FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1995
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)
26 Century Blvd.
P. O. Box 290159
Nashville, Tennessee 37229-0159
(Address of principal executive offices)
(Zip Code)
(615) 316-5100
(Registrant's telephone number, including area code)
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of February 6,
1995: 24,704,384 shares.
PART I. FINANCIAL INFORMATION
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to fairly present the financial
position as of December 31, 1995 and the results of operations and cash flows
for the three-month and six month periods ended December 31, 1995 and 1994. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes included in the
company's latest annual report on Form 10-K. Results for the three months and
six months ended December 31, 1995 are not necessarily indicative of results
which may be experienced for the full fiscal year.
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and JUNE 30, 1995
(amounts in thousands)
ASSETS December 31 June 30
----------- -------
(unaudited)
Current assets:
Cash...................................................... $ 5,428 $ 311
Accounts receivable....................................... 182,864 235,252
Inventories............................................... 230,331 225,461
Prepaid expenses and other................................ 31,967 29,212
---------- --------
Total current assets.................................... 450,590 490,236
---------- --------
Property, plant and equipment............................... 418,167 401,851
Less-accumulated depreciation and amortization.............. 218,470 201,751
---------- --------
199,697 200,100
---------- --------
Net assets of discontinued operations....................... 24,671 98,118
Goodwill.................................................... 33,102 33,134
Deferred financing costs, intangible and other assets....... 34,569 35,580
---------- --------
Total Assets................................................ $ 742,629 $857,168
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 89,602 $118,002
Accrued liabilities....................................... 74,087 79,234
Current portion of long-term debt......................... 2,567 17,580
---------- --------
Total current liabilities............................... 166,256 214,816
---------- --------
Long-term debt, net of current portion...................... 366,054 430,887
Other long-term obligations................................. 83,576 81,369
Deferred income taxes....................................... 12,534 12,818
Commitments and contingencies
Stockholders' equity
Common stock.............................................. 247 247
Other..................................................... 113,962 117,031
---------- --------
Total stockholder's equity................................ 114,209 117,278
---------- --------
Total Liabilities and Stockholders' Equity.................. $ 742,629 $857,168
---------- --------
---------- --------
See accompanying notes
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995 AND 1994
(amounts in thousands except per share data)
(unaudited)
1995 1994
-------- --------
Net sales................................................... $282,162 $290,627
Cost of sales............................................... 235,550 231,940
-------- --------
Gross profit................................................ 46,612 58,687
Selling, general and administrative......................... 39,078 41,292
-------- --------
Income from operations...................................... 7,534 17,395
Interest expense............................................ 7,994 8,478
Other expense, net.......................................... 1,281 1,191
-------- --------
Income (loss) from continuing operations before provision
for income taxes........................................... (1,741) 7,726
Income taxes................................................ (211) 3,246
-------- --------
Income (loss) from continuing operations.................... (1,530) 4,480
-------- --------
Net income (loss)........................................... $ (1,530) $ 4,480
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
Primary:
Income (loss) from continuing operations.................. $ (0.06) $ 0.18
-------- --------
Net income (loss)........................................... $ (0.06) $ 0.18
-------- --------
-------- --------
Fully diluted:
Income (loss) from continuing operations.................. ( * ) $ 0.18
-------- --------
Net income (loss)........................................... ( * ) $ 0.18
-------- --------
-------- --------
(*) Per share amounts on a fully diluted basis have been omitted as such amounts
are anti-dilutive in relation to primary per share amounts.
See accompanying notes
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND 1994
(amounts in thousands except per share data)
(unaudited)
1995 1994
-------- --------
Net Sales................................................... $554,832 $565,382
Cost of sales............................................... 465,129 454,975
-------- --------
Gross Profit................................................ 89,703 110,407
Selling, general and administrative......................... 76,923 79,667
-------- --------
Income from operations...................................... 12,780 30,740
Interest expense............................................ 16,552 16,194
Other expense, net.......................................... 2,391 2,238
-------- --------
Income (loss) from continuing operations before provisions
for income taxes........................................... (6,163) 12,308
Income Taxes................................................ (1,095) 5,170
-------- --------
Income (loss) from continuing operations.................... (5,068) 7,138
Discontinued operations --
Gain on disposal (net of taxes)........................... -- 3,100
-------- --------
Net income (loss)........................................... $ (5,068) $ 10,238
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
Primary:
Income (loss) from continuing operations.................. $ (0.20) $ 0.29
Gain on disposal (net of taxes)........................... -- 0.12
-------- --------
Net income (loss)........................................... $ (0.20) $ 0.41
-------- --------
-------- --------
Fully diluted:
Income (loss) from continuing operations.................. ( * ) 0.29
Gain on disposal (net of taxes)........................... -- 0.12
-------- --------
Net income (loss)........................................... $ ( * ) $ 0.41
-------- --------
-------- --------
(*) Per share amounts on a fully diluted basis have been omitted as such amounts
are anti-dilutive in relation to primary per share amounts.
See accompanying notes
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(amounts in thousands)
(unaudited)
1995 1994
-------- --------
Cash flows from operating activities:
Income (loss) from continuing operations.................... $ (5,068) $ 7,138
-------- --------
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization............................. 19,891 18,955
Changes in operating assets and liabilities of continuing
operations............................................... 12,991 (21,736)
-------- --------
Total adjustments........................................... 32,882 (2,781)
-------- --------
Net cash provided by operating activities:.................. 27,814 4,357
-------- --------
Cash flows from investing activities:
Proceeds from sale of businesses and assets................. 74,907 93,064
Capital expenditures........................................ (17,461) (17,774)
Annuity contract and other investments...................... 566 412
-------- --------
Net cash provided by investing activities................... 58,012 75,702
-------- --------
Cash flows from financing activities:
Borrowings under bank and other long-term obligations....... -- 7,902
Proceeds from issuance of common stock...................... 360 1,001
Repayment of bank and other long-term obligations........... (79,846) (94,622)
Increase in deferred financing costs........................ (241) (593)
-------- --------
Net cash used in financing activities....................... (79,727) (86,312)
-------- --------
Net cash provided by (used in) continuing operations........ 6,099 (6,253)
-------- --------
(continued on next page)
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(amounts in thousands)
(unaudited)
1995 1994
------- -------
Cash flows from discontinued operations:
Income from discontinued operations......................... $ -- $ 3,100
Adjustments to reconcile income to net cash used in
discontinued operations:
Depreciation and amortization............................. 1,228 4,192
Gain on sale of businesses................................ -- (3,100)
Changes in operating assets and liabilities of
discontinued operations.................................. (1,841) 6,839
Capital expenditures...................................... (369) (784)
------- -------
Net cash provided by (used in) discontinued operations...... (982) 10,247
------- -------
Net increase in cash........................................ 5,117 3,994
Cash at the beginning of period............................. 311 7,013
------- -------
Cash at the end of period................................... $ 5,428 $11,007
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $16,744 $14,205
Income Taxes............................................ $ 1,289 $11,327
(see accompanying notes)
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All dollar amounts are in the thousands)
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL PERIOD - The Company uses a fifty-two, fifty three week fiscal
year. Fiscal periods end on the Sunday nearest the end of the month.
For clarity of presentation, all periods are presented as if they ended
on the last day of the calendar period. The three month and six month
periods ended December 31, 1995 and 1994 each contained thirteen weeks
and twenty-six weeks respectively.
2. INVENTORIES
Inventories at December 31, 1995 and June 30, 1995 consist of the
following:
December 31 June 30
----------- --------
Raw materials and stock parts............. $ 72,243 $ 66,507
Work-in-process........................... 48,419 45,803
Finished goods............................ 109,669 113,151
----------- --------
$ 230,331 $225,461
----------- --------
----------- --------
3. DISCONTINUED OPERATIONS
During the first six months of fiscal year 1996, the Company sold all of
the assets, subject to certain liabilities of its Medium Power Transformer
business and its insulation and form coil business in Brownsville, Texas in
separate transactions. The net cash proceeds realized from the sales of
these businesses, including post closing adjustments approximated $75,000
and were used to repay bank borrowings primarily under the term loan
facility. Currently, the Company is in the process of consummating other
transactions for the remainder of the discontinued operations.
Negotiations for sale of the Company's network of service shops and
remaining domestic transformer businesses are in process and are expected
to be completed in fiscal 1996.
During the first six months of fiscal 1996, activity associated with
discontinued operations have been charged to reserves provided for
estimated losses on disposal (including interim operating losses) which
were established in the prior fiscal year. Net losses incurred for the
first six months were $344.
4. LONG TERM DEBT AND BANK BORROWING ARRANGEMENTS
During the second quarter, the Company amended its Bank Loan Agreement to
modify one of its covenants and adjusted the covenant prospectively to
reflect expected operating results. While the Company is currently in
compliance with all covenants, based on the second quarter operating
results and revised financial projections, the Company may be in violation
of certain of its financial covenants in the future. The
Company is currently in discussion with its lenders regarding an amendment
to address possible future covenant violations.
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 1995 VS. 1994
Net Sales and Gross Profit.
MagneTek's net sales in the second quarter of fiscal 1996 were $282.2
million, a 2.9% reduction from the second quarter of fiscal 1995 at $290.6
million. Sales in the Ballasts and Transformers segment decreased 5% due
primarily to lower revenues from domestic electronic ballasts and to a
lessor extent magnetic ballast product, partially offset by stronger sales
of European power supplies and domestic HID (high intensity discharge)
ballasts. Revenues in the Motors and Controls segment were relatively flat
as compared to prior year with increased generator sales being muted by
lower commercial and residential fractional motors, direct current product,
and drives sales. The Company is experiencing reduced orders in both
electronic and magnetic ballasts. The latter event has been anticipated as
customers replace magnetic products with electronic units to capitalize on
available energy savings. Lower order activity in electronic ballasts may
reflect diminished utility rebates and could alter customer demand for
electronic ballasts in future periods.
Gross profit decreased to $46.6 million (16.5% of net sales) in the second
quarter of fiscal 1996 from $58.7 million (20.2% of net sales) in the
second quarter of fiscal 1995. The reduction in the gross margin
percentage for the Company reflected primarily lower ballast sales and
reduced ballast production. Magnetic ballast revenues in Germany were
consistent with the year earlier period, however, competitive pricing and
higher manufacturing costs reduced actual gross profits. Sales of
European power supplies increased by approximately 28% while margins
declined due to cost increases and a very competitive price environment.
Motors and Controls gross profits experienced second quarter erosion due to
lower sales and production in residential fractional horsepower products
partially offset by increases in generators and integral motors.
Operating Expenses.
Selling, general and administrative (SG&A) expense was $39.1 million (13.8%
of net sales) in the second quarter of fiscal 1996 down from $41.3 million
(14.2% of net sales) in the second quarter of fiscal 1995. The decrease in
SG&A expense resulted from lower discretionary spending and reduced
expenses associated with lower ballasts revenues including freight and
agent commissions.
Interest and Other Expense.
Interest expense decreased 5.7% to $8.0 million in the second quarter of
fiscal 1996 from $8.5 million in the second quarter of fiscal 1995. Overall
debt levels are lower than in the prior year and interest rates were
reduced. Interest expense in the second quarter of fiscal 1996 reflects
lower values allocated to discontinued operations as the majority of sales
have already been completed. Other expense was comparable to prior year
levels.
Net Income.
The Company recorded losses from continuing operations of $1.5 million in
the second quarter fiscal 1996 compared to income of $4.5 million in
the second quarter of fiscal 1995. The tax benefit in the second
quarter of fiscal 1996 was less than the statutory rate due to the
Corporation's inability to tax effect losses incurred in Germany for
the period.
SIX MONTHS ENDED DECEMBER 31, 1995 VS. 1994
Net Sales and Gross Profit.
MagneTek's net sales in the first six months of fiscal 1996 were $554.8
million, a 1.9% reduction versus the first six months of fiscal 1995 at
$565.4 million. Sales in the Ballast and Transformer segment declined 5%
due to reduced sales of both magnetic and electronic ballasts somewhat
mitigated by increased revenues of power supplies in Europe. Sales in the
Motors and Controls segment increased 2% due to significantly higher
generator sales and stronger integral horsepower revenues. Lower sales of
commercial and residential horsepower motors and direct current product
reduced the overall increase.
Gross profit decreased to $89.7 million (16.2% of net sales) in the
first six months of fiscal 1996, from $110.4 million (19.5% of net
sales) in the first six months of fiscal 1995. Degradation in gross
profits was entirely attributable to performance by the domestic and
German lighting units within the Ballast and Transformer segment. Lower
revenues coupled with production decreases contrasted with the first six
months of fiscal 1995. Motors and Controls performance while slightly
less than prior year was heavily impacted by residential fractional
horsepower (RFHP) motor results. A more tepid housing market created
reduced volumes and production levels. Excluding the results of RFHP
motors, Motors and Controls gross profit improved from prior year
performance.
Operating Expenses.
Selling, general and administrative (SG&A) expense was $76.9 million (13.9%
of net sales) in the first six months of fiscal 1996 compared to $79.7
million (14.1% of net sales) in the first six months of fiscal 1995.
Reduced operating expense in both domestic and European lighting and lower
expenses associated with Corporate headquarters were primarily responsible.
Interest and Other Expense.
Interest expense of $16.6 million in the first six months of fiscal 1996
was increased from interest expense of $16.2 million in the first six
months of fiscal 1995. Debt levels for the Company were lower than in the
same period in the prior fiscal year and interest rates were generally
lower on the Company's variable rate debt. Offsetting these two favorable
factors was a reduction in the amount of interest expense allocable to
discontinued operations due to the earlier completion of the majority of
sales of these units.
Net Income.
The Company recorded losses from continuing operations of $5.1 million
through the first six months of fiscal 1996 compared to income of $7.1
million for the same period in fiscal year 1995. Total income for the
first six months of fiscal 1995 was $10.2 million after the recognition of
$3.1 million associated with the gain on the sale of the Controls business.
The tax benefit in the first six months of fiscal 1996 was less than the
statutory rate due to the Corporation's inability to tax effect losses
incurred in Germany.
LIQUIDITY AND CAPITAL RESOURCES:
As of February 1, 1996, the Company had available borrowing capacity of
approximately $66 million under its bank credit facility. During the second
quarter, the Company amended its Bank Loan Agreement to modify one of its
covenants and adjusted the covenant prospectively to reflect expected operating
results. While the Company is currently in compliance with all covenants, based
on the second quarter operating results and revised financial projections, the
Company may be in violation of certain of its financial covenants in the future.
The Company is currently in discussion with its lenders regarding an amendment
to address possible future covenant violations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 First Amendment to Credit Agreement dated as of November 13,
1995.
(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: February 13, 1996 /S/ David P. Reiland
------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)