Investor Update. Third Quarter 2006

Transcription

1 Investor Update Third Quarter 2006

2 Statements regarding forward-looking information and non-gaap financial information Except for the historical information herein, the matters discussed in this document 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, general economic, business and industry trends, spending reductions by the telephone industry, the migration of magnet wire demand to China, intense competition, increases or decreases in sales due to contract losses or gains, fluctuations in the supply, availability and pricing of copper and other principal raw materials (including the working capital impact of such), natural gas and freight, production and timing of customer orders, risks in product and technology development, market acceptance of new products and continuing product demand, production and timing of customer orders, the impact of competitive products and pricing, changes in short-term interest rates and foreign exchange rates, a significant level of indebtedness, our ability to operate within the framework of our revolving credit facility and senior notes, our ability to sustain the benefits of our acquisition of assets from Belden and Nexans in the U.S., integrate the operations of the Essex Nexans European JV and attain the expected benefits, our ability to identify, finance and integrate other acquisitions, our ability to successfully construct and operate a magnet wire facility in China and other risk factors detailed in Superior Essex's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended 12/31/05. We use certain operating and financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America, or GAAP. A non-gaap financial measure is defined as a numerical measure of a company's financial performance, financial position or cash flows that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented. These non-gaap operating and financial measures are described below. Copper-Adjusted Revenues: Due to the impact of differing copper costs on revenues in the reported periods, the Company is providing supplemental, non-gaap sales comparisons at a constant cost of copper (copper adjusted revenues) to aid in analyzing period-to-period revenues. These revenues are adjusted to a $2/lb COMEX cost. Copper adjusted increase in revenues is calculated after adjusting revenues in both periods to a constant copper cost of $2/lb. Core Business Revenues: Core Businesses consist of the Company s Communications Cable, its North American Magnet Wire and Distribution segments, and its European Magnet Wire operations. EBITDA: Earnings before interest, taxes, depreciation and amortization, or "EBITDA", is a performance metric we use and which is used by other companies. "EBITDA" as used by the Company (defined as net earnings before interest, taxes, depreciation and amortization) may not be comparable to a similarly titled measure of another company. Adjusted EBITDA and Adjusted EPS: The Company uses the terms Adjusted EBITDA and Adjusted earnings per share (or Adjusted EPS ). Adjusted EBITDA is defined as EBITDA excluding the impact of special items (before tax). Adjusted EPS is defined as earnings per diluted share excluding the after-tax impact of special items. Special items are detailed in the financial tables accompanying this release. Comparisons to GAAP: Management believes that EBITDA, Adjusted EBITDA, Adjusted EPS and copper-adjusted revenues are useful adjuncts to net income and other measurements under GAAP. The Company believes these measures are useful in analyzing the underlying operating performance of the Company. Adjusted EBITDA and Adjusted EPS are also sometimes used to evaluate performance for executive compensation. We have included a reconciliation of EBITDA, Adjusted EBITDA and Adjusted EPS to net income, the most directly comparable GAAP financial measure. EBITDA, Adjusted EBITDA and Adjusted EPS are supplements to GAAP financial information and should not be considered an alternative to, or more meaningful than, net income, income from continuing operations or operating income as determined in accordance with GAAP. EBITDA and Adjusted EBITDA have distinct limitations as compared to GAAP information such as net income, income from continuing operations or operating income. By excluding interest and income taxes for example, it may not be apparent that both represent a reduction in cash available to the Company. Likewise, depreciation and amortization, while non-cash items, represent generally the utilization of assets that produce revenue for the Company. By excluding certain special items, it may not be apparent that these costs represent a reduction in cash available to the Company. Management compensates for these limitations by using the GAAP results in conjunction with these other measures. Adjusted EPS has distinct limitations as compared to GAAP information such as net income or earnings per share. By excluding certain special items, it may not be apparent that these costs represent a reduction in cash available to the Company. Management compensates for these limitations by using the GAAP results in conjunction with adjusted EPS. 2

3 Superior Essex A global leader in Magnet Wire and Communications Cable $2.4B market leader in Core Businesses (1) Magnet Wire Global industry leader Coated copper conductor used by major OEMs and distributors Communications Cable North American industry leader Copper and fiber optic wire and cable products Atlanta-based company 75-year heritage Over 4,000 employees 21 manufacturing facilities in seven countries (2) 2005 Pro Forma Revenues of $2.4B (1) European Magnet Wire Essex Nexans 21% Copper Rod 14% Communications 31% North American Magnet Wire 34% (1) Pro forma 2005 (2) Suzhou, China, facility to be operational in

4 Superior Essex Transformation success story Financial Restructuring Completed Chapter 11 Substantially improved balance sheet, reduced leverage and positioned company for future growth North American Industry Consolidation Improved efficiencies, margins and industry dynamics via acquisitions Belden s NA OSP communications wire and cable business Nexans U.S. magnet wire inventory and certain U.S. customers 2005/ Global Expansion Achieved No. 1 global position in magnet wire China Greenfield magnet wire expansion European magnet wire JV with Nexans: 60% ownership Improved Capital Structure Completed $81 million public equity offering Paid down entire revolving credit facility, improved stockholders equity, reduced debt to equity ratio and reduced balance sheet leverage 4

5 Superior Essex Substantial profitability growth in 05 & first 9 months of 06 FY 05 % Chg YTD 06 % Chg Total Revenues $1.8B 9% (1) $2.3B 26% (1) Core Business $1.5B 18% (1) $1.9B 34% (1) Adj. EBITDA (2) $93.5M 31% $133.4M 84% Net Income $31.9M 204% $50.6M 75% Diluted EPS $ % $2.73 Adj. EPS (2) $ % $ % 131% (1) Copper adjusted (2) Before special items 5

6 North American Magnet Wire Key component in all electrical motor production Coated copper, aluminum conductors essential to: Industrial motors Power transformers, generators Motor repair Automotive applications Electrical coils, controls Appliances Solid revenue growth FY 05 = $716M 12% copper-adjusted increase YTD 06 = $786M 7% copper-adjusted increase 6

7 North American Magnet Wire Benefitting from improving industry dynamics One of only two major NA producers SPSX capacity utilization above 90% Major industry consolidation in Feb ~80% of sales to large OEMs: Emerson Electric Regal-Beloit Market Share Others 26% Rea 40% Superior Essex 34% A.O. Smith Tecumseh Cooper Howard Industries Distinct competitive advantages Industry leader in quality Vertically integrated National distribution channel Expandable production facility in Mexico Source: Internal estimates End Markets Power Generation 19% Distribution 18% Auto 10% Industrial Motors 48% Appliances/Other 5% 7

8 European Magnet Wire Essex Nexans October 2005 European JV with Nexans 60% ownership of largest magnet wire producer in Europe Modest upfront cash investment Non-recourse debt Favorable put and call provisions Expected 06 synergies of ~$3.5M Consolidation/rebalancing of production Increase internally produced enamels usage Pro forma 2005 revenues of ~$450M Potential for substantial margin upside Industry consolidation potential Schwering 10% Acebsa 7% Pumps 10% Six facilities in Germany, France, the U.K. and Portugal Source: Internal estimates and at $2.00/lb copper Market Share Others 25% Invex 11% Essex Nexans 22% Elektro- Koppar 13% IRCE 12% End Markets Other 20% Motors 12% Auto 20% Power Generation 19% Appliances 19% 8

9 Magnet Wire - China World s largest and fastest-growing magnet wire market Developing presence in 1.5B lb Chinese magnet wire market Magnet Wire Consumption Greenfield construction in process Expect to be operational in 4Q 06 Rest of World 72% China 28% Initial focus on current North American customers already operating in China CAPEX: $25M in FY 06 (phase I) and between $5 to $10M in FY 07 (phase II) 2.0B Historical/Pro Forma Consumption in Pounds 1 st phase: 12M lbs online in % CAGR Annual revenues ~$32M (1) 2 nd phase: ~25M lbs total in B Annual revenues ~$68M (1) Further expansion potential to ~90M lbs Source: CRU (October 2006) (1) At constant copper value of $2.00/lb 0.0B E 9

10 Magnet Wire - Recent Performance North American and European results Revenues at Constant Copper (1) Adjusted EBITDA (2) ($ in millions) $924 $733 $781 $809 $723 $662 $645 $614 $1,042 $658 ($ in millions) $32 $34 $39 $43 $40 $45 $34 $36 $59 $13 $36 $384 0 $71 $58 $115 $ YTD 05 YTD 06-5 $10 ($2) ($1) ($2) ($2) YTD 05 YTD 06 Copper benefit Growth (%) NA Euro 9 (19) NM Margin (%) NA Euro 5.1 NM 5.6 NM 5.6 NM 5.8 NM (3 5.5 ) (3) 2.6 (1) Constant copper value of $2.00/lb (2) Before special items (3) Without copper benefit 10

11 Communications Cable OSP cable & wire and premises cable & wire products Communications Cable OSP: copper and fiber outside plant cable used in voice and data transmission, local exchanges and CATV Premises: copper and fiber wire and cable used in homes, offices, central office switching, and LANs and WANs Revenue performance reflects acquisition benefits and growth in premises products FY 04 = $530M 39% copper-adjusted increase FY 05 = $679M 17% copper-adjusted increase YTD 06 = $653M 3% copper-adjusted increase 11

12 Communications Cable Acquisition growth with organic expansion in premises Customers include major telcos (RBOCs, Embarq (1) ) and distributors (Anixter, Graybar, etc.) Also, 1,200 smaller, independent telcos OSP Cable and Wire - acquisition growth Copper: 50% reduction in industry capacity Fiber: 32% CAGR for 03 through 05 Low cost, integrated fiber/copper manufacturing facilities Trend towards fiber-to-the-node OSP Copper Wire & Cable General Cable 32% Superior Essex 68% OSP Customer Mix Premises Cable and Wire - organic growth ~10% share of growing $1.5B NA business Up from ~3% share in 03 Double-digit revenue growth in 04, 05 and YTD 06 Market demand growth and increased share (1) Formerly Sprint Source: Company estimates (based on $ sales) using CRU data for market size and competitor public information where available Distribution 19% Contract Intl. 6% 75% 12

13 Communications - Recent Performance Reflects benefit of Belden acquisition & industry consolidation ($ in millions) Revenues at Constant Copper (1) $760 $649 $575 $594 $466 ($ in millions) $31 Adjusted EBITDA (1,2) $67 $51 $45 $87 $14 $ YTD 05 YTD 06 Growth (%) YTD 05 YTD 06 Copper benefit Margin (%) (3) (1) At constant copper value of $2.00/lb (2) Before special items (3) Without copper benefit 13

14 Financial Results 14

15 Financial Highlights 2005 results: Core Business copper-adjusted revenue growth of 18% Increase in EBITDA of 31% to $94M Growth in adjusted EPS of 79% to $1.38 Leverage reduction to 2.9X YTD 06 results: Core Business copper-adjusted revenue growth of 34% Increase in adjusted EBITDA of 84% to $133M Growth in adjusted EPS of 131% to $2.61 Estimated YTD $0.77 per share copper benefit 2Q 06 copper benefit of $0.50 3Q 06 copper benefit of $0.27 Excluding copper benefit, 3Q 06 adjusted EPS growth of 41% and YTD 06 adjusted EPS growth of 63% Balance sheet leverage has been reduced to less than 2X 15

16 Core Business Revenues (at constant copper value of $2.00/pound) ($ in millions) $1,199 $662 $466 $71 $1,430 $723 $649 $58 $1,684 $809 $760 $115 $1,220 $614 $575 $31 $1,637 $384 $658 $ YTD'05 YTD'06 Communications NA Magnet Wire & Dist. Europe Magnet Wire Growth Rates (at constant copper) YTD 06 Core Business 19% 18% 34% Communications 39% 17% 3% NA Magnet Wire & Distribution 9% 12% 7% 16

17 Consolidated Adjusted EBITDA ($ in millions) $54 $34 $31 ($2) ($9) $71 $40 $45 ($13) ($1) $94 $45 $67 $ YTD'05 YTD'06 Communications NA Magnet Wire & Dist. Europe Magnet Wire Corporate/Other Copper Benefit ($2) $36 $51 ($2) $133 $27 $10 $36 $73 ($16) ($12) ($13) Growth Rates (at constant copper) YTD 06 with CU YTD 06 w/out CU Consolidated Adjusted EBITDA 33% 31% 84% 46% Communications 45% 49% 73% 44% Magnet Wire & Distribution 22% 10% 77% 37% 17

18 Adjusted EPS (before special items) $3.00 $2.61 $2.00 $1.38 $1.13 $1.00 $0.77 $0.79 $0.37 $ Q'05 3Q'06 YTD'05 YTD'06 EPS Growth Ex. Copper Benefit Copper benefit 79% 114% 41% 131% 63% 18

19 Capital Structure - 9/30/06 Exceptional financial flexibility Senior Notes ($251 million) 9.0% interest No principal amortization No financial covenants Due in 2012 $668 million NA Revolver (no outstanding balance) $225 million facility No principal amortization No significant financial covenants Due in 2011 Equity ($351 million) Market cap of ~$770 million Other debt ($66 million) Capital leases and preferred stock Europe revolver and subordinated notes 19

20 Profit Drivers 4Q 06 Seasonally slowest quarter for both Magnet Wire and Communications Long-Term Revenue/profitability will be impacted by year-end customer, industry trends Year-end Telco budgetary adjustments (+ or -) Impact of higher copper costs on customer budgets (-) Overall performance of North American, European industrials (+ or -) Margin expansion in NA magnet wire industry due to industry consolidation Margin gap in European Magnet Wire vs. NA Magnet Wire Opportunity for European magnet wire industry consolidation Benefits from China Greenfield expansion Continued improvement in OSP Communications Cable pricing Communications margin improvement due to better product mix of higher category premises products Continued improvement in underlying market, economic fundamentals Continued cost reduction efforts 20