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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 1-10233
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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)
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(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 3, 1997: 25,622,324 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, 1996 and the results of operations and
cash flows for the three-month and six-month periods ended December 31, 1996
and 1995. 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, 1996 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, 1996 and JUNE 30, 1996
(amounts in thousands)
ASSETS December 31 June 30
- ------ ----------- --------
(unaudited)
Current assets:
Cash $ 5,917 $ 871
Accounts receivable 179,056 201,814
Inventories 189,917 203,265
Prepaid expenses and other 23,629 26,902
-------- --------
Total current assets 398,519 432,852
-------- --------
Property, plant and equipment 404,109 383,498
Less-accumulated depreciation
and amortization 222,617 207,079
-------- --------
181,492 176,419
-------- --------
Net assets of discontinued operations -- 1,174
Goodwill 32,818 30,668
Deferred financing costs,
intangible and other assets 38,105 37,661
-------- --------
Total Assets $650,934 $678,774
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 87,952 $104,273
Accrued liabilities 128,178 126,399
Current portion of long-term debt 3,054 2,895
-------- --------
Total current liabilities 219,184 233,567
-------- --------
Long-term debt, net of current portion 294,238 319,128
Other long-term obligations 73,170 71,633
Deferred income taxes 12,807 12,888
Commitments and contingencies
Stockholders' equity
Common stock 255 255
Other 51,280 41,303
-------- --------
Total stockholder's equity 51,535 41,558
-------- --------
Total Liabilities and
Stockholders' Equity $650,934 $678,774
-------- --------
-------- --------
See accompanying notes
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 and 1995
(amounts in thousands except per share data)
(unaudited)
1996 1995
---- ----
Net sales $293,707 $282,162
Cost of sales 238,167 235,550
-------- --------
Gross profit 55,540 46,612
Selling, general and administrative 37,690 39,078
-------- --------
Income from operations 17,850 7,534
Interest expense 7,197 7,994
Other expense, net 1,058 1,281
-------- --------
Income (loss) before provision (benefit)
for income taxes 9,595 (1,741)
Income taxes 3,839 (211)
-------- --------
Net income (loss) $ 5,756 $ (1,530)
-------- --------
-------- --------
Earnings (loss) per common share
- --------------------------------
Primary:
Net income (loss) $ 0.22 $ (0.06)
-------- --------
-------- --------
Fully diluted:
Net income (loss) $ 0.22 *
-------- --------
-------- --------
* 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, 1996 and 1995
(amounts in thousands except per share data)
(unaudited)
1996 1995
---- ----
Net sales $585,117 $554,832
Cost of sales 474,735 465,129
-------- --------
Gross profit 110,382 89,703
Selling, general and administrative 76,613 76,923
-------- --------
Income from operations 33,769 12,780
Interest expense 14,729 16,552
Other expense, net 2,134 2,391
-------- --------
Income (loss) before provision (benefit)
for income taxes 16,906 (6,163)
Income taxes 6,835 (1,095)
-------- --------
Net income (loss) $ 10,071 $ (5,068)
-------- --------
-------- --------
Earnings (loss) per common share
- --------------------------------
Primary:
Net income (loss) $ 0.39 $ (0.20)
-------- --------
-------- --------
Fully diluted:
Net income (loss) $ 0.39 *
-------- --------
-------- --------
* 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, 1996 AND 1995
(amounts in thousands)
(unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ 10,071 $ (5,068)
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 19,573 19,891
Changes in operating assets and liabilities
of continuing operations 17,106 12,991
-------- --------
Total adjustments 36,679 32,882
-------- --------
Net cash provided by operating activities: 46,750 27,814
-------- --------
Cash flows from investing activities:
Proceeds from sale of businesses and assets 2,191 74,907
Capital expenditures (17,357) (17,461)
Other investments (1,757) 566
-------- --------
Net cash provided by (used in) investing
activities (16,923) 58,012
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 193 360
Repayment of bank and other long-term
obligations (24,731) (79,846)
Increase in deferred financing costs (243) (241)
-------- --------
Net cash used in financing activities (24,781) (79,727)
-------- --------
(continued on next page)
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE SIX MONTHS ENDED December 31, 1996 AND 1995
(amounts in thousands)
(unaudited)
1996 1995
---- ----
Net cash used in discontinued operations -- (982)
-------- --------
Net increase in cash 5,046 5,117
Cash at the beginning of period 871 311
-------- --------
Cash at the end of period $ 5,917 $ 5,428
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,930 $ 16,744
Income Taxes $ (172) $ 1,289
(see accompanying notes)
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(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, 1996 and 1995 each contained thirteen weeks
and twenty six weeks respectively.
2. INVENTORIES
Inventories at December 31, 1996 and June 30, 1996 consist of the
following:
December 31 June 30
----------- ---------
Raw materials and stock parts $ 62,460 $ 60,018
Work-in-process 44,114 46,354
Finished goods 83,343 96,893
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$ 189,917 $ 203,265
--------- ---------
--------- ---------
3. REPOSITIONING COSTS AND DISCONTINUED OPERATIONS
As a result of significant declines in sales and profit margins in both
electronic and magnetic ballast product lines during fiscal 1996, the
Company conducted a review and analysis of actions required to reduce
costs and improve future flexibility and profitability, largely focused
on the lighting products business. Upon completion of the review and
approval by the Company's Board of Directors, certain reserves were
established and charges recorded in the year ended June 30, 1996 to
reflect costs associated with repositioning operations, primarily for
severance, termination benefits and asset write-downs related to
facility closures. Reserves were also established for estimated
increases in warranty (primarily related to the electronic ballast
product line) and other costs. During the second quarter of fiscal year
1997, approximately $1.1 million of cash outlays were made in connection
with the repositioning reserves, primarily for severance and warranty.
Through the first six months of fiscal 1997 approximately $3.0 million
of net cash outlays have been expended against these reserves. The net
cash results through December include approximately $.8 million of
recoveries associated with vendor settlements on certain warranty
matters included in the repositioning reserves.
In July 1994, the Company's Board of Directors adopted a formal plan of
disposal for certain businesses in connection with an overall
restructuring program designed to focus the Company's resources on the
core product lines and reduce debt. During the year ended June 30,
1996, the Company had completed the sale of substantially all remaining
discontinued operations with the total net proceeds aggregating over
$200 million, which was used to repay debt.
4. LONG TERM DEBT AND BANK BORROWING ARRANGEMENTS
Due to the positive operating cash performance in the first quarter of
fiscal 1997, the Company's borrowing rates were reduced in the second
quarter of fiscal 1997 by fifty basis points from the rates in effect at
the end of fiscal 1996. Rates on borrowings under the Bank Loan
Agreement previously quoted as LIBOR plus two and one quarter percent or
prime rate plus one percent, were reduced to LIBOR plus one and three
quarters percent or prime plus one half percent. Based upon
improvements made during the Company's second fiscal quarter, an
additional twenty five basis point reduction in the borrowing rates was
effective as of January, 1997.
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 1996 VS 1995
Net Sales and Gross Profit.
MagneTek's net sales for the second quarter of fiscal 1997 were $293.7
million, a 4.1% increase from the second quarter of fiscal year 1996 at
$282.2 million. Revenues in the Lighting Products segment increased
3.0% due to stronger domestic sales of ballast products. Sales levels
in the Power Supplies segment increased 1.1% over the prior year.
Adjusting performance in the Power Supplies segment for the sale of the
domestic transformer business in the first quarter of fiscal 1997,
revenues increased 7.6% due to the strong sales growth in the custom
power supplies (both foreign and domestic). Motors and Controls
revenues increased 6.2% with standard drives sales significantly
stronger than the year earlier period and both residential and
commercial fractional horsepower products bolstered by continued
economic strength.
The Company's gross profit increased to $55.5 million in the second
quarter of fiscal 1997 from $46.6 million in the second quarter of
fiscal 1996. The gross profit expressed as a percent of sales improved
to 18.9% in the second quarter of fiscal 1997 from 16.5% in the second
quarter of fiscal 1996. Gross profit improvement in the second quarter
was a function of significantly improved performance in the Lighting
Products electronic and magnetic ballast results. Performance within
Lighting Products reflected increased domestic production and improved
fixed cost coverage with continued benefits from prior moves to lower
cost production locations. Performance in standard drives (Motors &
Controls segment) increased due to sales volume performance and the
Power Supplies segment also contributed positively to the comparisons
with the year earlier period.
Operating Expenses.
Selling, general and administrative (SG&A) expense was $37.7 million
(12.8% of net sales) in the second quarter of fiscal 1997 versus $39.1
million (13.8% of net sales) in the second quarter of fiscal 1996.
Reduced spending included lower health and welfare expenses due to plan
design changes and favorable cost trends. Lighting Products results
reflected lower marketing costs due to reduced warehousing costs and
commission expenses. Motors and Controls costs were higher, reflecting
the variable marketing costs associated with the higher levels of sales.
Interest and Other Expense.
Interest expense of $7.2 million in the second quarter of fiscal 1997
was reduced from the $8.0 million incurred in the second quarter of
fiscal 1996. Overall debt levels were responsible for the improvement
as increased profitability and lower investments in accounts receivable
and inventory supported reductions in bank debt. Interest rates
applicable to both LIBOR and prime rate borrowing declined consistent
with improved performance as defined under the Bank Loan Agreement.
Other expense of $1.1 million in the current quarter improved modestly
from the $1.3 million in the second quarter of fiscal 1996.
Net Income.
The Company recorded an after tax profit of $5.8 million in the second
quarter of fiscal year 1997 compared to a loss of $1.5 million in the
second quarter of fiscal 1996. The tax provision in the second quarter
of fiscal 1997 was $3.8 million compared to a $.2 million benefit in the
second quarter of fiscal 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 VS 1995
Net Sales and Gross Profit.
Net sales for MagneTek in the first six months of fiscal 1997 were
$585.1 million, a 5.5% increase over the $554.8 million in the first six
months of fiscal 1996. Sales in the Lighting Products segment increased
7.1%. Stronger domestic ballast sales and the introduction of compact
fluorescent ballasts in Europe were the significant positive factors.
The first six months of sales in the Power Supplies segment increased
4.3% due to continued growth in the European custom power supplies
products and favorable revenue increases of domestic product as well.
Sales in the Motors and Controls segment also rose by 4.3% due to growth
in the fractional (residential and commercial) horsepower products
offsetting slightly reduced revenues in generator products. Sales of
standard adjustable speed controls (drives) and power conversion (fuel
cells) products also contributed to the growth in Motors and Controls.
Gross profits increased to $110.4 million (18.9% of net sales) in the
first six months of fiscal 1997, from $89.7 million (16.2% of net sales)
in the first six months of fiscal 1996. Improvement to the gross profit
results was heavily influenced by the performance in the Lighting
Products segment. A return to normal production levels and higher sales
volumes aided domestic results. European (Germany) ballast gross
profits more than doubled on slightly lower sales volume but remained at
levels which cannot yet absorb selling, general and administrative costs
to achieve operating profitability. Power Supplies results were
bolstered by favorable volume and mix of custom power supplies both in
Europe and domestically and more than offset diminished levels of gross
profits associated with special purpose (recreational vehicle) power
supplies sales. Motors and Controls results were positively impacted by
residential fractional horsepower results which benefited from continued
strength in housing and related sectors. Generator results were slightly
diminished from the first six months of fiscal 1996 due to lower sales
and production.
Operating Expenses.
Selling, general and administrative (SG&A) expense was $76.6 million
(13.1% of net sales) in the first six months of fiscal 1997 versus $76.9
million (13.9% of net sales) in the first six months of fiscal 1996.
Lower marketing costs in Lighting Products resulted from lower inventory
levels which reduced warehousing and related costs and reduced expenses
associated with sales costs. Offsetting these reductions, Lighting
Products saw increased consulting expenses aimed at reducing
manufacturing inefficiencies. The Company's modification of its health
plan design also reduced costs from the prior six months.
Interest and Other Expense.
Interest expense of $14.7 million in the first six months of fiscal 1997
was reduced from the $16.6 million incurred in the first six months of
fiscal 1996. Significant working capital improvements and improved
profitability have reduced debt levels. Interest rates are slightly
lower and have also contributed to the reduced interest expense. Other
expense of $2.1 million is favorable to the $2.4 million of expense in
the first six months of fiscal 1996.
Net Income.
The Company recorded an after tax income of $10.1 million in the first
six months of fiscal 1997 versus an after tax loss of $5.1 million in
fiscal 1996. The improvement was primarily driven by the expanded
operating profit results. The tax provision for the initial six months
in fiscal 1997 was $6.8 million versus a tax benefit of $1.1 million in
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES:
Long term borrowings outstanding as of December 31, 1996 (including the
current portion) totaled $297.3 million decreased from the $322 million as of
June 30, 1996. The decrease in long term borrowings resulted primarily from
the improved working capital levels in accounts receivable and inventory and
profit performance through the first six months of fiscal year 1997. In
September of 1996, the Company sold the assets and liabilities of its
Jefferson Transformer business for cash and a note receivable aggregating
$3.5 million. The cash proceeds from the transaction were used to reduce
borrowings under the Company's Bank Loan Agreement. As of December 31, 1996
the Company had approximately $73 million of borrowing capacity under its
Bank Loan Agreement. Year to date cash outflows associated with the
Company's repositioning reserves approximate $3 million. The Company's total
cash outflows for fiscal year 1997 for the repositioning program is not
expected to exceed $15 million.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated as of June 1, 1996 between the
Company and Ronald N. Hoge
10.2 MagneTek, Inc. Deferral Investment Plan
10.3 MagneTek, Inc. Performance-Based Pension Restoration Plan
(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 6, 1997
--------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)