<PAGE>
- --------------------------------------------------------------------------------
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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 MARCH 31, 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 MAY 5, 2000
- ------------------------------------- -------------------------------------
Common Stock, $.01 Par Value 20,217,087
</TABLE>
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<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>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,305 $ 7,257
Accounts receivable (less allowance for doubtful accounts
of $3,193 and $3,006 at December 31, 1999 and March 31,
2000, respectively)..................................... 261,263 271,377
Inventories............................................... 313,571 320,942
Other current assets...................................... 38,325 34,824
---------- ----------
Total current assets.................................... 627,464 634,400
Property, plant and equipment, net.......................... 513,914 526,632
Long-term investments and other assets...................... 65,586 75,688
Goodwill (less accumulated amortization of $28,616 and
$33,811 at December 31, 1999 and March 31, 2000,
respectively)............................................. 793,390 788,129
---------- ----------
Total assets.......................................... $2,000,354 $2,024,849
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 140,369 $ 128,597
Current portion of long-term debt......................... 85,831 82,248
Accounts payable.......................................... 147,290 155,967
Accrued expenses.......................................... 92,425 86,120
---------- ----------
Total current liabilities............................... 465,915 452,932
Long-term debt, less current portion........................ 1,170,143 1,201,276
Minority interest in subsidiaries........................... 13,205 12,796
Other long-term liabilities................................. 104,124 109,712
---------- ----------
Total liabilities....................................... 1,753,387 1,776,716
---------- ----------
Company-obligated Mandatorily Redeemable Trust Convertible
Preferred Securities of Superior Trust I holding solely
convertible debentures of the Company (net of discount)... 133,959 134,193
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 35,000,000 shares
authorized; 20,980,101 and 21,014,726 shares issued at
December 31, 1999 and March 31, 2000, respectively...... 210 210
Capital in excess of par value............................ 38,560 38,957
Accumulated other comprehensive deficit................... (5,447) (5,293)
Retained earnings......................................... 98,828 99,209
---------- ----------
132,151 133,083
Shares of common stock in treasury, at cost; 828,300
shares at December 31, 1999 and March 31, 2000.......... (19,143) (19,143)
---------- ----------
Total stockholders' equity.............................. 113,008 113,940
---------- ----------
Total liabilities and stockholders' equity............ $2,000,354 $2,024,849
========== ==========
</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
MARCH 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Net sales................................................... $506,836 $495,892
Cost of goods sold.......................................... 406,646 410,270
-------- --------
Gross profit.............................................. 100,190 85,622
Selling, general and administrative expenses................ 41,712 38,023
Amortization of goodwill.................................... 4,237 5,206
Nonrecurring and unusual charges............................ 2,522 5,856
-------- --------
Operating income.......................................... 51,719 36,537
Interest expense............................................ (29,871) (31,198)
Other income, net........................................... 1,035 970
-------- --------
Income before income taxes, distributions on preferred
securities of Superior Trust I and minority interest.... 22,883 6,309
Provision for income taxes.................................. (10,412) (2,985)
-------- --------
Income before distributions on preferred securities of
Superior Trust I and minority interest.................. 12,471 3,324
Distributions on preferred securities of Superior Trust I... -- (3,762)
-------- --------
Income (loss) before minority interest.................... 12,471 (438)
Minority interest in (earnings) losses of subsidiaries...... (2,012) 819
-------- --------
Net income.............................................. $ 10,459 $ 381
======== ========
Net income per share of common stock:
Basic..................................................... $ 0.51 $ 0.02
======== ========
Diluted................................................... $ 0.49 $ 0.02
======== ========
Weighted average shares outstanding:
Basic..................................................... 20,688 20,182
======== ========
Diluted................................................... 21,202 20,357
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 $38,560 $(5,447) $98,828
Employee stock purchase plan............. 34,625 397
Comprehensive income:
Net income............................. $381 381
Foreign currency translation
adjustment........................... 154 154
----
Total comprehensive income............... $535
==== ---------- ---- ------- ------- -------
Balance at March 31, 2000................ 21,014,726 $210 $38,957 $(5,293) $99,209
========== ==== ======= ======= =======
<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............. 397
Comprehensive income:
Net income............................. 381
Foreign currency translation
adjustment........................... 154
Total comprehensive income...............
-------- -------- --------
Balance at March 31, 2000................ (828,300) $(19,143) $113,940
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 10,459 $ 381
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 13,328 15,287
Amortization of deferred financing costs................ 1,214 1,221
(Benefit) provision for deferred taxes.................. (363) 2,331
Minority interest in earnings (losses) of subsidiary.... 2,012 (819)
Change in assets and liabilities:
Accounts receivable................................... (46,842) (8,812)
Inventories........................................... 860 (6,394)
Other current and non-current assets.................. 17,909 1,199
Accounts payable and accrued expenses................. 19,201 5,277
Other, net............................................ 62 (86)
-------- --------
Cash flows provided by operating activities................. 17,840 9,585
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (12,195) (20,542)
Customer loans............................................ -- (11,758)
Other..................................................... 67 63
-------- --------
Cash flows used for investing activities.................... (12,128) (32,237)
-------- --------
Cash flows from financing activities:
Repayments of short-term borrowings, net.................. (9,525) (11,772)
Borrowings under revolving credit facilities, net......... 11,720 39,914
Long-term borrowings...................................... -- 11,758
Repayments of long-term borrowings........................ (14,098) (24,756)
Dividends on common stock................................. (1,255) --
Purchase of treasury stock................................ (931) --
Other, net................................................ (47) 460
-------- --------
Cash flows (used for) provided by financing activities...... (14,136) 15,604
-------- --------
Net decrease in cash and cash equivalents................... (8,424) (7,048)
Cash and cash equivalents at beginning of period............ 16,110 14,305
-------- --------
Cash and cash equivalents at end of period.................. $ 7,686 $ 7,257
======== ========
The accompanying notes are an integral part of these condensed consolidated financial
statements.
</TABLE>
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
-------- --------
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest.................................... $ 29,444 $ 30,196
======== ========
Cash paid for income taxes, net of refunds................ $ 2,347 $ 1,328
======== ========
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 $33.3 million)............................. $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
MARCH 31, 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 December 31, 1999 and March 31, 2000, the components of inventories were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................... $ 50,618 $ 52,106
Work in process....................................... 42,150 46,564
Finished goods........................................ 233,142 232,680
-------- --------
325,910 331,350
LIFO reserve.......................................... (12,339) (10,408)
-------- --------
$313,571 $320,942
======== ========
</TABLE>
Inventories valued using the LIFO method amounted to $167.3 million and
$176.1 million at December 31, 1999 and March 31, 2000, respectively.
3. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March 31,
1999 and 2000 were as follows:
<TABLE>
<CAPTION>
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................. $10,459 $381
Foreign currency translation adjustment..................... 979 154
------- ----
Comprehensive income........................................ $11,438 $535
======= ====
</TABLE>
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 (the
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
4. ACQUISITIONS (CONTINUED)
"Essex Acquisition"). 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)
Unaudited condensed pro forma results of operations for the three months
ended March 31, 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>
THREE MONTHS ENDED
MARCH 31, 1999
----------------------
(IN THOUSANDS,
EXCEPT FOR SHARE DATA)
<S> <C>
Net sales................................................. $506,836
Income before income taxes and minority interest.......... 18,337
Net income applicable to common stock..................... $ 9,140
========
Net income per diluted share of common stock.............. $ 0.44
========
</TABLE>
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
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
5. RESTRUCTURING ACCRUAL (CONTINUED)
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
March 31, 2000, $16.4 million, $5.9 million, $3.0 million and $1.8 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 expected to be completed by June 2000.
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
March 31, 2000, approximately $0.8 million has been incurred and paid. The
restructuring actions will result in the elimination of approximately 35
positions, most of which are manufacturing related employees. All aspects of the
restructuring plan are expected to be completed during the year 2000.
6. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------
1999 2000
------------------------------ ------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share............. $10,459 20,688 $0.51 $381 20,182 $0.02
======= ===== ==== =====
Dilutive impact of stock options............ 514 175
------ ------
Diluted earnings per common share........... $10,459 21,202 $0.49 $381 20,357 $0.02
======= ====== ===== ==== ====== =====
</TABLE>
The Company has excluded the assumed conversion of the Trust Convertible
Preferred Securities from the earnings per share calculation as the impact would
be anti-dilutive for the three months ended March 31, 2000.
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 March 31, 2000, the dilutive impact of such stock options to
the Company's earnings per share calculation was immaterial.
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
7. NONRECURRING AND UNUSUAL CHARGES
The Company incurred nonrecurring and unusual charges of $5.9 million and
$2.5 million for the quarters ended March 31, 2000 and 1999, respectively. The
nonrecurring and unusual charges in the current quarter 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. Nonrecurring and unusual charges in the prior year March
quarter related principally to corporate and other restructuring activities
associated with the acquisition of 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, automotive wire, and related
products. The electrical segment includes building and industrial wire and
cable.
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)
MARCH 31, 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 ENDED
MARCH 31,
-----------------------
1999 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net sales:
Communications............................................ $ 194,063 $ 198,407
OEM....................................................... 164,661 171,802
Electrical................................................ 148,112 125,683
---------- ----------
$ 506,836 $ 495,892
========== ==========
Operating income (loss):
Communications............................................ $ 34,179 $ 28,417
OEM....................................................... 20,636 22,800
Electrical................................................ 9,711 1,018
Corporate and other....................................... (6,048) (4,636)
Unusual charges........................................... (2,522) (5,856)
Amortization of goodwill.................................. (4,237) (5,206)
---------- ----------
$ 51,719 $ 36,537
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ----------
<S> <C> <C>
Total assets:
Communications............................................ $ 510,537 $ 517,654
OEM....................................................... 307,908 298,684
Electrical................................................ 289,349 302,434
Corporate and other (including goodwill).................. 892,560 906,077
---------- ----------
$2,000,354 $2,024,849
========== ==========
</TABLE>
12
<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 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, as well as automotive and specialty wiring assemblies
for automobiles and trucks. The Electrical Group includes building and
industrial wire for applications in commercial and residential construction and
industrial facilities.
Industry segment financial data (including sales and operating income by
industry segment) for the three month periods ended March 31, 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 MONTH PERIOD ENDED MARCH 31, 2000 AS COMPARED TO
THE THREE MONTH PERIOD ENDED MARCH 31, 1999
Sales for the quarter ended March 31, 2000 were $495.9 million, a decline of
2.2% as compared to sales of $506.8 million for the quarter ended March 31,
1999. Adjusted for a constant cost of copper, the comparative sales decline in
the March 2000 quarter was approximately 8.5%, due principally to lower sales in
the Company's Electrical Group.
Sales for the Communications Group in the March 31, 2000 quarter were
$198.4 million, or an increase of 2.2% over sales for the corresponding quarter
of the prior year. Adjusted to a constant cost of copper, Communications Group
sales were flat with the prior year March quarter. Within the Communications
Group product lines, sales in the March 2000 quarter of broadband products
(which include fiber optic, copper premise, and composite cables) increased by
more than $10 million or 54% on a comparative basis. Sales growth in this
product line is attributable to strong industry demand trends as well as market
share gains attributable to recent capacity additions, new product introductions
and focused marketing and sales initiatives. In April 2000, the Company
completed a further capacity expansion for its broadband products (principally
fiber optic cable) and anticipates, subject to the availability of optical fiber
from its principal suppliers, continued comparative growth in this segment.
Offsetting the higher sales of broadband products was a comparative reduction in
sales in the March 2000 quarter of outside plant (OSP) cables to the major
telephone companies. This comparative reduction in sales was the result of
unusually strong seasonally adjusted sales of OSP cables in the prior year March
quarter, prior to an industry-wide downturn in the second half of 1999. During
the current year March quarter, the Company actually experienced a strengthening
of OSP sales, with such sales increasing approximately 23.4% as compared to the
immediately preceding quarter ended December 31, 1999.
13
<PAGE>
Sales for the OEM Group were $171.8 million for the quarter ended March 31,
2000, an increase of 4.3% as compared to the March 31, 1999 quarter. Sales of
magnet wire, the OEM Group's principal product line, increased 4.4% 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.
Growth in magnet wire sales was partially offset by lower sales of automotive
products, reflecting a 1999 rationalization of unprofitable products and
customer accounts.
Sales for the Electrical Group were $125.7 million for the March 31, 2000
quarter, representing a decline of 15.1% (24.8% on a copper-adjusted basis) as
compared to sales of $148.1 million for the quarter ended March 31, 1999. During
the current quarter, the Company intentionally reduced its order and shipment
volumes to support pricing levels that were severely depressed for substantially
all of 1999 and in the early portion of 2000. While pricing and shipment volume
levels did improve in the latter stages of the quarter, sales volume, on a
copper pounds shipped basis, was down 22.2% as compared to the prior year March
quarter.
Gross profit for the current quarter was $85.6 million, a decline of 14.5%
as compared to gross profit of $100.2 million for the quarter ended March 31,
1999. The gross margin percentage in the current quarter was 17.3%, a decline on
a copper-adjusted basis of 130 basis points as compared to the prior year March
quarter. The decline in gross profit and gross margin percentage was principally
attributable to the Electrical Group, where lower sales and higher per unit
production costs negatively impacted the gross profit. Per unit production costs
were adversely affected by lower production levels for the current quarter and
the resulting negative impact of fixed cost absorption on per unit costs. To a
lesser degree, the comparative gross profit and gross margin percentage was
impacted by a decline in the Communications Group, which included lower margins
from export sales at Superior Israel (due to strengthening local currency
relative to the Euro and other major currencies) and certain other product mix
factors impacting comparative profitability in the remainder of the
Communications Group.
Selling, general and administrative expense ("SG&A expense") for the
March 31, 2000 quarter was $38.0 million, a decline of 8.8% as compared to SG&A
expense of $41.7 million for the March 31, 1999 quarter. The comparative decline
in SG&A expense was the result of corporate restructurings and overhead expense
reductions initiated principally in the second quarter of 1999 and associated
with the acquisition of Essex International Inc. ("Essex").
The Company incurred nonrecurring and unusual charges of $5.9 million and
$2.5 million for the quarters ended March 31, 2000 and 1999, respectively. The
nonrecurring and unusual charges in the current quarter related principally to
the previously announced close down of plants, consolidation of production
capacity and related costs in the Company's building wire (Electrical)
operations. Nonrecurring and unusual charges in the prior year March quarter
related principally to corporate and other restructuring activities associated
with the acquisition of Essex.
Operating income for the March 31, 2000 quarter was $36.5 million. Before
nonrecurring charges and goodwill amortization, operating income was
$47.6 million, a decline of $10.9 million or 18.6% as compared to the March 31,
1999 quarter. The decline in operating income was principally attributable to
lower gross profit in the Company's Electrical Group and, to a lesser degree,
its Communication Group, partially offset by a 10.5% expansion in operating
income in the Company's OEM segment as well as lower corporate expenses.
Interest expense for the quarter ended March 31, 2000 was $31.2 million, an
increase of $1.3 million as compared to the prior year March quarter, with such
increase being attributable to higher short-term (LIBOR) rates in the current
quarter.
For the quarter ended March 31, 2000, the Company incurred a charge of
$3.8 million for distributions (dividends) on preferred securities of Superior
Trust I. These preferred securities were issued in connection with the
acquisition of the remaining 19% common equity ownership of Essex which was
14
<PAGE>
completed on March 31, 1999. Accordingly, there were no such distributions
during the quarter ended March 31, 1999.
For the quarter ended March 31, 2000, the Company recorded a credit of
$0.8 million related to the common equity minority interest component (49%) of
losses incurred by Superior Israel. In the March 31, 1999 quarter a minority
interest charge of $2.0 million was recorded reflecting principally the common
equity minority interest component (19%) of Essex net income for the March 31,
1999 quarter.
Net income before nonrecurring and unusual charges for the quarter ended
March 31, 2000 was $4.0 million or $0.20 per diluted share as compared to $0.55
per diluted share for the quarter ended March 31, 1999. The current period
decline in per share earnings was principally attributable to lower operating
income in the Company's Electrical Group and, to a lesser degree, the net impact
in the current quarter of charges for dividends paid on the Superior Trust I
preferred securities. Net income per diluted share (after nonrecurring and
unusual charges) for the March 31, 2000 quarter was $0.02 as compared to $0.49
in the prior year March quarter.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 2000, the Company generated $9.6 million in
cash flows from operating activities consisting of $18.4 million in cash flows
generated from operations (net income plus non-cash charges) reduced by
$8.8 million in cash flows used for increases in net working capital. Cash used
for investing activities amounted to $32.2 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 $15.6 million. The major components were a net increase
in borrowings of Superior Israel of $16.0 million (including $11.8 million
related to Superior Israel Customer Loans) and other debt reductions of
$0.9 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 $93.0 million credit facility (the
"Israel Credit Agreement"). Total undrawn funding availability under the Credit
Agreement and the Israel Credit Agreement amounted to $131.6 million and
$4.8 million, respectively, at March 31, 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 March 31, 2000, $128.6 million was outstanding under this program.
The Company's principal debt service commitments for the next 12 months
amount to $82.2 million and capital expenditures are expected to approximate
$65.0-$75.0 million. Management anticipates that the Company will generate in
excess of $100 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
15
<PAGE>
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
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27* Financial Data Schedule
(b) Reports on Form 8-K
None.
- ------------------------
* Filed herewith
17
<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: May 15, 2000 By: /s/ DAVID S. ALDRIDGE
-----------------------------------------
David S. Aldridge
CHIEF FINANCIAL OFFICER AND TREASURER
(duly authorized officer and principal
financial and accounting officer)
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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134,193
0
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