EXHIBIT 13
FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
STATEMENT OF INCOME DATA
FOR THE YEARS ENDED JUNE 30.
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA. 1994** 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
Net sales $1,133,126 $1,119,392 $883,466 $779,137 $756,357
Income (loss):
Continuing operations (16,942) 19,263 14,712 10,582 13,741
Discontinued operations (28,503) 7,770 10,331 24,065 19,487
Extraordinary item -- -- (2,857) -- --
Cumulative effect of accounting changes -- (48,734) -- -- --
Net income (loss) (45,445) (21,701) 22,186 34,647 33,228
- - ------------------------------------------------------------------------------------------------------------------------------
Per common share -- primary:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting changes $(0.69) $0.78 $0.61 $0.45 $0.57
Net income (loss) $(1.84) $(0.87) $0.92 $1.47 $1.40
Per common share -- fully diluted:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting changes * $0.73 $0.59 $0.45 $0.57
Net income (loss) * * $0.90 $1.47 $1.40
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
* PER SHARE AMOUNTS ON A FULLY DILUTED BASIS ARE OMITTED AS SUCH AMOUNTS ARE ANTI-DILUTIVE IN RELATION TO PRIMARY PER SHARE
AMOUNTS.
** LOSS FROM CONTINUING OPERATIONS FOR THE YEAR ENDED JUNE 30, 1994 INCLUDES PRETAX CHARGES AGGREGATING $33,871 REFLECTING
RESTRUCTURING AND OTHER COSTS. LOSS FROM DISCONTINUED OPERATIONS INCLUDES AFTER TAX CHARGES OF $25,041 REFLECTING ESTIMATED
LOSSES ON DISPOSITION (SEE NOTES 2 AND 7 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
</FN>
BALANCE SHEET DATA
AS OF JUNE 30. AMOUNTS IN THOUSANDS. 1994 1993 1992 1991 1990
- - ------------------------------------------------------------------------------------------------------------------------------
Total assets $931,358 $995,359 $888,668 $739,142 $660,619
Long-term debt, including current portion 523,779 523,301 428,880 403,071 388,227
Common stockholders' equity 113,082 163,029 196,463 158,651 131,876
- - ------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
During the fiscal year ended June 30, 1994, MagneTek's Board of Directors
approved a plan to focus the Company's resources on fewer product lines and
reduce debt. Subsequent to fiscal year end, the Board of Directors adopted a
formal restructuring program for selling businesses comprised primarily of the
Company's utility, military, controls and custom motor product lines (see Note
2). The results of operations and net assets of these businesses are included as
"discontinued operations" in the accompanying consolidated financial statements.
Accordingly, the discussion which follows concerns only the results of
continuing operations.
The Company operates in two business segments: BALLASTS AND TRANSFORMERS
including primarily lighting products (magnetic and electronic lighting
ballasts), power supplies and small transformer products; and MOTORS AND
CONTROLS which includes fractional and integral horsepower electric motors,
medium voltage generators and variable speed electronic drives.
During fiscal 1993, sales of electronic lighting ballasts, of which MagneTek is
a leading supplier, almost tripled to more than $200 million. Sales were almost
exclusively in the United States and were driven by utility rebates on
electronic ballasts. Lighting ballasts historically have been "off-the-shelf"
products commanding little, if any, order backlog. As demand for electronic
ballasts began to exceed the industry's capacity to deliver the product,
backlogs developed and grew. In response, the Company and the industry added
significant capacity. MagneTek's sales of electronic ballasts peaked in the
fourth quarter of fiscal 1993 at over $70 million. Capacity additions enabled
supply to exceed end-user demand during the early part of fiscal 1994, when many
electrical distributors already held substantial inventories. As a result, the
Company experienced a significant drop in order rates, a high level of requests
from distributors to return unsold product (many of which were granted) and
severe price erosion throughout the industry. The combination of increased costs
associated with the added capacity, weak demand levels and decreasing prices
resulted in significantly reduced sales and margins for the product line in
fiscal 1994 compared to fiscal 1993. The rapid capacity expansion also
contributed to increased debt levels at the end of the first quarter of fiscal
1994.
As a result of the strengthening U.S. economy, demand for the Company's motor
and drive product lines grew throughout fiscal 1993 and 1994. Demand was
particularly strong for fractional horsepower motors with commercial and
residential applications, as well as for AC variable speed electronic drives.
However, margin expansion was gradual because cost increases largely offset
modest price increases in the MOTORS AND CONTROLS segment.
On January 5, 1994, the Board of Directors approved the restructuring plan
referenced above, including reductions in electronic ballast capacity, as well
as cost reductions in other product lines and administrative consolidations
throughout the Company. In connection with this plan, the Company recorded
pretax charges to income in the BALLASTS AND TRANSFORMERS segment aggregating
$28.8 million, largely for excess electronic ballast inventory, severance costs
associated with capacity reductions, and severance and relocation costs
associated with administrative consolidations. Pretax charges aggregating $2.4
million were recorded in the MOTORS AND CONTROLS segment, reflecting mainly
severance and relocation costs associated with administrative consolidations.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
MagneTek's sales were $1.133 billion in fiscal 1994, an increase of 1% over
fiscal 1993's $1.119 billion. This followed a 27% increase in fiscal 1993 sales
over fiscal 1992's $883.4 million. The small increase in fiscal 1994 sales
reflects the impact of lower electronic ballast net sales discussed above. U.S.
electronic ballast sales dropped almost 30% from 1993 levels, which had grown
280% from 1992. Thus, net sales in the BALLASTS AND TRANSFORMERS segment
decreased 7% in 1994 to $660.5 million from $712.6 million in 1993. In Europe,
an increase in power supply sales was offset by decreased sales of transformer
products, while sales of most other product lines in the segment were fairly
comparable year-to-year. Net sales in the segment increased 33% in 1993 from
1992 due to increased sales of electronic ballasts, as well as to the inclusion
of a full year's results of a European business acquired in 1992. In the MOTORS
AND CONTROLS segment, net sales increased 16% to $472.6 million in 1994 from
$406.8 million in 1993. Sales of fractional horsepower motors increased 16%
while sales of electronic drives increased 24%. Net sales for the segment in
1993 increased 16% over 1992, with fractional horsepower motors increasing 11%
and electronic drives 32%. These sales increases generally reflect the
strengthening U.S. economy.
The Company's gross profit dropped to $204.1 million in fiscal 1994 from $245.4
million in fiscal 1993, while its gross margin declined to 18% of sales in 1994
from 21.9% of sales in 1993. Gross profit in 1994 includes charges aggregating
$19.1 million for inventory and other reserves provided in conjunction with
MagneTek's restructuring. Excluding these charges, gross margin was 19.7% of
sales. The decline in gross profit resulted from lower sales and increased costs
in the electronic ballast business. Electronic ballast gross profit in the U.S.
fell approximately $25 million in 1994 from 1993, and the product line lost
almost 10 percentage points in gross margin. Gross margins in other BALLASTS AND
TRANSFORMER product lines were down somewhat due to a difficult pricing
environment and modest cost increases. Gross margins in most MOTORS AND CONTROLS
product lines were up year-to-year with modest price increases and efficiency
gains offset somewhat by labor and material cost increases. From 1992 to 1993,
gross profit increased approximately $44 million largely due to increased gross
profit in the electronic ballast business and most MOTORS AND CONTROLS product
lines. However, gross margin as a percent of sales dropped slightly, reflecting
a greater proportion of European sales with lower overall margins than U.S.
sales.
OPERATING EXPENSES
Selling, general and administrative (SG&A) expense was $194.2 million (17.1% of
net sales) in fiscal 1994, up from $175.8 million (15.7% of net sales) in fiscal
1993 and $143.7 million (16.2% of net sales) in fiscal 1992. In all three fiscal
years, general corporate expenses are fully included in continuing operations'
SG&A with no allocation of corporate overhead to discontinued operations. SG&A
expense in 1994 also includes charges associated with the Company's
restructuring aggregating $12.1 million, as well as a charge of $2.7 million
reflecting estimated costs to settle pending litigation (see Note 7). Excluding
these charges, SG&A expense was 15.8% of sales in 1994. As part of its
restructuring program, the Company is undertaking a number of actions to reduce
overall SG&A expense. These actions include consolidation of continuing
operations' administrative functions and a substantial reduction in general
corporate expense.
INTEREST AND OTHER EXPENSES
Interest expense of $32 million in fiscal 1994 was up slightly over fiscal
1993's $31.5 million. Year-to-year overall debt levels were comparable, with
higher rates on variable-rate debt in 1994. Fiscal 1994 and 1993 interest
expense levels were up almost 20% from fiscal 1992's $26.8 million, reflecting
an increase of over 20% in debt levels. This was due primarily to MagneTek's
substantial investments in electronic ballast capacity and working capital. The
Company intends to use proceeds from the sale of discontinued operations to
repay debt, and therefore expects interest expense to decrease significantly in
future periods as divestitures are completed. Other expense includes primarily
amortization costs associated with deferred financing and goodwill. Other
expense in 1994 declined to $2.3 million from $5.6 million in 1993 and $4.7
million in 1992. This was due in part to a gain of approximately $2.2 million on
the sale of an investment in a limited partnership in 1994.
NET INCOME (LOSS)
In fiscal 1994, the Company recorded a loss of $16.9 million or $.69 per share
from continuing operations before extraordinary items and the cumulative effect
of accounting changes. Charges associated with the Company's restructuring
program and the litigation settlement discussed above represented over $20
million or $.84 per share after tax. Income from continuing operations before
extraordinary items and the cumulative effect of accounting changes was $19.3
million, or $.78 per share primary and $.73 per share fully diluted, in fiscal
1993. The corresponding amounts in fiscal 1992 were $14.7 million, or $.61 per
share primary and $.59 fully diluted. During 1994, the Company recorded
aggregate losses from discontinued operations of $28.5 million, including $25
million for estimated losses on the disposal of businesses expected to be sold
at a loss and approximately $2 million more in anticipated losses from these
operations in fiscal 1995 prior to their sale. Discontinued operations generated
income of $7.8 million in 1993 and $10.3 million in 1992.
In fiscal 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109 "Accounting for Income Taxes." The cumulative effect
of the adoption of these two accounting standards resulted in a one-time charge
of $48.7 million (see Notes 6 and 9). Fiscal 1992 results reflect an
extraordinary item related to early extinguishment of debt (see Note 4).
Net income, taking into account the results of both continuing and discontinued
operations, extraordinary items and the cumulative effect of accounting changes,
was: a loss of $45.4 million or $1.84 per share in 1994; a loss of $21.7 million
or $.87 per share in 1993; and income of $22.2 million or $.92 per share in
1992.
LIQUIDITY AND CAPITAL RESOURCES
The amount outstanding under long-term borrowings (including current portion)
was comparable at the end of fiscal 1994 to the amount at the end of fiscal 1993
- - -- approximately $524 million. Between the end of fiscal 1992 and fiscal 1993,
long-term borrowings increased approximately $94 million, primarily under bank
lines of credit, due to increases in capital spending and working capital to
support capacity increases in the electronic ballast business. Net cash provided
from operating activities in 1994 was $30.1 million in spite of the loss from
continuing operations, reflecting the largely noncash nature of restructuring
and other charges recorded during the fiscal year. Although accounts receivable
dropped by almost $30 million, the decrease was more than offset by a reduction
in current liabilities related to reduced purchases associated with the
decreased production of electronic ballasts. In spite of reduced electronic
ballast production during 1994, overall inventory did not decrease due to
correspondingly lower electronic ballast sales volume and product returns, as
well as to modest inventory increases in certain MOTORS AND CONTROLS segment
product lines. Cash generated by operating activities was offset by cash used
for investments, primarily capital expenditures, which was partially offset by
the sale of the Company's custom motor business.
The custom motor business was sold in May 1994 for a cash price of $8.3 million.
In July 1994, the Company sold its controls business for a cash purchase price
of $46 million. Both prices were subject to certain post-closing adjustments.
These divestitures are part of the Company's overall restructuring program,
which will be completed during fiscal 1995 (see Note 2). MagneTek anticipates
aggregate net proceeds from all planned divestitures to exceed $200 million. Net
proceeds will be used to redeem debt. Other actions associated with the
restructuring program, including the relocation and consolidation of
administrative offices, will entail cash outflow approximating $13.7 million
during fiscal 1995.
Due to charges recorded in connection with the restructuring program and
litigation settlement, as well as to lower than anticipated operating results,
MagneTek was in violation of certain covenants under its Revolving Loan
Agreement at June 30, 1994. The Company has received a waiver of the violations
from its banks and has negotiated amendments to its Revolving Loan Agreement to
adjust the covenants prospectively based upon future projected operating
performance. As a result of the amendments, the lending commitment under the
Revolving Loan Agreement was reduced to $150 million from $200 million, and the
lending rate was increased by one quarter percent (see Note 4). The banks'
lending commitment will be further reduced upon required repayment of currently
outstanding borrowings with proceeds received from the sale of discontinued
operations. Such commitment will not be reduced below $100 million.
The Company may be subject to certain potential environmental and legal
liabilities (see Note 7).
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30.
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA. 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------
Net sales $1,133,126 $1,119,392 $883,466
Cost of sales 928,994 873,976 681,997
- - ------------------------------------------------------------------------------------------------------------------------------
Gross profit 204,132 245,416 201,469
Selling, general and administrative expenses 194,234 175,797 143,700
- - ------------------------------------------------------------------------------------------------------------------------------
Income from operations 9,898 69,619 57,769
Interest expense 32,018 31,542 26,774
Other expense, net 2,322 5,614 4,683
- - ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before provision (benefit)
for income taxes, extraordinary item and cumulative effect
of accounting changes (24,442) 32,463 26,312
Provision (benefit) for income taxes (7,500) 13,200 11,600
- - ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary item and
cumulative effect of accounting changes (16,942) 19,263 14,712
Discontinued operations --
Income (loss) from operations (net of taxes) (3,462) 7,770 10,331
Loss on disposal (net of tax benefit) (25,041) -- --
Extraordinary item -- loss on early extinguishment of debt
(net of tax benefit) -- -- (2,857)
Cumulative effect of changes in accounting for postretirement medical
benefits (net of tax benefit) and income taxes -- (48,734) --
- - ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (45,445) $ (21,701) $ 22,186
- - ------------------------------------------------------------------------------------------------------------------------------
Per common share -- primary:
Income (loss) from continuing operations before extraordinary item and
cumulative effect of accounting changes $ (.69) $ .78 $ .61
Income (loss) from discontinued operations (1.15) .31 .43
Extraordinary item -- -- (.12)
Cumulative effect of accounting changes -- (1.96) --
- - ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1.84) $ (.87) $ .92
- - ------------------------------------------------------------------------------------------------------------------------------
Per common share -- fully diluted:
Income (loss) from continuing operations before extraordinary item and
cumulative effect of accounting changes $ * $ .73 $ .59
Income (loss) from discontinued operations * .30 .41
Extraordinary item -- -- (.10)
Cumulative effect of accounting changes -- * --
- - ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ * $ * $ .90
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
* PER SHARE AMOUNTS ON A FULLY DILUTED BASIS HAVE BEEN OMITTED AS SUCH AMOUNTS ARE ANTI-DILUTIVE IN RELATION TO PRIMARY PER SHARE
AMOUNTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30. AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA. 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
ASSETS
- - ----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 7,013 $ 7,606
Accounts receivable, less allowance for doubtful accounts of $4,745 in 1994
and $3,986 in 1993 217,106 253,133
Inventories 196,527 207,370
Deferred income taxes 20,688 10,063
Prepaids and other current assets 12,282 9,277
- - ----------------------------------------------------------------------------------------------------------------
Total current assets 453,616 487,449
- - ----------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 4,033 3,672
Buildings and improvements 63,511 57,999
Machinery and equipment 311,664 277,356
- - ----------------------------------------------------------------------------------------------------------------
379,208 339,027
Less accumulated depreciation and amortization 172,163 143,621
- - ----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 207,045 195,406
- - ----------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 197,217 233,716
Cost in excess of fair value of net assets acquired, less accumulated
amortization of $6,005 in 1994 and $4,987 in 1993 35,391 36,663
Deferred financing costs, intangible and other assets, less accumulated
amortization of $12,927 in 1994 and $9,989 in 1993 38,089 42,125
- - ----------------------------------------------------------------------------------------------------------------
$931,358 $995,359
- - ----------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
1994 1993
- - ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $117,884 $133,973
Accrued liabilities 80,287 94,672
Current portion of long-term debt 49,998 7,588
- - ------------------------------------------------------------------------------------------------
Total current liabilities 248,169 236,233
- - ------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 473,781 515,713
Other long-term obligations 77,316 67,215
Deferred income taxes 19,010 13,169
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares authorized
24,205,000 and 24,122,000 shares issued and outstanding 242 241
Additional paid-in capital 76,364 75,494
Retained earnings 57,674 103,119
Cumulative translation adjustment (16,561) (15,825)
Minimum pension liability (4,637) --
- - ------------------------------------------------------------------------------------------------
Total stockholders' equity 113,082 163,029
- - ------------------------------------------------------------------------------------------------
$931,358 $995,359
- - ------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL CUMULATIVE MINIMUM
--------------------- PAID-IN RETAINED TRANSLATION PENSION
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA. SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT LIABILITY
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1991 23,014,000 $230 $62,051 $102,634 $ (6,264) $ --
- - ------------------------------------------------------------------------------------------------------------------------------
Sale of common stock 650,000 6 9,008 -- -- --
Exercise of stock options 180,000 2 829 -- -- --
Translation adjustment -- -- -- -- 5,781 --
Net income -- -- -- 22,186 -- --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1992 23,844,000 238 71,888 124,820 (483) --
- - ------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 278,000 3 3,606 -- -- --
Translation adjustment -- -- -- -- (15,342) --
Net loss -- -- -- (21,701) -- --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1993 24,122,000 241 75,494 103,119 (15,825) --
Exercise of stock options 83,000 1 870 -- -- --
Translation adjustment -- -- -- -- (736) --
Minimum pension liability -- -- -- -- -- (4,637)
Net loss -- -- -- (45,445) -- --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1994 24,205,000 $242 $76,364 $ 57,674 $(16,561) $(4,637)
- - ------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30. AMOUNTS IN THOUSANDS 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $(16,942) $19,263 $14,712
- - ------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile income (loss) from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 36,418 33,581 31,559
(Gain) loss on sale of assets (2,236) (2,584) 412
Restructuring and other noncash charges 31,221 -- (969)
Changes in operating assets and liabilities of continuing operations, net of
effects from acquired companies (18,331) (78,644) (35,344)
- - ------------------------------------------------------------------------------------------------------------------------------
Total adjustments 47,072 (47,647) (4,342)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 30,130 (28,384) 10,370
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of and investment in companies, net of cash acquired -- (24,540) (18,773)
Proceeds from sale of businesses and assets 8,216 13,223 854
Capital expenditures (43,338) (57,850) (28,010)
Annuity contract and other investments 3,085 (9,787) --
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (32,037) (78,954) (45,929)
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank and other long-term obligations 15,238 110,213 --
Proceeds from issuance of 10-3/4% Senior Subordinated Debentures -- -- 125,000
Proceeds from issuance of 8% Convertible Subordinated Notes -- -- 75,000
Proceeds from issuance of common stock 871 3,609 9,845
Repayment of bank and other long-term obligations (15,090) (9,157) (185,900)
Increase in deferred financing costs (703) (2,553) (6,664)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 316 102,112 17,281
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations (1,591) (5,226) (18,278)
- - ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations (28,503) 7,770 10,331
Adjustments to reconcile income (loss) to net cash provided by
discontinued operations:
Depreciation and amortization 11,211 12,154 11,737
Loss on disposal and other noncash charges 27,341 -- 4,259
Changes in operating assets and liabilities of discontinued operations (2,994) (210) (6,014)
Capital expenditures (6,057) (9,951) (7,076)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations 998 9,763 13,237
- - ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (593) 4,537 (5,041)
Cash at beginning of year 7,606 3,069 8,110
- - ------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 7,013 $ 7,606 $ 3,069
- - ------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL AMOUNTS IN THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE EXPRESSED IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MagneTek, Inc. and
its subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION AND CHANGE IN ACCOUNTING FOR LONG-TERM CONTRACTS
Substantially all revenues are recognized when shipments are made. Prior to
fiscal year 1992, sales and anticipated profits under certain fixed-price
contracts were accounted for under the percentage-of-completion (cost-to-cost)
method. During the year ended June 30, 1992, the Company changed its method of
accounting for long-term contracts to the percentage-of-completion (units of
delivery) method. The Company believed this change was preferable because it
provides a more accurate measurement of the stage of completion for its current
and anticipated future contracts. This resulted in a charge to income in 1992 of
$4,259, net of tax benefit, reflecting the cumulative effect of applying the
units of delivery method as of the beginning of the fiscal year. Estimated
losses on contracts are recorded when identified. The Company increased its
reserve for contract losses by approximately $4,000 and $3,500 during the last
two quarters of fiscal 1993 and the fourth quarter of fiscal 1992, respectively.
All of the above referenced amounts relate to, and are included in, the results
of discontinued operations for the periods indicated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Additions and improvements are capitalized at cost, whereas expenditures for
maintenance and repairs ($22,784, $22,243 and $16,889 for the years ended June
30, 1994, 1993 and 1992, respectively) are charged to expense as incurred.
Depreciation is provided over the estimated useful lives of the respective
assets principally by the straight-line method.
DEFERRED FINANCING COSTS, INTANGIBLE AND OTHER ASSETS
Costs incurred to obtain financing are deferred and amortized principally on a
debt-outstanding method over the term of financing acquired. Amortization
expense relating to deferred financing costs was $2,358, $2,006 and $1,845 for
the years ended June 30, 1994, 1993 and 1992, respectively. Cost in excess of
fair value of net assets acquired (goodwill) is being amortized using the
straight-line method over a forty-year period. The Company assesses the
recoverability of goodwill based upon several factors, including management's
intention with respect to the operations to which the goodwill relates and those
operations' projected future income and undiscounted flows. Write-downs of
goodwill are recognized when it is determined that the value of such asset has
been impaired. Amortization expense relating to goodwill was $1,018, $1,050 and
$1,219 for the years ended June 30, 1994, 1993 and 1992, respectively.
Amortization expense relating to deferred financing costs and goodwill is
included in the Consolidated Statements of Income as other expense.
INCOME TAXES
Income taxes are provided based upon the results of operations for financial
reporting purposes and include deferred income taxes applicable to timing
differences between financial and taxable income. Tax credits are accounted for
under the flow-through method as reductions of the income tax provision in the
year in which the credits are realized.
Effective July 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." As a result, the Company
recorded a one-time charge to income of $13,000 or $.52 per share on a primary
basis as the cumulative effect of the accounting change (see Note 6).
Federal income taxes are not provided currently on undistributed earnings of
foreign subsidiaries since the Company presently intends to reinvest these
earnings overseas indefinitely. At June 30, 1994 the Company had unremitted
foreign earnings of approximately $600.
EARNINGS PER SHARE
Primary earnings per share are computed based upon the weighted average number
of common and common equivalent (principally stock options) shares outstanding.
Fully diluted earnings per share are computed based upon the weighted average
number of common and common equivalent shares outstanding including the effect
of additional shares related to the Company's Convertible Notes as if conversion
to common shares had occurred at the beginning of the fiscal year. Earnings have
also been adjusted for interest expense on the Convertible Notes.
FISCAL YEAR
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
Sunday nearest June 30. For clarity of presentation, all periods are presented
as if the year ended on June 30. Fiscal year 1994 contained 53 weeks. Fiscal
years 1993 and 1992 contained 52 weeks.
2. DISCONTINUED OPERATIONS AND RESTRUCTURING COSTS
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
identified certain businesses for potential divestiture. Subsequent to fiscal
1994 year end, the Board of Directors adopted a formal plan of disposal
resulting in the classification of substantially all of the divestiture
candidates as discontinued operations in the accompanying consolidated financial
statements.
The segments to be disposed of are comprised primarily of the Company's utility,
military, controls and custom motor businesses. Substantially all of the assets,
subject to certain liabilities, of the custom motor business were sold on May
27, 1994 to the management of the business for a cash purchase price of $8,300
subject to certain post-closing adjustments. In July 1994, the Company sold
substantially all of the assets, subject to certain liabilities, of the controls
business for a cash purchase price of $46,000. Aggregate net sales of these
businesses (included in the results below) were $51,831, $62,895 and $56,112 in
the years ended June 30, 1994, 1993 and 1992, respectively. The Company expects
to complete the remainder of the divestiture program during the fiscal year
ended June 30, 1995, and intends to use the net proceeds to repay debt.
The following results for the businesses to be divested are reported separately
as discontinued operations in the accompanying Consolidated Statements of
Income.
YEAR ENDED JUNE 30 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------
Net sales $365,609 $392,773 $346,345
Income (loss) before provision for income taxes and cumulative effect of
an accounting change (3,362) 13,170 26,090
Provision for income taxes 100 5,400 11,500
Cumulative effect of a change in accounting for long-term contracts,
net of taxes -- -- (4,259)
- - -------------------------------------------------------------------------------------------------------------------------
Income (loss) of discontinued operations $ (3,462) $ 7,770 $ 10,331
- - -------------------------------------------------------------------------------------------------------------------------
The Company has provided for estimated losses on disposal of the discontinued
operations, net of tax benefit of $2,300, in the amount of $25,041 which
includes a provision for anticipated operating losses prior to disposal. The tax
benefit is less than the benefit computed using statutory tax rates due to the
disallowance (for tax purposes) of losses on the anticipated sales of certain
discontinued operations. Net assets of discontinued operations have been
segregated in the accompanying Consolidated Balance Sheets and consist primarily
of accounts receivable, inventories, fixed assets and goodwill offset by
accounts payable and accrued liabilities (including the provisions for estimated
losses on disposal and anticipated operating losses prior to disposal).
A portion of the Company's consolidated interest expense has been allocated to
the results of discontinued operations based upon the ratio of the net assets of
discontinued operations to the total net assets of the Company. Total interest
expense allocated to discontinued operations and included in the results above
was $15,806, $16,414 and $16,249 for the years ended June 30, 1994, 1993 and
1992, respectively.
In connection with the restructuring program, 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 identified a
substantial amount of potentially obsolete or excess inventory related to the
Company's electronic ballast product line based upon current and projected
demand and production rates for this product line. The Company is also
relocating and consolidating a number of operating and administrative locations
as part of the overall restructuring program.
As a result of this review, the Company has recorded charges to income
aggregating $31,221 related to potentially obsolete or excess inventory,
severance and relocation costs associated with the restructuring. Of this
amount, $19,135 is included in Cost of sales and $12,806 is included in selling,
general and administrative expense in the Consolidated Statement of Income for
the year ended June 30, 1994. Approximately $13,700 will require future cash
outflows, which will occur primarily during fiscal 1995.
3. INVENTORIES
Inventories at June 30, consist of the following:
1994 1993
- - ----------------------------------------------------------------------------
Raw materials and stock parts $ 59,943 $ 72,111
Work-in-process 43,198 38,785
Finished goods 93,386 96,474
- - ----------------------------------------------------------------------------
$196,527 $207,370
- - ----------------------------------------------------------------------------
4. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Long-term debt at June 30, consists of the following:
1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------------
Revolving bank loans $173,549 $164,223
11.45 percent Senior Notes, interest payable semi-annually, due June 30, 1997 135,000 135,000
10-3/4 percent Senior Subordinated Debentures, interest payable semi-annually, due November 15, 1998 125,000 125,000
8 percent Convertible Subordinated Notes, interest payable semi-annually, convertible into 4,687,500
shares of common stock, due September 15, 2001 75,000 75,000
Miscellaneous installment notes, capital leases and other obligations at rates ranging from 5.0 percent to
10.6 percent, due through 1997 15,230 24,078
- - -----------------------------------------------------------------------------------------------------------------------------------
523,779 523,301
Less current portion 49,998 7,588
- - -----------------------------------------------------------------------------------------------------------------------------------
$473,781 $515,713
- - -----------------------------------------------------------------------------------------------------------------------------------
BANK BORROWING ARRANGEMENTS
At June 30, 1994, the Company had an agreement with a group of banks whereby the
banks have committed to lend on a domestic basis up to $200,000 through April
30, 1996. Under the agreement, as amended (the "Revolving Credit Agreement")
borrowings under the credit facility bear interest at the banks' prime lending
rate plus one-half percent or, at the Company's option, the London Interbank
Offered Rate plus one and three quarters percent. These rates may be reduced by
up to one-half and one and one-eighth percent, respectively, based upon the
achievement of specified leverage ratios. At June 30, 1994, borrowings
outstanding under the Revolving Loan Agreement bore interest at a weighted
average rate of approximately 7.4 percent. The Company is required to pay a
commitment fee of three-eighths percent on the unused commitment.
Borrowings under the Revolving Loan Agreement are secured by the stock of the
Company's domestic subsidiaries. The Revolving Loan Agreement contains certain
provisions and covenants which, among other things, restrict the payment of cash
dividends on common stock, limit the amount of future indebtedness and require
the Company to maintain specified levels of net worth and cash flow. The Company
has received a waiver from the banks related to certain covenants for which the
Company was not in compliance at June 30, 1994. Subsequent to June 30, 1994, the
Company amended the Revolving Credit Agreement to adjust the financial covenants
prospectively based upon a review of expected future operating performance and
the effects of the Company's restructuring program (see Note 2). As a result of
these amendments, the banks' lending commitment was reduced to $150,000 and the
interest rate on borrowings was increased by one-quarter percent. The banks'
lending commitment will be further reduced upon required repayment of currently
outstanding borrowings with proceeds received from the sale of discontinued
operations. Such commitment will not be reduced below $100,000. The amendments
also restrict the Company's ability to repay other indebtedness under certain
circumstances.
The Company's European subsidiaries have an agreement (the "European Loan
Agreement") with five banks wherein the banks have agreed to lend DM 26,000
(approximately $16,400) under a Term Loan and DM 57,500 (approximately $36,000)
under a Revolving Loan. Borrowings under this agreement may be denominated in
multiple currencies and bear interest at the related country's Interbank Offered
Rate plus one and five-eighths percent. The Term Loan is repayable in quarterly
installments of DM 1,500 during calendar 1995 and quarterly installments of DM
2,500 thereafter until repaid. Borrowings under the Revolving Loan are due
January, 1995, which date may be extended for an additional year on an annual
basis. The Company intends to repay all borrowings outstanding under the
European Loan Agreement by January, 1995.
Borrowings under the European Loan Agreement are secured by substantially all of
the assets of the Company's European subsidiaries with no recourse to the
parent. The European Loan Agreement contains certain provisions and covenants
with respect to the European subsidiaries which, among other things, limit the
amount of future indebtedness and capital expenditures and require the
maintenance of specified levels of working capital, net worth and cash flow.
SENIOR NOTES
The 11.45 percent Senior Notes ("Senior Notes") are currently redeemable at the
option of the Company in whole or in part including a prepayment charge, if any,
based upon the terms of the Note Purchase Agreement. Mandatory repayment of the
Senior Notes is in six semi-annual installments of $22,500 beginning December
31, 1994 with the final payment due June 30, 1997. During fiscal 1992, the
Company repurchased $15,000 of Senior Notes in market transactions at between
102 and 103 percent of the face value. The premium paid in excess of the face
value, together with the unamortized portion of deferred financing costs
associated with the repurchased Senior Notes are included in the extraordinary
loss on early extinguishment of debt in the accompanying Consolidated Statement
of Income for the year ended June 30, 1992.
The Senior Notes are secured by the stock of the Company's subsidiaries. The
Note Purchase Agreement contains certain provisions and covenants which, among
other things, prohibit the payment of cash dividends on common stock, limit the
amount of future indebtedness and require the Company to maintain specified
levels of working capital, net worth and cash flow. Effective March 31, 1994,
the Note Purchase Agreement was amended to adjust certain covenants and allow
the Company to divest certain business units under its restructuring program
(see Note 2). The amendment also provided for an increase of one-quarter percent
(from 11.2 percent to 11.45 percent) in the interest rate on the Senior Notes.
SENIOR SUBORDINATED DEBENTURES
The 10-3/4 percent Senior Subordinated Debentures ("Subordinated Debentures")
are not redeemable by the Company prior to maturity in November, 1998. The
Subordinated Debentures are subordinated to the Senior Notes and borrowings
under the Revolving Loan Agreement. Proceeds from the issuance of the
Subordinated Debentures were used to fully redeem all of the Company's 11-7/8
percent First Senior Subordinated Notes at a price of 101.5 percent of the face
amount plus accrued interest and to repay bank borrowings. The redemption
premium together with the unamortized deferred financing costs and original
issue discount are included in the extraordinary loss on early extinguishment of
debt in the accompanying Consolidated Statement of Income for the year ended
June 30, 1992.
The indenture related to the Subordinated Debentures contains certain covenants
which, among other things, limit the nature and amount of future indebtedness
and restrict the payment of dividends on common stock.
CONVERTIBLE SUBORDINATED NOTES
The 8 percent Convertible Subordinated Notes ("Convertible Notes") are
redeemable at the option of the Company, in whole or in part, beginning in
September 1994 at redemption prices set forth in the indenture, and, at the
option of the holder, are convertible into common stock of the Company at $16.00
per share at any time prior to maturity in September, 2001.
Aggregate principal maturities on long-term debt outstanding at June 30, 1994
are as follows:
YEAR ENDED JUNE 30
- - ----------------------------------------------------------------------------
1995 $ 49,998
1996 209,846
1997 54,042
1998 5,147
1999 126,762
Thereafter 77,984
- - ----------------------------------------------------------------------------
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts and estimated fair values of the Company's significant
financial instruments as of June 30, 1994 were as follows:
CARRYING FAIR
AMOUNT VALUE
- - ----------------------------------------------------------------------------
11.45 percent Senior Notes $135,000 $144,450
10-3/4 percent Senior Subordinated Debentures $125,000 $128,125
8 percent Convertible Subordinated Notes $ 75,000 $ 76,875
- - ----------------------------------------------------------------------------
The fair values of long-term debt were estimated based on quoted market prices
or through broker quotations. The carrying amounts of certain financial
instruments such as cash, annuity contract and borrowings under short-term
revolving credit agreements approximate their fair values.
The Company enters into futures contracts to provide an economic hedge against
fluctuations in copper prices. Gains and losses are recorded in cost of sales as
the related purchased copper is incorporated into finished products and sold.
Unrealized losses on open contracts at June 30, 1994 were not material to the
Company's results of operations.
6. INCOME TAXES
Effective July 1, 1992, the Company changed its method of accounting for income
taxes to the liability method of accounting for deferred income taxes with the
adoption of Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (SFAS No. 109). As permitted under the new rules, prior years'
financial statements have not been restated. The cumulative effect of adopting
SFAS No. 109 was a charge to income of $13,000, or $.52 per share on a primary
basis in the year ended June 30, 1993.
Income tax expense (benefit) is allocated in the financial statements as
follows:
DEFERRED
LIABILITY METHOD METHOD
--------------------- --------
YEAR ENDED JUNE 30 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary item and cumulative
effect of accounting changes $(7,500) $13,200 $11,600
Extraordinary item -- -- (2,245)
Cumulative effect of accounting changes -- (22,370) --
- - ------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) attributable to continuing operations (7,500) (9,170) 9,355
Discontinued operations (2,200) 5,400 8,154
- - ------------------------------------------------------------------------------------------------------------------------------
$(9,700) $(3,770) $17,509
- - ------------------------------------------------------------------------------------------------------------------------------
The expense (benefit) for income taxes applicable to continuing operations is as
follows:
DEFERRED
LIABILITY METHOD METHOD
--------------------- --------
YEAR ENDED JUNE 30 1994 1993 1992
- - ----------------------------------------------------------------------------
CURRENT:
Federal $(3,836) $11,869 $6,108
State 178 3,125 2,196
Foreign 942 (2,418) 557
DEFERRED:
Federal (4,046) (19,689) 89
State and Foreign (738) (2,057) 405
- - ----------------------------------------------------------------------------
$(7,500) $(9,170) $9,355
- - ----------------------------------------------------------------------------
A reconciliation of the Company's effective tax rate to the statutory Federal
tax rate for income from continuing operations before extraordinary item and
cumulative effect of accounting changes is as follows:
1994 1993 1992
----------------- ----------------- -----------------
YEARS ENDED JUNE 30 AMOUNT % AMOUNT % AMOUNT %
- - -----------------------------------------------------------------------------------------------------------------------------------
Provision (benefit) computed at the statutory rate $(8,555) (35.0) $11,038 34.0 $ 8,946 34.0
State income taxes, net of federal benefit (371) (1.5) 1,937 6.0 1,736 6.6
Foreign tax rates in excess of federal statutory rate 1,213 5.0 (173) (.5) 451 1.7
Tax credits -- -- -- -- (148) (.6)
Permanent differences arising from application of purchase accounting 141 .6 153 .5 705 2.7
Other 72 .2 245 .7 (90) (.3)
- - -----------------------------------------------------------------------------------------------------------------------------------
$(7,500) 30.7 $13,200 40.7 $11,600 44.1
- - -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes of the Company's foreign
subsidiaries was approximately $1,500, $1,300 and $700 for the years ended June
30, 1994, 1993 and 1992.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets for continuing operations as
of June 30, 1994 and 1993 are as follows:
YEARS ENDED JUNE 30 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (including differences in the basis of acquired assets) $41,406 $36,024
Pension costs 775 781
Inventory methods 2,616 2,300
Other -- 658
- - ------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 44,797 39,763
- - ------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement medical benefit obligation 23,076 23,513
Inventory and other reserves (including Restructuring) 23,399 13,144
- - ------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 46,475 36,657
- - ------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (assets) liabilities $(1,678) $ 3,106
- - ------------------------------------------------------------------------------------------------------------------------------
The components of the provision for deferred income taxes for the year ended
June 30, 1992 are as follows:
YEAR ENDED JUNE 30 1992
- - ----------------------------------------------------------------------------
Depreciation and amortization $(1,071)
Pension costs 1,607
Inventory and other reserves (979)
Other 937
- - ----------------------------------------------------------------------------
$494
- - ----------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and machinery and equipment primarily
under operating lease arrangements. Future minimum rental payments under
noncancelable operating leases as of June 30, 1994 total $46,546 and are payable
in future fiscal years as follows: $12,450 in 1995; $9,654 in 1996; $6,700 in
1997; $5,452 in 1998; $4,156 in 1999 and $8,134 thereafter.
Rent expense for the years ended June 30, 1994, 1993 and 1992 was $18,673,
$16,715 and $14,211, respectively.
LITIGATION
PENSION MATTERS
Primarily in 1985, the Company entered into agreements with Executive Life
Insurance Company ("ELIC") under which ELIC assumed accrued pension obligations
under certain defined benefit retirement plans (collectively, the "Plan")
pursuant to an annuity purchase agreement. The Plan paid approximately $25,300
to ELIC under these agreements. In April 1991, the California Insurance
Commissioner (the "Commissioner") was named conservator of ELIC and the Los
Angeles Superior Court issued orders providing that ELIC would pay 70% of the
monthly payments due to the Company's retirees under the ELIC annuity contract.
Under the terms of a plan of rehabilitation, which includes an enhancement
agreement between the Commissioner and the National Organization of Life and
Health Guaranty Associations ("NOLHGA") to augment the benefits paid to ELIC
policyholders, individual annuitants with account values up to $100 will receive
100% of their benefits, resulting in the payment by the rehabilitated ELIC and
NOLHGA of substantially all of the required payments to the Company's employees
who are covered under the ELIC annuities. The rehabilitation plan provides for
reimbursement of shortfall payments the Company had been providing from April
1991 to July 1992 and, accordingly, the Company has reflected the anticipated
reimbursement in other assets in its consolidated financial statements.
Effective on July 22, 1992, the Company entered into agreements settling all
claims with respect to two complaints filed by the Department of Labor and by a
labor union against various defendants including the Company. The settlement
agreements required the Company, among other things, to provide back-up
insurance coverage in the form of an annuity purchased from an approved
insurance company equal to 30% of the obligation to existing retirees. The
Company also agreed to purchase additional coverage in the event payments from
third parties to annuitants fall below 70% of the required amount. If annuity
benefits under the back-up annuity are not needed to provide full benefit
payments to covered annuitants, the proceeds will be remitted to the Company on
an annual basis. On July 31, 1992, the Company purchased such an annuity from
Metropolitan Life Insurance Company for approximately $9,800. Such annuity will
only be used for retiree benefits in the event the combined payments by the
rehabilitated ELIC and NOLHGA fall below 100% of the required benefits.
The Company does not expect that the above transactions will have a material
effect on the Company. However, should ELIC (or its successor) and/or NOLHGA
fail to make required annuity payments in the future, such transactions could
have a material adverse effect upon the Company.
STOCKHOLDER LITIGATION
Four substantially identical actions were filed in 1993 against the Company and
certain of its directors and officers. The four actions were subsequently
consolidated in a single amended complaint. The suit purports to be a class
action on behalf of purchasers of the Company's common stock from October 22,
1992 through August 6, 1993. The complaint asserts claims under the federal
securities laws, and alleges that the Company artificially inflated the price of
its common stock during the class period by failing to disclose adverse
developments in the Company's business. The complaint does not specify the
amount of damages sought.
In July 1994, counsel for the Company defendants and the plaintiffs reached an
agreement in principle to settle the litigation. Final approval of the
settlement and dismissal of plaintiffs' claims is subject to a hearing following
notice to the class and an opportunity for class members to file any objections
to the settlement. The Consolidated Statement of Income for the year ended June
30, 1994 reflects a pretax charge of $2,650 representing estimated costs to the
Company including legal fees associated with the settlement.
OTHER LITIGATION
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's insurers, and management believes that its
insurers will bear all legal costs and liability, except for applicable
deductibles, and that none of these proceedings individually or in the aggregate
will have a material adverse effect on the Company. In addition, the Company is
frequently named in asbestos-related lawsuits which do not involve material
amounts individually or in the aggregate.
The Company is one of numerous defendants in a suit filed in 1993 by multiple
plaintiffs claiming damages for personal injuries allegedly resulting from
exposure to emissions allegedly generated by the defendants' manufacturing
facilities in or near Brownsville, Texas. The plaintiffs have not specified the
damages sought nor the particular emissions they contend implicate the Company.
Discovery is ongoing and a trial has been set for May 1995, and the Company
intends to defend the litigation vigorously. The Company is not able to estimate
the potential exposure or range of exposure.
ENVIRONMENTAL MATTERS
GENERAL
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
with applicable laws and regulations. Except as described below, the Company's
remediation activities for fiscal 1994 did not entail material expenditures, and
its remediation activities for fiscal 1995 are not expected to entail material
expenditures. Future discoveries of contaminated areas could entail material
expenditures, depending upon the extent and nature of the contamination.
UNIVERSAL MANUFACTURING (BRIDGEPORT)
The Company's Universal Manufacturing division has used certain hazardous
materials, including PCBs, in certain of its production processes. In
particular, contaminated soil and groundwater have been located at Universal
Manufacturing's Bridgeport, Connecticut facility. In connection with the
February 1986 acquisition of Universal Manufacturing, the Company and the
seller, Farley Northwest Industries, Inc. (the predecessor to Fruit of the Loom,
Inc., hereinafter collectively with such successor referred to as "FOL"),
executed an environmental agreement. Under this agreement, FOL agreed to perform
certain cleanup work at the Bridgeport facility and to indemnify and hold the
Company harmless for environmental claims attributable to FOL's or its
predecessors' activities at the Bridgeport facility. To date, FOL has undertaken
investigative actions and remedial work at Bridgeport as required by the
environmental agreement, and such remedial work is now substantially complete.
CENTURY ELECTRIC (MCMINNVILLE)
Prior to its purchase by the Company in 1986, Century Electric, Inc. ("Century
Electric") acquired a business from Gould Inc. 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 hazardous waste, including
but not limited to cleaning up any PCBs at the McMinnville facility (the "1983
indemnity"). Investigation revealed the presence of PCBs in portions of the soil
and in the groundwater underlying the facility and in certain offsite soil.
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 Superfund
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
PCBs as above described. In July 1993, Gould submitted to the State of Tennessee
a Feasibility Study recommending a cleanup of certain onsite soil with an
estimated cost of $4,700. This estimate does not include ancillary costs of
onsite cleanup, which are expected to be significant. Based upon currently
available information, the aggregate costs for cleanup of certain onsite soil,
including ancillary costs of onsite cleanup, are not expected to exceed $15,000.
Subsequent to June 30, 1994, Gould contracted for certain onsite cleanup to be
performed, at its own expense, during the period from September 1994 through
December 1994. The necessity for any potential offsite cleanup has not been
studied, and no estimate or range of any potential offsite cleanup costs has
been developed. The Company believes that the costs for certain onsite cleanup,
including ancillary costs of onsite cleanup, and the costs for any potential
offsite cleanup are covered by the 1983 indemnity. In August 1994, Gould
requested that the Company consider bearing an unspecified portion of each of
these costs, and the Company declined. While the Company believes that Gould
will continue to perform under its indemnity obligations, Gould's failure to
perform such obligations could have a material adverse effect on the Company.
OFFSITE LOCATIONS
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. Due, in part, to the existence of indemnification from the former
owners of certain acquired businesses for cleanup costs at certain of these
sites, and except as described below, 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 will be named as a potentially responsible party in
the future with respect to other sites.
CROWN INDUSTRIES SITE (PIKE COUNTY, PENNSYLVANIA)
In March 1992, the Company was informed by the Pennsylvania Department of
Environmental Resources ("DER") that its Universal Manufacturing division is one
of a number of potentially responsible parties with respect to a planned
environmental investigation and cleanup at the Crown Industries site in Pike
County, Pennsylvania. The DER has provided a non-binding preliminary allocation
of liability in connection with the site that assigned the Company a 30 percent
share. The aggregate expense of cleaning up the site is not currently known, but
some preliminary indications suggest a range of $5,000 to $15,000. To date, the
DER has sought reimbursement of approximately $500 in the aggregate from the
Company and the other potentially responsible parties. The Company has concluded
that at least 90 percent of any liability it may incur relating to this site is
covered by the indemnification provisions of its environmental agreement with
FOL, and FOL has acknowledged such indemnity and is currently defending its own
and the Company's interest in this site.
FOL's failure to perform its obligations with respect to the Crown Industries
site under the environmental agreement could have a material adverse effect on
the Company.
LETTERS OF CREDIT
The Company has approximately $24,000 of outstanding letters of credit as of
June 30, 1994.
8. STOCK OPTION AGREEMENTS
The Company has two stock option plans (the "Plans") which provide for the
issuance of both incentive stock options (under Section 422A of the Internal
Revenue Code of 1986) and non-qualified stock options at exercise prices not
less than fair market value at the date of grant. One of the plans also provides
for the issuance of stock appreciation rights, restricted stock, unrestricted
stock, restricted stock rights and performance units. The total number of shares
of the Company's common stock authorized to be issued upon exercise of the stock
options and other stock rights under the Plans is 3,605,280. As of June 30, 1994
and 1993 shares available for grant were approximately 473,000 and 514,000,
respectively. Options granted under the Plans generally vest in four equal
annual installments.
A summary of certain information with respect to options under the Plans
follows:
YEARS ENDED JUNE 30 1994 1993 1992
- - ----------------------------------------------------------------------------
Options outstanding, beginning of year 1,983,143 2,020,088 1,474,236
Options granted 903,000 368,000 764,900
Options exercised (83,389) (278,320) (179,765)
Weighted average exercise price $ 7.69 $ 8.60 $ 4.42
Options cancelled (499,700) (126,625) (39,283)
- - ----------------------------------------------------------------------------
Options outstanding, end of year 2,303,054 1,983,143 2,020,088
Weighted average price $12.30 $11.02 $10.15
- - ----------------------------------------------------------------------------
Exerciseable 963,107 909,318 748,913
- - ----------------------------------------------------------------------------
The Company has also granted options in prior years under certain non-qualified
stock option agreements, terms of which are similar to the Plans. No such
options were granted, exercised or cancelled during the three years ended June
30, 1994. As of June 30, 1994, options for 142,835 shares with a weighted
average price per share of $4.74 were outstanding, all of which were
exerciseable.
The Company has granted stock appreciation rights (SARs) to certain of its
directors under director incentive compensation plans. As of June 30, 1994, SARs
with respect to 298,750 shares, with a weighted average exercise price of $10.38
were outstanding under these plans.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has defined benefit retirement plans which, collectively, cover
substantially all of its non-union employees and those union employees whose
collective bargaining agreements specifically provide for coverage. Effective
January 1, 1988, the Company merged all of its plans covering non-union domestic
employees into a single defined benefit plan (the "Plan"). The Plan provides
benefits based upon career average pay as defined in the Plan.
The net pension cost for the years ended June 30, 1994, 1993 and 1992 is as
follows:
1994 1993 1992
- - ----------------------------------------------------------------------------
Service cost-benefits earned during the period $ 8,169 $ 7,615 $ 7,924
Interest cost on projected benefit obligation 8,195 7,415 6,309
Investment return on plan assets (1,180) (8,945) (5,482)
Net amortization and deferral (7,103) 888 (1,314)
- - ----------------------------------------------------------------------------
Net pension cost $ 8,081 $ 6,973 $ 7,437
- - ----------------------------------------------------------------------------
The projected benefit obligation was determined using an assumed discount rate
of 8.25% for the year ended June 30, 1994 and 8.5% for the year ended June 30,
1993 and a 6% increase in the rate of compensation in both years. The average
expected long-term rate of return on plan assets is 8.5% for both years.
The funded status of the Company's defined benefit plans at June 30, 1994 and
1993 is as follows:
1994 1993
- - -------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF:
Vested benefit obligation $103,257 $ 91,373
Non-vested benefits 4,134 4,006
Projected benefit obligation 112,301 100,516
Market value of plan assets 100,163 92,055
Plan assets less than projected benefit obligation (12,138) (8,461)
Unrecognized net loss 15,242 10,020
Unrecognized prior service income relating to merged plans (2,778) (2,947)
Unrecognized net asset (2,917) (3,282)
Minimum pension liability (4,637) --
Accrued pension cost 7,228 4,670
- - -------------------------------------------------------------------------------
Pursuant to SFAS No. 87, "Employers' Accounting for Pensions," the Company has
recorded an additional minimum pension liability of $4,637 at June 30, 1994,
representing the difference between the Company's unfunded accumulated benefit
obligation and the recorded pension liability. The additional minimum pension
liability has been recorded as a reduction of equity.
It is the Company's policy to fund pension costs annually. Plan assets are
primarily invested in equity and government securities. The Company also has
benefit plans for certain of its foreign subsidiaries which are not reflected
above. These plans are not material to the Company's benefit plans as a whole.
In addition to the defined benefit retirement plans, most of the Company's
non-union employees participate in a defined contribution savings plan which
provides for employee contributions of up to 6% of compensation as defined in
the plan with a Company contribution equal to 20% of the first 3% of the
employee's contribution. Company contributions were $936, $828 and $817 during
the plan years ended March 31, 1994, 1993 and 1992, respectively. Company
contributions vest over a five-year period.
POSTRETIREMENT MEDICAL BENEFIT PLANS
The Company provides certain health care benefits for certain eligible retired
employees. Approximately 25% of the currently active (but not retired) employees
are eligible for benefits under these contributory plans under which the
Company's subsidy varies by the employee group. However, for employees retiring
after December 31, 1991, the amount of subsidy to be paid by the Company will be
"capped" at the 1991 plan cost levels and all future trend increases will be
borne by the employees. Employees hired after December 31, 1991 will not receive
any Company subsidy.
Effective July 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS No. 106), changing to the accrual method of accounting for
certain postretirement benefits other than pensions, primarily health care
benefits. SFAS No. 106 requires the expected cost of future benefits to be
charged to expense during the periods in which the employees render service.
Previously, the Company recognized these costs on a "pay-as-you-go," or cash
basis.
The Company implemented SFAS No. 106 on the immediate recognition basis
effective July 1, 1992, and, as a result, recognized a one-time pretax charge of
$58,104 ($35,734 or $1.44 per share on a primary basis, after tax). The change
in accounting resulted in an increase in the annual expense recognized for these
postretirement benefits of approximately $2,400.
The accumulated postretirement benefit obligation as of June 30, 1994 and 1993
consisted of unfunded obligations related to the following:
1994 1993
- - -------------------------------------------------------------------------------
Retirees $47,195 $48,822
Fully eligible active plan participants 4,129 6,228
Other active participants 6,098 5,063
Unrecognized gain 2,408 --
- - -------------------------------------------------------------------------------
$59,830 $60,113
- - -------------------------------------------------------------------------------
Net periodic postretirement benefit costs for the years ended June 30, 1994 and
1993 include the following components:
YEARS ENDED JUNE 30 1994 1993
- - ------------------------------------------------------------------------------------------------
Service cost -- benefits earned during period $ 515 $ 432
Interest cost on accumulated postretirement benefit obligation 4,472 4,833
- - ------------------------------------------------------------------------------------------------
$4,987 $5,265
- - ------------------------------------------------------------------------------------------------
The Company's current policy is to fund the cost of the postretirement health
care benefits on a "pay-as-you-go" basis as in prior years.
For measurement purposes, an 11% and 10% annual rate of increase (9% and 8% for
HMO plans) in the per capita cost of covered health care claims was assumed for
fiscal 1994 and fiscal 1995, respectively; the rate of increase was assumed to
decrease to 6.25% by 2008 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend by 1 percentage point
in each year would increase the accumulated postretirement benefit obligation by
approximately $5,500 and the aggregate of service and interest cost components
of the annual net postretirement health care cost by approximately $450. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% for the year ended June 30, 1994 and
8.5% for the year ended June 30, 1993.
10. RELATED PARTY TRANSACTIONS
The Company has an agreement with the Spectrum Group, Inc. whereby Spectrum will
provide management services to the Company from fiscal 1995 through fiscal 1999
at a current annual fee of $732 plus out-of-pocket expenses which amounted to
$37, $6 and $32 for the years ended June 30, 1994, 1993 and 1992, respectively.
The Company's chairman is also the chairman of Spectrum. The services provided
include consultation and direct management assistance with respect to
operations, strategic planning and other aspects of the business of the Company.
Fees paid to Spectrum for these services under the agreement were $678 in each
of the three years ended June 30, 1994.
During the years ended June 30, 1994 and 1993, the Company paid approximately
$914 and $500, respectively, in fees to charter an aircraft owned by a company
in which the chairman is the principal shareholder. The Company believes the
fees paid were equivalent to those that would be paid under an arm's-length
transaction.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
1994 1993
- - ----------------------------------------------------------------------------
Salaries, wages and related items $28,790 $40,704
Warranty 13,865 11,134
Interest 3,906 11,265
Income taxes 2,537 4,446
Restructuring reserves (see Notes 2 and 13) 8,236 12,520
Other 22,953 14,603
- - ----------------------------------------------------------------------------
$80,287 $94,672
- - ----------------------------------------------------------------------------
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities of continuing operations, net of
effects from acquired companies, follows:
FOR THE YEARS ENDED JUNE 30 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in accounts receivable $ 29,927 $(56,661) $(17,823)
(Increase) decrease in inventories (10,640) (8,425) (10,390)
(Increase) decrease in prepaids and other current assets (3,258) (889) (4,652)
(Increase) decrease in other operating assets (1) 9,837 (7,405)
Increase (decrease) in accounts payable (14,180) 2,912 5,029
Increase (decrease) in accrued liabilities (20,858) (24,106) 3,554
Increase (decrease) in deferred income taxes (4,785) 1,796 (2,794)
Increase (decrease) in other operating liabilities 5,464 (3,108) (863)
- - ------------------------------------------------------------------------------------------------------------------------------
$(18,331) $(78,644) $(35,344)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest and income taxes follows:
Interest $54,841 $46,471 $36,429
Income taxes $5,335 $16,481 $23,500
Reconciliation of assets acquired and liabilities assumed:
Fair value of assets acquired -- $44,477 $72,915
Liabilities assumed -- 19,937 54,142
- - ------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisitions -- $24,540 $18,773
- - ------------------------------------------------------------------------------------------------------------------------------
13. ACQUISITIONS
In October, 1992, the Company acquired substantially all of the assets subject
to certain liabilities of the INET division of Teledyne, Inc. (included in
discontinued operations) for a cash price of approximately $15,500 including
post closing adjustments. INET manufactures electrical and electronic power
products for military and commercial applications and engineers ground support
systems for use by aircraft parked at airport terminals.
In March, 1992, the Company acquired the capital stock of May & Christe GmbH, a
manufacturer of lighting ballasts, transformers and other electrical equipment
based in Germany. The original purchase price aggregated approximately $42,400
which included cash, a deferred payment and the assumption of certain long-term
liabilities. At the time of the acquisition, the Company also sold 650,000
shares of the Company's common stock to the former owner of May & Christe for
approximately $9,000. During fiscal 1993, in resolution of certain liabilities
for which the Company was indemnified by the former owner, the original purchase
price was renegotiated to approximately $35,200 resulting in the elimination of
the deferred payment. In connection with this acquisition, the Company accrued
restructuring reserves aggregating approximately $20,000, principally consisting
of severance pay and plant closure costs. The plant closures were substantially
completed and the related severance costs paid during fiscal years 1993 and
1994.
These acquisitions were accounted for as purchases, and, accordingly, the
purchase prices and direct costs of the acquisitions have been allocated to the
respective assets and liabilities of the acquired companies based upon their
estimated fair market values at the dates of acquisition. The results of
operations of the acquired companies are included in the Company's financial
statements since the effective dates of the acquisitions. Pro forma results of
operations, which give effect to the transactions as if they had occurred at the
beginning of the periods presented, are not materially different from actual
results included herein.
14. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two business segments: Ballasts and Transformers and
Motors and Controls.
The Ballasts and Transformers segment produces electrical conversion products,
including magnetic and electronic ballasts for various lighting applications,
transformers for power transmission in commercial and industrial buildings and a
wide range of electronic and industrial equipment, power supplies for use in
computer and office equipment and power converters for recreational vehicles.
The Motors and Controls segment designs, manufactures and markets a broad range
of high quality, fractional and integral electric motors, medium output
generators and electronic adjustable speed drives and systems.
The Company sells its products primarily to large original equipment
manufacturers and distributors. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral. The
Company has no significant concentration of credit risk.
Financial information by business segment for continuing operations follows:
BALLASTS AND MOTORS AND
FOR THE YEAR ENDED JUNE 30, 1994 TRANSFORMERS CONTROLS TOTAL
- - ----------------------------------------------------------------------------
Sales $660,524 $472,602 $1,133,126
Operating income (loss) (16,821) 26,719 9,898
Identifiable assets* 510,314 421,044 931,358
Capital expenditures 28,887 14,451 43,338
Depreciation and amortization 22,841 13,577 36,418
- - ----------------------------------------------------------------------------
Operating income (loss) for the year ended June 30, 1994, reflects pretax
charges of $28,822 and $2,399 in the Ballasts and Transformers and Motors and
Controls segments, respectively, related to restructuring and other costs
primarily in the electronic ballast business (see Note 2).
FOR THE YEAR ENDED JUNE 30, 1993
- - ----------------------------------------------------------------------------
Sales $712,568 $406,824 $1,119,392
Operating income 45,064 24,555 69,619
Identifiable assets* 565,500 429,859 995,359
Capital expenditures 46,529 11,321 57,850
Depreciation and amortization 20,531 13,050 33,581
- - ----------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1992
- - ----------------------------------------------------------------------------
Sales $534,159 $349,307 $883,466
Operating income 39,741 18,028 57,769
Identifiable assets* 474,001 414,667 888,668
Capital expenditures 17,192 10,818 28,010
Depreciation and amortization 18,213 13,346 31,559
- - ----------------------------------------------------------------------------
*IDENTIFIABLE ASSETS INCLUDE NET ASSETS OF DISCONTINUED OPERATIONS OF $197,217,
$233,716 AND $235,179 FOR 1994, 1993 AND 1992, RESPECTIVELY.
Geographic information with respect to the Company's European Subsidiaries
follows:
FOR THE YEARS ENDED JUNE 30 1994 1993 1992
- - ----------------------------------------------------------------------------
Sales $202,593 $215,323 $161,361
Operating income 10,004 11,651 7,961
Identifiable assets 174,736 179,688 190,664
Capital expenditures 9,723 10,095 6,318
Depreciation and amortization 8,689 8,266 6,572
- - ----------------------------------------------------------------------------
The Company's foreign operations outside of Europe are not material. Export
sales were $60,143, $55,075 and $36,344 in 1994, 1993 and 1992, respectively.
15. QUARTERLY RESULTS (UNAUDITED)
During fiscal 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 (see Note 2). Subsequent to fiscal year end, the
Board of Directors adopted a formal plan of disposal for certain businesses
which have been classified as discontinued operations in the accompanying
consolidated financial statements. Accordingly, the quarterly results included
below have been restated from those originally reported to reflect the results
of continuing operations.
1994 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- - ------------------------------------------------------------------------------------------------------------------------------
Net sales $280,361 $259,296 $287,095 $306,374
Gross profit 58,893 28,101 57,878 59,260
Provision (benefit) for income taxes 1,134 (10,093) 1,355 104
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes 1,567 (21,800) 3,057 234
Net income (loss) 1,406 (42,502) 1,683 (6,032)
PER COMMON SHARE:
Primary:
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes $0.06 $(0.88) $0.12 $0.01
Net income (loss) $0.06 $(1.72) $0.07 $(0.24)
Fully diluted:
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes $0.06 * $0.12 $0.01
Net income (loss) $0.06 * $0.07 *
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
*PER SHARE AMOUNTS ON A FULLY DILUTED BASIS ARE OMITTED AS SUCH AMOUNTS ARE ANTI-DILUTIVE IN RELATION TO PRIMARY PER SHARE AMOUNTS.
In the second quarter of fiscal 1994, Gross profit and income (loss) from
continuing operations before extraordinary item and cumulative effect of
accounting changes include pretax charges of $19,135 and $31,221, respectively,
reflecting restructuring and other costs primarily related to the electronic
ballast business (see Note 2). In the fourth quarter of fiscal 1994, Income
(loss) from continuing operations before extraordinary item and cumulative
effect of accounting changes includes a pretax charge of $2,650 reflecting the
estimated costs to the Company to settle pending litigation (see Note 7).
1993 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- - ------------------------------------------------------------------------------------------------------------------------------
Net sales $250,665 $273,651 $287,203 $307,873
Gross profit 54,129 63,349 67,946 59,992
Provision (benefit) for income taxes 2,281 3,108 5,250 2,561
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes 3,284 4,472 7,552 3,955
Net income (loss) (41,980) 8,243 8,933 3,103
PER COMMON SHARE:
Primary:
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes $0.14 $0.18 $0.30 $0.15
Net income (loss) $(1.69) $0.34 $0.35 $0.12
Fully diluted:
Income (loss) from continuing operations before extraordinary
item and cumulative effect of accounting changes $0.13 $0.17 $0.27 $0.15
Net income (loss) * $0.31 $0.33 $0.12
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
*PER SHARE AMOUNT ON A FULLY DILUTED BASIS IS OMITTED AS SUCH AMOUNT IS ANTI-DILUTIVE IN RELATION TO PRIMARY PER SHARE AMOUNT.
During fiscal 1993, the Company adopted SFAS Nos. 106 and 109 resulting in an
after tax charge to income of $48,734, or $1.96 per share on a primary basis
(see Notes 6 and 9). The changes in accounting were effective July 1, 1992,
resulting in a restatement of originally reported results for the quarter ended
September 30, 1992. During the fourth quarter of fiscal 1993, the Company
incurred significant additional costs in connection with the expansion of its
electronic ballast business.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MAGNETEK, INC.
We have audited the accompanying consolidated balance sheets of MagneTek, Inc.
as of June 30, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MagneTek, Inc. at
June 30, 1994 and 1993, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 9 to the financial statements, the Company changed
its method of accounting for income taxes and postretirement medical benefits in
1993.
/s/ Ernst & Young LLP
Woodland Hills, California
August 18, 1994,
except for the second paragraph of Note 4, as to which the date is
September 29, 1994