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 March 30, 1996
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-6112
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NORTEK, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
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(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 April 26, 1996 was
9,506,557. The number of shares of Special Common Stock outstanding as of
April 26, 1996 was 484,849.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
March 30, Dec. 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 50,354 $ 60,079
Marketable securities available for
sale 30,335 43,234
Restricted--
Cash, investments and marketable
securities at cost which
approximates market 9,295 9,411
Accounts receivable, less allowances
of $4,610 and $4,546 134,079 118,017
Inventories:
Raw materials 44,106 42,601
Work in process 14,210 14,319
Finished goods 58,758 53,132
------- -------
117,074 110,052
------- -------
Prepaid expenses and other current
assets 15,956 16,927
U. S. Federal prepaid income taxes 19,100 19,100
------- -------
Total Current Assets 376,193 376,820
------- -------
Property and Equipment, at cost:
Land 6,600 6,508
Buildings and improvements 68,338 69,125
Machinery and equipment 161,133 157,884
------- -------
236,071 233,517
Less--Accumulated depreciation 99,559 97,255
------- -------
Total Property and Equipment,
net 136,512 136,262
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $24,717 and $23,978 91,256 91,347
Deferred debt expense 7,342 7,574
Other 12,780 13,476
------- -------
111,378 112,397
------- -------
$624,083 $625,479
======= =======
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)
March 30, Dec. 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' INVESTMENT ---- ----
- ---------------------------------------- (Unaudited)
Current Liabilities:
Notes payable and other short-
term obligations $ 34,837 $ 30,226
Current maturities of long-term debt 11,024 11,824
Accounts payable 84,056 73,047
Accrued expenses and taxes, net 91,291 100,970
------- -------
Total Current Liabilities 221,208 216,067
------- -------
Other Liabilities:
Deferred income taxes 23,304 27,780
Other 10,478 9,945
------- -------
33,782 37,725
------- -------
Notes, Mortgage Notes and
Obligations Payable 243,769 240,396
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value; authorized
40,000,000 shares, 15,897,466 shares
and 15,883,427 shares issued 15,897 15,883
Special Common Stock, $1 par value;
authorized 5,000,000 shares, 763,327
shares and 774,366 shares issued 763 774
Additional paid-in capital 134,694 134,690
Retained earnings 18,166 15,766
Cumulative translation, pension and
other adjustments (3,070) (2,742)
Less - treasury common stock at cost,
5,023,526 shares and 4,306,706
shares (39,396) (31,351)
- treasury special common stock
at cost, 276,795 shares and
276,784 shares (1,730) (1,729)
------- -------
Total Stockholders' Investment 125,324 131,291
------- -------
$624,083 $625,479
======= =======
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
------------------
March 30, April 1,
1996 1995
---- ----
(Unaudited)
Net Sales $220,985 $184,809
------- -------
Costs and Expenses:
Cost of products sold 165,587 135,440
Selling, general and
administrative expense 45,410 40,336
------- -------
210,997 175,776
------- -------
Operating earnings 9,988 9,033
Interest expense (7,809) (5,910)
Interest income 1,921 1,577
------- -------
Earnings before provision for
income taxes 4,100 4,700
Provision for income taxes 1,700 2,200
------- -------
Net Earnings $ 2,400 $ 2,500
======= =======
Net Earnings Per Share:
Primary $ .20 $ .20
======= =======
Fully diluted $ .20 $ .20
======= =======
Weighted Average Number of Shares:
Primary 11,841 12,720
======= =======
Fully diluted 11,867 12,720
======= =======
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
------------------
March 30, April 1,
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,400 $ 2,500
------- -------
Adjustments to reconcile net earnings
to cash:
Depreciation and amortization 5,921 4,873
Deferred federal income tax provision
(credit) from continuing operations 600 (300)
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (15,529) (13,570)
Prepaids and other current assets 308 1,008
Inventories (6,127) (4,537)
Accounts payable 11,026 3,010
Accrued expenses and taxes (14,086) (11,207)
Long-term assets, liabilities and
other, net (436) 632
------- -------
Total adjustments to net earnings (18,323) (20,091)
------- -------
Net Cash Used in Operating
Activities (15,923) (17,591)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,877) (4,389)
Purchase of investments and marketable
securities (10,173) (10,085)
Proceeds from sale of investments and
marketable securities 22,677 26,598
Cash paid relating to a business
sold --- (1,745)
Other, net (303) ---
------- -------
Net Cash Provided by Investing
Activities 9,324 10,379
------- -------
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)
(Continued)
For the
Three Months Ended
------------------
March 30, April 1,
1996 1995
---- ----
(Unaudited)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings 11,632 ---
Payment of borrowings (6,530) (108)
Purchase of Nortek Common and Special
Common Stock (8,235) ---
Other, net 7 ---
-------- -------
Net Cash Used in Financing Activities (3,126) (108)
-------- -------
Net decrease in unrestricted
cash and investments (9,725) (7,320)
Unrestricted cash and investments at
the beginning of the period 60,079 62,575
------- ------
Unrestricted cash and investments at the
end of the period $ 50,354 $55,255
======= ======
Interest paid $ 13,316 $11,162
======= ======
Income taxes paid, net $ 3,211 $ 1,312
======= ======
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 March 30, 1996 and April 1, 1995
(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,
1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051)
5,718 shares of
special common stock
converted into
5,718 shares of
common stock 6 (6) --- --- --- ---
Translation
adjustment --- --- --- --- 503 ---
Unrealized appreciation
of marketable securities --- --- --- --- 1,053 ---
Net earnings --- --- --- 2,500 --- ---
------ --- ------- ------ ------ -------
Balance, April 1, 1995 $15,820 $796 $134,627 $ 3,266 $(4,612) $(28,051)
====== === ======= ====== ====== =======
Balance, December 31,
1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080)
11,039 shares of
special common stock
converted into
11,039 shares of
common stock 11 (11) --- --- --- ---
3,000 shares of
common stock issued
upon exercise of
stock options 3 --- 4 --- --- ---
716,831 shares of
treasury stock
acquired --- --- --- --- --- (8,046)
Translation
adjustment --- --- --- --- 75 ---
Unrealized decline in
the value of
marketable securities --- --- --- --- (403) ---
Net earnings --- --- --- 2,400 --- ---
------ --- ------- ------ ------ ------
Balance, March 30,
1996 $15,897 $763 $134,694 $18,166 $ (3,070) $(41,126)
====== ====== ======= ======= ====== ========
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
MARCH 30, 1996 AND APRIL 1, 1995
(A) The unaudited condensed consolidated financial statements presented
("Unaudited Financial Statements") have been prepared by Nortek, Inc.
and include all of its wholly-owned subsidiaries (the "Company") after
elimination of intercompany accounts and transactions, 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 March 30, 1996. 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) Acquisitions are accounted for as purchases and, accordingly, have
been included in the Company's consolidated results of operations
since the acquisition date. Purchase price allocations are subject to
refinement until all pertinent information regarding the acquisitions
is obtained.
In the fourth quarter of 1995, several of the Company's wholly owned
subsidiaries completed the acquisition of the assets, subject to
certain liabilities, of Rangaire Company of Cleburne, Texas
("Rangaire"), all the capital stock of Best S.p.A. of Fabriano, Italy
and related entities ("Best") and all the capital stock of Venmar
Ventilation inc. of Drummondville, Quebec, Canada ("Venmar") and
accounted for these acquisitions under the purchase method of
accounting.
The following table presents the approximate unaudited pro forma
operating results of the Company for the first quarter of 1995 and the
year ended December 31, 1995, as adjusted for the pro forma effect of
the acquisitions discussed above, assuming that these transactions
occurred at January 1, 1995:
First Quarter Year Ended
Ended
April 1, Dec. 31,
1995 1995
------------- ----------
(Amounts in Thousands except
per share amounts)
Net sales $216,544 $886,210
Operating earnings 10,399 47,355
Net earnings 2,200 15,100
Fully diluted net earnings per share $ .17 $ 1.20
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996 AND APRIL 1, 1995
(Continued)
In computing the pro forma results, net earnings have been reduced by
net interest income on the aggregate cash portion of the purchase
price of such acquisitions at the historical rates earned by the
Company and by interest expense on indebtedness incurred in connection
with the acquisitions, net of the tax effect. Earnings have also been
reduced by amortization of goodwill and reflect net adjustments to
depreciation expense, as a result of an increase to estimated fair
market value of property and equipment.
The pro forma information presented does not purport to be indicative
of the results which would have been reported if these transactions
had occurred on January 1, 1995, or which may be reported in the
future.
(C) On January 1, 1996, the Company adopted the accounting requirements of
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The statement also
requires that certain long-lived assets and identifiable intangibles
that are to be disposed, be reported at the lower of the carrying
amount or fair value less cost to sell. The application of SFAS No.
121 did not have a significant impact on the Company's results of
operations or financial condition.
(D) In December 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Stock-Based Compensation," which became effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 requires that
employee stock-based compensation be either recorded or disclosed at
its fair value. Management will continue to account for stock-based
compensation under Accounting Principles Board No. 25 and will not
adopt the new accounting provisions for stock-based compensation under
SFAS No. 123, but will include the additional required disclosures, as
necessary, in the Company's consolidated financial statements for the
year ended December 31, 1996.
(E) At March 30, 1996 and December 31, 1995, the reduction in the
Company's stockholders' investment for gross unrealized losses was
approximately $813,000 and $410,000, respectively. At March 30, 1996,
there were no gross unrealized gains on the Company's marketable
securities.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996 AND APRIL 1, 1995
(Continued)
(F) The tax effect of temporary differences which gave rise to significant
portions of deferred income tax assets and liabilities as of March 30,
1996 and December 31, 1995 is as follows:
March 30, Dec. 31,
1996 1995
---- ----
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred)
Income Tax Assets Arising From:
Accounts receivable $ 1,418 $ 1,425
Inventory (614) (577)
Insurance reserves 6,122 6,036
Other reserves, liabilities
and assets, net 12,174 12,216
------ ------
$19,100 $19,100
====== ======
Deferred (Prepaid) Income Tax
Liabilities Arising From:
Property and equipment, net $15,382 $15,233
Prepaid pension assets 1,293 1,323
Insurance reserves (273) (273)
Other reserves, liabilities and
assets, net 3,786 8,797
Capital loss carryforward (7,260) (7,260)
Other, net 250 (1,658)
Valuation allowances 10,126 11,618
------ ------
$23,304 $27,780
====== ======
At March 30, 1996, the Company has a capital loss carryforward of
approximately $20,700,000, of which approximately $17,700,000 expires
in the year 1997. The Company has provided a valuation allowance
equal to the tax effect of capital loss carryforwards and certain
other tax assets, since realization of these tax assets cannot be
reasonably assured. At March 30, 1996, the Company has approximately
$244,000 of net U. S. Federal prepaid income tax assets which are
expected to be realized through future operating earnings.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996 AND APRIL 1, 1995
(Continued)
The table below reconciles the federal statutory income tax rate to
the effective tax rate from continuing operations of approximately
41.5% and 46.8% in 1996 and 1995, respectively.
Three Months Ended
------------------
March 30, April 1,
1996 1995
---- ----
(Amounts in Thousands)
Income tax provision from continuing
operations at the Federal statutory
rate $1,435 $1,645
Net Change from Statutory Rate:
Change in valuation reserve, net (171) 64
State taxes, net of federal tax effect 162 195
Amortization not deductible for tax
purposes 246 184
Other nondeductible items 68 (2)
Tax effect on foreign income (40) 81
Other, net --- 33
----- -----
$1,700 $2,200
===== =====
(G) On April 26, 1996, the Company purchased 1,189,809 shares of its
common stock, or approximately 10.6% of its outstanding shares, from
three of its directors, who also resigned from the Company's Board of
Directors, for approximately $20,200,000. The Company will account for
such share purchases as Treasury Stock in the second quarter of 1996.
As of April 26, 1996, the Company has purchased 2,276,009 shares of
its Common Stock for approximately $32,747,000 in cash in negotiated
and open market transactions since the Company authorized a stock
purchase program on November 16, 1995. Had these shares been
purchased as of January 1, 1995, unaudited pro forma net earnings and
fully diluted net earnings per share would have been:
Year
First Quarter Ended Ended
March 30, April 1, Dec. 31,
1996 1995 1995
-------- ------- --------
(Amounts in Thousands except
per share amounts)
Net Earnings $2,200 $2,200 $13,900
Fully diluted net earnings
per share $ .22 $ .21 $ 1.36
(H) At April 26, 1996, approximately $524,902 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
MARCH 30, 1996 AND APRIL 1, 1995
(Continued)
(I) Net earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding
during each year.
(J) On April 1, 1996, the Company extended and amended its shareholder
rights plan to March 31, 2006. Under the amended plan, each right
previously issued under the plan in effect to date, or subsequently
issued under the amended and restated plan, entitles shareholders to
buy 1/100 of a share of a new series of preferred stock of Nortek at
an exercise price of $72 per share, subject to adjustments for stock
dividends, splits and similar events.
The rights that are not currently exercisable are attached to each
share of Common Stock and may be redeemed by the Directors at $.01 per
share at any time. After a shareholder acquires beneficial ownership
of 17% or more of the Company's Common Stock and Special Common Stock,
the rights will trade separately and become exercisable entitling a
rights holder to acquire additional shares of the Company's Common
Stock having a market value equal to twice the amount of the exercise
price of the right. In addition, after a person or group ("Acquiring
Company") commences a tender offer or announces an intention to
acquire 30% or more of the Company's Common Stock and Special Common
Stock, the rights will trade separately and, under certain
circumstances, will permit each rights holder to acquire common stock
of the Acquiring Company, having a market value equal to twice the
amount of the exercise price of the right.
(K) The accompanying unaudited condensed consolidated statement of cash
flows for the three months ended April 1, 1995 includes approximately
$1,745,000 of cash paid relating to a business sold.
Significant unaudited non-cash financing and investing activities
excluded from the accompanying unaudited condensed consolidated
statement of cash flows include a decrease of approximately $403,000
in the first quarter ended March 30, 1996 and an increase of
approximately $1,053,000 in the first quarter of 1995 in the fair
market value of marketable securities available for sale.
Depreciation and amortization included in the Company's unaudited
condensed consolidated statement of cash flows for the three months
ended March 30, 1996 and April 1, 1995, includes approximately
$325,000 and approximately $250,000 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 MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
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,
Canada and Europe, a wide variety of products for the residential and
commercial construction, manufactured housing, and the do-it-yourself and
professional remodeling and renovation markets. During the fourth quarter
of 1995, the Company acquired three businesses, which are included in the
Residential Building Products Group, and accounted for these acquisitions
under the purchase method of accounting. Accordingly, the results of such
acquisitions are included in the Company's consolidated results since the
date of acquisition. (See Liquidity and Capital Resources and Note B of
the Notes to Unaudited Condensed Consolidated Financial Statements included
elsewhere herein.)
Results of Operations
- ---------------------
The tables below and on the next page set forth, for the periods presented,
(a) certain consolidated operating results, (b) the change in the amount
and the percentage change of such results as compared to the prior
comparable period, (c) the percentage which such results bears to net sales
and (d) the change of such percentages as compared to the prior comparable
period. The results of operations for the first quarter ended March 30,
1996 are not necessarily indicative of the results of operations to be
expected for any other interim period or the full year.
Change in
First Quarter Ended First Quarter 1996
-------------------
March 30, April 1, as Compared to 1995
------------------
1996 1995 $ %
---- ---- ----- ------
(Dollar amounts in millions)
Net sales $221.0 $184.8 36.2 19.6
Cost of products sold 165.6 135.5 (30.1) (22.2)
Selling, general and
administrative expense 45.4 40.3 (5.1) (12.7)
Operating earnings 10.0 9.0 1.0 11.1
Interest expense (7.8) (5.9) (1.9) (32.2)
Interest income 1.9 1.6 .3 18.8
Earnings before provision
for income taxes 4.1 4.7 (.6) (12.8)
Provision for income taxes 1.7 2.2 .5 22.7
----- ----- ---- ----
Net earnings $ 2.4 $ 2.5 (.1) (4.0)
===== ===== ==== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
Change in
Percentage of Net Sales Percentage
First Quarter Ended for the First
-------------------
March 30, April 1, Quarter 1996
1996 1995 as compared to 1995
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 74.9 73.3 (1.6)
Selling, general and
administrative expense 20.5 21.8 1.3
Operating earnings 4.6 4.9 (.3)
Interest expense (3.5) (3.2) (.3)
Interest income .8 .9 (.1)
Earnings before provision
for income taxes 1.9 2.6 (.7)
Provision for income taxes .8 1.2 .4
---- ---- ----
Net earnings 1.1 1.4 (.3)
==== ==== ====
The following table presents the net sales for the Company's principal
product groups for the first quarter ended March 30, 1996 as compared to
the first quarter ended April 1, 1995 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 any other interim period or
the full year.
First Quarter Ended
-------------------
March 30, April 1, Increase
1996 1995 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $100,760 $ 67,690 $33,070 48.9%
Air Conditioning and
Heating Products 86,237 83,462 2,775 3.3
Plumbing Products 33,988 33,657 331 1.0
------- ------- ------ ----
Total $220,985 $184,809 $36,176 19.6%
======= ======= ====== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
Operating Results
- -----------------
Net sales increased approximately $36,200,000, or approximately 19.6%, in
the first quarter of 1996 as compared to the first quarter of 1995,
principally as a result of acquisitions in the fourth quarter of 1995,
which contributed approximately $34,400,000 to net sales in the Residential
Building Products Group in the first quarter of 1996 and increased sales
levels of commercial and industrial air conditioning and heating ("HVAC")
products by the Air Conditioning and Heating Products Group. These
increases were partially offset by lower sales volume of residential HVAC
products.
Cost of products sold as a percentage of net sales increased from
approximately 73.3% in the first quarter of 1995 to approximately 74.9% in
the first quarter of 1996. This increase is due partially to the fourth
quarter 1995 acquisitions. These acquisitions are included in the results
for the first quarter of 1996 and have a higher level of cost of sales to
net sales than the overall group of businesses owned prior to the
acquisitions. Excluding these acquisitions, the cost of products sold as a
percentage of net sales for the first quarter of 1996 would have been
74.3%. Overall, changes in cost of products sold as a percentage of net
sales for one period as compared to another period may reflect the effect
of a number of factors, including changes in the relative mix of products
sold, the effect of changes in sales prices and the unit cost of products
sold and changes in productivity levels. In the first quarter of 1996, the
Company experienced lower prices of certain raw materials as compared to
prices in effect over the second half of 1995 in most of its product lines.
Material cost of sales as a percentage of net sales was approximately 48.1%
in the first quarter of 1996 as compared to approximately 47.6% in the
first quarter of 1995, approximately 48.9% in the fourth quarter of 1995
and approximately 48.6% for the year 1995. The increase in the percentage
in 1996 as compared to the first quarter of 1995 was also affected by
increased direct labor and overhead costs in the Plumbing Products Group,
partially offset by decreased overhead costs in the Residential Building
Products and Air Conditioning and Heating Products Groups.
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 21.8% in the first quarter of 1995 to
approximately 20.5% in the first quarter of 1996. The decrease is due
partially to the fourth quarter 1995 acquisitions which have a lower level
of selling, general and administrative expense to net sales than the
overall group of businesses owned prior to the acquisitions. Excluding
these acquisitions, selling, general and administrative expenses as a
percentage of net sales for the first quarter of 1996 would have been
21.3%. The decrease in the percentage is also due to a reduction in
expense levels in the Residential Building Products Group and lower
unallocated expense, partially offset by increased expense levels in the
Plumbing Products Group.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
Segment earnings were approximately $12,400,000 for the first quarter of
1996 as compared to approximately $11,500,000 for the first quarter of
1995. Fourth quarter 1995 acquisitions contributed approximately
$1,750,000 to segment earnings in the first quarter of 1996. Segment
earnings have been reduced by depreciation and amortization expense of
approximately $5,500,000 for 1996 and approximately $4,500,000 for 1995.
Acquisitions contributed approximately $1,100,000 of the increase in
depreciation and amortization expense in 1996. Operating earnings from the
1995 acquisitions have been modest, principally Venmar Ventilation, inc. in
Canada, which has been partly affected by the softness in the Canadian
economy and partly due to the seasonal nature of Venmar's business cycle,
which historically generates substantially all of its annual earnings
during the second half of the year. The overall change in segment earnings
was also affected by lower earnings in the Plumbing Products Group and
lower earnings of products sold in Canada by the Residential Building
Products Group, partially offset by increased earnings in the Air
Conditioning and Heating Products Group as a result of the factors
discussed above.
Foreign segment earnings, consisting primarily of the results of operations
of the Company's Canadian and European subsidiaries, which manufacture
built-in ventilating products, increased to approximately 12.6% of segment
earnings in the first quarter of 1996 from approximately 8.3% of such
earnings in the first quarter of 1995. This increase was primarily
attributable to earnings of the Company's European subsidiaries, which were
acquired in the fourth quarter of 1995, offset by a decline in earnings in
Canada due to the continued weakness in the residential construction
markets. Sales and earnings derived from the international market are
subject to the risks of currency fluctuations.
Operating earnings in the first quarter of 1996 increased approximately
$1,000,000, or approximately 11.1%, as compared to the first quarter of
1995, primarily as a result of the factors discussed above.
Interest expense in the first quarter of 1996 increased approximately
$1,900,000, or approximately 32.2%, as compared to the first quarter of
1995, primarily as a result of higher borrowings resulting from the 1995
acquisitions including higher short-term working capital borrowings by the
Company's European subsidiary.
Interest income in the first quarter of 1996 increased approximately
$300,000, or approximately 18.8%, as compared to the first quarter of 1995,
principally due to higher average invested balances of short-term
investments and marketable securities.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
The provision for income taxes was approximately $1,700,000 for the first
quarter of 1996, as compared to approximately $2,200,000 for the first
quarter of 1995. The income tax rates principally differed from the United
States Federal statutory rate of 35%, as a result of state income tax
provisions, nondeductible amortization expense (for tax purposes) and the
effect of foreign income tax on foreign source income in both periods. (See
Note F of the Notes to the Unaudited Financial Statements included
elsewhere herein.)
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity in 1996 and 1995 have been funds
provided by subsidiary operations and unrestricted short-term investments
and marketable securities. Unrestricted cash, investments and marketable
securities were approximately $80,689,000 at March 30, 1996 as compared to
$103,313,000 at December 31, 1995.
The Company's investment in marketable securities at March 30, 1996
consisted primarily of investments in United States Treasury securities. At
March 30, 1996, approximately $9,295,000 of the Company's cash and
investments were pledged as collateral for insurance and other requirements
and were classified as restricted in current assets in the Company's
accompanying unaudited condensed consolidated balance sheet.
On November 16, 1995, the Company's Board of Directors authorized a program
to purchase shares of the Company's Common Stock, subject to market
conditions and cash availability. On April 26, 1996, the Company announced
the purchase of 1,189,809 shares of its common stock, or approximately
10.6% of its outstanding shares, from three of its directors, who also
resigned from the Company's Board of Directors, for approximately
$20,200,000. The Company has purchased 2,276,009 shares of its Common
Stock for approximately $32,747,000 through April 26, 1996 since November
16, 1995, including a portion that will be recorded as treasury stock in
the second quarter of l996. (See below and Note G of the Notes to the
Unaudited Condensed Consolidated Financial Statements included elsewhere
herein.)
At April 26, 1996, approximately $524,902 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 FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
The Company's working capital decreased from approximately $160,753,000 to
approximately $154,985,000 between December 31, 1995 and March 30, 1996 and
the current ratio was approximately 1.7:1 at March 30, 1996 and December
31, 1995, principally as a result of the factors described below. Working
capital included approximately $103,313,000 at December 31, 1995 and
approximately $80,689,000 at March 30, 1996 of unrestricted cash,
investments and marketable securities.
Accounts receivable increased approximately $16,062,000, or approximately
13.6%, between December 31, 1995 and March 30, 1996, while net sales
increased approximately 8.5% in the first quarter of 1996 as compared to
the fourth quarter of 1995. The increase in accounts receivable is
principally as a result of increased net sales of new and replacement
products 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 increases or decreases in net sales near the end of
any period generally result in significant changes in the amount of
accounts receivable on the date of the balance sheet at the end of such
period, as was the situation on March 30, 1996 as compared to December 31,
1995. The Company has not experienced any significant changes in credit
terms, collection efforts, credit utilization or delinquency in accounts
receivable in 1995 or 1996.
Inventories increased approximately $7,022,000 or approximately 6.4%,
between December 31, 1995 and March 30, 1996.
Accounts payable increased approximately $11,009,000 or approximately 15.1%
between December 31, 1995 and March 30, 1996.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
Unrestricted cash and investments decreased approximately $9,725,000 from
December 31, 1995 to March 30, 1996, principally as a result of the
following:
Condensed
Consolidated
Cash Flows
----------
Operating Activities--
Cash flow from operations, net $ 8,921,000
Increase in accounts receivable, net (15,529,000)
Increase in inventories (6,127,000)
Increase in trade accounts payable 11,026,000
Decrease in accrued expenses and taxes (14,086,000)
Investing Activities--
Purchase of marketable securities (10,173,000)
Proceeds from the sale of marketable securities 22,677,000
Capital expenditures (2,877,000)
Financing Activities--
Increase in borrowings 11,632,000
Payment of borrowings (6,530,000)
Purchase of Nortek Common and Special
Common Stock (8,235,000)
Other, net (424,000)
-----------
$ (9,725,000)
===========
The Company's debt-to-equity ratio increased from approximately 2.2:1 at
December 31, 1995 to 2.3:1 at March 30, 1996, primarily as a result of the
effect of the purchase of the Company's Common and Special Common Stock
(see Note G of the Notes to the Unaudited Condensed Consolidated Financial
Statements) and a net increase in borrowings, partially offset by net
earnings for the first quarter of 1996. (See the Company's Unaudited
Condensed Consolidated Statement of Stockholders' Investment included
elsewhere herein.)
At March 30, 1996, the Company has approximately $244,000 of net U. S.
Federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note F of Notes to the Unaudited Condensed
Consolidated Financial Statements.)
On April 1, 1996, the Company extended and amended its shareholder rights
plan to March 31, 2006. Under the amended plan, each right previously
issued under the plan in effect to date, or subsequently issued under the
amended and restated plan, entitles shareholders to buy 1/100 of a share of
a new series of preferred stock of Nortek at an exercise price of $72 per
share, subject to adjustments for stock dividends, splits and similar
events. (See Note J of the Notes to the 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 MARCH 30, 1996
AND THE FIRST QUARTER ENDED APRIL 1, 1995
(Continued)
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 evaluates potential acquisitions which would increase
or expand the market penetration of, or otherwise complement, its current
product lines.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
---------------------
As previously reported, the Company has extended and amended
its shareholder rights plan. A copy of the Second Amended
and Restated Rights Agreement dated as of April 1, 1996
between the Company and State Street Bank and Trust Company
as Rights Agent has been previously filed as an exhibit to
the Company's Form 8-K Report filed on April 2, 1996.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
4.1 Second Amended and Restated Rights Agreement dated
as of April 1, 1996 between the Company and State
Street Bank and Trust Company as Rights Agent
(incorporated herein by reference from Exhibit 1 to
Form 8-K filed April 2, 1996, File No. 1-6112).
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
May 10, 1996
- -------------------------
(Date)
EXHIBIT 11.1
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
March 30, April 1,
1996 1995
---- ----
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 16,987,686 16,616,532
Less average common and special common shares
held in the Treasury (5,300,321) (4,066,688)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 11,687,365 12,549,844
Dilutive effect of stock options computed
under the treasury stock method using
the average price during the period 153,381 169,763
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 11,840,746 12,719,607
========== ==========
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 11,687,365 12,549,844
Dilutive effect of stock options 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 179,666 169,763
---------- ----------
11,867,031 12,719,607
========== ==========
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 55,839
<SECURITIES> 34,145
<RECEIVABLES> 138,689
<ALLOWANCES> 4,610
<INVENTORY> 117,074
<CURRENT-ASSETS> 376,193
<PP&E> 236,071
<DEPRECIATION> 99,559
<TOTAL-ASSETS> 624,083
<CURRENT-LIABILITIES> 221,208
<BONDS> 243,769
0
0
<COMMON> 16,660
<OTHER-SE> 108,664
<TOTAL-LIABILITY-AND-EQUITY> 624,083
<SALES> 220,985
<TOTAL-REVENUES> 220,985
<CGS> 165,587
<TOTAL-COSTS> 165,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,809
<INCOME-PRETAX> 4,100
<INCOME-TAX> 1,700
<INCOME-CONTINUING> 2,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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