Page 31 of 31
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 October 1, 1994
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------
Commission File No. 1-6112
-----------------------------------------
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
November 4, 1994 was 12,008,613. The number of shares of
Special Common Stock outstanding as of November 4, 1994 was
535,078.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
Oct. 1, Dec. 31,
1994 1993
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 68,728 $ 34,006
Short-term investments held for
redemption of debentures --- 22,600
Marketable securities available
for sale 28,436 25,892
Restricted--
Cash and investments at cost which
approximates market 9,337 6,687
Accounts receivable, less allowances
of $4,804 and $4,198 111,071 84,843
Inventories:
Raw materials 31,732 27,603
Work in process 10,920 9,227
Finished goods 51,444 45,183
------- -------
94,096 82,013
------- -------
Current assets of business sold --- 23,736
Insurance claims receivable --- 14,500
Prepaid expenses and other current
assets 9,342 7,541
U. S. Federal prepaid income taxes 21,800 17,000
------- -------
Total Current Assets 342,810 318,818
------- -------
Property and Equipment, at cost:
Land 5,909 5,833
Buildings and improvements 52,849 52,309
Machinery and equipment 118,759 108,983
------- -------
177,517 167,125
Less--Accumulated depreciation 83,291 76,546
------- -------
Total Property and Equipment,
net 94,226 90,579
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $20,961 and $19,180 73,660 75,599
Non-current assets of business sold --- 11,987
Deferred debt expense 8,730 563
Other 11,791 11,663
------- -------
94,181 99,812
------- -------
$531,217 $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)
Oct. 1, Dec. 31,
1994 1993
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Notes payable, current maturities
of long-term debt and other short-
term obligations $ 6,404 $ 14,957
7 1/2% Convertible Debentures 6,373 ---
11 1/2% Senior Subordinated
Debentures, net --- 22,582
Accounts payable 60,850 46,923
Accrued expenses and taxes, net 93,199 91,422
Current liabilities of business sold --- 11,769
Insurance claims advances --- 13,239
------- -------
Total Current Liabilities 166,826 200,892
------- -------
Other Liabilities:
Deferred income taxes 24,691 18,000
Other 6,714 8,100
------- -------
31,405 26,100
------- ------
Notes, Mortgage Notes and
Debentures Payable 218,857 169,664
------- -------
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,
15,800,201 shares and 15,758,974
shares issued 15,800 15,759
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
810,092 and 849,575 shares issued 810 849
Additional paid-in capital 134,625 134,627
Accumulated deficit (3,834) (17,034)
Cumulative translation, pension and
other adjustments (5,221) (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 114,129 104,007
------- -------
$531,217 $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
------------------
Oct. 1, Oct. 2,
1994 1993
---- ----
(Unaudited)
Net Sales $197,012 $202,030
------- -------
Costs and Expenses:
Cost of products sold 138,937 145,045
Selling, general and
administrative expense 42,721 48,700
------- -------
181,658 193,745
------- -------
Operating earnings 15,354 8,285
Interest expense (6,112) (6,513)
Interest income 1,258 628
Net gain on marketable securities --- 900
Loss on business sold --- (20,300)
------- -------
Earnings (loss) before provision
(credit) for income taxes 10,500 (17,000)
Provision (credit) for income taxes 4,100 (4,100)
------- -------
Earnings (loss) before extraordinary
loss 6,400 (12,900)
Extraordinary loss from debt
retirements (100) ---
------- -------
Net Earnings (Loss) $ 6,300 $(12,900)
======= =======
Net Earnings (Loss) Per Share:
Earnings (Loss) Before Extraordinary Loss--
Primary $ .50 $ (1.03)
------- -------
Fully diluted $ .50 $ (1.03)
------- -------
Extraordinary Loss--
Primary $ (.01) $ ---
------- -------
Fully diluted $ (.01) $ ---
------- -------
Net Earnings(Loss)--
Primary $ .49 $ (1.03)
====== =======
Fully diluted $ .49 $ (1.03)
====== =======
Weighted Average Number of Shares:
Primary 12,730 12,608
====== ======
Fully diluted 13,059 13,336
====== ======
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
Nine Months Ended
------------------
Oct. 1, Oct. 2,
1994 1993
---- ----
(Unaudited)
Net Sales $559,754 $575,795
------- -------
Costs and Expenses:
Cost of products sold 394,283 414,600
Selling, general and
administrative expense 127,062 139,844
------- -------
521,345 554,444
------- -------
Operating earnings 38,409 21,351
Interest expense (20,198) (20,165)
Interest income 3,789 2,464
Net gain on marketable securities --- 2,350
Loss on business sold --- (20,300)
------- -------
Earnings (Loss) before provision
(credit) for income taxes 22,000 (14,300)
Provision (credit) for income taxes 9,400 (1,500)
------- -------
Earnings (Loss) before extraordinary
gain 12,600 (12,800)
Extraordinary gain from debt
retirements 200 ---
------- -------
Earnings (Loss) before the cumulative
effect of accounting changes 12,800 (12,800)
Cumulative effect of accounting
changes 400 (2,100)
------- -------
Net Earnings (Loss) $ 13,200 $(14,900)
======= =======
Net Earnings (Loss) Per Share:
Earnings (Loss) Before Extraordinary Gain--
Primary $ .99 $ (1.02)
------- -------
Fully diluted $ .98 $ (1.02)
------- -------
Extraordinary Gain--
Primary $ .02 $ ---
------- -------
Fully diluted $ .02 $ ---
------- -------
Cumulative Effect of Accounting
Changes--
Primary $ .03 $ (.17)
------- -------
Fully diluted $ .03 $ (.17)
------ -------
Net Earnings (Loss)--
Primary $ 1.04 $ (1.19)
====== =======
Fully diluted $ 1.03 $ (1.19)
====== =======
Weighted Average Number of Shares:
Primary 12,697 12,605
====== ======
Fully diluted 13,212 13,332
====== ======
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
Nine Months Ended
------------------
Oct. 1, Oct. 2,
1994 1993
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 13,200 $(14,900)
------ -------
Adjustments to reconcile net earnings
(loss) to cash:
Depreciation and amortization 14,060 16,566
Gain on marketable securities --- (2,350)
Extraordinary gain from debt retirements (250) ---
Cumulative effect of accounting
changes (400) 3,100
Loss on business sold --- 20,300
Deferred federal income tax credit
from continuing operations (3,200) (7,800)
Deferred federal income tax provision
on discontinued operations 2,200 ---
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 (26,228) (21,872)
Prepaids and other current assets (3,436) 398
Inventories (12,083) (6,567)
Accounts payable 13,831 3,202
Accrued expenses and taxes 11,550 3,985
Long-term assets, liabilities and
other, net (5,917) 7,130
------- -------
Total adjustments to net earnings
(loss) (8,523) 16,092
------- -------
Net Cash Provided by Operating
Activities 4,677 1,192
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,640) (7,227)
Purchase of investments and marketable
securities (5,032) (90,502)
Proceeds from sale of investments and
marketable securities --- 133,000
Proceeds (payments) relating to
businesses sold or discontinued, net 12,468 (2,420)
Change in restricted cash and
investments (2,475) 1,500
Other, net 410 (2,527)
------- -------
Net Cash Provided by (Used in)
Investing Activities (8,269) 31,824
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes, net 209,195 ---
Purchase and redemption of
debentures and notes payable (185,209) (1,104)
Payment of borrowings (8,185) (3,683)
Other, net (87) (1,341)
------- -------
Net Cash Provided by (Used in)
Financing Activities 15,714 (6,128)
------- ------
Net increase in unrestricted
cash and investments 12,122 26,888
Unrestricted cash and investments at
the beginning of the period 56,606 23,467
------- ------
Unrestricted cash and investments at the
end of the period $ 68,728 $50,355
======= ======
Interest paid $ 21,436 $13,254
======= ======
Income taxes paid, net $ 4,530 $13,678
======= ======
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 October 1, 1994 and October 2, 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, July 3,
1993 $15,732 $870 $134,618 $ 1,766 $ --- $(28,051)
10,207 shares of
special common
stock converted
into 10,207 shares
of common stock 11 (11) --- --- --- ---
Net loss --- --- --- (12,900) --- ---
------ --- ------- ------- ------ ------
Balance, October 2,
1993 $15,743 $859 $134,618 $(11,134) $ --- $(28,051)
====== === ======= ====== ====== =======
Balance, July 2, 1994 $15,788 $820 $134,627 $(10,134) $(5,390) $(28,051)
10,406 shares of
special common stock
converted into
10,406 shares of
common stock 10 (10) --- --- --- ---
1,744 shares of common
stock issued upon
exercise of stock
options 2 --- (2) --- --- ---
Translation adjust-
ment --- --- --- --- 430 ---
Unrealized decline in
marketable securities --- --- --- --- (261) ---
Net earnings --- --- --- 6,300 --- ---
------ --- ------- ------ ------ -------
Balance, Oct. 1, 1994 $15,800 $810 $134,625 $(3,834) $(5,221) $(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 Nine Months Ended October 1, 1994 and October 2, 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)
130,440 shares of
special common stock
converted into
130,440 shares of
common stock 131 (131) --- --- --- ---
10,000 shares of
common stock issued
upon exercise of
stock options 10 --- 19 --- --- ---
Net loss --- --- --- (14,900) --- ---
Balance, October 2, ------- ---- -------- --------- ------- --------
1993 $15,743 $859 $134,618 $(11,134) $ --- $(28,051)
====== === ======= ======= ====== =======
Balance, December 31,
1993 $15,759 $849 $134,627 $(17,034) $(2,143) $(28,051)
39,483 shares of
special common stock
converted into
39,483 shares of
common stock 39 (39) --- --- --- ---
1,744 shares of common
stock issued upon
exercise of stock
options 2 --- (2) --- --- ---
Translation adjustment --- --- --- --- (161) ---
Cumulative effect of
an accounting change
(see Note E) --- --- --- --- (400) ---
Unrealized decline in
marketable securities --- --- --- --- (2,517) ---
Net earnings --- --- --- 13,200 --- ---
------ --- ------- ------- ------ ------
Balance, October 1,
1994 $15,800 $810 $134,625 $ (3,834) $(5,221) $(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
OCTOBER 1, 1994 AND OCTOBER 2, 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 October 1, 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 nine months and third quarter of 1993 includes
approximately $83,200,000 and approximately $29,500,000 in net
sales and approximately a $600,000 loss and approximately
$300,000 of earnings, respectively, relating to the Company's
former Dixieline Lumber Company subsidiary ("Dixieline"), which
business was accounted for as a business held for sale since
October 2, 1993 (see Note C below). Accordingly, Dixieline's
operating results were no longer included in the Company's
consolidated operating results subsequent to October 2, 1993.
(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 nine
months 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 nine months and three months ended October 1, 1994 and
October 2, 1993, and the year ended December 31, 1993, as
adjusted for the pro forma effect of the sale of Dixieline, the
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Continued)
debt financing and the debt redemptions:
Nine Months Ended Three Months Ended Year Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2, December
1994 1993 1994 1993 31,1993
---- ---- ---- ---- -------
(Amounts in Thousands Except Per Share Amounts)
Net Sales $559,754 $492,590 $197,012 $172,478 $660,908
Earnings from
Continuing
Operations $ 13,500 $ 3,100 $ 6,400 $ 2,100 $ 3,500
Fully Diluted
Earnings Per
Share $ 1.05 $ .25 $ .50 $ .17 $ .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) On October 24, 1994, the Company redeemed its remaining
outstanding $6,373,000 principal amount of 7 1/2% Convertible
Debentures due May 1, 2006 ("7 1/2% Debentures"), which were
called for redemption in September 1994, plus paid accrued
interest and a slight redemption premium. This call for
redemption resulted in an extraordinary loss of approximately
$100,000, net of income taxes of $100,000 ($.02 per share) in the
third quarter of 1994.
During the second quarter of 1994, the Company purchased in the
open market approximately $5,121,000 principal amount of its 7-
1/2% Debentures. 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% Debentures. 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
$400,000, net of income taxes of $200,000 ($.03 per share) in the
first quarter of 1994.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1994 AND OCTOBER 2, 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 October 1, 1994, the reduction in
the Company's stockholders' investment under the new accounting
method for gross unrealized losses was approximately $2,917,000.
At October 1, 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 October 1, 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 $14,952
5-10 years 15,000 15,349 13,484
------ ------ ------
$31,000 $31,353 $28,436
====== ====== ======
In the first nine months of 1994, there were no realized gains or
losses on marketable securities.
(F) In the first nine months and the third quarter ended October 1,
1994, the Company incurred net after-tax charges of approximately
$4,500,000 and approximately $1,600,000, 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
$1,100,000 and approximately $100,000 in the first nine months
and third 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.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Continued)
(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
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 the third quarter of
1994, the Company purchased at a slight discount, approximately
$6,635,000 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 October 1, 1994 is as follows: (Amounts in
Thousands)
----------
U.S. Federal Prepaid (Deferred) Income
Tax Assets Arising From:
Accounts receivable $ 1,640
Inventory (583)
Insurance reserves 6,560
Other reserves, liabilities and assets, net 14,117
Other, net 66
------
$21,800
======
Deferred (Prepaid) Income Tax Liabilities Arising From:
Property & equipment, net $11,898
Prepaid pension assets 1,518
Insurance reserves (587)
Other reserves, liabilities and assets, net 3,758
Capital loss carryforward (6,217)
Valuation allowances 14,390
------
$24,760
======
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Continued)
At October 1, 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 October 1, 1994, the
Company has approximately $6,400,000 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 before
extraordinary items at the federal statutory income tax
rate to the actual provision for income taxes :
Three Nine
Months Ended Months Ended
------------ ------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
---- ---- ---- ----
(Amounts in Thousands)
Provision (credit) for income
taxes at the federal
statutory rate $3,662 $(5,780) $7,687 $(4,862)
Net change from statutory rate:
State taxes, net of federal tax
effect 66 149 650 644
Non-deductible amortization for
tax purposes 184 180 553 540
Other non-deductible items 91 75 273 326
Change in valuation reserve 132 1,934 123 2,251
Net loss on business sold --- (204) --- (204)
Tax effect on foreign income 142 69 292 317
Other, net (177) (523) (178) (512)
----- ----- ----- -----
Provision (credit) for income
taxes before extraordinary
items $4,100 $(4,100) $9,400 $(1,500)
===== ===== ===== =====
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 October 1, 1994, the payment of cash dividends or stock
payments was prohibited under the indenture governing the 7 1/2%
Debentures, the most restrictive of the Company's indenture and
loan agreements. (See Note D.) At October 25, 1994,
approximately $25,600,000 was available for the payment of cash
dividends or stock payments under the terms of the Company's
Indenture governing the 9 7/8% Notes.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Continued)
(L) In the third quarter of 1993, the Company recorded a pre-tax loss
of approximately $1,600,000 ($.08 per share, net of tax) as a
result of the sale in October 1993 of certain real property and
provided a pre-tax reserve of approximately $700,000 ($.04 per
share, net of tax) in connection with the consolidation of
certain of its manufacturing facilities.
(M) The following table summarizes the unaudited activity of
businesses sold or discontinued included in the accompanying
unaudited condensed consolidated statement of cash flows:
Nine Months Ended
------------------
Oct. 1, Oct. 2,
1994 1993
---- ----
(Amounts in Thousands)
Fair value of assets sold $34,439 $ ---
Liabilities assumed by the purchaser (16,143) ---
Net cash paid relating to
businesses sold or discontinued (5,828) (2,420)
------ ------
Net cash proceeds (payments) relating
to businesses sold or discontinued $12,468 $(2,420)
====== ======
Significant unaudited non-cash financing and investing activities
excluded from the accompanying unaudited condensed consolidated
statement of cash flows include transactions of approximately
$2,517,000 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 nine
months ended October 1, 1994 and October 2, 1993, includes
approximately $1,100,000 and approximately $1,600,000,
respectively, of amortization of deferred debt expense and debt
discount, 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 THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 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 third quarter and first nine months of 1993. (See Note C of the
Notes to Unaudited Condensed Consolidated Financial Statements.)
Results of Operations
The tables that follow 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 third quarter ended October 1, 1994 are
not necessarily indicative of the results of operations to be expected
for the full year.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
Change in the
Third Quarter Ended Third Quarter of 1994
Oct. 1, Oct. 2, as Compared to 1993
1994 1993 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $197.0 $202.0 $(5.0) (2.5)
Cost of products sold 138.9 145.0 6.1 4.2
Selling, general and
administrative expense 42.8 48.7 5.9 12.1
Operating earnings 15.3 8.3 7.0 84.3
Interest expense (6.1) (6.5) .4 6.2
Interest income 1.3 .6 .7 116.7
Net gain on marketable
securities --- .9 (.9) (100.0)
Loss on business sold --- (20.3) 20.3 100.0
Earnings (loss) before
provision (credit) for
income taxes 10.5 (17.0) 27.5 *
Provision (credit) for income
taxes 4.1 (4.1) (8.2) *
Earnings (loss) before
extraordinary loss 6.4 (12.9) 19.3 *
Extraordinary loss from
debt retirements (.1) --- (.1) ---
---- --- ---- -----
Net earnings (loss) $ 6.3 $(12.9) $19.2 *
==== ==== ==== =====
*not meaningful
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
Change in
Percentage of Net Sales Percentage
Third Quarter Ended for the Third
Oct. 1, Oct. 2, Quarter 1994
1994 1993 as compared to 1993
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 70.5 71.8 1.3
Selling, general and
administrative expense 21.7 24.1 2.4
Operating earnings 7.8 4.1 3.7
Interest expense (3.1) (3.2) .1
Interest income .7 .3 .4
Net gain on marketable
securities --- .4 (.4)
Loss on business sold --- (10.0) 10.0
Earnings (loss) before
provision (credit) for
income taxes 5.4 (8.4) 13.8
Provision (credit) for
income taxes 2.1 (2.0) (4.1)
Earnings (loss) before
extraordinary loss 3.3 (6.4) 9.7
Extraordinary loss from debt
retirements (.1) --- (.1)
---- ---- ----
Net earnings (loss) 3.2 (6.4) 9.6
==== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
The tables that follow 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 nine months ended October 1, 1994 are
not necessarily indicative of the results of operations to be expected
for the full year.
Change in the First
Nine Months Ended Nine Months of 1994
Oct. 1, Oct. 2, as compared to 1993
1994 1993 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $559.8 $575.8 (16.0) (2.8)
Cost of products sold 394.3 414.6 20.3 4.9
Selling, general and
administrative expense 127.1 139.8 12.7 9.1
Operating earnings 38.4 21.4 17.0 79.4
Interest expense (20.2) (20.2) --- ---
Interest income 3.8 2.4 1.4 58.3
Net gain on marketable
securities --- 2.4 (2.4) (100.0)
Loss on business sold --- (20.3) 20.3 100.0
Earnings (loss) before
provision (credit) for
income taxes 22.0 (14.3) 36.3 *
Provision (credit) for
income taxes 9.4 (1.5) (10.9) *
Earnings (loss) before
extraordinary gain and the
cumulative effect of
accounting changes 12.6 (12.8) 25.4 *
Extraordinary gain from debt
retirements .2 --- .2 ---
Cumulative effect of
accounting changes .4 (2.1) 2.5 *
----- ----- ----- -----
Net earnings (loss) $ 13.2 $(14.9) $ 28.1 *
===== ===== ===== =====
*not meaningful
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
Percentage of
Net Sales Change in Percentage
Nine Months Ended for the First Nine
Oct. 1, Oct. 2, Months of 1994
1994 1993 as compared to 1993
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 70.5 72.0 1.5
Selling, general and
administrative expense 22.7 24.3 1.6
Operating earnings 6.8 3.7 3.1
Interest expense (3.6) (3.5) (.1)
Interest income .7 .4 .3
Net gain on marketable
securities --- .4 (.4)
Loss on business sold --- (3.5) 3.5
Earnings (loss) before
provision (credit) for
income taxes 3.9 (2.5) 6.4
Provision (credit) for
income taxes 1.7 (.3) (2.0)
Earnings (loss) before
extraordinary gain and the
cumulative effect of
accounting changes 2.2 (2.2) 4.4
Extraordinary gain from debt
retirements .1 --- .1
Cumulative effect of
accounting changes .1 (.4) .5
---- ---- ----
Net earnings (loss) 2.4 (2.6) 5.0
==== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
The following table presents the net sales for the Company's principal
product groups for the third quarter and nine months ended October 1,
1994 as compared to the third quarter and nine months ended October 2,
1993 and the amount and the percentage change of such results as
compared to the prior comparable period. The results of operations
for the third quarter and first nine months of 1994 are not
necessarily indicative of the results of operations to be expected for
the full year.
Third Quarter Ended
---------------------------------------
Oct. 1, Oct. 2, Increase (Decrease)
1994 1993 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $ 67,832 $ 65,321 2,511 3.8
Air Conditioning and
Heating Products 93,573 73,779 19,794 26.8
Plumbing Products 35,607 33,378 2,229 6.7
------- ------- ------ -----
Net Sales from
Ongoing Operations 197,012 172,478 24,534 14.2
Business Sold --- 29,552 (29,552) (100.0)
------- ------- ------- -----
Total $197,012 $202,030 $ (5,018) (2.5)
======= ======= ======= ======
Nine Months Ended
-----------------------------------------
Oct. 1, Oct. 2, Increase (Decrease)
1994 1993 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $199,271 $191,625 7,646 4.0
Air Conditioning and
Heating Products 258,082 204,002 54,080 26.5
Plumbing Products 102,401 96,963 5,438 5.6
------- ------- ------ -----
Net Sales from
Ongoing Operations 559,754 492,590 67,164 13.6
Business Sold --- 83,205 (83,205) (100.0)
------- ------- ------- -----
Total $559,754 $575,795 $(16,041) (2.8)
======= ======= ======= ======
Operating Results
Net sales from ongoing operations increased approximately $24,534,000,
or approximately 14.2%, and increased approximately $67,164,000, or
approximately 13.6%, for the third quarter and first nine months of
1994, respectively, as compared to 1993. Total net sales decreased
approximately $5,018,000, or approximately 2.5%, and decreased
approximately $16,041,000, or approximately 2.8%, for the third
quarter and first nine 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
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
and replacement HVAC products to manufactured housing customers and
increased sales levels of commercial and industrial HVAC products by
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 $5,700,000 in the third
quarter and first nine 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 third quarter of 1993 to approximately 70.5% in the third quarter
of 1994 and decreased from approximately 71.5% in the first nine
months of 1993 to approximately 70.5% in the first nine months of
1994. Cost of products sold as a percentage of total net sales
decreased from approximately 71.8% in the third quarter of 1993 to
approximately 70.5% in the third quarter of 1994, and decreased from
approximately 72.0% in the first nine months of 1993 to approximately
70.5% in the first nine 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 and increased sales of residential and
commercial HVAC products in the Air Conditioning and Heating Products
Group, 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, in part, due to increased competition and the impact of
consolidating some manufacturing facilities. 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 24.1% in the third quarter of 1993 to approximately
21.7% in the third quarter of 1994 and decreased from approximately
24.1% in the first nine months of 1993 to approximately 22.7% in the
first nine months of 1994. Total selling, general and administrative
expense as a percentage of total net sales decreased from
approximately 24.1% in the third quarter of 1993 to approximately
21.7% in the third quarter of 1994 and decreased from approximately
24.3% in the first nine months of 1993 to approximately 22.7% in the
first nine 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 third quarter
and first nine months of 1994 were principally due to lower non-
segment expense, the effect of 1993 pre-tax losses of approximately
$1,600,000 as a result of the sale in October 1993 of certain real
property and $700,000 in connection with the consolidation of certain
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
manufacturing facilities by the Company's Building Products Group, and
approximately $3,200,000 of income from the settlement of insurance
claims and disputes (in the first nine months of 1994) combined with
increased net sales from ongoing operations in the third quarter and
first nine months 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 lower expense levels
than the total expense level of ongoing operations. These
improvements in the percentage were offset by the effect of
approximately $2,800,000 and approximately $7,600,000 in the third
quarter and first nine 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, the cost of installing new systems, marketing
expenses as a result of competitive conditions and expenses of certain
litigation and other matters in dispute. Approximately $300,000 and
$1,800,000 of expenses relating to certain cost reduction activities
and manufacturing process improvements were incurred in the third
quarter and first nine months of 1993, respectively.
Segment earnings from ongoing operations were approximately
$17,700,000 for the third quarter of 1994, as compared to
approximately $11,800,000 for the third quarter of 1993, and
approximately $46,900,000 for the first nine months of 1994 as
compared to approximately $34,200,000 for the first nine months of
1993. Total segment earnings were approximately $17,700,000 for the
third quarter of 1994, as compared to approximately $12,300,000 for
the third quarter of 1993, and approximately $46,900,000 for the first
nine months of 1994 as compared to approximately $33,900,000 for the
first nine 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 in the first nine months related to
income from the settlement of insurance claims. The increase in
segment earnings was partially offset by the effect of approximately
$2,700,000 and approximately $6,500,000 in the third quarter and first
nine 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, the cost of installing new systems, 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 third quarter
and first nine months of 1993 were approximately $300,000 and
approximately $1,800,000, 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 7.1% of
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
segment earnings from ongoing operations in the third quarter of 1994
from approximately 11.9% of such earnings in 1993, and declined to
approximately 6.7% of segment earning from ongoing operations in the
first nine months of 1994 from approximately 11.8% of such earnings in
the first nine months of 1993. This decline was primarily due to an
approximately 57.3% and approximately 44.9% increase in domestic
segment earnings from ongoing operations in the third quarter and
first nine months of 1994, respectively, as well as an approximately
11.8% and approximately 21.5% decrease in foreign segment earnings in
the third quarter and first nine months of 1994, respectively. The
decrease in foreign segment earnings was primarily the result of the
continued weakness in the residential construction market in Canada.
Operating earnings in the third quarter of 1994 increased
approximately $7,000,000, or approximately 84.3%, as compared to the
third quarter of 1993 and increased approximately $17,000,000, or
approximately 79.4%, for the first nine 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 first nine months of 1994 of insurance claims and
disputes, partially offset by approximately $100,000 and approximately
$1,100,000 of non-segment expense of certain litigation and other
matters in dispute in the third quarter and first nine months of 1994,
respectively. Dixieline's operating earnings included in the
Company's consolidated operating results were approximately $400,000
in the third quarter of 1993 and was an operating loss of
approximately $200,000 for the first nine months of 1993. Dixieline's
operating results were no longer included in the Company's
consolidated operating results in 1994. (See Note C of the Notes to
Unaudited Condensed Consolidated Financial Statements included
elsewhere herein.)
Interest expense decreased approximately $400,000, or approximately
6.2% in the third quarter of 1994, as compared to 1993 and remained
approximately the same in the first nine 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 nine months 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 third 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 $700,000, or approximately
116.7%, and approximately $1,400,000, or approximately 58.3%, for the
third quarter and first nine months of 1994, respectively, as compared
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
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 $900,000 for
the third quarter of 1993 and approximately $2,400,000 for the first
nine 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
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 $4,100,000 for the
third quarter of 1994, as compared to an income tax credit of
approximately $4,100,000 for the third quarter of 1993 and was
approximately $9,400,000 for the first nine months of 1994, as
compared to an income tax credit of approximately $1,500,000 for the
first nine months of 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 third quarter and an extraordinary gain of approximately
$200,000 in the first nine months of 1994 resulting from the call for
redemption and purchases 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 nine months of 1994 and a loss of
approximately $2,100,000 in the first nine 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 nine 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 not 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 THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 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 $15,000,000 U. S. at exchange rates prevailing at
October 1, 1994) secured line of credit, of which approximately
$5,300,000 Canadian (approximately $3,900,000 U. S. at exchange rates
prevailing at November 4, 1994), in the aggregate, is available to the
Company (the "Line of Credit") at November 4, 1994. The Line of Credit
prohibits dividends or other distributions to the Company from Broan
Limited in excess of $14,800,000 Canadian (approximately $11,000,000
U. S. at exchange rates prevailing at October 1, 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
$1,000,000 Canadian (approximately $745,000 U. S. at exchange rates
prevailing at October 1, 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 November 4, 1994, there were no outstanding borrowings under the
Line of Credit.
Unrestricted cash and investments were approximately $68,728,000 at
October 1, 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.)
In October 1994, the Company's 9 7/8% Notes were upgraded on an
unsolicited basis by a major rating agency.
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 THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 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 October 1, 1994
consisted primarily of investments in United States Treasury
securities. (See Note E of Notes to Unaudited Condensed Consolidated
Financial Statements.) At October 1, 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 the third quarter of 1994, the Company purchased
at a slight discount, approximately $6,635,000 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 $175,984,000 and approximately
2.1:1, respectively, at October 1, 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 $26,228,000, or
approximately 30.9%, between December 31, 1993 and October 1, 1994,
while net sales from ongoing operations was approximately $28,694,000,
or 17.0% greater in the third quarter of 1994 as compared to the
fourth quarter of 1993. The increase in accounts receivable 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 THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 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 $12,083,000 or approximately
14.7%, between December 31, 1993 and October 1, 1994.
Accounts payable increased approximately $13,927,000 or approximately
29.7% between December 31, 1993 and October 1, 1994.
Unrestricted cash and investments increased approximately $12,122,000
(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 October
1, 1994, principally as a result of cash provided by (used in) the
following:
Condensed
Consolidated
Cash Flows
----------
Operating Activities--
Cash flow from operations, net $26,960,000
Increase in accounts receivable, net (26,228,000)
Increase in inventories (12,083,000)
Increase in trade accounts payable 13,831,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net 2,197,000
Investing Activities--
Net cash proceeds relating to
businesses sold 12,468,000
Purchase of marketable securities (5,032,000)
Capital expenditures (13,640,000)
Change in restricted cash and investments (2,475,000)
Financing Activities--
Increases in borrowings, net of payments,
including purchase of debentures 15,801,000
All other, net 323,000
----------
$12,122,000
==========
The Company's debt-to-equity ratio decreased from approximately 2.1:1
at December 31, 1993 to approximately 2.0:1 at October 1, 1994,
primarily as a result of the effect of increased stockholders'
investment as a result of net earnings in the first nine months of
1994, partially offset by a net increase in indebtedness of
approximately $15,900,000. (See Note C of Notes to Unaudited Condensed
Consolidated Financial Statements.)
At October 1, 1994, the payment of cash dividends or stock payment was
prohibited under the indenture governing the 7 1/2% Debentures, the
most restrictive of the Company's indenture and loan agreements. (See
Note D.) At October 25, 1994, approximately $25,600,000 was available
for the payment of cash dividends or stock payments under the terms of
the Company's Indenture governing the 9 7/8% Notes.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994
AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1993
(Continued)
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 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 with respect to this matter and recorded
approximately $1,500,000 of income.
At October 1, 1994, the Company has approximately $6,400,000 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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on September 15, 1994, the
following directors were elected by the following votes:
By the holders of Common Stock voting separately as a class.
NAME FOR WITHHELD
---- --- --------
Class II (for a term
expiring at the 1997
Annual Meeting)
Barry Silverstein 10,219,772 356,510
By the holders of Common Stock and Special Common Stock voting
together as a class.
NAME FOR WITHHELD
---- --- --------
Class II (for a term
expiring at the 1997
Annual Meeting)
Richard L. Bready 14,366,980 444,922
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.1 Calculation of shares used in determining
earnings per share (filed herewith).
27. Financial Data Schedule (filed herewith).
(b) No reports on Form 8-K were filed by the
Registrant during the period.
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
November 8, 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
--------------------------
Oct. 1, Oct 2,
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 16,609,857 16,602,148
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 12,543,255 12,535,546
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 187,141 72,206
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,730,396 12,607,752
========== ==========
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 12,543,255 12,535,546
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 220,518 79,813
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures 295,594 721,117
---------- ----------
13,059,367 13,336,476
========== ==========
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 Nine Months Ended
--------------------------
Oct. 1, Oct. 2,
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 16,609,072 16,597,180
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 12,542,470 12,530,578
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 154,498 73,969
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,696,968 12,604,547
========== ==========
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 12,542,470 12,530,578
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 168,606 79,813
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures 500,527 721,117
---------- ----------
13,211,603 13,331,508
========== ==========
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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 78,065
<SECURITIES> 28,436
<RECEIVABLES> 115,875
<ALLOWANCES> 4,804
<INVENTORY> 94,096
<CURRENT-ASSETS> 342,810
<PP&E> 177,517
<DEPRECIATION> 83,291
<TOTAL-ASSETS> 531,217
<CURRENT-LIABILITIES> 166,826
<BONDS> 218,857
<COMMON> 16,610
0
0
<OTHER-SE> 97,519
<TOTAL-LIABILITY-AND-EQUITY> 531,217
<SALES> 559,754
<TOTAL-REVENUES> 559,754
<CGS> 394,283
<TOTAL-COSTS> 394,283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,198
<INCOME-PRETAX> 22,000
<INCOME-TAX> 9,400
<INCOME-CONTINUING> 12,600
<DISCONTINUED> 0
<EXTRAORDINARY> 200
<CHANGES> 400
<NET-INCOME> 13,200
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
</TABLE>
