products.
Gross profit for the June 30, 2000 quarter was $98.7 million, a decline of
$2.6 million as compared to gross profit of $101.3 million for the quarter ended
June 30, 1999. The gross profit percentage in the June 2000 quarter was 18.0%, a
decline on a copper-adjusted basis of 50 basis points as compared to the prior
year June quarter. The decline in gross profit and gross profit percentage was
principally attributable to the Electrical Group, where lower sales and higher
per unit production costs negatively impacted the gross profit and margin. Per
unit production costs in the Electrical Group during the current quarter were
adversely affected by lower production levels and the resulting negative impact
of fixed cost absorption on per unit costs, as well as by the impact of other
production inefficiencies resulting from the aforementioned manufacturing
consolidation and equipment relocation actions.
For the six month period ended June 30, 2000 the gross profit was
$184.3 million, a decline of 8.5% as compared to the prior year six month
period. The comparative reduction in gross profit was principally the result of
lower sales on a copper adjusted basis 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
June 30, 2000 quarter was $39.0 million, an increase of 6.6% as compared to SG&A
expense of $36.6 million for the June 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 its 1999 acquisition of a competitor, Pica
Plast Limited (Pica Plast). For the six months ended June 30, 2000, SG&A expense
was $77.0 million, a decline of 1.6% as compared to the six month period ended
June 30, 1999 with such decline attributable to the impact of corporate
restructuring and overhead expense reductions initiated principally in the
second quarter of 1999, partially offset by the aforementioned higher expense
levels in the June 30, 2000 quarter.
The Company incurred nonrecurring and unusual charges of $3.0 million and
$8.8 million for the three and six month periods ended June 30, 2000,
respectively. The current period nonrecurring and unusual charges related
principally to the previously announced close down of plants, consolidation of
production capacity and related costs in the building wire (Electrical)
operations. For the three and six month periods ended June 30, 1999, the Company
incurred nonrecurring and unusual charges of $2.0 million and $4.6 million,
respectively, which were primarily associated with the evaluation of a
management information system at Essex.
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Operating income for the June 30, 2000 quarter was $51.5 million. Before
nonrecurring charges, operating income was $54.5 million, a decline of
$5.2 million as compared to the June 30, 1999 quarter. For the six month period
ended June 30, 2000, operating income (before nonrecurring charges) was
$96.9 million, a decline of $17.0 million as compared to the six month period
ended June 30, 1999. The comparative decline in operating income for the current
year three and six month periods was principally attributable to lower operating
income in the Electrical Group and in Superior Israel where reduced volumes to
major customers, currency related pricing reductions, and productivity
inefficiencies resulting from manufacturing consolidations negatively impacted
profitability.
Interest expense for the three and six month periods ended June 30, 2000 was
$32.5 million and $63.7 million, respectively, representing an increase of
$3.7 million and $5.0 million, respectively, over the prior year three and six
month periods. The increase in interest expense was primarily 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 its November 1999
acquisition of Pica Plast.
Other expense amounted to $1.3 million and $0.4 million for the three and
six months ended June 30, 2000, respectively, with such expense being primarily
due to currency translation losses at Superior Israel on certain debt linked to
non-functional currencies (principally Euro-linked). Other income recorded for
the 1999 three and six month periods was principally related to similar currency
gains at Superior Israel.
For the quarter ended June 30, 2000, the Company recorded income of
$1.9 million and $2.8 million, respectively, related to the common equity
minority interest component (49%) of losses incurred by Superior Israel for such
periods. For the prior year three and six month periods the Company recorded a
minority interest charge of $0.2 million and $2.3 million, respectively,
reflecting principally the common equity minority interest component (19%) of
Essex net income for the March 31, 1999 quarter, and of Superior Israel net
income for the June 30, 1999 three and six month periods.
Net income before nonrecurring charges for the quarter ended June 30, 2000
was $10.1 million or $0.50 per diluted share as compared to net income before
nonrecurring, unusual and extraordinary charges of $15.8 million or $0.73 per
diluted share for the quarter ended June 30, 1999. For the six month period
ended June 30, 2000, net income before nonrecurring and unusual charges was
$14.1 million or $0.69 per diluted share as compared to net income before
nonrecurring, unusual and extraordinary charges of $27.5 million or $1.30 per
diluted share for the six months ended June 30, 1999. The reduction in net
income in the current year three and six month periods was principally due to
lower operating income in the Company's Electrical Group, net losses incurred in
the Company's 51% owned subsidiary, Superior Israel, and higher interest charges
related to higher short-term (LIBOR) interest rates.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, the Company generated $42.7 million
in cash flows from operating activities. Cash flows from operating activities
included $43.7 million in inventory reductions (13.9% reduction) resulting from
the Company's efforts to lower overall inventory levels and increase inventory
turns, particularly in its building wire operations, offset by a $48.7 million
increase in accounts receivable which reflects strong seasonal sales and the
timing of shipments and billings within the June 30, 2000 quarter. Cash used for
investing activities amounted to $48.6 million and consisted principally of
capital expenditures and pre-arranged long-term loans of Superior Israel, the
Company's 51% owned Israeli subsidiary, ("Superior Israel Customer Loans") made
to one of Superior Israel's principal customers. Cash used for financing
activities amounted to $0.4 million. The major components were a net increase in
borrowings of Superior Israel of $17.1 million (including $11.8 million related
to Superior Israel Customer Loans) and other debt reductions of $18.2 million.
The Company finances its operating activities and other capital requirements
(principally capital expenditures) from operating cash flow and funding
availability under Superior TeleCom's $1.15 billion credit agreement (the
"Credit Agreement") and Superior Israel's credit facilities (the "Israel Credit
15
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Agreements"). Total undrawn funding availability under the Credit Agreement and
the Israel Credit Agreements amounted to $161.6 million and $11.4 million,
respectively, at June 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. The receivable securitization program expires on November 30,
2000, although it may be extended for successive one-year periods, subject to
agreement. At June 30, 2000, $160.0 million was outstanding under this program.
The Company's principal debt service commitments for the next 12 months
amount to $87.1 million and capital expenditures are expected to approximate
$50.0-$60.0 million. Management anticipates that the Company will generate in
excess of $90 million in cash flows from its operating activities over the next
twelve months subject to fluctuations resulting from operating performance and
working capital changes. The Company believes that 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.
YEAR 2000 UPDATE
The Company did not experience any significant disruptions in its business
operations as a result of the Year 2000 problem. The Year 2000 problem was
defined as the potential system and mechanical failures or miscalculations
resulting from the inability of computer programs to recognize dates after
December 31, 1999. Most computer programs had been written using two digits
(rather than four) to define the applicable year.
In fiscal 1997, the Company established project teams to identify and
resolve Year 2000 problems. The teams' processes included (i) the readiness
assessment of service providers, major vendors and internal operating systems
and applications; (ii) the upgrade or remediation of non-compliant items
identified; and (iii) the testing and implementation of the upgraded or
remediated items.
The Company incurred approximately $6.0 million of costs related to the Year
2000 project. The costs associated with code modification and testing
(approximately $5.0 million) were expensed as incurred. The personal computer
and purchased software upgrades (approximately $1.0 million) were incurred in
the ordinary course of business and capitalized.
The Company does not anticipate any future disruptions in its business
related to the Year 2000 problem.
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.
16
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1* Employment Agreement, dated as of October 1, 1999 between the Company
and William F. Evans
10.2* Superior TeleCom Inc. Stock Compensation Plan for Non-Employee
Directors (Amended and Restated Effective as of May 1, 2000)
27* Financial Data Schedule
(B) REPORTS ON FORM 8-K
None.
------------------------
* Filed herewith
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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 thereunto duly authorized.
<TABLE>
<S> <C> <C>
SUPERIOR TELECOM INC.
By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
CHIEF FINANCIAL OFFICER AND TREASURER
(duly authorized officer and principal
financial and accounting officer)
DATE: AUGUST 14, 2000
</TABLE>
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