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 April 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.
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(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
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(Registrant's telephone number, including area code)
N/A
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(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 May
6, 1994 was 11,987,742. The number of shares of Special
Common Stock outstanding as of May 6, 1994 was 554,205.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
April 2, Dec. 31,
1994 1993
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 79,995 $ 34,006
Short-term investments held for
redemption of debentures --- 22,600
Marketable securities 29,438 25,892
Restricted--
Cash and investments at cost which
approximates market 6,687 6,687
Accounts receivable, less allowances
of $4,549 and $4,198 96,699 84,843
Inventories:
Raw materials 29,047 27,603
Work in process 10,071 9,227
Finished goods 50,344 45,183
------- -------
89,462 82,013
------- -------
Current assets of business sold --- 23,736
Insurance claims receivable 14,500 14,500
Prepaid expenses and other current
assets 7,211 7,541
U. S. Federal prepaid income taxes 18,500 17,000
------- -------
Total Current Assets 342,492 318,818
------- -------
Property and Equipment, at cost:
Land 5,869 5,833
Buildings and improvements 52,766 52,309
Machinery and equipment 111,744 108,983
------- -------
170,379 167,125
Less--Accumulated depreciation 79,968 76,546
------- -------
Total Property and Equipment,
net 90,411 90,579
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $19,681 and $19,180 74,572 75,599
Non-current assets of business sold --- 11,987
Deferred debt expense 9,376 563
Other 11,306 11,663
------- -------
95,254 99,812
------- -------
$528,157 $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)
April 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 $ 8,737 $ 14,957
11 1/2% Senior Subordinated
Debentures, net --- 22,582
Accounts payable 57,299 46,923
Accrued expenses and taxes, net 86,766 91,422
Current liabilities of business sold --- 11,769
Insurance claims advances 13,239 13,239
------- -------
Total Current Liabilities 166,041 200,892
------- -------
Other Liabilities:
Deferred income taxes 21,300 18,000
Other 7,497 8,100
------- -------
28,797 26,100
------- -------
Notes, Mortgage Notes and
Debentures Payable 230,379 169,664
------- -------
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,
15,778,130 shares and 15,758,974
shares issued 15,778 15,759
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
830,419 and 849,575 shares issued 830 849
Additional paid-in capital 134,627 134,627
Accumulated deficit (15,534) (17,034)
Cumulative translation, pension and
other adjustments (4,710) (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 102,940 104,007
------- -------
$528,157 $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
------------------
April 2, April 3,
1994 1993
---- ----
(Unaudited)
Net Sales $169,020 $178,707
------- -------
Costs and Expenses:
Cost of products sold 119,302 129,162
Selling, general and
administrative expense 41,444 45,332
------- -------
160,746 174,494
------- -------
Operating earnings 8,274 4,213
Interest expense (7,875) (7,015)
Interest income 1,201 1,002
Net gain on marketable securities --- 1,000
------- -------
Earnings (loss) before provision for
income taxes 1,600 (800)
Provision for income taxes 900 600
------- -------
Earnings (loss) before extraordinary
gain 700 (1,400)
Extraordinary gain from debt
retirements 400 ---
------- -------
Earnings (loss) before the cumulative
effect of accounting changes 1,100 (1,400)
Cumulative effect of accounting
changes 400 (2,100)
------- -------
Net Earnings (Loss) $ 1,500 $ (3,500)
======= =======
Net Earnings (Loss) Per Share:
Earnings (Loss) Before Extraordinary Gain--
Primary $ .06 $ (.11)
------- -------
Fully diluted $ .06 $ (.11)
------- -------
Extraordinary Gain--
Primary $ .03 $ ---
------- -------
Fully diluted $ .03 $ ---
------- -------
Cumulative Effect of Accounting
Changes--
Primary $ .03 $ (.17)
------- -------
Fully diluted $ .03 $ (.17)
------- -------
Net Earnings (Loss)--
Primary $ .12 $ (.28)
====== =======
Fully diluted $ .12 $ (.28)
====== =======
Weighted Average Number of Shares:
Primary 12,685 12,657
====== ======
Fully diluted 13,400 13,387
====== ======
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
Three Months Ended
------------------
April 2, April 3,
1994 1993
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,500 $(3,500)
------ ------
Adjustments to reconcile net earnings
(loss) to cash:
Depreciation and amortization 5,052 5,565
Gain on marketable securities --- (1,000)
Extraordinary gain from debt retirements (600) ---
Cumulative effect of accounting
changes (400) 3,100
Deferred federal income tax credit
from continuing operations (500) (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 (11,856) (9,947)
Prepaids and other current assets (1,091) (109)
Inventories (7,449) (11,065)
Accounts payable 6,976 6,493
Accrued expenses and taxes (3,036) 3,380
Long-term assets, liabilities and
other, net (4,134) 682
------ ------
Total adjustments to net earnings
(loss) (15,688) (3,701)
------ -------
Net Cash Used in Operating
Activities (14,188) (7,201)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,763) (2,643)
Purchase of investments and marketable
securities (5,032) (34,345)
Proceeds from sale of investments and
marketable securities --- 37,917
Proceeds (payments) relating to
businesses sold or discontinued, net 20,280 (2,970)
Other, net (943) (285)
------ ------
Net Cash Provided by (Used in)
Investing Activities 10,542 (2,326)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Notes 209,195 ---
Purchase and redemption of debentures
and notes payable (176,611) (778)
Payment of borrowings (5,458) (3,361)
Other, net (91) (748)
------ ------
Net Cash Provided by (Used in)
Financing Activities 27,035 (4,887)
------ ------
Net increase (decrease) in unrestricted
cash and investments 23,389 (14,414)
Unrestricted cash and investments at
the beginning of the period 56,606 23,467
------ ------
Unrestricted cash and investments at the
end of the period $79,995 $ 9,053
====== ======
Interest paid $ 6,997 $ 1,053
====== ======
Income taxes paid, net $ 2,753 $ 2,446
====== ======
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 April 2, 1994 and April 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)
10,393 shares of
special common stock
converted into
10,393 shares of
common stock 10 (10) --- --- --- ---
Net loss --- --- --- (3,500) --- ---
------ --- ------- ------- ------ -------
Balance, April 3, 1993 $15,612 $980 $134,599 $ 266 $ --- $(28,051)
====== === ======= ====== ====== =======
Balance, December 31,
1993 $15,759 $849 $134,627 $(17,034) $(2,143) $(28,051)
19,156 shares of
special common stock
converted into
19,156 shares of
common stock 19 (19) --- --- --- ---
Translation
adjustment --- --- --- --- (652) ---
Cumulative effect of
an accounting
change (see Note E) --- --- --- --- (400) ---
Unrealized decline in
marketable securities --- --- --- --- (1,515)
Net earnings --- --- --- 1,500 --- ---
------ --- ------- ------ ------ ------
Balance, April 2, 1994 $15,778 $830 $134,627 $(15,534) $(4,710) $(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
APRIL 2, 1994 AND APRIL 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 April 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 loss before provision for income taxes in the first
quarter of 1993 includes approximately $24,400,000 in net sales
and a $1,000,000 loss before provision for income taxes relating
to Dixieline, which was accounted for as a business held for sale
beginning on 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 quarter 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 Lumber Company subsidiary ("Dixieline") 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 necessary in connection with the
sale. The following table presents the approximate unaudited pro
forma operating results of the Company for the three months ended
April 2, 1994 and April 3, 1993, and the year ended December 31,
1993, as adjusted for the pro forma effect of the sale of
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 1994 AND APRIL 3, 1993
(Continued)
Dixieline, the debt financing and the debt redemptions:
Three Months Ended Year Ended
April 2, April 3, December
1994 1993 31,1993
---- ---- -------
(Amounts in Thousands Except Per
Share Amounts)
Net Sales $169,020 $154,346 $660,908
Earnings (Loss) from
Continuing Operations $ 1,600 $ (600) $ 3,500
Fully Diluted Earnings
(Loss) Per Share $ .13 $ (.04) $ .28
In computing the pro forma earnings (loss) 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 discounts 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 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. This transaction resulted in an extraordinary gain of
approximately $400,000, net of income taxes of $200,000 ($.03 per
share) in the first quarter 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, which did not result in a net
gain.
(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,
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 1994 AND APRIL 3, 1993
(Continued)
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 April 2, 1994, the reduction in the
Company's stockholders' investment under the new accounting
method for gross unrealized losses was approximately $1,915,000.
Prior periods have not been restated.
The Company's marketable securities at April 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 $16,003 $15,327
5-10 years 15,000 15,350 14,111
------ ------ ------
$31,000 $31,353 $29,438
======= ======= =======
In the first quarter of 1994, there were no realized gains or
losses on marketable securities. At April 2, 1994, there were no
gross unrealized gains on the Company's marketable securities.
(F) 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.
(G) At April 2, 1994, the Company remains contingently liable for
obligations (approximately $7,100,000) under Industrial Revenue
Bond agreements ("IRB's"), plus unpaid interest, relating to
facilities of a previously owned subsidiary. This former
subsidiary defaulted on certain principal and interest payments
related to these IRB's during 1992 and, in March 1993 filed for
protection under Federal bankruptcy laws. In March 1994, the
Company paid approximately $1,594,000 to the Trustee of these
IRB's for interest payments through that date. The Company
continues to vigorously pursue all available remedies to minimize
any liability that may ultimately result from the outcome of this
matter. The Company believes that any liability that may
ultimately result from the resolution of this matter, in excess
of amounts provided, will not have a material adverse effect on
financial position or results of operations of the Company.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 1994 AND APRIL 3, 1993
(Continued)
(H) 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 April 2, 1994 is as follows:
(Amounts in
Thousands)
----
U.S. Federal Prepaid (Deferred) Income
Tax Assets Arising From:
Accounts receivable $ 1,571
Inventory (710)
Insurance reserves 5,578
Other reserves, liabilities and
assets, net 12,050
Other, net 11
------
$18,500
======
Deferred (Prepaid) Income Tax Liabilities
Arising From:
Property & equipment, net $11,652
Prepaid pension assets 1,636
Insurance reserves (816)
Other reserves, liabilities and
assets, net 946
Capital loss carryforward (6,217)
Valuation allowances 14,099
$21,300
======
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 1994 AND APRIL 3, 1993
(Continued)
At April 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 April 2, 1994, the
Company has approximately $7,500,000 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 Months Ended
------------------
April 2, April 3,
1994 1993
---- ----
(Amounts in Thousands)
Provision (credit) for income taxes
at the federal statutory rate $ 560 $(272)
Net change from statutory rate:
State taxes, net of federal tax effect 163 330
Non-deductible amortization for
tax purposes 184 180
Other non-deductible items 74 160
Change in valuation reserve (77) 61
Tax effect on foreign income 86 128
Other, net (90) 13
---- ----
Provision for income taxes from
continuing operations $ 900 $ 600
==== ====
The Company recorded a $1,000,000 income tax credit (principally
deferred) in the first quarter 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.
(I) Loss per share calculations presented for the first quarter of
1993 do not include the effect of common stock equivalents or
convertible debentures (and the reduction in related interest
expense) because the assumed exercise of stock options and
conversion of debentures is anti-dilutive.
Earnings per share calculations presented for the first quarter
of 1994 do not include the effect of convertible debentures (and
the reduction in related interest expense) because the assumed
conversion of debentures is anti-dilutive.
(J) At April 2, 1994, the payment of cash dividends or stock payments
was prohibited under the most restrictive of the Company's
indenture and loan agreements.
(K) The following table summarizes the unaudited activity of
businesses sold or discontinued included in the accompanying
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 1994 AND APRIL 3, 1993
(Continued)
unaudited condensed consolidated statement of cash flows:
Three Months Ended
------------------
April 2, April 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
$1,515,000 of unrealized loss on investment in marketable securities
in 1994 and approximately $1,883,000 resulting from the effect of a
change in accounting method for income taxes relating to property,
net, in 1993.
Depreciation and amortization included in the Company's unaudited
condensed consolidated statement of cash flows for the three months
ended April 2, 1994 and April 3, 1993, includes approximately $600,000
and approximately $500,000 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 FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 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 first quarter 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
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 first quarter ended April 2, 1994 are
not necessarily indicative of the results of operations to be expected
for the full year.
First Quarter Ended Change in
April 2, April 3, First Quarter 1994
1994 1993 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $169.0 $178.7 $(9.7) (5.4)
Cost of products sold 119.3 129.2 9.9 7.7
Selling, administrative and
other, net 41.4 45.3 3.9 8.6
Operating earnings 8.3 4.2 4.1 97.6
Interest expense (7.9) (7.0) (.9) (12.9)
Interest income 1.2 1.0 .2 20.0
Net gain on marketable
securities --- 1.0 (1.0) (100.0)
Earnings (Loss) before
provision for income taxes 1.6 (.8) 2.4 300.0
Provision for income taxes .9 .6 (.3) (50.0)
Earnings (loss) before
extraordinary gain .7 (1.4) 2.1 150.0
Extraordinary gain from
debt retirements .4 --- .4 ---
Earnings (loss) before the
cumulative effect of
accounting changes 1.1 (1.4) 2.5 ---
Cumulative effect of
accounting changes .4 (2.1) 2.5 ---
---- ---- ---- ----
Net earnings (loss) $ 1.5 $(3.5) $ 5.0 ---
==== ==== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 3, 1993
(Continued)
Change in
Percentage of Net Sales Percentage
First Quarter Ended for the First
April 2, April 3, Quarter 1994
1994 1993 as compared to 1993
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 70.6 72.3 1.7
Selling, administrative and
other, net 24.5 25.3 .8
Operating earnings 4.9 2.4 2.5
Interest expense (4.6) (3.9) (.7)
Interest income .7 .5 .2
Net gain on marketable
securities --- .5 (.5)
Earnings (Loss) before
provision for income taxes 1.0 (.5) 1.5
Provision for income taxes .5 .3 (.2)
Earnings (loss) before
extraordinary gain .5 (.8) 1.3
Extraordinary gain from debt
retirements .2 --- .2
Earnings (Loss) before the
cumulative effect of
accounting changes .7 (.8) 1.5
Cumulative effect of
accounting changes .2 (1.2) 1.4
---- ---- ----
Net earnings (loss) .9 (2.0) 2.9
==== ==== ====
The following table presents the net sales for the Company's principal
product groups for the first quarter ended April 2, 1994 as compared
to the first quarter ended April 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 first quarter are not
necessarily indicative of the results of operations to be expected for
the full year.
First Quarter Ended
-------------------
April 2, April 3, Increase (Decrease)
1994 1993 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $ 64,000 $ 65,205 $(1,205) (1.8)
Air Conditioning and
Heating Products 73,474 56,735 16,739 29.5
Plumbing Products 31,546 32,406 (860) (2.7)
------- ------- ------ -----
Net Sales from
Ongoing Operations 169,020 154,346 14,674 9.5
Business Sold --- 24,361 (24,361) 100.0
------- ------- ------- -----
Total $169,020 $178,707 $ (9,687) (5.4)
======= ======= ======= =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 3, 1993
(Continued)
Operating Results
Net sales from ongoing operations increased approximately $14,674,000,
or approximately 9.5%, in the first quarter of 1994 as compared to the
first quarter of 1993. Total net sales decreased approximately
$9,687,000, or approximately 5.4%, in 1994 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 the Air
Conditioning and Heating Products Group. To a lesser extent, these
increases were partially offset by slightly lower sales levels in the
Residential Building Products Group and decreased sales levels of
bathroom fixtures as a result of the curtailment of certain product
lines in the fourth quarter of 1993 by the Plumbing Products Group.
The decline in the Plumbing Products Group was partially offset by
increased sales volume of vitreous china products.
Cost of products sold from ongoing operations as a percentage of net
sales from ongoing operations decreased from approximately 71.6% in
the first quarter of 1993 to approximately 70.6% in the first quarter
of 1994. Total cost of products sold as a percentage of total net
sales decreased from approximately 72.3% in 1993 to approximately
70.6% in 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 decrease in cost of products sold
from ongoing operations as a percentage of net sales from ongoing
operations was primarily attributable to a reduction in cost in the
Plumbing Products Group and increased sales of residential and
commercial HVAC products in the Air Conditioning and Heating Products
Group, without a proportionate increase in costs. The improvement in
cost levels is due, in part, to the Company's ongoing cost control
efforts. To a lesser extent, these decreases in the percentage were
partially offset by slightly lower sales levels without a
proportionate decrease in costs in the Residential Building Products
Group.
Selling, general and administrative expense from ongoing operations,
as a percentage of net sales from ongoing operations decreased from
approximately 25.1% in 1993 to approximately 24.5% in 1994. Total
selling, general and administrative expense, as a percentage of total
net sales decreased from approximately 25.3% in 1993 to approximately
24.5% in 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 decrease in selling, general and
administrative expense from ongoing operations as a percentage of net
sales from ongoing operations in the first quarter of 1994 was
principally due to lower non-segment expense and increased net sales
from ongoing operations. The effect of increased net sales of the Air
Conditioning and Heating Products Group, without a proportionate
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 3, 1993
(Continued)
increase in expense was also a factor. This group operates at lower
expense levels than the total expense level of ongoing operations.
These decreases in the percentage were partially offset by the effect
of lower sales in Residential Building Products and Plumbing Products
without proportionate decreases in expense.
Segment earnings from ongoing operations were approximately
$12,100,000 for the first quarter of 1994 as compared to approximately
$9,900,000 for the first quarter of 1993. Total segment earnings were
approximately $12,100,000 for 1994, as compared to approximately
$9,000,000 for 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 the increased sales level and lower
cost and expense levels in the Air Conditioning and Heating Products
Group, and decreased costs in the Plumbing Products Group. The
increase in segment earnings was partially offset by the effect of
slightly lower sales volume in the Residential Building Products Group
without a proportionate decrease in costs and expenses.
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 7.4% of
segment earnings from ongoing operations in the first quarter of 1994
from approximately 11.3% of such earnings in 1993. This decline was
primarily due to an approximately 26.8% increase in domestic segment
earnings from ongoing operations in 1994, as well as an approximate
20.1% decrease in foreign segment earnings in 1994. 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 first quarter of 1994 increased
approximately $4,100,000, or approximately 97.6%, as compared to 1993,
primarily as a result of the factors discussed above and the effect of
Dixieline's operating results. Dixieline's operating loss included in
the Company's consolidated operating results was approximatley
$900,000 in the first quarter of 1993. Dixieline's operating results
in 1994 are no longer included in the Company's consolidated operating
results. See above.
Interest expense in the first quarter of 1994 increased approximately
$900,000, or approximately 12.9%, as compared to the first quarter of
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 a portion of 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 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. (See Note C
of the Notes to Unaudited Condensed Consolidated Financial Statements
included elsewhere herein.)
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 3, 1993
(Continued)
Interest income in the first quarter of 1994 increased approximately
$200,000, or approximately 20.0%, as compared to the first quarter of
1993, 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 slightly lower yields earned on investment and marketable
securities.
The net gain on marketable securities was approximately $1,000,000 for
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 Notes to
Unaudited Condensed Consolidated Financial Statements included
elsewhere herein.)
The provision for income taxes was approximately $900,000 for 1994, as
compared to approximately $600,000 for 1993. The income tax rates
principally differed 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 H of the Notes to Unaudited
Condensed Consolidated Financial Statements included elsewhere
herein.)
The Company recorded an extraordinary gain of approximately $400,000
in the first quarter of 1994. The gain resulted from the purchase in
the open market of the Company's 7 1/2% Convertible debentures in
March 1994. (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 quarter of 1994 and a loss of
approximately $2,100,000 in the first quarter of 1993 from the
adoption of SFAS No. 115 and No. 106, respectively. (See Notes E and
F of the Notes to Unaudited Condensed Consolidated Financial
Statements included elsewhere herein.)
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 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 both periods, 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 April
2, 1994) secured line of credit, of which approximately $14,800,000
Canadian (approximately $10,700,000 U. S. at exchange rates prevailing
at April 2, 1994), in the aggregate, is available to the Company (the
"Line of Credit"). 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 April 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 April 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 May 10, 1994, there were $1,600,000 U. S. in outstanding
borrowings under the Line of Credit, all of the proceeds of such
borrowings were advanced to the Company, and $3,700,000 U. S. of
additional available borrowings could be advanced to the Company.
Unrestricted cash and investments were $109,433,000 at April 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 FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 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 April 2, 1994
consisted primarily of investments in United States Treasury
securities. (See Note E of Notes to Unaudited Condensed Consolidated
Financial Statements.) At April 2, 1994, approximately $6,687,000 of
the Company's cash and investments were pledged as collateral with an
insurance company and were classified as restricted in current assets
in the Company's accompanying consolidated balance sheet.
At April 2, 1994, the Company remains contingently liable under
approximately $7,100,000 of obligations under Industrial Revenue Bond
("IRB's") agreements, plus unpaid interest, relating to facilities of
a previously owned subsidiary. This former subsidiary defaulted on
certain principal and interest payments related to these IRB's during
1992 and, in February 1993, filed for protection under federal
bankruptcy laws. In March 1994, the Company paid approximately
$1,594,000 to the Trustee of these IRB's for interest payments through
that date. The Company continues to vigorously pursue all available
remedies to minimize any liability that may ultimately result from the
outcome of this matter. The Company believes that the resolution of
this matter, after giving consideration to amounts previously
provided, will not have a material adverse effect on the financial
position or results of operations of the Company. (See Note G 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 $176,451,000 and approximately 2.1:1,
respectively, at April 2, 1994, principally as a result of the
remaining 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 $11,856,000, or
approximately 14.0%, between December 31, 1993 and April 2, 1994,
while net sales from ongoing operations increased approximately .4% in
the first 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 FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 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 $7,449,000 or approximately 9.1%,
between December 31, 1993 and April 2, 1994.
Accounts payable increased approximately $10,376,000 or approximately
22.1% between December 31, 1993 and April 2, 1994.
Unrestricted cash and investments increased approximately $23,389,000
(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 April 2,
1994, principally as a result of cash provided (used) by the
following:
Condensed
Consolidated
Cash Flows
------------
Operating Activities--
Cash flow from operations, net $ 6,402,000
Increase in accounts receivable, net (11,856,000)
Increase in inventories (7,449,000)
Increase in trade accounts payable 6,976,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net (8,261,000)
Investing Activities--
Net cash proceeds relating to
businesses sold 20,280,000
Purchase of marketable securities (5,032,000)
Capital expenditures (3,763,000)
Financing Activities--
Increases in borrowings, net of payments,
including purchase of debentures 27,126,000
All other, net (1,034,000)
----------
$23,389,000
==========
The Company's debt-to-equity ratio increased from approximately 2.1:1
at December 31, 1993 to 2.3:1 at April 2, 1994, primarily as a result
of a net increase in borrowings of approximately $23,400,000. (See
Note C of Notes to Unaudited Condensed Consolidated Financial
Statements.)
At April 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
markets, experienced damage as a result of the flooding of the
Mississippi River in July 1993. The plant was closed for several
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED APRIL 2, 1994
AND THE FIRST QUARTER ENDED APRIL 3, 1993
(Continued)
weeks, but returned to full operation in late August 1993. At April 2,
1994, the Company accrued for estimated losses of approximately
$14,500,000 related to the flooding, recorded a receivable of
approximately $14,500,000 for casualty, property damage and business
interruption insurance claims due from its insurance carrier and
recorded as a liability approximately $13,200,000 of cash advances
received relating to such claims. The Company believes that it has
adequate insurance coverage and does not expect this event to have a
material adverse effect on the Company's financial condition or
results of operations.
At April 2, 1994, the Company has approximately $7,500,000 of net
U. S. Federal prepaid income tax assets which are expected to be
realized through future operating earnings. (See Note H 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 reports on Form 8-K were filed by
the Registrant during the period:
February 11, 1994. Item 5. Other Events, Item 7.
Financial Statements, Pro Forma Financial
Information and Exhibits.
February 14, 1994. Item 5. Other Events, Item
7. Financial Statements, Pro Forma Financial
Information and Exhibits.
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
May 12, 1994
- -------------------------
(Date)
EXHIBIT 11.1
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
April 2, April 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 16,052,149
Less average common and special common shares
held in the Treasury (4,066,602) (3,526,602)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 12,541,947 12,525,547
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 142,965 131,207
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 12,684,912 12,656,754
========== ==========
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 12,525,547
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 142,965 135,205
Dilutive effect of assuming conversion of the
Company's 7.5% Convertible Debentures 714,612 725,953
---------- ----------
13,399,524 13,386,705
========== ==========
Note: Earnings (loss) per share calculations do not include the effect of
common stock equivalents in 1993 or convertible debentures in both
periods (and the reduction in related expense), because the assumed
exercise of stock options and conversion of debentures is anti-
dilutive for the net earnings (loss) per share amounts.
