FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 1-10233
--------------------
MAGNETEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3917584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Wilshire Blvd., Suite 850
Los Angeles, California 90024
(Address of principal executive offices)
(Zip Code)
(310) 208-1980
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of February 1,
2001, 22,378,798 shares.
2001 MAGNETEK FORM 10-Q
TABLE OF CONTENTS FOR THE QUARTERLY REPORT ON 10Q
FOR THE FISCAL QUARTER AND SIX MONTHS ENDED DECMEBER 31, 2000
MAGNETEK, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Reports on Form 8-K
2
PART I. FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to fairly present the financial
position as of December 31, 2000 and the results of operations and cash flows
for the three-month and six-month periods ended December 31, 2000 and 1999. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes included in the
Company's latest annual report on Form 10-K. Results for the three-months and
six-months ended December 31, 2000 are not necessarily indicative of results
which may be experienced for the full fiscal year.
This document contains "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995, that are subject to risks and
uncertainties which, in many cases, are beyond the control of the Company. These
include but are not limited to economic conditions in general, business
conditions in electrical and electronic equipment markets, competitive factors
such as pricing and technology, and the risk that the Company's ultimate costs
of doing business exceeds present estimates. Further information on factors
which could affect MagneTek's financial results are described in the Company's
filings with the Securities and Exchange Commission.
3
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 and JUNE 30, 2000
(amounts in thousands)
ASSETS DECEMBER 31 JUNE 30
- ------ ----------- -------
(unaudited)
Current assets:
Cash $ 814 $ 343
Accounts receivable 66,616 59,468
Inventories 54,003 42,069
Prepaid expenses and other 18,421 17,887
---------------------- -------------------
Total current assets 139,854 119,767
---------------------- -------------------
Property, plant and equipment 90,897 87,962
Less-accumulated depreciation
and amortization 52,582 47,825
---------------------- -------------------
38,315 40,137
---------------------- -------------------
Net assets of discontinued operations 124,782 115,827
Goodwill 83,874 69,458
Prepaid pension and other assets 55,898 55,484
---------------------- -------------------
Total Assets $ 442,723 $ 400,673
====================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,436 $ 47,973
Accrued liabilities 33,857 30,011
Current portion of long-term debt 1,458 1,732
---------------------- -------------------
Total current liabilities 81,751 79,716
---------------------- -------------------
Long-term debt, net of current portion 107,654 62,308
Other long-term obligations 39,841 41,539
Deferred income taxes 32,406 32,904
Commitments and contingencies
Stockholders' equity
Common stock 221 231
Paid in capital in excess of par value 91,056 100,399
Retained earnings 115,378 108,662
Accumulated other comprehensive loss (25,584) (25,086)
---------------------- -------------------
Total stockholders' equity 181,071 184,206
---------------------- -------------------
Total Liabilities and
Stockholders' Equity $ 442,723 $ 400,673
====================== ===================
See accompanying notes
4
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
December 31, 2000 and 1999
(amounts in thousands except per share data)
(unaudited)
2000 1999
---- ----
Net sales $ 81,868 $ 66,681
Cost of sales 61,691 50,275
---------------- ----------------
Gross profit 20,177 16,406
Selling, general and administrative 15,040 14,525
---------------- ----------------
Income from operations 5,137 1,881
Interest expense 1,233 561
Other expense, net 524 425
---------------- ----------------
Income from continuing operations before
provision for income taxes 3,380 895
Provision for income taxes 1,290 339
---------------- ----------------
Income from continuing operations 2,090 556
Discontinued operations -
Income from operations (net of taxes) 1,823 3,539
---------------- ----------------
Net income $ 3,913 $ 4,095
================ ================
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations $ 0.09 $ 0.02
Income from discontinued operations 0.08 0.15
---------------- ----------------
Net income $ 0.17 $ 0.17
================ ================
Diluted:
Income from continuing operations $ 0.09 $ 0.02
Income from discontinued operations 0.08 0.15
---------------- ----------------
Net income $ 0.17 $ 0.17
================ ================
See accompanying notes
5
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED
December 31, 2000 and 1999
(amounts in thousands except per share data)
(unaudited)
2000 1999
---- ----
Net sales $ 153,738 $ 137,853
Cost of sales 116,615 106,977
---------------- ----------------
Gross profit 37,123 30,876
Selling, general and administrative 28,763 27,545
---------------- ----------------
Income from operations 8,360 3,331
Interest expense 2,382 882
Other expense, net 988 853
---------------- ----------------
Income from continuing operations before
provision for income taxes 4,990 1,596
Provision for income taxes 1,902 606
---------------- ----------------
Income from continuing operations 3,088 990
Discontinued operations -
Income from operations (net of taxes) 3,628 6,066
Gain on sale of discontinued businesses
(net of taxes) - 35,047
---------------- ----------------
Net income $ 6,716 $ 42,103
================ ================
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations $ 0.14 $ 0.04
Income from discontinued operations 0.16 0.23
Gain on sale of discontinued businesses
(net of taxes) - 1.31
---------------- ----------------
Net income $ 0.30 $ 1.58
================ ================
Diluted:
Income from continuing operations $ 0.13 $ 0.04
Income from discontinued operations 0.16 0.22
Gain on sale of discontinued businesses
(net of taxes) - 1.31
---------------- ----------------
Net income $ 0.29 $ 1.57
================ ================
See accompanying notes
6
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
December 31, 2000 and 1999
(amounts in thousands except per share data)
(unaudited)
2000 1999
Cash flows from operating activities:
Income from continuing operations $ 3,088 $ 990
Adjustments to reconcile income to net cash used in
operating activities:
Depreciation and amortization 7,193 7,345
Changes in operating assets and liabilities
of continuing operations (14,193) (27,571)
--------------- ------------
Total adjustments (7,000) (20,226)
--------------- ------------
Net cash used in operating activities (3,912) (19,236)
--------------- ------------
Cash flows from investing activities:
Proceeds from sale of discontinued businesses and other assets - 255,352
Purchase of and investment in companies, net of cash acquired (21,471) (48,245)
Capital expenditures (4,538) (4,969)
--------------- ------------
Net cash provided by (used in) investing activities (26,009) 202,138
--------------- ------------
Cash flow from financing activities:
Borrowings under bank and other long-term obligations 45,072 -
Proceeds from issuance of common stock 747 1,665
Stock repurchases (10,100) (59,849)
Repayment of bank and other long term obligations - (109,635)
Increase in deferred financing costs - (467)
--------------- ------------
Net cash provided by (used in) financing activities 35,719 (168,286)
--------------- ------------
Net cash provided by continuing operations 5,798 14,616
--------------- ------------
Cash flow from discontinued operations:
Income from discontinued operations 3,628 6,066
Adjustments to reconcile income to net cash provided by discontinued operations:
Depreciation and amortization 5,223 6,454
Changes in operating assets and liabilities
of discontinued operations, including fees and
expenses of disposal (9,181) (27,037)
Capital expenditures (4,997) (4,219)
--------------- ------------
Net cash used in discontinued operations (5,327) (18,736)
--------------- ------------
Net increase (decrease) in cash 471 (4,120)
Cash at the beginning of the period 343 5,890
--------------- ------------
Cash at the end of the period $ 814 $ 1,770
=============== ============
See accompanying notes
7
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
(amounts in thousands)
(unaudited)
2000 1999
---- ----
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,059 $ 3,757
Income taxes $ (98) $ 4,828
See accompanying notes
8
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(All dollar amounts are in thousands)
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL PERIOD - The Company uses a fifty-two, fifty-three week fiscal
year. Fiscal periods end on the Sunday nearest the end of the month.
For clarity of presentation, all periods are presented as if they ended
on the last day of the calendar period. The three-month and six month
periods ended December 31, 2000 contained thirteen weeks and twenty-six
respectively. The comparable periods in 1999 contained thirteen weeks
and twenty-seven weeks.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of MagneTek, Inc. and its subsidiaries (the
Company). All significant inter-company accounts and transactions have
been eliminated.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from these estimates.
COMMODITY DERIVATIVE INSTRUMENTS - The Company utilizes derivative
financial instruments to reduce market fluctuations in commodity
(copper wire) and foreign currency (peso related labor costs) exposures
specific to businesses included as discontinued operations. The Company
has established policies and procedures that govern the management of
these exposures through the use of financial instruments. The contract
terms of these derivatives are within one year and settlement of
positions are typically completed through a financial settlement and
not through the physical receipt of the commodity or the currency. The
Company's policy prohibits the use of derivative financial instruments
for speculative or trading purposes.
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities and its amendments, Statements 137 and 138 ("SFAS 133"),
which establishes new accounting and reporting guidelines for
derivative instruments and hedging activities. SFAS 133 requires all
derivative instruments to be recognized as assets or liabilities in the
balance sheet and measured at fair value. Accounting for changes in the
fair value of a derivative depends on the intended use of the
derivative and the resulting designation. For derivatives designated as
cash flow hedges, changes in fair value are recognized in accumulated
other comprehensive income in the balance sheet until the hedged item
is recognized in earnings. Changes in the fair value of derivative
instruments, which are not designated as hedges, are recorded in
earnings as the changes occur.
The Company's commodity and foreign currency derivative instruments
meet the requirement of cash flow hedges and therefore changes in the
fair market value of the hedges are included within other comprehensive
income until the hedged item is recognized in earnings. Earnings
recognition from these transactions is recorded in cost of sales when
the hedge transaction affects earnings. Previous to the adoption of
SFAS 133, gains and losses were deferred until the contract settlement.
The adoption of Statement No. 133 on July 1, 2000 resulted in the
recognition of $654 in other comprehensive income for the
9
first six months of fiscal 2001. The estimated net gain to be
recognized over the next twelve months in relation to copper and peso
contracts is projected to approximate that same level as recorded in
other comprehensive income in the first six months of fiscal 2001.
Hedging activities related to copper and peso contracts are specific to
discontinued operations and activity in this area will terminate when
these operations are divested.
2. INVENTORIES
Inventories at December 31, 2000 and June 30, 2000 consist of the
following:
DECEMBER 31 JUNE 30
----------- -------
Raw materials and stock parts $ 26,957 $ 23,729
Work-in-process 12,637 8,057
Finished goods 14,409 10,283
------ ------
$ 54,003 $ 42,069
====== ======
3. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of product liability lawsuits, many
of which involve fires allegedly caused by defective ballasts. All of
these cases are being defended by the Company, and management believes
that its insurers will bear all liability, except for applicable
deductibles, and that none of these proceedings individually or in the
aggregate will have a material effect on the Company.
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District
Court for the Northern District of Illinois alleging the Company is
infringing seven of his patents pertaining to electronic ballast
technology. The plaintiff seeks an unspecified amount of damages and an
injunction to preclude the Company from making, using or selling those
products allegedly infringing his patents. The Company denies that it
has infringed, or is infringing, any of the plaintiff's patents, and
has asserted several affirmative defenses. The Company also filed a
counterclaim seeking judicial declaration that it is not infringing
(and has not infringed) the patents asserted by the plaintiff, and that
such asserted patents are invalid. The Company intends to defend this
matter vigorously. At this state, it is difficult to predict the
outcome of the foregoing legal proceeding. However, management of the
Company does not believe that the financial impact of such litigation
will be material.
The Company was named as a defendant, along with 90 other companies
engaged in the electronics and related industries, in a patent
infringement lawsuit filed by the Lemelson Medical, Education &
Research Foundation Limited Partnership ("Lemelson") in the U.S.
District Court for the District of Arizona. The defendants include
manufacturers and suppliers of electronic or semiconductor products or
products incorporating semiconductor products. The complaint alleges
that the defendants are each infringing certain patents allegedly held
by Lemelson and seeks a judgment that the defendants each willfully
infringed the patents at issue, an injunction against further
infringement, trebled actual damages and attorneys' fees. The Company
is in the process of reviewing the claims to determine their validity,
and investigating its defenses to the claims, and while no assurances
regarding the eventual resolution of this matter can be made at this
time, the Company does not believe this matter will have a material
adverse effect on the Company's finances or operations.
The Company has from time to time discovered contamination by hazardous
substances at certain of its facilities. In response to such a
discovery, the Company conducts remediation activities to bring the
facility into compliance
10
with applicable laws and regulations. The Company's remediation
activities for fiscal 2000 did not entail material expenditures, and
its remediation activities for fiscal 2001 are not expected to entail
material expenditures. Future remediation of contaminated areas could
entail material expenditures, depending upon the extent and nature of
the contamination, the cleanup measures employed and the concurrence of
governmental authorities.
Prior to its purchase by the Company in 1986, Century Electric, Inc.
("Century Electric") acquired a business from Gould Inc. ("Gould") in
May 1983 which included a leasehold interest in a fractional horsepower
electric motor manufacturing facility located in McMinnville,
Tennessee. In connection with this acquisition, Gould agreed to
indemnify Century Electric from and against liabilities and expenses
arising out of the handling and cleanup of certain waste materials,
including but not limited to cleaning up any PCBs at the McMinnville
facility (the "1983 Indemnity"). Investigation has revealed the
presence of PCBs and other substances, including solvents, in portions
of the soil and in the groundwater underlying the facility and in
certain offsite soil, sediment and biota samples. Century Electric has
kept the Tennessee Department of Environment and Conservation, Division
of Superfund, apprised of test results from the investigation. The
McMinnville plant has been listed as a Tennessee Inactive Hazardous
Substance Site, a report on that site has been presented to the
Tennessee legislature, and community officials and plant employees have
been notified of the presence of contaminants as above described. In
1995, Gould completed an interim remedial measure of excavating and
disposing onsite soil containing PCBs. Gould also conducted preliminary
investigation and cleanup of certain onsite and offsite contamination.
The cost of any further investigation and cleanup of onsite and offsite
contamination cannot presently be determined. The Company recently sold
its leasehold interest in the McMinnville plant and believes that the
costs for further onsite and offsite cleanup (including ancillary
costs) are covered by the 1983 Indemnity. While the Company believes
that Gould will continue to perform substantially under its indemnity
obligations, Gould's substantial failure to perform such obligations
could have a material adverse effect on the Company.
A company obligated to indemnify MagneTek against certain environmental
liabilities, Fruit of the Loom, Inc. ("FOL"), has filed a petition for
Reorganization under Chapter 11 of the Bankruptcy Code. MagneTek
acquired the stock of Universal Manufacturing Company ("Universal")
from a predecessor of FOL. In connection with that acquisition, the
predecessor of FOL indemnified MagneTek against certain environmental
liabilities arising from Universal's pre-acquisition activities.
Environmental liabilities covered by the FOL indemnity include
completion of additional cleanup activities (if any) at MagneTek's
Bridgeport, Connecticut facility, and defense and indemnity of MagneTek
concerning offsite disposal locations where MagneTek may have a share
of potential response costs. MagneTek has filed a proof of claim in
FOL's bankruptcy proceeding for matters governed by the FOL
environmental indemnity.
The Company has been identified by the United States Environmental
Protection Agency and certain state agencies as a potentially
responsible party for cleanup costs associated with alleged past waste
disposal practices at several offsite locations. Based on the nature of
its alleged connections to those sites, the volume and the nature of
the alleged contaminants, anticipated cleanup costs, the number of
parties participating, any available indemnification rights and the
ability of other liable parties to pay their shares, the Company's
estimated share in liability (if any) at the offsite facilities is not
expected to be material. It is possible that the Company's actual
expenditures at those sites may be less or greater than currently
anticipated, and that the Company will be named as a potentially
responsible party in the future with respect to other sites.
11
In selling certain business operations, the Company from time to time
has agreed, subject to various conditions and limitations, to indemnify
buyers with respect to environmental liabilities associated with the
divested operations. The Company's indemnification obligations pursuant
to such agreements did not entail material expenditures for fiscal
2000, and its indemnification obligations for fiscal 2001 are not
expected to entail material expenditures. Future expenditures pursuant
to such agreements could be material, depending upon the nature of any
future asserted claims subject to indemnification.
4. DISCONTINUED OPERATIONS
The accompanying financial statements have been re-stated to conform to
discontinued operations treatment for current and historical periods.
The results of the Company's electrical product businesses (Motors,
Lighting Products and Transformers) are included within discontinued
operations.
On August 2, 1999, the Company sold its Motor business to A.O. Smith
for $253 million. The results of the Motor business as well as the
Lighting Products and Transformer businesses have been reflected as
discontinued operations in the accompanying consolidated financial
statements. The Company recorded an after-tax gain of $35 million in
the first quarter of fiscal year 2000 based upon the sale of its Motor
business. A portion of the Company's interest expense has been
allocated to discontinued operations in accordance with EITF 87-24,
"Allocation of Interest to Discontinued Operations." Taxes have been
allocated using the same overall rate incurred by the Company in the
first six months of fiscal year 2001.
5. ACQUISITIONS/DIVESTITURES
On July 23, 1999, the Company purchased the assets of Electric Motor
Systems, Inc. and EMS/Rosa Automation Engineering, Inc. (The EMS Group)
for cash of approximately $38.3 million. The Company acquired assets of
approximately $19.8 million and assumed liabilities of $8.1 million.
Costs in excess of net assets acquired approximated $26.6 million and
are being amortized over forty years. The EMS Group manufactures and
purchases for re-sale, adjustable speed drives. On December 16, 1999
the Company purchased the shares of Mondel ULC, a Nova Scotia unlimited
liability company for approximately $10 million. The Company acquired
assets of approximately $2.5 million and assumed liabilities of $.3
million. Costs in excess of net assets acquired approximated $7.8
million and are also being amortized over forty years. Mondel ULC
manufactures a variety of industrial brakes for the crane and hoist
market.
Operating results of the EMS Group and Mondel ULC are included in the
Company's consolidated results effective as of the acquisition dates.
Pro forma results of the operations, as if the acquisitions had
occurred at the beginning of the period presented, would not differ
materially from historical results as reported.
On November 13, 2000, the Company purchased shares of J-Tec, Inc. for
approximately $24 million. The Company acquired assets of approximately
$13.1 million (including cash balances approximating $2.9 million) and
assumed liabilities of $4.6 million. Costs in excess of net assets
acquired approximated $15.5 million and are being amortized over 40
years. The J-Tec, Inc. acquisition is subject to post closing
adjustments based upon the change in net assets acquired at closing
versus a contractually agreed upon level of transferred net assets.
J-Tec, Inc. is a power systems integrator serving the domestic
telecommunications industry.
12
Pro forma results of operations assuming that J-Tec had been purchased
at the beginning of the fiscal year are as follows:
Pro Forma
Six Months Ending December 31
--------------------------------
2000 1999
---- ----
Net sales $ 167,058 $ 146,803
Income from continuing operations
Before provision for income taxes 8,277 1,148
Provision for income taxes 3,151 436
------ ------
Income from continuing operations $ 5,126 $ 712
====== =====
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations $ 0.23 $ 0.03
Diluted:
Income from continuing operations $ 0.22 $ 0.03
Each of the acquisitions have been accounted for under the purchase
method of accounting and, accordingly the purchase price has been
allocated to the net assets acquired based upon their estimated fair
values. All of the acquisitions were financed from the Company's
revolving credit facility.
On January 29, 2001, the Company sold its Drive's Products Group to
Yaskawa Electric of America for approximately $27.6 million in cash,
subject to post closing adjustments. The Drives Products Group was part
of the Company's Drives and Industrial Controls Division and was
responsible for the business of manufacturing, assembling, marketing,
selling, servicing and repairing Yaskawa general purpose AC drives and
related products. Proceeds from the sale will be used for debt
repayment and future acquisitions.
The following unaudited pro forma condensed consolidated statements of
income for the fiscal year ended June 30, 2000 and the six months ended
December 31, 2000, give effect to the divestiture of Drives Product's,
as if such transaction had been completed as of July 1, 1999.
The following unaudited pro forma condensed consolidated balance sheet
as of December 31, 2000 gives effect to the divestiture of Drives
Product's by MagneTek, Inc. as if the transaction had been completed as
of December 31, 2000.
The pro forma condensed consolidated financial information presented
herein does not purport to represent what the Company's results of
operations or financial position would have been had such transaction,
in fact, occurred at the beginning of the periods presented or to
project the Company's results of operations in any future period. The
unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements of MagneTek, Inc. included in its Annual Report on Form 10-K
for the year ended June 30, 2000 and the unaudited condensed
consolidated financial statements of MagneTek, Inc., included in this
Quarterly Report on Form 10-Q for the period ended December 31, 2000.
13
MAGNETEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 2000
(amounts in thousands, except per share data)
Divestitures MagneTek, Inc.
MagneTek, Drives Pro Forma Pro Forma
Inc. Products Adjustments Consolidated
---- -------- ----------- ------------
Net sales $ 293,575 $ (81,162) $ $ 212,413
Cost of sales 230,366 (64,958) 165,408
------------------ ------------------ ------------ ---------------
Gross profit 63,209 (16,204) 0 47,005
Selling, general and administrative 56,369 (17,120) 39,249
------------------ ------------------ ------------ ---------------
Income from operations 6,840 916 0 7,756
Interest expense 2,907 0 (1,060)(a) 1,847
Other expense, net 1,851 (213) 1,638
------------------ ------------------ ------------ ---------------
Income from continuing operations before
provision for income taxes 2,082 1,129 1,060 4,271
Provision for income taxes 800 823(b) 1,623
------------------ ------------------ ------------ ---------------
Income from continuing operations $ 1,282 $ 1,129 $ 237 $ 2,648
================== ================== ============ ===============
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations $ 0.05 $ 0.11
Diluted:
Income from continuing operations $ 0.05 $ 0.11
Notes:
(a) Reflects estimate of reduced interest expense allocated to continuing
operations from the reduction of debt using sale proceeds of $27.6
million at 8%.
(b) Reflects pro forma taxes at MagneTek's 38% rate.
14
MAGNETEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED
DECEMBER 31, 2000
(amounts in thousands except per share data)
Divestiture
MagneTek, Drives Pro Forma Pro Forma
Inc. Products Adjustments Consolidated
---- -------- ----------- ------------
Net sales $ 153,738 $ (40,073) $ $ 113,665
Cost of sales 116,615 (31,141) 85,474
--------------- -------------- ------------------ -----------
Gross profit 37,123 (8,932) 0 28,191
Selling, general and administrative 28,763 (7,219) 21,544
--------------- -------------- ------------------ -----------
Income from operations 8,360 (1,713) 0 6,647
Interest expense 2,382 (552)(a) 1,830
Other expense, net 988 (117) 871
--------------- -------------- ------------------ -----------
Income from continuing operations before
provision for income taxes 4,990 (1,596) 552 3,946
Provision for income taxes 1,902 (402)(b) 1,500
Income from continuing operations $ 3,088 $ (1,596) $ 954 $ 2,446
=============== ============== ================== ===========
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations $ 0.14 $ 0.11
Diluted:
Income from continuing operations $ 0.13 $ 0.10
Notes:
(a) Reflects estimate of reduced interest expense allocated to continuing
operations from the reduction of debt using sale proceeds of $27.6
million at 8% for six months.
(b) Reflects pro forma taxes at MagneTek's 38% rate.
15
MAGNETEK, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
PERIOD ENDED DECEMBER 31, 2000
(a) Divestiture MagneTek, Inc.
ASSETS MagneTek, Drives Pro Forma Pro Forma
Inc. Products Adjustments Consolidated
---- -------- ----------- ------------
Current assets:
Cash $ 814 $ 13 $ $ 827
Accounts receivable 66,616 (13,905) 52,711
Inventories 54,003 (6,125) 47,878
Prepaid expenses and other 18,421 (148) 18,273
--------------- -------------- ------------------ ----------------------
Total current assets 139,854 (20,165) 119,689
--------------- -------------- ------------------ ----------------------
Property, plant and equipment 90,897 (6,168) 84,729
Less-accumulated depreciation
and amortization 52,582 (3,200) 49,382
--------------- -------------- ------------------ ----------------------
38,315 (2,968) 35,347
--------------- -------------- ------------------ ----------------------
Net assets of discontinued operations 124,782 124,782
Goodwill 83,874 (8,722) 75,152
Prepaid pension and other assets 55,898 (3,500) 52,398
--------------- -------------- ------------------ ----------------------
Total Assets $ 442,723 $ (35,355)$ $ 407,368
=============== ============== ================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,436 $ (6,019)$ $ 40,417
Accrued liabilities 33,857 (1,829) 19(c) 32,047
Current portion of long-term debt 1,458 1,458
--------------- -------------- ------------------ ----------------------
Total current liabilities 81,751 (7,848) 19 73,922
--------------- -------------- ------------------ ----------------------
Long-term debt, net of current portion 107,654 (27,558)(b) 80,096
Other long-term obligations 39,841 39,841
Deferred income taxes 32,406 32,406
Commitments and contingencies
Stockholders' equity
Common stock 221 221
Paid in capital in excess of par value 91,056 91,056
Retained earnings 115,378 32(c) 115,410
Accumulated other comprehensive loss (25,584) (25,584)
--------------- -------------- ------------------ ----------------------
Total stockholders' equity 181,071 0 32 181,103
--------------- -------------- ------------------ ----------------------
Total Liabilities and
Stockholders' Equity $ 442,723 $ (7,848)$ (27,507) $ 407,368
=============== ============== ================== ======================
Notes:
(a) Reflects pro forma asset and liability accounts subject to sale as of
December 31, 2000.
(b) Reflects estimated proceeds from sale to the retirement of debt.
(c) Reflects application of the pro forma gain on sale and tax liability as
if the sale would have occurred on December 31, 2000.
6. COMPREHENSIVE INCOME
During the second quarter of fiscal 2001 and 2000, total comprehensive
income was $3,771 and $1,313 respectively. For the first six months of
fiscal 2001 and 2000, comprehensive income was $6,218 and $40,676
respectively.
16
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share.
(in thousands, except per share amounts)
Fiscal Year Fiscal Year
-------------------------- ---------------------------
2Q 2Q 2Q YTD 2Q YTD
2001 2000 2001 2000
---------- ------------ ------------ ------------
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 2,090 $ 556 $ 3,088 $ 990
Income from discontinued operations 1,823 3,539 3,628 6,066
Gain on sale of discontinued businesses (net of taxes) - - - 35,047
---------- ------------ ------------ ------------
Net income $ 3,913 $ 4,095 $ 6,716 $ 42,103
Weighted average shares for basic earnings per share 22,356 24,036 22,578 26,698
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.09 $ 0.02 $ 0.14 $ 0.04
Income from discontinued operations 0.08 0.15 0.16 0.23
Gain on sale of discontinued businesses (net of taxes) - - - 1.31
---------- ------------ ------------ ------------
BASIC EARNINGS PER SHARE $ 0.17 $ 0.17 $ 0.30 $ 1.58
========== ============ ============ ============
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 2,090 $ 556 $ 3,088 $ 990
Income from discontinued operations 1,823 3,539 3,628 6,066
Gain on sale of discontinued businesses (net of taxes) - - - 35,047
---------- ------------ ------------ ------------
Net income $ 3,913 $ 4,095 $ 6,716 $ 42,103
Weighted average shares for basic earnings per share 22,356 24,036 22,578 26,698
Effect of dilutive stock options 575 3 408 54
---------- ------------ ------------ ------------
Weighted average shares for diluted earnings per share 22,931 24,039 22,986 26,752
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.09 $ 0.02 $ 0.13 $ 0.04
Income from discontinued operations 0.08 0.15 0.16 0.22
Gain on sale of discontinued businesses (net of taxes) - - - 1.31
---------- ------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.17 $ 0.29 $ 1.57
========== ============ ============ ============
17
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 2000 VS. 1999
NET SALES AND GROSS PROFIT
MagneTek's net sales for the second quarter of fiscal 2001 were $81.9
million an increase of 22.8% from the second quarter of fiscal 2000 of
$66.7 million. Revenues in fiscal 2001 include the impact of the
acquisition of J-Tec, Inc. that accounted for approximately $4 million
of shipments in the quarter and incremental sales of $1.2 million from
the Mondel ULC acquisition completed in the middle of December 1999.
Excluding the effect of the acquisitions, overall sales increased
approximately 15.0% from the previous years level. Foreign sales
increased by 2.5% but were adversely impacted by currency translation
in the quarter.
The Company's gross profit increased to $20.2 million (24.6% of net
sales) in the second quarter of fiscal 2001 from $16.4 million (24.6%
of net sales) in the second quarter of fiscal 2000. Results in the
second quarter of fiscal 2000 included a one-time favorable adjustment
associated with employee benefits plans that improved gross margin
performance by approximately 1.2 percentage points in the prior year
period. Gross margin increased in both foreign and domestic operations
in the second quarter of fiscal 2001 and benefited from incremental
sales into higher margin telecommunication niches.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense was $15.0 million (18.4% of
net sales) in the second quarter of fiscal 2001 compared to $14.5
million (21.7% of net sales) in the second quarter of fiscal 2000. The
acquisition of J-Tec, Inc. which occurred during the middle of the
second quarter in fiscal 2001 and the impact of the Mondel ULC purchase
(acquired December 16, 1999) accounted for $.4 million of the increase.
The balance of the increase in expense is attributable to variable
costs associated with higher levels of revenues versus the prior year
period, offset by previously enacted cost reductions.
INTEREST AND OTHER EXPENSE
Interest expense was $1.2 million in the second quarter of fiscal 2001
compared to $.6 million in the second quarter of fiscal 2000. Higher
interest expense primarily reflects increased borrowings due to the
common stock repurchase program and the acquisition of J-Tec, Inc.
Other expense of $.5 million in the second quarter of fiscal 2001 was
approximately equal to the $.4 million in the second quarter of fiscal
2000.
NET INCOME
The Company recorded an after-tax profit from continuing operations of
$2.1 million in the second quarter of fiscal 2001 compared to an
after-tax profit of $.6 million in the second quarter of fiscal 2000.
Results for discontinued operations in the second quarter of fiscal
2001 were an after-tax profit of $1.8 million compared to an after-tax
profit of $3.5 million in the second quarter of fiscal 2000. The tax
provision for continuing operations was $1.3 million (38% effective tax
rate) in the second quarter of fiscal 2001 versus $.3 million (38%
effective tax rate) in the second quarter of fiscal 2000.
18
The Company expects the tax rates used in the second quarter of fiscal
2001 to continue throughout the year.
RESULTS OF OPERATIONS:
SIX MONTHS ENDED DECEMBER 31, 2000 VS. 1999
NET SALES AND GROSS PROFIT
Net sales for MagneTek for the first six months of fiscal 2001 were
$153.8 million, an 11.5% increase from the $137.9 million for the first
six months of fiscal 2000. Revenues in the first six months of fiscal
2001 include the impact of the acquisitions of J-Tec, Inc. that
accounted for approximately $4.0 million in sales and incremental sales
of $2.6 million from Mondel ULC which was acquired in the middle of
December 1999. Excluding the effect of acquisitions, sales increased
approximately 6.7% from the prior year levels.
Gross profit increased to $37.1 million (24.2% of net sales) in the
first six months of fiscal 2001 compared to $30.9 million (22.4% of net
sales) in the first six months of fiscal 2000. Increased gross profit
levels reflect the higher sales volume and a continued improvement in
the mix of product. Gross profits were also favorably impacted by new
products developed and acquired for specific market niches with higher
value-added content.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expense was $28.8 million
(18.7% of net sales) in the first six months of fiscal 2001 versus
$27.5 million (20% of net sales) in the first six months of fiscal
2000. Cost levels increased over the prior year due to the impact of
SG&A expense attributable to acquisitions and variable marketing/sales
costs associated with higher revenue levels compared to the prior year.
SG&A expenses decreased as a percent of sales due to previously enacted
cost reductions.
INTEREST AND OTHER EXPENSE
Interest expense was $2.4 million in the first six months of fiscal
2001 compared to $.9 million in the first six months of fiscal 2000.
The increase in interest expense reflects increased debt levels
associated with the stock repurchase program, the acquisition of J-Tec,
Inc. and higher levels of working capital associated with discontinued
operations. Other expense of $1.0 million in the first six months of
fiscal 2001 is approximately the same level as the $.9 million in the
first six months of fiscal 2000.
NET INCOME
The Company recorded an after-tax profit from continuing operations of
$3.1 million in the first six months of fiscal 2001 compared to an
after-tax profit of $1.0 million in the first six months of fiscal
2000. Results for discontinued operations in the first six months of
fiscal 2001 were an after-tax profit of $3.6 million versus an
after-tax profit of $6.1 million in the first six months of fiscal
2000. Results from discontinued operations declined compared to the
prior year due primarily to reduced sales volumes in Lighting products
and gross profit deterioration in both trade magnetics and converter
products. Interest expense also increased. Results for discontinued
operations in the first six months of fiscal 2000 also include a $35.0
million gain on the sale of the Company's motor business. The tax
provision for continuing operations in the first six months of fiscal
2001 was $1.9 million (38% effective tax rate) versus $.6 million (38%
effective tax
19
rate) in the first six months of fiscal 2000. The Company expects the
tax rate used in the first six months of fiscal 2001 to continue
throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000 the Company had an agreement with a group of banks
to lend up to $200 million under a revolving loan facility through June
2002. Currently, borrowings under the Bank Loan Agreement bear interest
at the bank's prime lending rate or, at the Company's option, the
London Interbank Offered Rate plus one and one-half percent. These
rates may be reduced or increased based upon the level of certain
debt-to-cash flow ratios. As of December 31, 2000, the Company had
$90.3 million of borrowing availability under this facility. During the
first six months of fiscal 2001, the Company repurchased 893,300 common
shares for approximately $10.1 million in open market transactions.
From August 1998 through the second quarter of fiscal 2001, the Company
has cumulatively repurchased $89 million of common stock approximating
9.6 million common shares.
With the completion of the sale of the Company's Drive's Product
division of its Drives and System group to Yaskawa Electric, proceeds
from the sale will be used to repay outstanding debt under the Bank
Loan Agreement. The repayment of debt with sale proceeds from the sale
will require the revolving loan facility to be reduced from its current
level of $200 million to $175 million.
Upon sale of the remaining discontinued operations, the Company expects
to fully repay all outstanding borrowings under this facility.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks in the areas of commodity
prices, foreign exchange and interest rates. To mitigate the effect of
such risks, the Company selectively utilizes specific financial
instruments. Company policy clearly prohibits the use of such financial
instruments for trading or speculative purposes. There have been no
material changes in the reported market risks since that reported in
the Company's Annual Report and 10-K dated June 30, 2000.
20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Change of Control Agreement dated November 1, 2000
between Tina McKnight and MagneTek, Inc.
2.1 Asset Purchase Agreement dated as of January 29, 2001
by and among the Registrant, MagneTek, Inc. and
Yaskawa Electric of America.
(b) Reports on Form 8-K
Form 8K dated November 13, 2000, reported under Item 2, the
acquisition of J-Tec.
Form 8K/A dated January 29, 2001, reported under Item 7, the
required Financial Statements and Pro Forma Financial
Information for the acquisition of J-Tec, Inc.
21
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.
MAGNETEK, INC.
(Registrant)
Date: February 2, 2001 /s/ DAVID P. REILAND
------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
22
February 2, 2001
New York Stock Exchange
20 Broad Street
New York, New York 10005
Attn: Ms. Lorraine Holowka
Re.: MagneTek, Inc. - Form 10-Q
Dear Ms. Holowka:
Enclosed for filing by MagneTek, Inc. (the "Company") is one copy of the
Company's report on Form 10-Q for the quarter ended December 31, 2000.
If you should have any questions or comments, please do not hesitate to call me.
Very truly yours,
David P. Reiland
Executive Vice President
and Chief Financial Officer
DPR/lu
23