FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1994
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-6112
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NORTEK, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
- - -----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- - -----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(401) 751-1600
- - -----------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- - -----------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last year)
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
---------- -----------
The number of shares of Common Stock outstanding as of
August 5, 1994 was 11,998,546. The number of shares of
Special Common Stock outstanding as of August 5, 1994 was
545,145.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
July 2, Dec. 31,
1994 1993
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 69,817 $ 34,006
Short-term investments held for
redemption of debentures --- 22,600
Marketable securities available
for sale 28,697 25,892
Restricted--
Cash and investments at cost which
approximates market 9,337 6,687
Accounts receivable, less allowances
of $4,836 and $4,198 109,372 84,843
Inventories:
Raw materials 31,798 27,603
Work in process 10,442 9,227
Finished goods 48,201 45,183
------- -------
90,441 82,013
------- -------
Current assets of business sold --- 23,736
Insurance claims receivable --- 14,500
Prepaid expenses and other current
assets 9,432 7,541
U. S. Federal prepaid income taxes 21,300 17,000
------- -------
Total Current Assets 338,396 318,818
------- -------
Property and Equipment, at cost:
Land 5,884 5,833
Buildings and improvements 52,981 52,309
Machinery and equipment 115,402 108,983
------- -------
174,267 167,125
Less--Accumulated depreciation 82,013 76,546
------- -------
Total Property and Equipment,
net 92,254 90,579
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $20,293 and $19,180 74,011 75,599
Non-current assets of business sold --- 11,987
Deferred debt expense 9,060 563
Other 11,906 11,663
------- -------
94,977 99,812
------- -------
$525,627 $509,209
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
(Dollar Amounts in Thousands)
July 2, Dec. 31,
1994 1993
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- - ----------------------------------------
Current Liabilities:
Notes payable, current maturities
of long-term debt and other short-
term obligations $ 7,920 $ 14,957
11 1/2% Senior Subordinated
Debentures, net --- 22,582
Accounts payable 52,376 46,923
Accrued expenses and taxes, net 103,693 91,422
Current liabilities of business sold --- 11,769
Insurance claims advances --- 13,239
------- -------
Total Current Liabilities 163,989 200,892
------- -------
Other Liabilities:
Deferred income taxes 21,800 18,000
Other 6,935 8,100
------- -------
28,735 26,100
------- -------
Notes, Mortgage Notes and
Debentures Payable 225,243 169,664
------- -------
Mortgage Notes Payable of business sold --- 8,546
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value;
authorized 40,000,000 shares,
15,788,051 shares and 15,758,974
shares issued 15,788 15,759
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
820,498 and 849,575 shares issued 820 849
Additional paid-in capital 134,627 134,627
Accumulated deficit (10,134) (17,034)
Cumulative translation, pension and
other adjustments (5,390) (2,143)
Less - treasury common stock at
cost, 3,795,028 shares (26,371) (26,371)
- treasury special common stock
at cost, 271,574 shares (1,680) (1,680)
------- -------
Total Stockholders' Investment 107,660 104,007
------- -------
$525,627 $509,209
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Three Months Ended
------------------
July 2, July 3,
1994 1993
---- ----
(Unaudited)
Net Sales $193,722 $195,058
------- -------
Costs and Expenses:
Cost of products sold 136,044 140,393
Selling, general and
administrative expense 42,897 45,812
------- -------
178,941 186,205
------- -------
Operating earnings 14,781 8,853
Interest expense (6,211) (6,637)
Interest income 1,330 834
Net gain on marketable securities --- 450
------- -------
Earnings before provision for
income taxes 9,900 3,500
Provision for income taxes 4,400 2,000
------- -------
Earnings before extraordinary
loss 5,500 1,500
Extraordinary loss from debt
retirements (100) ---
------- -------
Net Earnings $ 5,400 $ 1,500
======= =======
Net Earnings (Loss) Per Share:
Earnings Before Extraordinary Loss--
Primary $ .44 $ .12
------- -------
Fully diluted $ .43 $ .12
------- -------
Extraordinary Loss--
Primary $ (.01) $ ---
------- -------
Fully diluted $ (.01) $ ---
------- -------
Net Earnings--
Primary $ .43 $ .12
====== =======
Fully diluted $ .42 $ .12
====== =======
Weighted Average Number of Shares:
Primary 12,661 12,603
====== ======
Fully diluted 13,162 13,325
====== ======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Six Months Ended
------------------
July 2, July 3,
1994 1993
---- ----
(Unaudited)
Net Sales $362,742 $373,765
------- -------
Costs and Expenses:
Cost of products sold 255,346 269,555
Selling, general and
administrative expense 84,341 91,144
------- -------
339,687 360,699
------- -------
Operating earnings 23,055 13,066
Interest expense (14,086) (13,652)
Interest income 2,531 1,836
Net gain on marketable securities --- 1,450
------- -------
Earnings before provision for
income taxes 11,500 2,700
Provision for income taxes 5,300 2,600
------- -------
Earnings before extraordinary
gain 6,200 100
Extraordinary gain from debt
retirements 300 ---
------- -------
Earnings before the cumulative
effect of accounting changes 6,500 100
Cumulative effect of accounting
changes 400 (2,100)
------- -------
Net Earnings (Loss) $ 6,900 $ (2,000)
======= =======
Net Earnings (Loss) Per Share:
Earnings Before Extraordinary Gain--
Primary $ .49 $ .01
------- -------
Fully diluted $ .49 $ .01
------- -------
Extraordinary Gain--
Primary $ .02 $ ---
------- -------
Fully diluted $ .02 $ ---
------- -------
Cumulative Effect of Accounting
Changes--
Primary $ .03 $ (.17)
------- -------
Fully diluted $ .03 $ (.17)
------- -------
Net Earnings (Loss)--
Primary $ .54 $ (.16)
====== =======
Fully diluted $ .54 $ (.16)
====== =======
Weighted Average Number of Shares:
Primary 12,680 12,603
====== ======
Fully diluted 13,289 13,326
====== ======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the
Six Months Ended
------------------
July 2, July 3,
1994 1993
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 6,900 $(2,000)
------ ------
Adjustments to reconcile net earnings
(loss) to cash:
Depreciation and amortization 9,529 11,109
Gain on marketable securities --- (1,450)
Extraordinary gain from debt retirements (450) ---
Cumulative effect of accounting
changes (400) 3,100
Deferred federal income tax credit
from continuing operations (2,000) (1,800)
Deferred federal income tax provision
on extraordinary items 1,350 ---
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (24,529) (16,184)
Prepaids and other current assets (3,312) (340)
Inventories (8,428) (11,945)
Accounts payable 5,453 3,527
Accrued expenses and taxes 14,175 (4,037)
Long-term assets, liabilities and
other, net (6,131) 3,850
------ ------
Total adjustments to net earnings
(loss) (14,743) (14,170)
------ -------
Net Cash Used in Operating
Activities (7,843) (16,170)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,945) (5,041)
Purchase of investments and marketable
securities (5,032) (50,415)
Proceeds from sale of investments and
marketable securities --- 68,448
Proceeds (payments) relating to
businesses sold or discontinued, net 20,280 (2,970)
Change in restricted cash and
investments (2,650) ---
Other, net (1,063) (1,437)
------ ------
Net Cash Provided by Investing
Activities 3,590 8,585
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes, net 209,195 ---
Purchase and redemption of
debentures and notes payable (185,209) (1,094)
Payment of borrowings (6,432) (3,538)
Other, net (90) (1,341)
------ ------
Net Cash Provided by (Used in)
Financing Activities 17,464 (5,973)
------ ------
Net increase (decrease) in unrestricted
cash and investments 13,211 (13,558)
Unrestricted cash and investments at
the beginning of the period 56,606 23,467
------ ------
Unrestricted cash and investments at the
end of the period $ 69,817 $ 9,909
====== ======
Interest paid $ 7,731 $12,483
====== ======
Income taxes paid, net $ 3,189 $12,609
====== ======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Three Months Ended July 2, 1994 and July 3, 1993
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Retained Pension
Special tional Earnings and Other
Common Common Paid-in (Accumulat- Adjust-Treasury
Stock Stock Capital ed Deficit) ments Stock
----- ----- ------- ----------- ------ -----
(Unaudited)
Balance, April 3,
1993 $15,612 $980 $134,599 $ 266 $ --- $(28,051)
109,840 shares of
special common stock
converted into
109,840 shares of
common stock 110 (110) --- --- --- ---
10,000 shares of
common stock issued
upon exercise of
stock options 10 --- 19 --- --- ---
Net earnings --- --- --- 1,500 --- ---
------ --- ------- ------- ------ -------
Balance, July 3, 1993 $15,732 $870 $134,618 $ 1,766 $ --- $(28,051)
====== === ======= ====== ====== =======
Balance, April 2, 1994 $15,778$ 830 $134,627 $(15,534) $(4,710) $(28,051)
9,921 shares of
special common stock
converted into
9,921 shares of
common stock 10 (10) --- --- --- ---
Translation adjust-
ment --- --- --- --- 61 ---
Unrealized decline in
marketable securities --- --- --- --- (741) ---
Net earnings --- --- --- 5,400 --- ---
------ --- ------- ------ ------ ------
Balance, July 2, 1994 $15,788 $820 $134,627 $(10,134) $(5,390) $(28,051)
====== === ======= ====== ====== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Six Months Ended July 2, 1994 and July 3, 1993
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Retained Pension
Special tional Earnings and Other
Common Common Paid-in (Accumulat- Adjust-Treasury
Stock Stock Capital ed Deficit) ments Stock
----- ----- ------- ----------- ------ -----
(Unaudited)
Balance, December 31,
1992 $15,602 $990 $134,599 $ 3,766 $ --- $(28,051)
120,233 shares of
special common stock
converted into
120,233 shares of
common stock 120 (120) --- --- --- ---
10,000 shares of
common stock issued
upon exercise of
stock options 10 --- 19 --- --- ---
Net loss --- --- --- (2,000) --- ---
------ --- ------- ------- ------ -------
Balance, July 3, 1993 $15,732 $870 $134,618 $ 1,766 $ --- $(28,051)
====== === ======= ====== ====== =======
Balance, December 31,
1993 $15,759 $849 $134,627 $(17,034) $(2,143) $(28,051)
29,077 shares of
special common stock
converted into
29,077 shares of
common stock 29 (29) --- --- --- ---
Translation adjust-
ment --- --- --- --- (591) ---
Cumulative effect of
an accounting change
(see Note E) --- --- --- --- (400) ---
Unrealized decline in
marketable securities --- --- --- --- (2,256) ---
Net earnings --- --- --- 6,900 --- ---
------ --- ------- ------ ------ ------
Balance, July 2, 1994 $15,788 $820 $134,627 $(10,134) $(5,390) $(28,051)
====== === ======= ====== ====== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 1994 AND July 3, 1993
(A) The unaudited condensed consolidated financial statements
presented ("Unaudited Financial Statements") have been prepared
by Nortek, Inc. and subsidiaries (the "Company") without audit
and, in the opinion of management, reflect all adjustments of a
normal recurring nature necessary for a fair statement of the
interim periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been omitted, although, the Company believes that the disclosures
included are adequate to make the information presented not
misleading. Certain amounts in the Unaudited Financial
Statements for the prior periods have been reclassified to
conform to the presentation at July 2, 1994. It is suggested
that these Unaudited Financial Statements be read in conjunction
with the financial statements and the notes included in the
Company's latest Annual Report on Form 10-K.
(B) Net sales and earnings before provision for income taxes in the
first half and second quarter of 1993 includes approximately
$53,700,000 and $29,300,000 in net sales and a $900,000 loss and
$100,000 of earnings, respectively, relating to Dixieline Lumber
Company ("Dixieline"), which business was accounted for as a
business held for sale since October 2, 1993. Accordingly,
Dixieline's operating results were no longer included in the
Company's consolidated operating results subsequent to October 2,
1993. (See Note C below.)
(C) On January 14, 1994, the Company redeemed $22,600,000 principal
amount of its 11 1/2% Senior Subordinated Debentures due May
1994, which were called for redemption in December 1993. In
February 1994, the Company sold in a public offering $218,500,000
of its 9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes")
at a slight discount. A portion of the net proceeds from the
sale of the 9 7/8% Notes was used to redeem, on March 24, 1994,
approximately $153,000,000 of certain of the Company's
outstanding principal amount of indebtedness, called for
redemption on February 22, 1994, and to pay accrued interest.
Interest expense, net of interest income, in the first half of
1994 was approximately $1,300,000 greater than it would have been
had the debt redemption occurred on the same day as the
financing.
On March 31, 1994, the Company sold all the capital stock of its
Dixieline subsidiary for approximately $18,800,000 in cash and
$6,000,000 in preferred stock of the purchaser. In the third
quarter of 1993, the Company provided a valuation reserve of
approximately $20,300,000 ($1.19 per share, net of tax) to reduce
the Company's net investment in Dixieline to estimated net
realizable value. No additional loss in 1994 was incurred in
connection with the sale. The following table presents the
approximate unaudited pro forma operating results of the Company
for the six months and three months ended July 2, 1994 and July
3, 1993, and the year ended December 31, 1993, as adjusted for
the pro forma effect of the sale of Dixieline, the debt financing
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1994 AND JULY 3, 1993
(Continued)
and the debt redemptions:
Six Months Ended Three Months Ended Year Ended
July 2, July 3, July 2, July 3, December
1994 1993 1994 1993 31,1993
---- ---- -------
(Amounts in Thousands Except Per
Share Amounts)
Net Sales $362,742 $320,112 $193,722 $165,766 $660,908
Earnings from
Continuing
Operations $ 7,100 $ 1,000 $ 5,500 $ 1,600 $ 3,500
Fully Diluted
Earnings Per
Share $ .56 $ .08 $ .43 $ .13 $ .28
In computing the pro forma earnings from continuing operations,
interest expense on the indebtedness redeemed during the period
that such indebtedness was outstanding was excluded from
operating results at an average interest rate of approximately
13.5% (including amortization of debt discount and deferred debt
expense) for all periods presented, net of the tax effect.
Interest expense was included on the Notes at a rate of
approximately 9 7/8%, plus amortization of deferred debt expense
and debt discount, for all periods presented, net of the tax
effect. The net after-tax loss recorded in the third quarter of
1993 from the valuation reserve recorded to reduce the Company's
net investment in Dixieline to net realizable value was also
excluded. Investment income was assumed earned on the remaining
cash proceeds from the debt financing at a rate of 3.5%. No
investment income was assumed earned on the proceeds from the
sale of Dixieline.
(D) During the second quarter of 1994, the Company purchased in the
open market approximately $5,121,000 principal amount of its 7-
1/2% convertible sinking fund debentures due 2006. During the
first quarter of 1994, the Company purchased, at a discount, in
the open market approximately $4,000,000 principal amount of its
7 1/2% convertible sinking fund debentures due 2006. These
transactions resulted in an extraordinary loss of approximately
$100,000, net of income taxes of $50,000 ($.01 per share) in the
second quarter and an extraordinary gain of approximately
$300,000, net of income taxes of $150,000 ($.02 per share) in the
first half of 1994.
During the first quarter of 1993, the Company purchased, at a
discount, in the open market approximately $874,000 principal
amount of its various debentures. During the second quarter of
1993, the Company purchased, at a discount, in the open market
approximately $318,000 principal amount of its various
debentures. These purchases did not result in a net gain.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1994 AND JULY 3, 1993
(Continued)
(E) On January 1, 1994, the Company adopted the accounting
requirements of Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", and recorded as income the accumulated
unrealized marketable security reserve recorded at December 31,
1993 of approximately $400,000 ($.03 per share) as the cumulative
effect of an accounting change. Under the new accounting method,
the Company will record unrealized gains or losses on such
investment securities as adjustments to stockholders' investment.
Previously, such gains or losses were recorded in the Company's
statement of operations. At July 2, 1994, the reduction in the
Company's stockholders' investment under the new accounting
method for gross unrealized losses was approximately $2,656,000.
At July 2, 1994, there were no gross unrealized gains on the
Company's marketable securities. Prior periods have not been
restated.
The Company's marketable securities at July 2, 1994 consist of
U. S. Government Treasury Notes due as follows:
Fair
Principal Market
Due Amount Cost Value
(Amounts in Thousands)
1-5 years $16,000 $16,004 $15,029
5-10 years 15,000 15,349 13,668
------ ------ ------
$31,000 $31,353 $28,697
====== ====== ======
In the first half of 1994, there were no realized gains or losses
on marketable securities.
(F) In the first six months and the second quarter ended July 2,
1994, the Company incurred net after-tax charges of approximately
$2,900,000 and $2,000,000, respectively, principally relating to
expenses of certain cost reduction activities and manufacturing
process improvements in each of the Company's operating groups,
marketing expenses as a result of competitive conditions and
expenses of certain litigation and other matters in dispute. Net
after-tax charges of approximately $1,000,000 and approximately
$600,000 in the first six months and second quarter of 1993,
respectively, were incurred in connection with cost reduction
activities and manufacturing process improvements. The effect of
these costs and expenses were partially offset in the second
quarter of 1994 by approximately $1,900,000 of after-tax income
resulting from the settlement of certain insurance claims and
disputes.
(G) On January 1, 1993, the Company adopted the accounting
requirements of SFAS No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions" and recorded, as a
charge to operations, the accumulated post-retirement benefit
obligation ("APBO") of approximately $3,100,000 (before income
tax credit of approximately $1,000,000 ($.17 per share, net of
tax) as the cumulative effect of an accounting change.
Previously, such health care and related benefits, for qualified
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1994 AND JULY 3, 1993
(Continued)
active and retired beneficiaries, were charged to operating
results in the period that such benefits were paid.
(H) During 1992, a former subsidiary of the Company defaulted on
certain principal and interest payments relating to obligations
under which the Company was contingently liable. In March 1994,
the Company paid approximately $1,594,000 of interest payments
through that date on such obligations. In July 1994, the Company
purchased at a slight discount, approximately $6,400,000
principal amount of such obligations (consisting of substantially
all of such obligations) from several holders. The Company did
not record any losses in 1994 in connection with the settlement
of these contingent obligations.
(I) In the first quarter of 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" as a change in accounting method.
Under SFAS No. 109, deferred income tax assets or liabilities are
computed based on the difference (temporary differences) between
the financial statement and income tax bases of assets and
liabilities, using the current marginal income tax rates in
effect for the period in which the differences are expected to
reverse. Deferred income tax provisions or credits are based on
the changes in the asset and liability between periods. The
effect of adopting this new accounting method in the first
quarter of 1993 was not significant to the provision for income
taxes as compared to the prior accounting method.
The tax effect of temporary differences which gave rise to
significant portions of deferred income tax assets and
liabilities as of July 2, 1994 is as follows:
(Amounts in
Thousands)
----------
U.S. Federal Prepaid (Deferred) Income
Tax Assets Arising From:
Accounts receivable $ 1,662
Inventory (412)
Insurance reserves 5,691
Other reserves, liabilities and assets, net 14,329
Other, net 30
------
$21,300
======
Deferred (Prepaid) Income Tax Liabilities
Arising From:
Property & equipment, net $12,032
Prepaid pension assets 1,569
Insurance reserves (1,024)
Other reserves, liabilities and assets, net 1,273
Capital loss carryforward (6,217)
Valuation allowances 14,167
$21,800
======
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1994 AND JULY 3, 1993
(Continued)
At July 2, 1994, the Company has a capital loss carryforward of
approximately $17,000,000 which expires in the year 1997. The
Company has provided a valuation allowance equal to the tax
effect of capital loss carryforwards and certain other deferred
income tax assets, since realization of these deferred income tax
assets cannot be reasonably assured. At July 2, 1994, the
Company has approximately $7,300,000 of net U. S. Federal prepaid
income tax assets which are expected to be realized through
future operating earnings.
The table below reconciles the provision for income taxes from
continuing operations at the federal statutory income tax
rate to the actual provision for income taxes :
Three Six
Months Ended Months Ended
------------ ------------
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
---- ---- ---- ----
(Amounts in Thousands)
Provision for income taxes at
the federal statutory rate $3,465 $1,190 $4,025 $ 918
Net change from statutory rate:
State taxes, net of federal tax
effect 421 165 584 495
Non-deductible amortization for
tax purposes 185 180 369 360
Other non-deductible items 108 92 182 252
Change in valuation reserve 68 256 (9) 317
Tax effect on foreign income 63 120 149 248
Other, net 90 (3) --- 10
----- ----- ----- -----
Provision for income taxes from
continuing operations $4,400 $2,000 $5,300 $2,600
===== ===== ===== =====
The Company recorded a $1,000,000 income tax credit (principally
deferred) in the first half of 1993 relating to the cumulative
effect of an accounting change for certain post-retirement
benefits. This actual income tax credit was approximately equal
to the tax credit at the U. S. Federal statutory rate.
(J) Earnings (loss) per share calculations presented in 1993 do not
include the effect of convertible debentures (and the reduction
in related interest expense) because the assumed conversion of
debentures is anti-dilutive.
(K) At July 2, 1994, the payment of cash dividends or stock payments
was prohibited under the most restrictive of the Company's
indenture and loan agreements.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1994 AND JULY 3, 1993
(Continued)
(L) The following table summarizes the unaudited activity of
businesses sold or discontinued included in the accompanying
unaudited condensed consolidated statement of cash flows:
Six Months Ended
------------------
July 2, July 3,
1994 1993
---- ----
(Amounts in Thousands)
Fair value of assets sold $34,439 $ ---
Liabilities assumed by the purchaser (16,143) ---
Cash received (paid) relating to
businesses sold or discontinued 1,984 (2,970)
------ ------
Net cash proceeds (payments) relating
to businesses sold or discontinued $20,280 $(2,970)
====== ======
Significant unaudited non-cash financing and investing activities
excluded from the accompanying unaudited condensed consolidated
statement of cash flows include transactions of approximately
$2,256,000 of unrealized loss on investment in marketable
securities in 1994.
Depreciation and amortization included in the Company's unaudited
condensed consolidated statement of cash flows for the six months
ended July 2, 1994 and July 3, 1993, includes approximately
$900,000 and approximately $1,100,000, respectively, of
amortization of deferred debt expense and debt discount,
respectively, which is recorded as interest expense in the
accompanying unaudited condensed consolidated statement of
operations.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
The Company is a diversified manufacturer of residential and
commercial building products, operating within three principal product
groups: the Residential Building Products Group; the Air Conditioning
and Heating Products Group; and the Plumbing Products Group. Through
these product groups, the Company manufactures and sells, primarily in
the United States and Canada, a wide variety of products for the
residential and commercial construction, manufactured housing, and the
do-it-yourself and professional remodeling and renovation markets.
In March 1994, the Company sold its Retail Home Center Operations
("Dixieline") to increase the Company's focus on its other building
products businesses. For purposes of this Management's Discussion and
Analysis of Financial Condition and Results of Operations, the results
of operations attributable to Dixieline have been excluded from all
data that are reported as being from ongoing operations, including net
sales, cost of products sold, selling, general and administrative
expense and segment earnings. Total consolidated operating results of
the Company, however, include the operating results of Dixieline in
the second quarter and first half of 1993. (See Note C of the Notes
to Unaudited Condensed Consolidated Financial Statements.)
Results of Operations
The tables below and on the next page set forth, for the periods
presented, (a) certain consolidated operating results, (b) the amounts
and percentage change of certain such results as compared to the prior
comparable period, (c) the percentage which certain of such results
bears to net sales and (d) the change of certain of such percentages
(to net sales) as compared to the prior comparable period. The
results of operations for the second quarter ended July 2, 1994 are
not necessarily indicative of the results of operations to be expected
for the full year.
Second Quarter Ended Change in
July 2, July 3, Second Quarter 1994
1994 1993 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $193.7 $195.1 $(1.4) (.7)
Cost of products sold 136.0 140.4 4.4 3.1
Selling, general and
administrative expense 42.9 45.8 2.9 6.3
Operating earnings 14.8 8.9 5.9 66.3
Interest expense (6.2) (6.7) .5 7.5
Interest income 1.3 .8 .5 62.5
Net gain on marketable
securities --- .5 (.5) (100.0)
Earnings before provision
for income taxes 9.9 3.5 6.4 182.9
Provision for income taxes 4.4 2.0 (2.4) (120.0)
Earnings before extraordinary
loss 5.5 1.5 4.0 266.7
Extraordinary loss from
debt retirements (.1) --- (.1) ---
---- --- ---- -----
Net earnings $ 5.4 $1.5 $ 3.9 260.0
==== ==== ==== =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
Change in
Percentage of Net Sales Percentage
Second Quarter Ended for the Second
July 2, July 3, Quarter 1994
1994 1993 as compared to 1993
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 70.2 72.0 1.8
Selling, general and
administrative expense 22.2 23.5 1.3
Operating earnings 7.6 4.5 3.1
Interest expense (3.2) (3.4) .2
Interest income .7 .4 .3
Net gain on marketable
securities --- .3 (.3)
Earnings before provision
for income taxes 5.1 1.8 3.3
Provision for income taxes 2.2 1.0 (1.2)
Earnings before extraordinary
loss 2.9 .8 2.1
Extraordinary loss from debt
retirements (.1) --- (.1)
---- ---- ----
Net earnings 2.8 .8 2.0
==== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
The tables below and on the next page set forth, for the periods
presented, (a) certain consolidated operating results, (b) the amount
and the percentage change of certain such results as compared to the
prior comparable period, (c) the percentage which certain of such
results bears to net sales, and (d) the change of certain of such
percentages (to net sales) as compared to the prior comparable period.
The results of operations for the six months ended July 2, 1994 are
not necessarily indicative of the results of operations to be expected
for the full year.
Change in the First
Six Months Ended Six Months of 1994
July 2, July 3, as compared to 1993
1994 1993 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $362.7 $373.8 $(11.1) (3.0)
Cost of products sold 255.3 269.6 14.3 5.3
Selling, general and
administrative expense 84.3 91.1 6.8 7.5
Operating earnings 23.1 13.1 10.0 76.3
Interest expense (14.1) (13.7) (.4) (2.9)
Interest income 2.5 1.8 .7 38.9
Net gain on marketable
securities --- 1.5 (1.5) 100.0
Earnings before provision
for income taxes 11.5 2.7 8.8 325.9
Provision for income taxes 5.3 2.6 (2.7) (103.8)
Earnings before extraordinary
gain and the cumulative
effect of accounting
changes 6.2 .1 6.1 *
Extraordinary gain from debt
retirements .3 - .3 ---
Cumulative effect of
accounting changes .4 (2.1) 2.5 119.0
----- --=-- ----- -----
Net earnings (loss) $ 6.9 $ (2.0) $ 8.9 445.0
===== ===== ===== =====
*not meaningful
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
Percentage of
Net Sales Change in Percentage
Six Months Ended for the First Six
July 2, July 3, Months of 1994
1994 1993 as compared to 1993
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 70.4 72.1 1.7
Selling, general and
administrative expense 23.2 24.4 1.2
Operating earnings 6.4 3.5 2.9
Interest expense (3.9) (3.7) (.2)
Interest income .7 .5 .2
Net gain on marketable
securities --- .4 (.4)
Earnings before provision
for income taxes 3.2 .7 2.5
Provision for income taxes 1.5 .7 (.8)
Earnings before extraordinary
gain and the cumulative
effect of accounting
changes 1.7 --- 1.7
Extraordinary gain from debt
retirements .1 - .1
Cumulative effect of
accounting changes .1 (.6) .7
---- ---- ----
Net earnings (loss) 1.9 (.6) 2.5
==== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
The following table presents the net sales for the Company's principal
product groups for the second quarter and six months ended July 2,
1994 as compared to the second quarter and six months ended July 3,
1993 and the amount and the percentage change of such results as
compared to the prior comparable period. The results of operations
for the second quarter and first six months of 1994 are not
necessarily indicative of the results of operations to be expected for
the full year.
Second Quarter Ended
-------------------
July 2, July 3, Increase (Decrease)
1994 1993 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $ 67,439 $ 61,099 $ 6,340 10.4
Air Conditioning and
Heating Products 91,035 73,488 17,547 23.9
Plumbing Products 35,248 31,179 4,069 13.1
------- ------- ------ -----
Net Sales from
Ongoing Operations 193,722 165,766 27,956 16.9
Business Sold --- 29,292 (29,292) (100.0)
------- ------- ------- -----
Total $193,722 $195,058 $ (1,336) (.7)
======= ======= ======= =====
Six Months Ended
-------------------
July 2, July 3, Increase (Decrease)
1994 1993 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $131,439 $126,304 $ 5,135 4.1
Air Conditioning and
Heating Products 164,509 130,223 34,286 26.3
Plumbing Products 66,794 63,585 3,209 5.0
------- ------- ------ -----
Net Sales from
Ongoing Operations 362,742 320,112 42,630 13.3
Business Sold --- 53,653 (53,653) (100.0)
------- ------- ------- -----
Total $362,742 $373,765 $(11,023) (3.0)
======= ======= ======= ======
Operating Results
Net sales from ongoing operations increased approximately $27,956,000,
or approximately 16.9%, and increased approximately $42,630,000, or
approximately 13.3%, for the second quarter and first six months of
1994, respectively, as compared to 1993. Total net sales decreased
approximately $1,336,000, or approximately .7%, and decreased
approximately $11,023,000, or approximately 3.0%, for the second
quarter and first six months of 1994, respectively, as compared to
1993, as a result of the effect of Dixieline, partially offset by the
following factors. Net sales from ongoing operations increased
principally as a result of increased sales volume of residential air
conditioning and heating ("HVAC") products, increased shipments of new
and replacement HVAC products to manufactured housing customers and
increased sales levels of commercial and industrial HVAC products by
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
the Air Conditioning and Heating Products Group. Increased sales of
the Plumbing Products Group is principally due to increased shipments
of water efficient toilets, partially offset by decreased sales levels
(approximately $1,700,000 and approximately $4,000,000 in the second
quarter and first six months of 1994, respectively) of bathroom
fixtures as a result of the curtailment of certain product lines in
the fourth quarter of 1993.
Cost of products sold from ongoing operations as a percentage of net
sales from ongoing operations decreased from approximately 71.4% in
the second quarter of 1993 to approximately 70.2% in the second
quarter of 1994 and decreased from approximately 71.5% in the first
six months of 1993 to approximately 70.4% in the first six months of
1994. Cost of products sold as a percentage of total net sales
decreased from approximately 72.0% in the second quarter of 1993 to
approximately 70.2% in the second quarter of 1994, and decreased from
approximately 72.1% in the first six months of 1993 to approximately
70.4% in the first six months of 1994 as a result of the factors
described below and the effect of Dixieline which operated at higher
cost levels than the Company's other product groups. The decreases in
cost of products sold as a percentage of net sales from ongoing
operations were primarily attributable to an increase in Plumbing
Products Group net sales in the second quarter and increased sales of
residential and commercial HVAC products in the Air Conditioning and
Heating Products Group in both periods, all without a proportionate
increase in costs. To a lesser extent, these decreases in the
percentage were partially offset by slightly higher cost levels in the
Residential Building Products Group. The overall improvement in cost
levels is due, in part, to the Company's ongoing cost control efforts.
Selling, general and administrative expense from ongoing operations as
a percentage of net sales from ongoing operations decreased from
approximately 23.4% in the second quarter of 1993 to approximately
22.2% in the second quarter of 1994 and decreased from approximately
24.2% in the first six months of 1993 to approximately 23.2% in the
first six months of 1994. Total selling, general and administrative
expense as a percentage of total net sales decreased from
approximately 23.5% in the second quarter of 1993 to approximately
22.2% in the second quarter of 1994 and decreased from approximately
24.4% in the first six months of 1993 to approximately 23.2% in the
first six months of 1994 as a result of the factors described below
and the effect of Dixieline which operated at higher expense levels
than the Company's other product groups. The decreases in selling,
general and administrative expense from ongoing operations as a
percentage of net sales from ongoing operations in the second quarter
and first six months of 1994 were principally due to lower non-segment
expense and approximately $3,200,000 of income from the settlement of
insurance claims and disputes combined with increased net sales from
ongoing operations in the second quarter of 1994. The effect of the
percentage increase in net sales in the Air Conditioning and Heating
Products Group in excess of the percentage increases in net sales by
the Company's other product groups was also a factor in the decreases
in the percentage on ongoing net sales, since this group operates at
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
lower expense levels than the total expense level of ongoing
operations. These improvements in the percentage were offset by the
effect of approximately $3,400,000 and approximately $4,800,000 in the
second quarter and first six months of 1994, respectively, of expenses
relating to the implementation of certain cost reduction activities
and manufacturing process improvements in each of the Company's
operating groups, marketing expenses as a result of competitive
conditions and expenses of certain litigation and other matters in
dispute. Approximately $900,000 and $1,500,000 of expenses relating
to certain cost reduction activities and manufacturing process
improvements were incurred in the second quarter and first six months
of 1993, respectively.
Segment earnings from ongoing operations were approximately
$17,200,000 for the second quarter of 1994, as compared to
approximately $12,400,000 for the second quarter of 1993, and
approximately $29,200,000 for the first six months of 1994 as compared
to approximately $22,400,000 for the first six months of 1993. Total
segment earnings were approximately $17,200,000 for the second quarter
of 1994, as compared to approximately $12,600,000 for the second
quarter of 1993, and approximately $29,200,000 for the first six
months of 1994 as compared to approximately $21,600,000 for the first
six months of 1993 as a result of the effect of Dixieline and the
following factors. The increase in segment earnings from ongoing
operations principally was due to increased sales levels in the Air
Conditioning and Heating Products and Plumbing Products Groups,
without a proportionate increase in cost. Approximately $1,500,000 of
the increase in segment earnings related to income from the settlement
of insurance claims. The increase in segment earnings was partially
offset by the effect of approximately $2,500,000 and approximately
$3,800,000 in the second quarter and first six months of 1994,
respectively, of expenses incurred in connection with the
implementation of certain cost reduction activities and manufacturing
process improvements in each of the Company's operating groups, and
marketing expenses as a result of competitive conditions in the
Residential Building Products Group. Expenses incurred in connection
with cost reduction activities and manufacturing process improvements
in the second quarter and first half of 1993 were approximately
$900,000 and approximately $1,500,000, respectively.
Foreign segment earnings, consisting primarily of the results of
operations of the Company's Canadian subsidiary which manufactures
built-in ventilating products, declined to approximately 5.9% of
segment earnings from ongoing operations in the second quarter of 1994
from approximately 12.0% of such earnings in 1993, and declined to
approximately 6.5% of segment earning from ongoing operations in the
first six months of 1994 from approximately 11.7% of such earnings in
the first six months of 1993. This decline was primarily due to an
approximately 46.0% and approximately 37.3% increase in domestic
segment earnings from ongoing operations in the second quarter and
first six months of 1994, respectively, as well as an approximately
32.7% and approximately 27.3% decrease in foreign segment earnings in
the second quarter and first six months of 1994, respectively. The
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
decrease in foreign segment earnings was primarily the result of the
continued weakness in the residential construction market in Canada.
Operating earnings in the second quarter of 1994 increased
approximately $5,900,000, or approximately 66.3%, as compared to the
second quarter of 1993 and increased approximately $10,000,000, or
approximately 76.3%, for the first six months of 1994 as compared to
1993 primarily as a result of the factors discussed above and the
effect of Dixieline's operating results. Operating earnings also
include approximately $1,700,000 of non-segment income from the
settlement in the second quarter of 1994 of insurance claims and
disputes, partially offset by approximately $900,000 and approximately
$1,000,000 of non-segment expense of certain litigation and other
matters in dispute in the second quarter and first six months of 1994,
respectively. Dixieline's operating earnings included in the
Company's consolidated operating results were approximately $300,000
in the second quarter of 1993 and was an operating loss of
approximately $600,000 for the first six months of 1993. Dixieline's
operating results were no longer included in the Company's
consolidated operating results in 1994. See above.
Interest expense decreased approximately $500,000, or approximately
7.5% in the second quarter of 1994, as compared to 1993 and increased
approximately $400,000, or approximately 2.9% in the first six months
of 1994, as compared to 1993. In February 1994, the Company sold in a
public offering $218,500,000 of its 9 7/8% Senior Subordinated Notes
due 2004 ("9 7/8% Notes") and used the proceeds to redeem, on March
24, 1994 approximately $153,000,000 of certain of the Company's
outstanding indebtedness. Interest expense (net of interest income)
was approximately $1,300,000 greater in the first half of 1994 than it
would have been had the debt redemption occurred on the same day as
the financing. This increase was partially offset by the effect of
the redemption of certain other outstanding indebtedness in January
1994. The decrease in interest expense in the second quarter was
primarily due to the redemption and financing discussed above. (See
Note C of the Notes to Unaudited Condensed Consolidated Financial
Statements included elsewhere herein.)
Interest income increased approximately $500,000, or approximately
62.5%, and approximately $700,000, or approximately 38.9%, for the
second quarter and first six months of 1994, respectively, as compared
to the same periods in 1993. The increases were principally due to
higher average invested balances of short-term investments, marketable
securities and other investments (in part due to cash from the sale of
the 9 7/8% Notes), principally offset by the effect of slightly lower
yields earned on investment and marketable securities.
The net gain on marketable securities was approximately $500,000 for
the second quarter of 1993 and approximately $1,500,000 for the first
six months of 1993, a portion of which were unrealized gains recorded
in the Company's Statement of Operations in 1993. Due to the adoption
in 1994 by the Company of Statement of Financial Accounting Standards
("SFAS") No. 115, such unrealized gains and losses are now recorded as
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
adjustments to stockholders' investment. (See Note E of the Notes to
Unaudited Condensed Consolidated Financial Statements included
elsewhere herein.)
The provision for income taxes was approximately $4,400,000 for the
second quarter of 1994, as compared to approximately $2,000,000 for
the second quarter of 1993 and was approximately $5,300,000 for the
first six months of 1994, as compared to approximately $2,600,000 for
1993. The income tax rates principally differ from the United States
federal statutory rate of 35% in 1994 and 34% in 1993, as a result of
the effect of foreign income tax on foreign source income, a limited
amount of state income tax benefits recorded, and nondeductible
amortization expense (for tax purposes) in both periods. (See Note I
of the Notes to Unaudited Condensed Consolidated Financial Statements
included elsewhere herein.)
The Company recorded an extraordinary loss of approximately $100,000
in the second quarter and an extraordinary gain of approximately
$300,000 in the first six months of 1994. The extraordinary loss and
gain resulted from the purchase in the open market of the Company's 7
1/2% Convertible debentures. (See Note D of the Notes to Unaudited
Condensed Consolidated Financial Statements included elsewhere
herein.)
The cumulative effect of accounting changes resulted in earnings of
approximately $400,000 in the first six months of 1994 and a loss of
approximately $2,100,000 in the first six months of 1993 from the
adoption of SFAS No. 115 and No. 106, respectively. (See Notes E and G
of the Notes to Unaudited Condensed Consolidated Financial Statements
included elsewhere herein.)
In the first six months of 1994, the Company incurred increased
marketing expenses, principally in its Residential Building Products
Group, as a result of competitive conditions. There can be no
assurance that such conditions will continue in the future or what
effect such conditions, if they persist, may have on future
operations.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
Liquidity and Capital Resources
The Company's primary sources of liquidity in 1994 have been funds
provided by the sale of Notes (See Note C of the Notes to the
Unaudited Condensed Consolidated Financial Statements) and proceeds
from a business sold and, in 1994 and 1993, subsidiary operations,
unrestricted investments and marketable securities. The Company's
Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian
(approximately $14,500,000 U. S. at exchange rates prevailing at July
2, 1994) secured line of credit, of which approximately $5,100,000
Canadian (approximately $3,700,000 U. S. at exchange rates prevailing
at August 5, 1994), in the aggregate, is available to the Company (the
"Line of Credit") at August 5, 1994. The Line of Credit prohibits
dividends or other distributions to the Company from Broan Limited in
excess of $14,800,000 Canadian (approximately $10,700,000 U. S. at
exchange rates prevailing at July 2, 1994). Borrowings under the Line
of Credit are available for working capital and other general
corporate purposes. The Line of Credit contains covenants requiring
Broan Limited to maintain (i) a ratio of earnings before interest and
taxes to interest of at least 2 to 1, (ii) a working capital ratio of
at least 1.5 to 1 and (iii) a debt to equity ratio of no higher than 3
to 1; the Line of Credit also limits the annual amount of capital
expenditures which Broan Limited may make to $500,000 Canadian
(approximately $360,000 U. S. at exchange rates prevailing at July 2,
1994). Broan Limited pays a commitment fee of .25% per annum on the
unutilized portion of the Line of Credit payable monthly on a pro rata
basis, and the Line of Credit is subject to an annual review by the
lender in April of each year.
As of August 5, 1994, there were approximately $1,100,000 U. S. in
outstanding borrowings under the Line of Credit, all of the proceeds
of such borrowings were advanced to the Company in 1993.
Unrestricted cash and investments were approximately $69,817,000 at
July 2, 1994. On January 14, 1994, the Company redeemed $22,600,000
principal amount of its 11-1/2% Senior Subordinated Debentures due May
1994, which were called for redemption in December 1993. In February
1994, the Company sold in a public offering $218,500,000 of its 9-7/8%
Senior Subordinated Notes due 2004 ("9-7/8% Notes") at a slight
discount. A portion of the net proceeds from the sale of the 9-7/8%
Notes were used to redeem, on March 24, 1994, approximately
$153,000,000 of certain of the Company's outstanding principal amount
of indebtedness and pay accrued interest. (See Note C of Notes to the
Unaudited Condensed Consolidated Financial Statements.)
The Company believes that cash flow from subsidiary operations,
unrestricted cash and marketable securities and borrowings under the
Line of Credit or under new credit facilities or arrangements which
may be entered into will provide sufficient liquidity to meet the
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
Company's working capital, capital expenditure, debt service and other
ongoing business needs through the next 12 months.
The Company's investment in marketable securities at July 2, 1994
consisted primarily of investments in United States Treasury
securities. (See Note E of Notes to Unaudited Condensed Consolidated
Financial Statements.) At July 2, 1994, approximately $9,337,000 of
the Company's cash and investments were pledged as collateral with
insurance companies and were classified as restricted in current
assets in the Company's accompanying unaudited condensed consolidated
balance sheet.
During 1992, a former subsidiary of the Company defaulted on certain
principal and interest payments relating to obligations under which
the Company was contingently liable. In March 1994, the Company paid
approximately $1,594,000 of interest payments through that date on
such obligations. In July 1994, the Company purchased at a slight
discount, approximately $6,400,000 principal amount of such
obligations (consisting of substantially all of such obligations) from
several holders. The Company did not record any losses in 1994 in
connection with the settlement of these contingent obligations. (See
Note H of Notes to Unaudited Condensed Consolidated Financial
Statements.)
In March 1994, the Company sold Dixieline for approximately
$18,800,000 in cash and $6,000,000 of preferred stock of the
purchaser. (See Note C of Notes to Unaudited Condensed Consolidated
Financial Statements.)
The Company's working capital and current ratio increased from
approximately $117,926,000 and approximately 1.6:1, respectively, at
December 31, 1993 to approximately $174,407,000 and approximately
2.1:1, respectively, at July 2, 1994, principally as a result of the
remaining net cash proceeds from the debt financing in February 1994
and as described below. (See Note C of Notes to Unaudited Condensed
Consolidated Financial Statements.)
Accounts receivable increased approximately $24,529,000, or
approximately 28.9%, between December 31, 1993 and July 2, 1994, while
net sales from ongoing operations increased approximately 15.1% in the
second quarter of 1994 as compared to the fourth quarter of 1993.
This increase is principally as a result of increased net sales of new
and replacement products from residential and manufactured housing
customers by the Air Conditioning and Heating Products Group. The
rate of change in accounts receivable in certain periods may be
different than the rate of change in sales in such periods principally
due to the timing of net sales. Significant net sales near the end of
any period generally result in significant amounts of accounts
receivable on the date of the balance sheet at the end of such period.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
In recent periods, the Company has not experienced any significant
changes in credit terms, collection efforts, credit utilization or
delinquency.
Inventories increased approximately $8,428,000 or approximately 10.3%,
between December 31, 1993 and July 2, 1994.
Accounts payable increased approximately $5,453,000 or approximately
11.6% between December 31, 1993 and July 2, 1994.
Unrestricted cash and investments increased approximately $13,211,000
(net of $22,600,000 which was used to retire certain indebtedness on
January 14, 1994 - see Note C of Notes to Unaudited Condensed
Consolidated Financial Statements) from December 31, 1993 to July 2,
1994, principally as a result of cash provided (used) by the
following:
Condensed
Consolidated
Cash Flows
----------
Operating Activities--
Cash flow from operations, net $14,929,000
Increase in accounts receivable, net (24,529,000)
Increase in inventories (8,428,000)
Increase in trade accounts payable 5,453,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net 4,732,000
Investing Activities--
Net cash proceeds relating to
businesses sold 20,280,000
Purchase of marketable securities (5,032,000)
Capital expenditures (7,945,000)
Change in restricted cash and investments (2,650,000)
Financing Activities--
Increases in borrowings, net of payments,
including purchase of debentures 17,554,000
All other, net (1,153,000)
----------
$13,211,000
==========
The Company's debt-to-equity ratio increased from approximately 2.1:1
at December 31, 1993 to approximately 2.2:1 at July 2, 1994, primarily
as a result of a net increase in indebtedness of approximately
$17,400,000, partially offset by the effect of increased stockholders'
investment as a result of net earnings in the first half of 1994. (See
Note C of Notes to Unaudited Condensed Consolidated Financial
Statements.)
At July 2, 1994, the payment of cash dividends or stock payments was
prohibited under the most restrictive of the Company's indentures and
loan agreements.
The Company's St. Louis, Missouri plant, which is part of the
Company's Air Conditioning and Heating Products Group and manufactures
products for the residential site-built and manufactured housing
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 2, 1994
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1993
(Continued)
markets, experienced damage as a result of the flooding of the Mississippi
River in July 1993. The plant was closed for several weeks, but returned
to full operation in late August 1993. In the second quarter of 1994, the
Company settled its claims with its insurance carrier and recorded
approximately $1,500,000 of income.
At July 2, 1994, the Company has approximately $7,300,000 of net U. S.
Federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note I of Notes to the Unaudited Condensed
Consolidated Financial Statements.)
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions.
The Company regularly reviews potential acquisitions which would increase
or expand the market penetration of, or otherwise complement, its current
product lines, although there are no pending agreements or negotiations for
any material acquisitions and the Company has made no material acquisitions
since early 1988.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.1 Calculation of shares used in determining
earnings per share (filed herewith).
(b) The following report on Form 8-K was filed by the
Registrant during the period:
April 13, 1994. Item 2. Acquisition or
Disposition of Assets, Item 7. Financial Statements,
Pro Forma Financial information and Exhibits.
SIGNATURE
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.
NORTEK, INC.
(Registrant)
/s/Almon C. Hall
---------------------------------
Almon C. Hall, Vice President and
Controller and Chief Accounting
Officer
August 16, 1994
- - -------------------------
(Date)
EXHIBIT 11.1
(Page 1 of 2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
July 2, July 3,
1994 1993
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,608,549 16,597,226
Less average common and special common shares
held in the Treasury (4,066,602) (4,066,602)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 12,541,947 12,530,624
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 119,313 72,386
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,661,260 12,603,010
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 12,541,947 12,530,624
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the greater of
the price at the end of the period or the
average price during the period 128,260 72,386
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures 491,376 722,339
---------- ----------
13,161,583 13,325,349
========== ==========
Note: Earnings per share calculations for 1993 do not include the
effect of convertible debentures (and the reduction in related expense),
because the assumed conversion of debentures is anti-dilutive.
EXHIBIT 11.1
(Page 2 of 2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Six Months Ended
--------------------------
July 2, July 3,
1994 1993
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,608,549 16,595,050
Less average common and special common shares
held in the Treasury (4,066,602) (4,066,602)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 12,541,947 12,528,448
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 138,177 74,825
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,680,124 12,603,273
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 12,541,947 12,528,448
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the greater of
the price at the end of the period or the
average price during the period 142,650 74,825
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures 604,902 722,339
---------- ----------
13,289,499 13,325,612
========== ==========
Note: Earnings (loss) per share calculations for 1993 do not include
the effect of convertible debentures (and the reduction in related
expense), because the assumed conversion of debentures is anti-dilutive.
