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: March 31, 1994
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)
11150 Santa Monica Boulevard, 15th floor
Los Angeles, California 90025
(Address of principal executive offices)
(Zip Code)
(310) 473-6681
(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of April 26,
1994: 24,190,450 shares.
PART I. FINANCIAL INFORMATION
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to fairly present the financial position
as of March 31, l994 and the results of operations and cash flows for the
three-month and nine-month periods ended March 31, 1994, and 1993. It is
suggested that these consolidated condensed 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 nine months ended March 31, 1994 are not necessarily indicative
of results which may be experienced for the full fiscal year.
ITEM 1 MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, l994 and JUNE 30, l993
(amounts in thousands)
MARCH 31 JUNE 30
--------- -------
(unaudited)
ASSETS
Current assets:
Cash $ 3,490 $ 7,795
Accounts receivable 280,183 335,877
Inventories 266,463 264,140
Deferred income taxes,
prepaid expenses and other 37,348 24,460
----------- -----------
Total current assets 587,484 632,272
----------- -----------
Property, plant and equipment 462,620 428,730
Less-accumulated depreciation
and amortization 209,949 182,725
----------- -----------
252,671 246,005
----------- -----------
Cost in excess of fair value
of net assets acquired 126,637 130,350
Deferred charges, intangible
and other assets 40,045 44,163
----------- -----------
$ 1,006,837 $ 1,052,790
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 131,371 $ 162,671
Accrued liabilities 134,185 116,472
Current portion of long-
term obligations 27,119 7,949
----------- -----------
Total current liabilities 292,675 287,092
----------- -----------
Long-term debt, net
of current portion 505,711 515,807
Other long-term obligations 73,732 69,020
Deferred income taxes 13,974 17,842
Commitments and contingencies
Stockholders' equity
Common stock 242 241
Other 120,503 162,788
----------- -----------
Total stockholders' equity 120,745 163,029
----------- -----------
$ 1,006,837 $ 1,052,790
----------- -----------
----------- -----------
See accompanying notes
ITEM 1 (continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, l994 AND 1993
(amounts in thousands except per share data)
(unaudited)
1994 1993
---- ----
Net sales $ 374,246 $ 385,728
Cost of sales 299,190 296,808
-------- --------
Gross profit 75,056 88,920
Selling, general and administrative 58,659 58,796
-------- --------
Income from operations 16,397 30,124
Interest expense 11,916 12,467
Other expense, net 1,578 2,515
-------- --------
Income before income taxes 2,903 15,142
Income taxes 1,220 6,209
-------- --------
Net income $ 1,683 $ 8,933
-------- --------
-------- --------
Earnings per common share:
Primary $ .07 $ 0.35
-------- --------
-------- --------
Fully diluted $ * $ 0.33
-------- --------
-------- --------
<FN>
* Per share amount on a fully diluted basis has been omitted as such amount is
anti-dilutive in relation to the primary per share amount.
See accompanying notes
ITEM 1 (continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
MARCH 31, l994 AND 1993
(amounts in thousands except per share data)
(unaudited)
1994 1993
---- ----
Net sales $ 1,103,815 $ 1,093,558
Cost of sales 885,162 839,456
----------- -----------
Gross profit 218,653 254,102
Selling, general and administrative 175,527 170,398
Restructuring and other charges 58,562 --
----------- -----------
Income (loss) from operations (15,436) 83,704
Interest expense 35,707 35,880
Other expense, net 2,673 7,264
----------- -----------
Pretax income (loss) before
cumulative effect of
accounting changes (53,816) 40,560
Income taxes (14,403) 16,630
----------- -----------
Income (loss) before cumulative
effect of accounting changes (39,413) 23,930
Cumulative effect of change in
accounting for postretirement
welfare benefits, net of tax benefit -- (35,734)
Cumulative effect of change in
accounting for income taxes -- (13,000)
----------- -----------
Net loss $ (39,413) $ (24,804)
----------- -----------
----------- -----------
Earnings per common share:
Primary:
Income (loss) before cumulative
effect of accounting changes $ (1.59) $ 0.96
Cumulative effect of
accounting changes -- (1.99)
----------- -----------
Net loss $ (1.59) $ (1.03)
----------- -----------
----------- -----------
Fully diluted:
Income (loss) before cumulative
effect of accounting changes $ * $ 0.89
Cumulative effect of
accounting changes -- *
----------- -----------
Net loss $ * $ *
----------- -----------
----------- -----------
<FN>
* Per share amounts on a fully diluted basis has been omitted as such amounts
are anti-dilutive in relation to the primary per share amounts.
See accompanying notes
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1994 AND 1993
(amounts in thousands)
(unaudited)
1994 1993
---- ----
Cash flows from operating activities:
Net loss $ (39,413) $ (24,804)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 35,715 35,763
Provision for restructuring
and other charges 58,562 --
Cumulative effect of accounting changes -- 48,734
Change in assets and liabilities net of
effects from acquired companies:
(Increase) decrease in accounts
receivable 54,694 (34,648)
(Increase) decrease in inventories (17,823) (4,410)
(Increase) decrease in other
current assets 2,008 (959)
Decrease in current liabilities (56,259) (20,963)
Increase (decrease) in deferred (18,774) 95
income taxes
(Increase) decrease in other
operating assets 328 ( 4,204)
Increase (decrease) in other
long-term liabilities 4,712 ( 4,035)
--------- ---------
Total adjustments 63,163 15,373
--------- ---------
Net cash provided (used) by
operating activities 23,750 ( 9,431)
--------- ---------
Cash flows from investing activities:
Purchase of and investment in companies,
net of cash acquired -- (24,323)
Capital expenditures, net (38,245) (43,473)
Annuity contract and other investments 902 ( 9,787)
--------- ---------
Net cash used in investing
activities (37,343) (77,583)
--------- ---------
(continued on next page)
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE NINE MONTHS ENDED MARCH 31, 1994 AND 1993
(amounts in thousands)
(unaudited)
1994 l993
---- ----
Cash flows from financing activities:
Borrowings under bank and other long-term
obligations 20,026 91,409
Proceeds from issuance of common stock 428 2,036
Repayment of long-term obligations (10,952) (3,447)
Increase in deferred financing costs ( 214) ( 1,257)
----------- -----------
Net cash provided by
financing activities 9,288 88,741
----------- -----------
Net increase (decrease) in cash ( 4,305) 1,727
Cash at the beginning of the period 7,795 2,034
----------- -----------
Cash at the end of the period $ 3,490 $ 3,761
----------- -----------
----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 35,108 $ 37,216
Income Taxes $ 6,477 $ 17,920
Reconciliation of assets acquired and
liabilities assumed
Fair value of assets acquired $ -- $ 42,547
Liabilities assumed -- 18,224
----------- -----------
Cash paid $ -- $ 24,323
----------- -----------
----------- -----------
See accompanying notes
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(All dollar amounts are in thousands except per share data)
(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 nine-month periods ended March 31, l994 and l993 contained
thirteen weeks and forty weeks, and thirteen weeks and thirty-nine
weeks, respectively.
2. INVENTORIES
Inventories at March 31, l994 and June 30, 1993 consist of the
following:
March 31 June 30
-------- -------
Raw materials and stock parts $ 71,181 $ 88,163
Work-in-process 80,161 91,762
Finished goods 125,165 98,933
-------- --------
276,507 278,858
Less - Progress billings 10,044 14,718
-------- --------
$266,463 $264,140
-------- --------
-------- --------
3. RESTRUCTURING AND OTHER CHARGES
On January 5, 1994, the Company's Board of Directors approved a
restructuring program with the objective of focusing the Company's
resources on its core product lines and reducing debt. In connection
with the program, the Company has identified certain businesses for
potential divestiture. Aggregate sales of these businesses
represented approximately 29 percent of the Company's total sales
volume for fiscal 1993. Estimated proceeds from the sale of certain
of these businesses are less than the current book value of those
respective businesses. As a result, the Company has recorded a charge
to income of approximately $27,300. This amount is included under
"Restructuring and other charges" in the accompanying Condensed
Consolidated Statements of Operations. While the Company believes it
will be able to sell all of the identified candidates for divesture at
prices acceptable to the Company, if such prices are not obtained the
Company may elect to retain certain of these businesses for an
indefinite period. As a result, the Company will classify the results
of these businesses as continuing operations until any related sale is
consummated.
The Company has also undertaken a review of its core product lines
with the objective of developing actions to reduce costs and improve
future profitability. The Company has identified a substantial amount
of excess capacity and potentially obsolete or excess inventory levels
related to the Company's electronic ballast product line. Estimated
exposure to these issues is based upon current and projected demand
and production rates for this product line primarily over the next 24
months. The Company also plans to relocate and consolidate a number
of administrative functions in connection with its overall
restructuring program. As a result of the review and restructuring
program, the Company recorded charges to income of approximately
$26,500 related to the electronic ballast product line, including
approximately $12,400 related to potentially excess and obsolete
inventory and approximately $14,100 related to excess capacity,
severance and other issues. The Company has also recorded a charge of
approximately $4,800 related primarily to anticipated severance and
relocation costs associated with the planned consolidation of
administrative functions. These amounts are included under
"Restructuring and other charges" in the accompanying Condensed
Consolidated Statements of Operations.
Of the approximately $58,600 total "Restructuring and other charges"
as detailed above and recorded during the second quarter of fiscal
1994, approximately $47,900 represent a noncash write-off of recorded
assets and $10,700 relate to actions which will require future cash
outflows, primarily over the next 6 to 12 months.
4. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Primarily as a result of the Restructuring and other charges referred
to in Note 3 and recorded during fiscal 1994 and recent operating
results, the Company violated certain financial covenants included in
its Revolving Credit and Senior Note Agreements. Effective March 31,
1994, the Company amended both Agreements to adjust the financial
covenants prospectively based upon a review of expected future
operating performance. As a result of these amendments, the interest
rate on borrowings under both the Revolving Credit and Senior Note
Agreements was increased by one-quarter percent. The interest rate on
borrowings under the Revolving Credit Agreement will be reduced to
prior levels upon the achievement of specified leverage ratios. All
other terms and provisions of both Agreements remain substantially
unchanged.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - --------------------------------------------------------------------------
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1994 VS. 1993 -- Net sales. Total net
sales decreased 3% to $374.2 million in the three months ended March
31, 1994, from $385.7 million in the corresponding period in the prior
fiscal year. Net sales in the Ballasts and Transformers segment
decreased 10% due primarily to lower sales of electronic lighting
ballasts, small transformer products in Europe and medium power
transformers, partially offset by increased sales of power supplies in
Europe. Net sales in the Motors and Controls segment increased 5% due
primarily to increased sales of fractional horsepower motors and
electronic adjustable speed drives, partially offset by lower sales of
large custom motors and airport systems equipment.
Gross profit. Gross profit decreased 16% to $75.1 million (20.1% of
net sales) in the three months ended March 31, 1994 from 88.9 million
(23.0% of net sales) in the three months ended March 31, 1993. Gross
profit decreased due to lower margins in the electronic ballast
business due to lower sales and increased fixed costs associated with
capacity increases implemented in the prior fiscal year; lower sales
and margins in the medium power transformer and utility service
businesses due to lower selling prices; and lower margins in the large
custom motor business partially offset by higher margins in fractional
horsepower motors.
Income from operations. Income from operations decreased 46% to $16.4
million (4.4% of net sales) in the three months ended March 31, 1994
from 30.1 million (7.8% of net sales) in the corresponding period in
the prior fiscal year. Income from operations in the Ballasts and
Transformers segment was $7.3 million (3.8% of net sales) vs. $20.0
million (9.4% of net sales) due primarily to lower income in
electronic ballasts and the transformer product lines indicated above.
Income from operations in the Motors and Controls segment was $9.1
million (5.0% of net sales) vs. $10.1 million (5.8% of net sales) due
to lower income in utility service and large custom motor business,
partially offset by higher income in fractional horsepower motors.
Interest expense. Interest expense decreased 4% to $11.9 million in
the three months ended March 31, 1994 from $12.5 million in the
corresponding period in the prior fiscal year. The decrease was due
to lower variable interest rates, primarily related to the Company's
European borrowings.
Income before taxes and net income. Income before taxes was $2.9
million in the three months ended March 31, 1994 compared to $15.1
million in the three months ended March 31, 1993. Net income was $1.7
million compared to $8.9 million. The effective income tax rate was
42% in the 1994 period vs. 41% in the 1993 period due to a higher
federal income tax rate.
ITEM 2 (continued)
NINE MONTHS ENDED MARCH 31, 1994 VS. 1993 -- Net sales. Total net
sales increased 1% to $1.10 billion in the nine months ended March 31,
1994, from $1.09 billion in the corresponding period in the prior
fiscal year. As a result of the Company's use of a fifty-two, fifty-
three week fiscal year, the first nine months of fiscal 1994 contained
forty weeks compared to thirty-nine weeks in the first nine months of
1993. The increase in total net sales was due to the additional week
of sales in the fiscal 1994 period as well as the inclusion of the
results of a power conversion business acquired in the second quarter
of the prior fiscal year. On a proforma basis, excluding the effect
of these items, total net sales in the fiscal 1994 period were 1%
lower than to net sales in the fiscal 1993 period. Net sales in the
Ballasts and Transformers segment decreased 8% due primarily to the
lower sales of electronic lighting ballasts, small transformer
products in Europe and medium power transformers, partially offset by
increased sales of magnetic lighting ballasts. Net sales in the Motors
and Controls segment increased 12% due primarily to increased sales of
fractional horsepower motors and electronic adjustable speed drives,
partially offset by lower sales of large custom motors.
Gross profit. Gross profit decreased 14% to $218.7 million (19.8% of
net sales) in the nine months ended March 31, 1994, from $254.1
million (23.2% of net sales) in the nine months ended March 31, 1993.
Gross profit decreased due primarily to lower margins in the
electronic ballast business due to lower sales and increased fixed
costs associated with capacity increases implemented in the prior
fiscal year; lower margins in the medium power transformer and utility
service businesses due to lower sales prices; and lower margins in
large custom motors due to lower sales volume, partially offset by
higher margins in fractional horsepower motor product lines.
Income (loss) from operations. For the nine months ended March 31,
1994, the Company recorded a loss from operations of $15.4 million
compared to income of $83.7 million in the corresponding period in the
prior fiscal year. The loss from operations in the Ballasts and
Transformers segment was $14.9 million compared to income of $51.9
million due primarily to Restructuring and other charges of $32.8
million recorded in the fiscal 1994 period, as a result of a
restructuring program approved by the Company's Board of Directors and
a review of inventory and capacity issues in the electronic ballast
business (see Note 3 of Notes to Condensed Consolidated Financial
Statements). In addition to these charges, the loss from operations
was impacted by lower income in the electronic ballast business and
the medium power transformer business as well as an operating loss in
the domestic power supply business. In the Motors and Controls
business, a loss from operations of $0.5 million was recorded in the
nine months ended March 31, 1994, compared to income from operations
of $31.8 million in the corresponding period in the prior fiscal year,
due to Restructuring and other charges of $25.8 million recorded in
the fiscal 1994 period.
ITEM 2 (continued)
The loss from operations was also impacted by lower income from
operations in utility repair services, large custom motors and control
products, partially offset by higher income from operations in
fractional horsepower motor and electronic drive product lines.
Interest expense. Interest expense was comparable at $35.7 million in
the nine months ended March 31, 1994, vs $35.9 million in the
corresponding period in the prior fiscal year. On a pro forma basis
excluding the additional week of interest expense in the fiscal 1994
period, interest expense decreased 2% due to interest income from the
Company's investment in an annuity contract and lower variable
borrowing rates in Europe.
Income (loss) before taxes and Net loss. The Company recorded a loss
before income taxes of $53.8 million in the nine months ended March
31, 1994 compared to income before taxes of $40.6 million in the nine
months ended March 31, 1993. The loss before cumulative effect of
accounting changes was $39.4 million in the fiscal 1994 period
compared to income before cumulative effect of accounting changes of
$23.9 million in fiscal 1993. Net loss was $39.4 million compared to
net loss of $24.8 million. The fiscal 1993 period reflects charges to
income aggregating $48.7 million reflecting the cumulative effect of
changes in accounting for postretirement welfare benefits and income
taxes. The income tax benefit in the fiscal 1994 period was recorded
at 27% compared to a statutory rate of approximately 40%, reflecting a
valuation allowance provided against the Company's net deferred tax
asset position.
LIQUIDITY AND CAPITAL RESOURCES:
The Company believes that internally generated funds and available
credit facilities will provide sufficient capital resources to finance
operations, fund planned capital expenditures and pay interest and
scheduled maturity payments on outstanding debt. The Company recorded
approximately $58.6 million of Restructuring and other charges in the
nine-month period ended March 31, 1994 (see note 3 of Notes to
Condensed Consolidated Financial Statements). Of the $58.6 million,
approximately $10.7 million represents anticipated future cash
outflows, primarily over the next 6 to 12 months, from actions
associated with the planned restructuring program. However, the
Company also expects to generate substantial cash, primarily during
the same period, from anticipated divestitures associated with the
program. Cash generated from the restructuring program will be used
primarily to repay outstanding debt.
As of March 31, 1994, the Company had available borrowing capacity of
approximately $45 million under bank credit facilities. During the
second quarter of fiscal 1994, the Company amended certain financial
covenants under its Revolving Credit Agreement based upon projected
operating results. Primarily as a result of the announced
restructuring program and related charges recorded during the current
fiscal year, the Company violated certain financial covenants in the
Revolving Credit and Senior Note Agreements. Effective March 31, 1994
the Company amended the revolving Credit and Senior Note Agreements to
reflect revised financial covenants (see Note 4 of Notes to Condensed
Consolidated Financial Statements).
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.87 First Amendment to the 1991 Director Incentive
Compensation Plan of MagneTek, Inc., dated as
of April 28, 1994
10.88 Executive Management Agreement by and between
MagneTek, Inc. and The Spectrum Group, Inc.,
dated as of July 1, 1994
(b) REPORTS ON FORM 8-K
None
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: May 16, 1993 /s/ David P. Reiland
--------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)