- -----FINANCIALS----------------------------------------------------------------
SELECTED FINANCIAL DATA
STATEMENT OF INCOME DATA
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA) 1998 1997 1996** 1995** 1994**
- --------------------------------------------------------------------------------------------------------------
Net sales $1,197,189 $1,190,540 $1,161,625 $1,202,536 $1,133,126
Income (loss):
Continuing operations 37,876 28,751 (94,164) 21,496 (16,942)
Discontinued operations -- -- -- (14,400) (28,503)
Extraordinary item -- (4,676) -- (4,820) --
Net income (loss) 37,876 24,075 (94,164) 2,276 (45,445)
- --------------------------------------------------------------------------------------------------------------
Per common share--basic:
Income (loss) from continuing
operations before extraordinary
item $ 1.25 $ 1.12 $ (3.81) $ 0.88 $ (0.70)
Net income (loss) 1.25 $ 0.94 $ (3.81) $ 0.09 $ (1.88)
Per common share--diluted:
Income (loss) from continuing
operations before extraordinary
item $ 1.20 $ 1.04 $ * $ 0.85 $ *
Net income (loss) 1.20 $ 0.89 $ * $ * $ *
- --------------------------------------------------------------------------------------------------------------
** PER SHARE AMOUNTS ON A DILUTED BASIS ARE OMITTED AS SUCH AMOUNTS ARE
ANTI-DILUTIVE IN RELATION TO BASIC PER SHARE AMOUNTS.
** LOSSES FROM CONTINUING OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996 AND
1994 INCLUDE PRETAX CHARGES AGGREGATING $79,717 AND $33,871. CHARGES IN
FISCAL 1996 REFLECT COSTS ASSOCIATED WITH REPOSITIONING OPERATIONS
PRIMARILY FOR SEVERANCE, TERMINATION BENEFITS, WARRANTY AND ASSET
WRITE-DOWNS RELATED TO FACILITY CLOSURES AND CONSOLIDATIONS. ALSO, IN
REVIEW OF THE COMPANY'S DEFERRED TAX ASSET IN ACCORDANCE WITH FASB NO.109,
A $14,700 CHARGE WAS INCURRED IN FISCAL YEAR 1996. FISCAL 1994
RESTRUCTURING RESERVES RELATED TO COSTS FOR POTENTIALLY EXCESS OR OBSOLETE
INVENTORY, AS WELL AS SEVERANCE AND RELOCATION COSTS RELATED TO THE
COMPANY'S ELECTRONIC BALLAST PRODUCT LINE. IN ADDITION, THOSE RESERVES
INCLUDED EXPENSES TO RELOCATE AND CONSOLIDATE OPERATING AND ADMINISTRATIVE
LOCATIONS. LOSS FROM DISCONTINUED OPERATIONS INCLUDES AFTER TAX CHARGES OF
$14,400 AND $25,041 FOR THE YEARS ENDED JUNE 30, 1995 AND 1994,
RESPECTIVELY, REFLECTING ESTIMATED LOSSES ON DISPOSITION.
BALANCE SHEET DATA
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS) 1998 1997** 1996** 1995** 1994
- --------------------------------------------------------------------------------------------------------------
Total assets $ 730,738 $ 654,548 $ 678,774 $ 857,168 $ 931,358
Long-term debt,
including current portion 245,104 243,945 322,023 448,467 523,779
Common stockholders' equity 186,721 102,223 41,558 117,278 113,082
MagneTek Report - 1998 25
- -----FINANCIALS----------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSW
GENERAL
Fiscal 1998 was a year of significant operational transition for MagneTek,
Inc. Repositioning activity was most noticeable in the Company's Lighting
Products segment where a major manufacturing operation was closed during the
course of the year. Production of a primary component (electrical steel
laminations) was outsourced to a third party, and the remaining assembly
operations were transferred to lower production cost facilities, including a
newly opened facility in Reynosa, Mexico. Additionally, the Company entered
into an agreement with General Electric Company ("GE") wherein GE became the
exclusive distributor in North America of the Company's linear electronic
ballasts.Although the Company continued to sell magnetic and high intensity
discharge ballasts through its traditional distribution channel, the Company
did encounter certain transition issues and related costs. While not as
expansive as in the Lighting Products segment, certain repositioning actions
were also undertaken in the Company's other business segments. In the Motors
andControls segment, investments were made at major manufacturing facilities
to convert them to a Demand Flow Technology environment. Certain motor
product lines were also relocated to lower production cost facilities.
Repositioning activity in the Motors and Controls segment, primarily product
line relocation, is expected to continue and probably accelerate in fiscal
1999. In the Power Supplies segment, the Company began to position its North
American operations for future growth. The Huntsville, Alabama location was
expanded and enhanced to become the North American design and development
center for power electronic products. This facility also converted its
production capability from primarily electronic lighting ballasts to power
supplies. In Europe, capacity was increased in both Valdarno, Italy and
Pomaz, Hungary. The Company continues to move the more labor-intensive
elements of its production processes to lower cost facilities in both Europe
and North America.
[BAR GRAPH]
As compared to fiscal 1997, net sales were higher in the Motors and Controls
and Power Supplies segments but lower in the Lighting Products segment. Net
sales in the Power Supplies segment, and to a lesser extent in the Lighting
Products segment, were adversely impacted by translation rates of foreign
currencies. From a consolidated profitability standpoint, and as previously
anticipated, the benefits of repositioning actions in fiscal 1998 were more
than offset by the related costs. Manufacturing inefficiencies and start-up
expenses coupled with greater than planned price erosion in the Lighting
Products segment resulted in relatively flat operating profit performance for
the Company as compared to fiscal 1997. The Company believes it is well
positioned to realize the benefits of fiscal 1998 repositioning activity with
higher profit margins in fiscal 1999. The Company continues to invest in
quality programs and upgraded information systems to further support margin
increases.
[BAR GRAPH]
26 MagneTek Report - 1998
- -------------------------------------------------------------------------------
Despite flat operating profits, the Company posted a 32 percent increase in
income before extraordinary items and a 57 percent increase in net income.
Diluted earnings per share were up 15 percent before extraordinary items and
35 percent on a net basis.The increase was due to lower interest expense and
a lower effective income tax rate in fiscal 1998. Lower interest expense was
due to the redemption of the Company's 103/4% Senior Subordinated Debentures
in fiscal 1997 and the conversion to common shares of its 8% Convertible
Subordinated Notes in fiscal 1997 and early fiscal 1998 (see Note 5).
On June 12, 1998 the Company purchased the assets of Omega Power Systems, a
manufacturer of custom power supplies. Omega's products serve to further
expand the offerings and capabilities in the Power Supplies segment. The
combination of the Company's foreign power supplies base in Europe and a
larger domestic presence will increase the breadth of product offerings and
the ability to use combined purchasing to reduce material costs.
The Company is currently operating certain computer software and systems
which are not Year 2000 compliant. In the event internal systems do not
correctly recognize date information when the year changes to 2000, this
could result in an adverse impact to the Company's operations. In fiscal
1997, the Company initiated a comprehensive systems review which resulted in
the purchase of an Oracle "Enterprise Resource Planning" software package.
While the primary purpose of the software was to improve business processes,
it also enables the Company to resolve Year 2000 issues.Replacement and
conversion of software to eliminate Year 2000 problems is anticipated to be
complete early in calendar year 1999. Capitalized costs in fiscal 1998 to
implement the Oracle system were approximately $10 million dollars with a
total cost of the project estimated at $16 million dollars. Management
believes that the likelihood of a material adverse impact due to problems
with internal systems is remote. The Company is contacting critical suppliers
to determine that the products and services they provide are Year 2000
compliant. The Company has not yet formally developed Year 2000-specific
contingency plans in the event implementation of the Oracle system is
delayed. In addition to normal periodic reviews, a formal assessment prior to
the end of calendar year 1998 will re-evaluate implementation plans. In the
event this review would indicate the Company's implementation dates are at
risk, contingency plans will be established. Notwithstanding those efforts,
there can be no assurance that another company's failure to ensure Year 2000
capability would not have an adverse effect on the Company.
[BAR GRAPH]
The Company is exposed to various types of market risks. These risks include
raw material price fluctuations most notably in copper and aluminum.
Additional risks exist with interest rate movements and foreign currency
fluctuations in relation to the U.S. dollar. The Company attempts to lower
these risks within established guidelines. Futures contracts for copper and
aluminum are purchased over time periods and at volume levels which
approximate expected usage. Interest rate swaps limit the Company's exposure
to upward movements in interest rates which would increase the cost of
variable rate debt. Foreign currency contracts mitigate exposure from the
Company's foreign operations and changes in exchange rates of foreign
currencies. TheCompany does not speculate on futures prices and has
established limitations on the dollar magnitude and time frames for these
transactions.
MagneTek Report - 1998 27
- -----FINANCIALS----------------------------------------------------------------
In the fourth quarter of fiscal 1996, the Company established reserves
reflecting anticipated costs associated with operational repositioning as
well as estimated increases in warranty and other costs (see Note 3). In
fiscal 1998, charges to these reserves were consistent with the Company's
original expectations and remaining reserves appear adequate to meet the
projected future charges.
The Company currently operates in three business segments:Motors and
Controls, which includes fractional and integral horsepower electric motors,
medium voltage generators and electronic variable speed drives; Lighting
Products, including magnetic and electronic lighting ballasts; and Power
Supplies, including electronic power supplies and small transformer products.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales for the Company increased slightly in fiscal 1998, to $1.197 billion
from $1.191 billion in fiscal 1997. The relatively flat sales followed an
increase of 2.5% in fiscal 1997 versus fiscal 1996. Net sales in Motors and
Controls increased 7% in fiscal 1998 due primarily to increased generator,
commercial fractional and integral horsepower motor sales. Segment revenues
increased 3% in fiscal 1997 due to improved generator and drive sales. Net sales
in the Lighting Products segment declined 7% due to lower magnetic and
electronic ballast sales. Lower magnetic unit sales, competitive pricing in both
magnetic and electronic ballasts and weaker foreign demand all contributed to
the decline. Net sales in Lighting Products in fiscal 1997 increased 5% due to
growing compact fluorescent sales. Net sales in the Power Supplies segment
increased 1% in fiscal 1998 due to increased sales of custom power supplies,
offset by lower sales of certain transformer products. Foreign revenues were
unfavorably impacted by approximately 9% or $20 million dollars due to weaker
currencies in Europe. In fiscal 1997, Power Supplies sales declined 5% primarily
due to the sale of a small transformer business. Adjusting for the sale, Power
Supplies revenues in fiscal 1997 were comparable to the year earlier results.
[BAR GRAPH]
The Company's gross profit fell to $233.1 million in fiscal 1998 from $239.9
million in fiscal 1997. While Motors and Controls and Power Supplies improved
from the year earlier period, Lighting Products results were lower.The
combination of lower selling prices as well as costs associated with
manufacturing moves and start-up negatively impacted results. Gross profit
levels in fiscal 1997 improved over the $156.6 million in fiscal 1996. Gross
profit in fiscal 1996 included charges aggregating $43.3 million reflecting
costs associated with repositioning operations and estimated warranty and
other costs.
[BAR GRAPH]
28 MagneTek Report - 1998
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative (SG&A) expense was $154.7 million (12.9% of
net sales) in fiscal 1998 compared to $159.9 million (13.4% of net sales) in
fiscal 1997. Fiscal 1998 costs included increased expenses to enhance
information systems, quality programs and organizational capabilities. These
increases were offset by lower employee benefit costs.
INTEREST AND OTHER EXPENSES
Interest expense was $16.6 million in fiscal 1998 compared to $27.8 million in
fiscal 1997 and $31.6 million in fiscal 1996. Interest expense was lower due to
the Company's repurchase of almost all of its 103/4% Senior Subordinated
Debentures and conversion to common stock of its $75 million 8% Convertible
Subordinated Notes in the fourth quarter of fiscal 1997 and the first quarter of
fiscal 1998. The Senior Subordinated Debentures were repurchased using the
available capacity under its Bank Loan Agreement with lower interest rates (see
Note 5). Other expense in fiscal 1998 was $2.7 million compared to $4.3 million
in fiscal 1997 and $5.7 million in fiscal 1996. The reduction in other expense
is related to the extinguishment of debt and resulting lower amortization of
deferred financing costs.
[BAR GRAPH]
NET INCOME (LOSS)
In fiscal 1998, the Company recorded income of $37.9 million or $1.25 per share
(basic) and $1.20 on a diluted basis. Comparable results for fiscal 1997 include
net income of $28.8 million or $1.12 basic earnings per share before an
extraordinary charge of $4.7 million associated with the extinguishment of the
Senior Subordinated Debentures. Including the extraordinary charge, the Company
reported net income in fiscal 1997 of $24.1 million or $.94 per share
(basic).Results on a diluted basis for 1997 were $1.04 per share and $.89 per
share respectively. In fiscal 1996, the Company recorded a net loss of $94.2
million or $3.81 per share. Fiscal 1996 results were adversely affected by
charges for repositioning operations, warranty and other expense and asset
write-downs. Exclusive of the repositioning charges in fiscal 1996, a pre-tax
profit would have been achieved. The effective tax rate for fiscal 1996 was
impacted by a variety of factors, including the inability to reflect tax
benefits for losses incurred at the Company's German operation and a $38.9
million increase to the valuation reserve for deferred taxes.
MagneTek Report - 1998 29
- -----FINANCIALS-----------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, long-term borrowings (including the current portion) were
$245 million, compared to $244 million as of June 30, 1997 and $322 million as
of June 30, 1996. Long-term borrowings were favorably impacted by the conversion
of $39.6 million of Convertible Subordinated Notes to equity in the first
quarter of FY 1998. Investment in working capital and capital equipment
increased over fiscal 1997 levels as the Company completed its repositioning
actions in the Lighting Products segment and added capacity in certain motor and
power supply product lines. Additionally, the Company had capital expenditures
of approximately $10 million related to its program to upgrade its information
systems. During the last quarter of FY 1998, the Company also made investments
totaling $31 million with the acquisition of Omega Power Systems and a minority
equity interest in the MyTech Corporation.
In June 1997, the Company entered into a Bank Loan Agreement which provides up
to $350 million of borrowings under a revolving loan facility. As of June 30,
1998, the Company had approximately $103 million in available capacity under
this agreement. The Company believes its internally generated cash flows along
with the Bank Loan Agreement which expires in 2002 and its access to external
capital resources provides adequate financial flexibility to meet its near-term
financial requirements.
Cash outflow in connection with the repositioning and other reserves established
in fiscal 1996 approximated $19 million in fiscal 1998 and is not expected to
exceed $10 million in fiscal 1999. In addition, the Company may be subject to
certain potential environmental and legal liabilities (see Note 10).
30 MagneTek Report - 1998
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Net sales $1,197,189 $1,190,540 $1,161,625
Cost of sales 964,079 950,617 1,005,004
- -------------------------------------------------------------------------------------------------------------
Gross profit 233,110 239,923 156,621
Selling, general and administrative expenses 154,679 159,859 164,930
Provision for impairment of long-lived assets -- -- 29,212
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations 78,431 80,064 (37,521)
Interest expense 16,559 27,825 31,591
Other expense, net 2,696 4,288 5,652
- -------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes
and extraordinary item 59,176 47,951 (74,764)
Provision for income taxes 21,300 19,200 19,400
- -------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 37,876 28,751 (94,164)
Extraordinary item--loss on early extinguishment of debt
(net of tax benefit) -- (4,676) --
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 37,876 $ 24,075 $ (94,164)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Per common share basic:
Income (loss) before extraordinary item $ 1.25 $ 1.12 $ (3.81)
Extraordinary item - (.18) -
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.25 $ 0.94 $ (3.81)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Per common share diluted:
Income (loss) before extraordinary item $ 1.20 $ 1.04 $ *
Extraordinary item - (.15) -
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.20 $ .89 $ *
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
* PER SHARE AMOUNTS ON A DILUTED BASIS HAVE BEEN OMITTED AS SUCH AMOUNTS ARE
ANTI-DILUTIVE IN RELATION TO BASIC PER SHARE AMOUNTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
MagneTek Report - 1998 31
- -----FINANCIALS-----------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997
- -------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------
Current assets:
Cash $ 5,976 $ 6,138
Accounts receivable, less allowance for doubtful accounts of $4,823 in 1998
and $5,168 in 1997 197,284 191,011
Inventories 196,830 181,014
Deferred income taxes 6,791 12,888
Prepaids and other assets 10,673 7,331
- -------------------------------------------------------------------------------------------------------------
Total current assets 417,554 398,382
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 3,069 3,139
Buildings and improvements 56,628 56,264
Machinery and equipment 380,430 348,594
- -------------------------------------------------------------------------------------------------------------
440,127 407,997
Less accumulated depreciation and amortization 243,657 231,627
- -------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 196,470 176,370
- -------------------------------------------------------------------------------------------------------------
Goodwill, less accumulated amortization of $9,930 in 1998 and $8,952 in 1997 53,576 30,741
Deferred financing costs, intangible and other assets
less accumulated amortization of $23,136 in 1998 and $22,395 in 1997 63,138 49,055
- -------------------------------------------------------------------------------------------------------------
$730,738 $654,548
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
1997 AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE 1998 PRESENTATION FOR PREPAID
PENSION VALUES.
32 MagneTek Report - 1998
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $113,377 $ 97,060
Accrued liabilities 107,539 119,755
Current portion of long-term debt 5,527 3,109
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 226,443 219,924
- -------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 239,577 240,836
Other long-term obligations 66,213 71,273
Deferred income taxes 11,784 20,292
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 100,000,000 shares authorized
31,484,000 and 28,259,000 shares issued and outstanding in 1998 and 1997 313 282
Additional paid-in capital 176,464 129,151
Retained earnings (deficit) 27,737 (10,139)
Cumulative translation adjustment (17,793) (17,071)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 186,721 102,223
- -------------------------------------------------------------------------------------------------------------
$730,738 $654,548
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
MagneTek Report - 1998 33
- -----FINANCIALS-----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED CUMULATIVE MINIMUM
(AMOUNTS IN THOUSANDS, ------------------- PAID-IN EARNINGS TRANSLATION PENSION
EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT LIABILITY
- --------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 24,680,000 $247 $ 81,142 $ 59,950 $(15,127) $(8,934)
- --------------------------------------------------------------------------------------------------------------------
Exercise of stock options 32,000 -- 172 -- -- --
Restricted stock grant -- -- 1,834 -- -- --
Pension Plan contribution 750,000 8 6,461 -- -- --
Translation adjustment -- -- -- -- 1,035 --
Minimum pension liability -- -- -- -- -- 8,934
Net loss -- -- -- (94,164) -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30,1996 25,462,000 $255 $ 89,609 $(34,214) $(14,092) --
- --------------------------------------------------------------------------------------------------------------------
Exercise of stock options 332,000 3 3,434 -- -- --
Restricted stock grants 252,000 2 634 -- -- --
Debt conversion 2,213,000 22 35,474 -- -- --
Translation adjustment -- -- -- -- (2,979) --
Net income -- -- -- 24,075 -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 28,259,000 $282 $129,151 $(10,139) $(17,071) --
- --------------------------------------------------------------------------------------------------------------------
Exercise of stock options 513,000 5 7,057 -- -- --
Restricted stock grants 40,000 -- 1,216 -- -- --
Debt conversion 2,472,000 24 38,945 -- -- --
Share value trust 200,000 2 3,055 -- -- --
Unearned employee compensation -- -- (2,960) -- -- --
Translation adjustment -- -- -- -- (722) --
Net income -- -- -- 37,876 -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 31,484,000 $313 $176,464 $ 27,737 $(17,793) --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
34 MagneTek Report - 1998
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income (loss) from continuing operations before extraordinary item $ 37,876 $28,751 $(94,164)
Adjustments to reconcile income (loss) from continuing operations
before extraordinary items to net cash provided by operating activities:
Depreciation and amortization 38,405 38,431 40,041
Restructuring charges -- -- 50,505
Provision for impairment of long-lived assets -- -- 29,212
Changes in operating assets and liabilities of continuing operations (40,709) 22,558 43,494
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments (2,304) 60,989 163,252
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 35,572 89,740 69,088
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of and investment in companies, net of cash acquired (31,001) -- --
Proceeds from sale of businesses and assets 1,897 2,679 92,149
Capital expenditures (58,861) (33,245) (40,515)
Other investments 4,527 (2,382) 37
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (83,438) (32,948) 51,671
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under bank and other long-term obligations 40,749 80,594 --
Proceeds from issuance of common stock 7,057 3,413 172
Repayment of bank and other long-term obligations -- (129,985) (126,444)
Increase in deferred financing costs (102) (1,323) (500)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 47,704 (47,301) (126,772)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations (162) 9,491 (6,013)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) discontinued operations $ -- $ (4,224) $ 6,573
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (162) 5,267 560
Cash at beginning of year 6,138 871 311
- ----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 5,976 $ 6,138 $ 871
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
MagneTek Report - 1998 35
- -----FINANCIALS-----------------------------------------------------------------
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. Certain reclassifications have been made to
the fiscal 1997 financial statements to conform to the current year
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's policy is to record and recognize sales only upon shipment.
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 are charged to expense as incurred. Depreciation is
provided over the estimated useful lives of the respective assets principally on
the straight-line method (normally five to ten years).
ACCOUNTING FOR STOCK OPTIONS
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB25), and related interpretations, in accounting for stock
based awards to employees. Under APB 25, the Company recognizes no compensation
expense with respect to such awards. The Company has adopted the disclosure-only
option under SFAS No.123.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt SFASNo. 130, "Reporting Comprehensive Income," and
SFASNo. 131, "Disclosures about Segments of an Enterprise and Related
Information," in fiscal 1999. Each will require additional disclosure but will
not have a material effect on the Company's financial position or results of
operations. SFAS No. 130 will first be reflected in the Company's first quarter
of fiscal 1999 interim financial statements. SFASNo. 131 requires segments to be
determined based upon how management measures performance and makes decisions
about allocating resources. SFAS No. 131 will first be reflected in the
Company's 1999 Annual Report.
36 MagneTek Report - 1998
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to expense as incurred and
aggregated $22,200, $23,600 and $21,500 for the years ended June 30, 1998, 1997,
and 1996, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce commodity and
financial market risks. These instruments are used to hedge copper material
purchases, foreign currency and interest rate market exposures.The Company does
not use derivative financial instruments for speculative or trading purposes.
The accounting policies for these instruments are based on the Company's
designation of such instruments as hedging transactions.The criteria the Company
uses for designating an instrument as a hedge include the instrument's
effectiveness in risk reduction and the matching of the derivative to the
underlying transaction. The resulting gains or losses are accounted for as part
of the transactions being hedged, except that losses not expected to be
recovered upon the completion of the hedge transaction are expensed.
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 $741, $2,874 and $2,351 for the
years ended June 30, 1998, 1997 and 1996, respectively. 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 cash
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 $978, $967, and $995 for the years ended June 30, 1998, 1997, and 1996,
respectively. In fiscal 1997, the Company began a multi-year project to
implement an "Enterprise Resource Planning" software package. Capitalized costs
will be amortized over the estimated useful life of 7 years beginning when each
site installation or module is complete and ready for its intended use.
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.
Federal income taxes are not provided currently on undistributed earnings of
foreign subsidiaries since the Company presently intends to reinvest any
earnings overseas indefinitely.
EARNINGS PER SHARE
The consolidated financial statements are presented in accordance with SFAS No.
128, "Earnings Per Share." Basic earnings per share are computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share incorporate the incremental shares issuable upon the
assumed exercise of stock options 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.
MagneTek Report - 1998 37
- -----FINANCIALS-----------------------------------------------------------------
FISCAL YEAR
The Company uses a fifty-two, fifty-three week fiscal year which ends on Sunday
nearest June 30. For clarity of presentation, all periods are presented as if
the year ended on June 30. Fiscal years 1998, 1997 and 1996 contained 52 weeks.
2. ACQUISITIONS
On June 12, 1998, the Company purchased the assets of Omega Power Systems
(Omega) for cash of approximately $29 million. Omega is a manufacturer of custom
power supplies. The acquisition was accounted for under the purchase method of
accounting and, accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair market value. The purchase price exceeded
the fair value of net assets acquired by approximately $23 million, which is
being amortized on a straight-line basis over 40 years. Operating results of
Omega are included in the Company's consolidated results since the acquisition
date, such results were immaterial in fiscal 1998.
3. REPOSITIONING COSTS
In fiscal 1996, as a result of significant declines in sales and profit margins
in both electronic and magnetic ballasts, the Company initiated a review and
analysis of actions to reduce costs and improve future flexibility and
profitability, focused to a large extent in its lighting products business.
Subsequent to review and approval by the Company's Board of Directors, certain
reserves were established and charges recorded in the year ended June 30, 1996.
These charges were associated with a variety of repositioning actions and
included 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. Charges recorded in connection with these reserves and asset write-downs
related primarily to the Lighting Products segment and aggregated $79,717 of
which $43,337 was included in cost of goods sold and $7,168 in selling, general
and administrative expense. Asset write-downs of $29,212 were included
separately within the caption "Provision for impairment of long-lived assets"
and were determined in accordance with FASB No. 121. Of the $50,505 included in
cost of goods sold and SG&A expense, approximately $28,700 related to warranty,
$17,900 to severance and termination benefits and $3,900 in other costs. In
fiscal 1998, cash outflows associated with these charges aggregated $18,800 with
$3,800 related to warranty, $12,000 in severance and termination benefits and
$3,000 in plant and other repositioning charges. In fiscal 1997, total cash
outflows were $11,000 which included $4,900 related to warranty, $3,700 in
severance and termination benefits and $2,400 in plant and other repositioning
charges. The Company estimates that cash requirements will not exceed $10,000 in
fiscal 1999. At this time the Company believes that the reserves established in
1996 are adequate to cover the remaining liabilities. Remaining reserves are
included in warranty reserves (see Note 14).
4. INVENTORIES
Inventories at June 30, consists of the following:
1998 1997
- -------------------------------------------------------------------------------------------------------------
Raw materials and stock parts $ 64,714 $ 55,584
Work-in-process 38,620 40,343
Finished goods 93,496 85,087
- -------------------------------------------------------------------------------------------------------------
$196,830 $181,014
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
38 MagneTek Report - 1998
- --------------------------------------------------------------------------------
5. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Long-term debt at June 30, consists of the following:
1998 1997
- -------------------------------------------------------------------------------------------------------------
Revolving bank loans $231,890 $184,026
10.75 percent Senior Subordinated Debentures, interest payable
semi-annually, due November 15, 1998 3,035 3,035
8 percent Convertible Subordinated Notes, interest payable semi-annually,
convertible into 2,474,375 shares of common stock in fiscal 1997,
due September 2001 -- 39,590
Miscellaneous installment notes, capital leases and other obligations at rates
ranging from 5.75 percent to 9.25 percent, due through 2003 10,179 17,294
- -------------------------------------------------------------------------------------------------------------
$245,104 243,945
Less current portion 5,527 3,109
- -------------------------------------------------------------------------------------------------------------
$239,577 $240,836
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
BANK BORROWING ARRANGEMENTS
On June 20, 1997, the Company entered into an amended agreement with a group of
banks (Bank Loan Agreement) that have committed to lend up to $350,000 under a
revolving loan facility through June, 2002. Borrowings under the credit facility
bear interest at the bank's prime lending rate or, at the Company's option, the
London Interbank Offered Rate plus five-eights percent. These rates may be
reduced or increased based upon the level of certain debt-to-cash flow ratios.
At June 30, 1998, borrowings under the Bank Loan Agreement bore interest at a
weighted average rate of approximately 6.4%. The Company is required to pay a
commitment fee of .20% percent on unused commitments.
Borrowings under the Bank Loan Agreement are secured by domestic accounts
receivable and inventories and by the capital stock of certain of the Company's
subsidiaries. The Bank Loan Agreement contains certain provisions and convenants
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 specific levels of net worth and cash flow.
The Company's European subsidiaries have certain limited local borrowing
arrangements to finance working capital needs. Borrowings under these
arrangements are secured by accounts receivable and inventories of the
respective subsidiaries. The Company has provided parent guarantees to the local
banks which provide the related financing.
SENIOR SUBORDINATED DEBENTURES
On June 27, 1997, the Company completed a tender for its 103/4 percent Senior
Subordinated Debentures ("Debentures") leaving $3,035 of the Debentures
outstanding. The Debentures are not redeemable by the Company prior to maturity
in November, 1998 and are subordinated to borrowings under the Bank Loan
Agreement.
As a result of the tender offer, the indenture governing the remaining
Debentures was modified to eliminate substantially all restrictive covenants.
MagneTek Report - 1998 39
- -----FINANCIALS-----------------------------------------------------------------
CONVERTIBLE SUBORDINATED NOTES
On June 23, 1997, holders of the Convertible Notes converted $35,410 of the
Convertible Notes to 2,213,067 shares of common stock as a result of a partial
call of the Convertible Notes by the Company. On September 22, 1997, the Company
redeemed the remaining $39,590 of the Convertible Notes with holders converting
their Notes into 2,471,898 shares of common stock.
Aggregate principal maturities on long-term debt outstanding at June 30, 1998
are as follows:
YEAR ENDED JUNE 30
---------------------------------------------------
1999 $ 5,527
2000 3,401
2001 2,175
2002 233,116
2003 150
Thereafter 735
---------------------------------------------------
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income (loss) before extraordinary item $37,876 $28,751 $(94,164)
Extraordinary item (net of taxes) -- (4,676) --
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $37,876 $24,075 $(94,164)
Weighted average shares for basic earnings per share 30,417 25,692 24,698
Basic earnings per share $ 1.25 $ 0.94 $ (3.81)
- -------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income (loss) before extraordinary item $37,876 $28,751 $(94,164)
Interest savings on convertible debt after-tax 466 3,452 3,540
Extraordinary item (net of taxes) -- (4,676) --
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $38,342 $27,527 $(90,624)
Weighted average shares for basic earnings per share 30,417 25,692 24,698
Effect of dilutive employee stock options 1,017 740 868
Effect of convertible debt to equity 571 4,651 4,688
- -------------------------------------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 32,005 31,083 30,254
Diluted earnings per share $ 1.20 $ 0.89 *
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
*PER SHARE AMOUNTS ON A DILUTED BASIS HAVE BEEN OMITTED AS SUCH AMOUNTS ARE
ANTI-DILUTIVE IN RELATION TO BASIC PER SHARE AMOUNTS.
40 MagneTek Report - 1998
- --------------------------------------------------------------------------------
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments such as cash, annuity
contracts and borrowings under short term revolving credit agreements
approximate their fair values.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into futures contracts to provide an economic hedge against
fluctuations in copper and aluminum prices. Gains and losses are recorded in
cost of sales as the related materials are purchased. The Company also uses
certain foreign exchange contracts to minimize its risk of loss from
fluctuations in exchange rates. The majority of these contracts relate to
hedging peso fluctuations as the Company has significant Mexican manufacturing
operations. Gains and losses from these transactions are recorded in cost of
sales as the contracts are liquidated. In combination with the amended Bank Loan
Agreement (see Note 5), the Company has entered into certain interest rate swaps
in connection with the management of its exposure to fluctuation in interest
rates. Gains or losses from the interest rate swaps are amortized over the
period of the original contract. The Company does not use derivative financial
instruments for speculative or trading purposes.
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
1998 1997
- --------------------------------------------------------------------------------
Interest rate swaps $100,000 $75,000
Currency forward contracts 59,257 33,985
Copper forward contracts 29,674 20,372
Aluminum forward contracts 5,469 1,349
- --------------------------------------------------------------------------------
Weighted average pay and receive rates, average maturities and range of
maturities on swaps as of June 30, 1998 were as follows:
Weighted
Weighted Weighted average Range of
average average maturity maturity
pay rate receive rate (in years) (in years)
- ------------------------------------------------------------------------------------------------
Swaps hedging debt 6.4% 5.7% 5.9 4.0 - 9.5
As of June 30, 1998 the Company had approximately 36 million pounds of copper
under futures contracts with an average cost per pound of $0.82. Copper under
contract represents 77% of the Company's fiscal 1999 estimated requirements and
no contract extends beyond the end of fiscal year 1999. As of the end of fiscal
1998, the Company had approximately 8 million pounds of aluminum under contract
at an average cost per pound of $0.67. Aluminum under contract represents 80% of
the Company's fiscal 1999 requirements and no contracts extend beyond the end of
fiscal 1999. The Company has purchased forward contracts equal to 91% of its
peso requirements for fiscal 1999 at an average rate of 9.5 pesos to the dollar.
No contracts extend beyond the end of fiscal 1999. Unrealized losses as of June
30, 1998 on copper, aluminum and pesos were not material to the Company.
MagneTek Report - 1998 41
- -----FINANCIALS-----------------------------------------------------------------
9. INCOME TAXES
Income tax expense (benefit) is allocated in the financial statements as
follows:
YEAR ENDED JUNE 30 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary item $21,300 $19,200 $19,400
Extraordinary item -- (3,250) --
- ----------------------------------------------------------------------------------------------------------------------------
Income tax expense attributable to continuing operations $21,300 $15,950 $19,400
- ----------------------------------------------------------------------------------------------------------------------------
Total $21,300 $15,950 $19,400
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
The expense for income taxes applicable to continuing operations is as follows:
YEAR ENDED JUNE 30 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Current:
Federal $ 9,030 $ 1,279 $ 899
State 2,009 1,184 1,172
Foreign 12,672 6,083 3,444
Deferred:
Federal (2,936) 4,786 10,358
State and Foreign 525 2,618 3,527
- ----------------------------------------------------------------------------------------------------------------------------
$21,300 $15,950 $19,400
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
A reconciliation of the Company's effective tax rate to the statutory Federal
tax rate for income from continuing operations before extraordinary items is
as follows:
1998 1997 1996
---------------------------------------------------------------------
YEAR ENDED JUNE 30 AMOUNT % AMOUNT % AMOUNT %
- -------------------------------------------------------------------------------------------------------------------------------
Provision (benefit) computed at the statutory rate $ 20,714 35.0 $ 16,783 35.0 $(26,167) (35.0)
State income taxes, net of federal benefit 2,245 3.8 1,338 2.7 1,990 2.7
Foreign tax rates in excess of federal statutory rate 6,652 11.2 4,434 9.3 4,283 5.7
Increase (decrease) in valuation allowance for
deferred tax assets (10,030) (16.9) (11,904) (24.8) 38,908 52.0
Provision for additional taxes 757 1.3 7,933 16.5 - -
Other--net 962 1.6 616 1.3 386 0.5
- -------------------------------------------------------------------------------------------------------------------------------
$ 21,300 36.0 $ 19,200 40.0 $19,400 25.9
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes of the Company's foreign subsidiaries
was approximately $11,428, $9,703 and $50 for the years ended June 30, 1998,
1997 and 1996.
42 MagneTek Report - 1998
- --------------------------------------------------------------------------------
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, 1998 and 1997 follows:
YEAR ENDED JUNE 30 1998 1997
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (including differences
in the basis of acquired assets) $ 24,064 $30,530
Inventory methods and other -- --
- -------------------------------------------------------------------------------
Total deferred tax liabilities 24,064 30,530
- -------------------------------------------------------------------------------
Deferred tax assets:
Postretirement medical benefit obligation 20,006 21,654
Warranty reserves 13,302 11,601
Inventory and other reserves (including restructuring) 2,737 16,875
- -------------------------------------------------------------------------------
Total gross deferred tax assets 36,045 50,130
- -------------------------------------------------------------------------------
Less valuation allowance (16,974) (27,004)
- -------------------------------------------------------------------------------
Net deferred tax liability $ 4,993 $ 7,404
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company has established the above valuation allowance for deferred tax
assets based upon a review and determination that the company is not assured of
fully realizing the deferred tax assets.
10. 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, 1998 total $53,359 and are payable
in future fiscal years as follows: $12,533 in 1999; $11,303 in 2000; $7,919 in
2001; $6,762 in 2002; $4,502 in 2003 and $10,340 thereafter.
Rent expense for the years ended June 30, 1998, 1997 and 1996, was $15,930,
$14,988 and $15,766 respectively.
LITIGATION--PRODUCT LIABILITY
The Company is a party to a number of product liability lawsuits, many of which
involve fires allegedly caused by defective ballasts. All of these cases are
being defended by the Company, and management believes that its insurers will
bear all liability, except for applicable deductibles, and that none of these
proceedings individually or in the aggregate will have a material effect on the
Company.
MagneTek Report - 1998 43
- -----FINANCIALS-----------------------------------------------------------------
LITIGATION--PATENT
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court for the
Northern District of Illinios alleging the Company is infringing on seven of his
patents pertaining to electronic ballast technology. The plaintiff seeks an
unspecified amount of damages and an injunction to preclude the Company from
making, using or selling those products allegedly infringing his patents. The
Company denies that it has infringed, or is infringing, any of the plaintiff's
patents, and has asserted several affirmative defenses. The Company also filed a
counterclaim seeking judicial declaration that it is not infringing (and has not
infringed) the patents asserted by the plaintiff, and that such asserted patents
are invalid. The Company intends to defend this matter vigorously. Due to the
early state of the litigation, it is difficult to predict the outcome of the
foregoing legal proceeding. However, management of the Company does not believe
that the financial impact of such litigation will be material.
LITIGATION--ASBESTOS
In December 1996, the Company and certain of its subsidiaries were named as
defendants in a suit filed by Cooper Industries, Inc. ("Cooper") in the U.S.
District Court for the Southern District of Texas, alleging breach of the 1986
agreement by which the Company acquired certain businesses from Cooper. At issue
in the litigation is the question of which party has responsibility in
connection with pending lawsuits (the "asbestos lawsuits") involving numerous
plaintiffs who allege injurious exposure to asbestos contained in products
manufactured by current or former subsidiaries and divisions of Cooper. Cooper
claims that the Company is obligated to defend and indemnify Cooper in
connection with the asbestos lawsuits. The Company has denied that it is
obligated under the agreement to defend and indemnify Cooper in connection with
the asbestos lawsuits, and has filed a counterclaim asserting that Cooper is
obligated under the agreement to defend and indemnify the Company in connection
with the asbestos lawsuits and that certain insurance coverage available to
Cooper should be applied to the asbestos lawsuits. The Company and Cooper have
engaged in settlement discussions. In July 1998, the Court granted partial
summary judgement in favor of the Company, ruling that the Company has no
obligation to indemnify Cooper in connection with the asbestos lawsuits.
Management of the Company does not believe that the financial impact of the
foregoing legal proceeding will be material.
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. The Company's remediation activities for
fiscal 1998 did not entail material expenditures, and its remediation activities
for fiscal 1999 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.
ENVIRONMENTAL MATTERS--MCMINNVILLE, TENNESSEE
Prior to its purchase by the Company in 1986, Century Electric, Inc. ("Century
Electric") acquired a business from Gould Inc. ("Gould") in May 1983 which
included a leasehold interest in a fractional horsepower electric motor
manufacturing facility located in McMinnville, Tennessee. In connection with
this acquisition, Gould agreed to indemnify Century Electric from and against
liabilities and expenses arising out of the handling and cleanup of certain
waste materials, including but not limited to cleaning up any PCBs at the
McMinnville facility (the "1983 Indemnity"). Investigation has revealed the
presence of PCBs and other substances, including solvents, in portions of the
soil and in the groundwater underlying the facility and in certain offsite soil,
sediment and biota samples. Century Electric has kept the Tennessee
44 MagneTek Report - 1998
- -----FINANCIALS-----------------------------------------------------------------
Department of Environment and Conservation, Division of Superfund, apprised of
test results from the investigation. The McMinnville plant has been listed as a
Tennessee Inactive Hazardous Substance Site, a report on that site has been
presented to the Tennessee legislature, and community officials and plant
employees have been notified of the presence of contaminants as above described.
In 1995, Gould completed an interim remedial measure of excavating and disposing
onsite soil containing PCBs. Gould also conducted preliminary investigation and
cleanup of certain onsite and offsite contamination. The cost of any further
investigation and cleanup of onsite and offsite contamination cannot presently
be determined. The Company believes that the costs for further onsite and
offsite cleanup (including ancillary costs) are covered by the 1983 Indemnity.
While the Company believes that Gould will continue to perform substantially
under its indemnity obligations, Gould's substantial failure to perform such
obligations could have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS--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, 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.
ENVIRONMENTAL MATTERS--INDEMNIFICATION OBLIGATIONS FROM RESTRUCTURING
In selling certain business operations, the Company from time to time has
agreed, subject to various conditions and limitations, to indemnify buyers with
respect to environmental liabilities associated with the acquired operations.
The Company's indemnification obligations pursuant to such agreements did not
entail material expenditures for fiscal 1998, and its indemnification
obligations for fiscal 1999 are not expected to entail material expenditures.
Future expenditures pursuant to such agreements could be material, depending
upon the nature of any future asserted claims subject to indemnification.
LETTERS OF CREDIT
The Company has approximately $15,427 of outstanding letters of credit as of
June 30, 1998.
11. STOCK OPTION AGREEMENTS
The Company has three stock option plans (the "Plans"), two of 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 the fair market value at the date of grant, and one of which only
provides for the issuance of non-qualified stock options at exercise prices not
less than the 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
6,337,399. As of June 30, 1998 and 1997 shares available for grant were
approximately 1,014,814 and 972,802 respectively. Options granted under two of
the Plans vest in three or four equal annual installments, and options under the
third Plan vest in two equal annual installments.
MagneTek Report - 1998 45
- -----FINANCIALS-----------------------------------------------------------------
A summary of certain information with respect to options under the Plans
follows:
YEAR ENDED JUNE 30 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Options outstanding, beginning of year 3,650,485 3,155,820 1,939,585
Options granted 1,605,424 1,045,810 1,498,000
Options exercised (512,534) (334,770) (32,170)
Weighted average exercise price $ 9.95 $ 10.85 $ 5.35
- ----------------------------------------------------------------------------------------------
Options cancelled (396,754) (216,375) (249,595)
- ----------------------------------------------------------------------------------------------
Options outstanding, end of year 4,346,621 3,650,485 3,155,820
Weighted average price $ 14.08 $ 11.78 $ 12.16
- ----------------------------------------------------------------------------------------------
Exercisable options 1,964,593 1,541,135 1,463,045
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
The following table provides information regarding exercisable and outstanding
options as of June 30, 1998.
EXERCISABLE OUTSTANDING
-----------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE REMAINING
OPTIONS PRICE OPTIONS PRICE CONTRACTUAL
RANGE OF EXERCISE PRICE PER SHARE EXERCISABLE PER SHARE OUTSTANDING PER SHARE LIFE (YEARS)
- --------------------------------------------------------------------------------------------------------------
Under $10.00 465,198 $8.83 959,612 $8.666.47 6.47
$10.00-$12.50 211,710 10.25 353,860 10.864.63 4.68
$12.51-$15.00 626,725 13.79 1,074,725 13.536.39 6.39
Over $15.00 660,960 16.97 1,958,424 17.627.79 7.79
- --------------------------------------------------------------------------------------------------------------
Total 1,964,593 $13.30 4,346,621 $14.086.90 6.90
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
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 four years ended June
30, 1998. As of June 30, 1998, options for 46,375 shares with a weighted average
price per share of $7.55 were outstanding, all of which were exercisable.
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) in accounting for stock-based awards to employees. Under
APB 25, the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123 for awards granted in fiscal years after December
31, 1994 as if the Company had accounted for its stock-based awards to employees
under the fair value method of SFAS 123. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's
46 MagneTek Report - 1998
- --------------------------------------------------------------------------------
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following assumptions:
OPTIONS
-------------------
1998 1997
- -------------------------------------------------------------------------------
Expected life (years) 5.1 5.4
Expected stock price volatility 37% 35%
Risk-free interest rate 6.0% 6.5%
- -------------------------------------------------------------------------------
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period. The Company's
pro forma information follows:
(THOUSANDS EXCEPT PER SHARE AMOUNTS) 1998 1997
- -------------------------------------------------------------------------------
Net income--as reported $37,876 $24,075
Net income--pro forma $34,597 $22,792
Basic net income per share--as reported $ 1.25 $ 0.94
Basic net income per share--pro forma $ 1.17 $ 0.91
Diluted net income per share--as reported $ 1.20 $ 0.89
Diluted net income per share--pro forma $ 1.12 $ 0.86
- -------------------------------------------------------------------------------
Because SFAS 123 is applicable only to awards granted subsequent to fiscal years
beginning after December 31, 1994, its pro forma effect will not be fully
reflected until approximately 1999. A total of 1,498,000 options were granted
during fiscal year 1996 with exercise prices equal to the market price of the
stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these options were $12.91 and $3.98 respectively.
A total of 1,045,810 options were granted during fiscal year 1997 with exercise
prices equal to the market price of the stock on the grant date. The weighted
average exercise price and weighted average fair value of these options were
$9.75 and $4.29 respectively. In fiscal year 1998 a total of 1,605,424 options
were granted with exercise prices equal to the market price of the stock on the
grant date. The weighted average exercise price and weighted average fair value
of these options were $17.56 and $7.49 respectively.
The Company has granted stock appreciation rights (SARs) to certain of its
directors under director incentive compensation plans. As of June 30, 1998 SARs
with respect to 54,000 shares, with a weighted average exercise price of $14.92
were outstanding under these plans. In July of 1995, the Board of Directors
approved the conversion of SARs with respect to 265,000 shares of common stock
into stock options with comparable vesting, share amounts and exercise prices.
In April of 1997, the Board of Directors approved the conversion of SARs with
respect to an additional 491,500 shares of common stock into stock options with
comparable vesting, share amounts and exercise prices.
12. EMPLOYEE BENEFIT PLANS
The Company has elected early disclosure as permitted under Statement of
Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits". Benefit obligations, at year-end, fair value
of plan assets and prepaid (accrued) benefit costs for the years ended June 30,
1998 and 1997 are as follows:
MagneTek Report - 1998 47
- -----FINANCIALS-----------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
- -------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $140,065 $127,864 $ 22,606 $ 25,921
Service cost 4,542 4,500 143 162
Interest cost 11,179 9,920 1,682 1,806
Plan participants' contributions 114 104 489 182
Amendments 386 10 -- --
Actuarial (gain)/loss 27,757 3,616 1,230 (2,518)
Curtailment (gain)/loss (552) (22) 69 --
Benefits paid (7,715) (5,927) (2,471) (2,947)
- -------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $175,776 $140,065 $ 23,748 $ 22,606
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $160,329 $129,409 N/A N/A
Actual return on plan assets 21,876 29,139 N/A N/A
Employer contributions 15,000 7,604 N/A N/A
Plan participants' contributions 114 104 N/A N/A
Benefits paid (7,715) (5,927) N/A N/A
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $189,604 $160,329 N/A N/A
Funded status $ 13,828 $ 20,264 (23,748) $(22,606)
Unrecognized transition amount (1,290) (1,612) - -
Unrecognized net actuarial (gain)/loss 12,383 (9,426) (20,071) (23,089)
Unrecognized prior service cost (277) (469) (7,611) (9,972)
- -------------------------------------------------------------------------------------------------------------
Prepaid/(accrued) benefit cost $ 24,644 $ 8,757 $(51,430) $(55,667)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
Discount rate 7.00% 8.00% 7.00% 8.00%
Expected return on plan assets 9.50% 8.50% N/A N/A
Rate of compensation increase 6.00% 6.00% N/A N/A
For measurement purposes, an 8.00% (7.00% for HMOPlans) annual rate of increase
in the per capita cost of covered health benefits was assumed for fiscal 1998 to
fiscal year 1999. The rate was assumed to decrease to 6.75% for fiscal year
1999, to 5.75% by fiscal year 2009 and remain at 5.75% per year thereafter.
Pension plan assets include $11,813 in company stock.
48 MagneTek Report - 1998
- --------------------------------------------------------------------------------
Net periodic postretirement benefit costs (income) for pension and other
benefits for the years ended June 30, 1998, 1997 and 1996 are as follows:
PENSION BENEFITS OTHER BENEFITS
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET
PERIODIC BENEFIT COST (INCOME)
Service cost $4,542 $4,500 $5,504 $143 $162 $304
Interest cost 11,179 9,920 9,592 1,682 1,806 4,292
Expected return on plan assets (15,927) (11,007) (9,649) -- -- --
Amortization of transition amount (322) (322) (365) -- -- --
Amortization of prior service cost (335) (332) (333) (1,024) (1,129) (855)
Recognized net actuarial (gain)/loss -- 5 176 (1,719) (1,705) --
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $(863) $2,764 $4,925 $(918) $(866) $3,741
Curtailment/settlement (gain)/loss (24) 106 (682) (1,337) -- (2,639)
- ----------------------------------------------------------------------------------------------------------------------------
Net benefit cost $(887) $2,870 $4,243 $(2,255) $(866) $1,102
MagneTek recognized curtailment/settlement gain or loss in each of the fiscal
years resulting from the following:
1998 Fiscal Year: The closing of the Mendenhall and Huntington facilities.
1997 Fiscal Year: The sale of Jefferson Electric and the closing of the
Blytheville facility.
1996 Fiscal Year: The sale of MagneTek Electric, National Electric Coil and Ohio
Transformers Corporation.
The health care plans are contributory, with participants' contributions
adjusted annually. The life insurance plans are noncontributory. The accounting
for the health care plans anticipates future cost-sharing changes.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for Fiscal Year
1998:
1-PERCENTAGE POINT 1-PERCENTAGE POINT
INCREASE DECREASE
- ------------------------------------------------------------------------------------------------
Effect of total service and interest cost components
-based on 8.0% discount rate $ 116 $ (102)
Effect on postretirement benefit obligation
-based on 7.0% discount rate $1,707 $(1,493)
In addition to the defined benefit retirement plans and health care plans, the
Company contributes to a defined contribution savings plan. Company
contributions were $1,083, $1,184 and $1,427 during the plan years ending March
1998, 1997 and 1996, respectively. The Company contributions were affected by
the closing of the Mendenhall and Huntington facilities for the plan year ending
March 1998, the sale of National Electric Coil, Ohio Transformers Corporation
and Jefferson Electric and the closing of the Blytheville facility for the plan
year endingMarch 1997 and the sale of MagneTek Electric for the plan year ending
March 1996.
MagneTek Report - 1998 49
- -----FINANCIALS-----------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
The Company has an agreement with the Spectrum Group, Inc. whereby Spectrum will
provide management services to the company through fiscal 1999 at an annual fee
plus certain allocated and out of pocket expenses. 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 and expenses paid to Spectrum
for these services under the agreement amounted to $772, $907 and $865 for the
years ended June 30, 1998, 1997 and 1996 respectively.
During the years ended June 30, 1998, 1997 and 1996, the Company paid
approximately $270, $399 and $952, 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.
14. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
1998 1997
- -------------------------------------------------------------------------------
Salaries, wages and related items $ 31,028 $ 33,449
Warranty 34,641 39,253
Interest 1,850 1,576
Income taxes 10,753 (1,658)
Repositioning reserves (see Note 3) -- 14,890
Other 29,267 32,245
- -------------------------------------------------------------------------------
$107,539 $119,755
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities of continuing operations follows:
YEAR ENDED JUNE 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
(Increase) decrease in accounts receivable $(4,207) $ 14,368 $ 33,023
(Increase) decrease in inventories (12,314) 23,273 21,782
(Increase) decrease in prepaids and other current assets (3,243) 2,776 19,050
(Increase) decrease in other operating assets (17,432) (11,218) (4,942)
Increase (decrease) in accounts payable 14,804 (9,316) (13,729)
Increase (decrease) in accrued liabilities (10,665) (3,452) 938
Increase (decrease) in deferred income taxes (2,411) 7,404 (12,645)
Increase (decrease) in other operating liabilities (5,241) (1,277) 17
- -------------------------------------------------------------------------------------------------------------
$(40,709) $ 22,558 $ 43,494
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
CASH PAID FOR INTEREST AND INCOME TAXES FOLLOWS:
Interest $ 15,938 $28,255 $ 31,626
Income taxes $ 8,134 $ 3,463 $ 4,614
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
1996 AND 1997 AMOUNTS HAVE BEEN RESTATED TO CONFORM TO 1998 PRESENTATION FOR
PREPAID PENSION VALUES AND NET DEFERRED TAX LIABILITIES.
During the year ending June 30, 1997, 2,213,067 shares of common stock were
issued upon the conversion of $35,410 of Convertible Notes. On September 22,
1997, the Company redeemed the remaining $39,590 of Convertible Notes with
holders converting their Notes into 2,471,898 shares of common stock.
50 MagneTek Report - 1998
- --------------------------------------------------------------------------------
16. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company currently operates in three business segments: Motors and Controls;
Lighting Products; and Power Supplies.
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 Lighting Products segment produces magnetic and electronic ballasts for
various lighting applications.
The Power Supplies segment produces electronic power supplies primarily for
computer and telecommunications applications, as well as industrial equipment;
component transformers for a wide range of electronic equipment; and power
converters for recreational vehicles.
The Company sells its products primarily to large original equipment
manufacturers and distributors. The Company performs ongoing credit evaluations
of its customers' financial conditions and generally requires no collateral. The
Company has no significant concentration of credit risk.
Financial information by business segment for continuing operations follow:
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1998 CONTROLS PRODUCTS SUPPLIES TOTAL
- ----------------------------------------------------------------------------------------------
Sales $585,399 $445,930 $165,860 $1,197,189
Operating income 48,381 18,441 11,609 78,431
Identifiable assets 321,914 215,142 193,682 730,738
Capital expenditures 25,915 14,479 18,467 58,861
Depreciation and amortization 17,898 11,524 8,983 38,405
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1977 CONTROLS PRODUCTS SUPPLIES TOTAL
- ----------------------------------------------------------------------------------------------
Sales $548,008 $477,958 $164,574 $1,190,540
Operating income 43,785 25,138 11,141 80,064
Identifiable assets 293,315 222,288 138,945 654,548
Capital expenditures 15,441 7,095 10,709 33,245
Depreciation and amortization 17,111 12,594 8,726 38,431
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1976 CONTROLS PRODUCTS SUPPLIES TOTAL
- ----------------------------------------------------------------------------------------------
Sales $530,718 $456,804 $174,103 $1,161,625
Operating income (loss) 36,794 (78,600) 4,285 (37,521)
Identifiable assets 280,464 241,818 156,492 678,774
Capital expenditures 18,523 11,737 10,255 40,515
Depreciation and amortization 16,407 15,572 8,062 40,041
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
MagneTek Report - 1998 51
- -----FINANCIALS-----------------------------------------------------------------
Operating income (loss) for the year ended June 30, 1996, reflects pretax
charges of $2,891, $47,131 and $483 in the Motors and Controls, Lighting
Products and Power Supplies segments respectively, related to repositioning,
warranty, and other charges (see Note 3). Asset write-downs included in
operating income are $1,333 in Motors and Controls, $24,702, in Lighting
Products and $3,177 in Power Supplies.
Geographic information with respect to the Company's foreign subsidiaries
follows:
FOR THE YEAR ENDED JUNE 30 1998 1997 1996
- -------------------------------------------------------------------------------
Sales $211,891 $202,124 $206,701
Operating income 16,726 16,605 3,471
Identifiable assets 180,823 154,345 172,636
Capital expenditures 18,123 11,852 10,011
Depreciation and amortization 8,952 7,810 8,197
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company's foreign operations outside of Europe are not material. Export
sales were $69,960, $61,036 and $61,520 in 1998, 1997 and 1996 , respectively.
17. QUARTERLY RESULTS (UNAUDITED)
1998 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $286,487 $298,507 $303,215 $308,980
Gross profit 57,455 58,266 57,875 59,514
Provision for income taxes 4,207 5,054 5,705 6,334
Net income $ 7,479 $ 8,985 $ 10,141 $ 11,271
Per common share:
Basic:
Net income $ .26 $ .29 $ .33 $ .36
Diluted:
Net income $ .25 $ .28 $ .32 $ .35
- ----------------------------------------------------------------------------------------------------------------------------
1997 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $291,410 $293,707 $301,391 $304,032
Gross profit 54,842 55,540 64,672 64,869
Provision (benefit) for income taxes 2,996 3,839 6,396 5,969
Income (loss) from continuing operations before extraordinary item $ 4,315 $ 5,756 $ 9,198 $ 9,482
Net income (loss) $ 4,315 $ 5,756 $ 9,028 $ 4,976
Per common share:
Basic:
Income before extraordinary item $ .17 $ .22 $ .36 $ .36
Net income $ .17 $ .22 $ .35 $ .19
Diluted:
Income before extraordinary item $ .17 $ .22 $ .32 $ .33
Net income $ .17 $ .22 $ .32 $ .19
- ----------------------------------------------------------------------------------------------------------------------------
In the third and fourth quarters of 1997, the Company recorded extraordinary
charges of $170 and $4,506 respectively, associated with the extinguishment of
the majority of its 103/4% Subordinated Debentures. The charges (net of tax)
included the unamortized portion of original issuance costs and premium in
excess of face value.
52 MagneTek Report - 1998
- --------------------------------------------------------------------------------
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, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1998. 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, 1998 and 1997 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
August 18, 1998
SHAREHOLDER INFORMATION
10-K REPORT
MagneTek's Annual Report on Form 10-K for the fiscal year ended June 30, 1998,
is available upon request without charge. To receive a copy, direct your request
to:
INVESTOR RELATIONS DEPARTMENT
MagneTek, Inc.
26 Century Blvd.
Suite 600
Nashville TN, 37214
Telephone: 1-888-NYSEMAG
1-615-316-5289
ANNUAL STOCKHOLDERS' MEETING
The Annual Stockholders' meeting of MagneTek, Inc. will be held at the Company's
headquarters office, 26 Century Boulevard, Nashville, Tennessee, on Tuesday,
October 20, 1998.
STOCKHOLDERS' INFORMATION
The following table sets forth the high and low sales prices of the Company's
Common Stock on the New York Stock Exchange during each quarter of fiscal 1998.
QUARTER ENDING HIGH LOW
Sept. 30,1997 23 15 7/8
Dec. 31,1997 24 5/16 17 7/8
March 31,1998 20 1/2 16 1/16
June 30,1998 20 11/16 14 5/16
The Company's Common Stock is listed on the New York Stock Exchange under the
ticker symbol "MAG." As of the date of this Annual Report there were
approximately 400 direct accounts holding Common Stock. No dividends have been
paid on the Common Stock. The Registrar and Transfer Agent for the Common Stock
is The Bank of New York. Telephone inquiries: 1-800-524-4458
MagneTek Report - 1998 53