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 June 29, 1996
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 1-6112
---------------------------------------
NORTEK, INC.
- ----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
- ----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- ----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(401) 751-1600
- -----------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- ----------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last year)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.
Yes X No
---------- -----------
The number of shares of Common Stock outstanding as
of August 2, 1996 was 9,495,384. The number of
shares of Special Common Stock outstanding as of August
2, 1996 was 478,448.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
June 29, Dec. 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 39,269 $ 60,079
Marketable securities available for
sale 40,174 43,234
Restricted--
Investments and marketable
securities at cost which
approximates market 9,519 9,411
Accounts receivable, less allowances
of $4,914 and $4,546 145,262 118,017
Inventories:
Raw materials 41,852 42,601
Work in process 13,112 14,319
Finished goods 52,455 53,132
------- -------
107,419 110,052
------- -------
Prepaid expenses and other current
assets 15,181 16,927
U. S. Federal prepaid income taxes 19,100 19,100
------- -------
Total Current Assets 375,924 376,820
------- -------
Property and Equipment, at cost:
Land 6,616 6,508
Buildings and improvements 69,399 69,125
Machinery and equipment 164,700 157,884
------- -------
240,715 233,517
Less--Accumulated depreciation 103,911 97,255
------- -------
Total Property and Equipment,
net 136,804 136,262
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $25,460 and $23,978 90,626 91,347
Deferred debt expense 7,111 7,574
Other 16,214 13,476
------- -------
113,951 112,397
------- -------
$626,679 $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)
June 29, Dec. 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable and other short-
term obligations $ 30,808 $ 30,226
Current maturities of long-term
debt 10,156 11,824
Accounts payable 89,774 73,047
Accrued expenses and taxes, net 107,221 100,970
------- -------
Total Current Liabilities 237,959 216,067
------- -------
Other Liabilities:
Deferred income taxes 22,360 27,780
Other 14,074 9,945
------- ------
36,434 37,725
------- ------
Notes, Mortgage Notes and
Other Notes Payable 244,547 240,396
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value;
authorized 40,000,000 shares,
15,915,976 shares and 15,883,427
shares issued 15,916 15,883
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
758,660 shares and 774,366
shares issued 758 774
Additional paid-in capital 134,746 134,690
Retained earnings 23,966 15,766
Cumulative translation, pension and
other adjustments (3,193) (2,742)
Less - treasury common stock at
cost, 6,423,935 shares and
4,306,706 shares (62,723) (31,351)
- treasury special common stock
at cost, 276,869 shares and
276,784 shares (1,731) (1,729)
------- -------
Total Stockholders' Investment 107,739 131,291
------- -------
$626,679 $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
------------------
June 29, July 1,
1996 1995
---- ----
(Unaudited)
Net Sales $260,235 $194,206
------- -------
Costs and Expenses:
Cost of products sold 191,623 144,701
Selling, general and
administrative expense 52,833 39,316
------- -------
244,456 184,017
------- -------
Operating earnings 15,779 10,189
Interest expense (7,677) (5,929)
Interest income 898 1,640
Net loss on marketable securities --- (200)
------- -------
Earnings before provision for
income taxes 9,000 5,700
Provision for income taxes 3,200 2,500
------- -------
Net Earnings $ 5,800 $ 3,200
======= =======
Net Earnings Per Share:
Primary $ .55 $ .25
======= =======
Fully diluted $ .55 $ .25
======= =======
Weighted Average Number of Shares:
Primary 10,531 12,691
======= =======
Fully diluted 10,531 12,691
======= =======
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Six Months Ended
------------------
June 29, July 1,
1996 1995
---- ----
(Unaudited)
Net Sales $481,220 $379,015
------- -------
Costs and Expenses:
Cost of products sold 357,210 280,141
Selling, general and
administrative expense 98,243 79,652
------- -------
455,453 359,793
------- -------
Operating earnings 25,767 19,222
Interest expense (15,486) (11,839)
Interest income 2,819 3,217
Net loss on marketable securities --- (200)
------- -------
Earnings before provision for
income taxes 13,100 10,400
Provision for income taxes 4,900 4,700
------- -------
Net Earnings $ 8,200 $ 5,700
======= =======
Net Earnings Per Share:
Primary $ .73 $ .45
======= =======
Fully diluted $ .73 $ .45
======= =======
Weighted Average Number of Shares:
Primary 11,186 12,706
====== ======
Fully diluted 11,199 12,706
====== ======
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the
Six Months Ended
----------------
June 29, July 1,
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,200 $ 5,700
------ ------
Adjustments to reconcile net earnings
to cash:
Depreciation and amortization 11,820 9,651
Net loss on marketable securities --- 200
Deferred federal income tax provision
(credit) from continuing operations 450 (500)
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (26,712) (14,310)
Prepaids and other current assets 577 (1,534)
Inventories 3,528 (2,598)
Accounts payable 16,919 6,056
Accrued expenses and taxes 1,149 (2,682)
Long-term assets, liabilities and
other, net (1,215) 1,107
------ -------
Total adjustments to net earnings 6,516 (4,610)
------ -------
Net Cash Provided by Operating
Activities 14,716 1,090
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,611) (7,966)
Purchase of investments and marketable
securities (20,140) (10,085)
Proceeds from sale of investments and
marketable securities 22,677 20,772
Cash paid relating to a business
sold --- (1,745)
Other, net (66) (94)
------ -------
Net Cash (Used in) Provided by
Investing Activities (5,140) 882
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings 9,980 ---
Payment of borrowings (8,702) (573)
Purchase of Nortek Common
and Special Common Stock (31,738) ---
Other, net 74 11
------- ------
Net Cash Used in Financing
Activities (30,386) (562)
------- ------
Net (decrease) increase in
unrestricted cash and investments (20,810) 1,410
Unrestricted cash and investments at
the beginning of the period 60,079 77,106
------ ------
Unrestricted cash and investments at the
end of the period $39,269 $78,516
====== ======
Interest paid $15,217 $11,339
====== ======
Income taxes paid, net $ 5,650 $ 3,106
====== ======
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 June 29, 1996 and July 1, 1995
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Pension
Special tional and Other
Common Common Paid-in Retained Adjust- Treasury
Stock Stock Capital Earnings ments Stock
----- ----- ------- -------- ------ ----
(Unaudited)
Balance, April 1,
1995 $15,820 $796 $134,627 $ 3,266 $(4,612) $(28,051)
6,146 shares of
special common stock
converted into
6,146 shares of
common stock 6 (6) --- --- --- ---
3,000 shares of
common stock issued
upon exercise of
stock options 3 --- 4 --- --- ---
Translation adjust-
ment --- --- --- --- (4) ---
Unrealized appreci-
ation in marketable
securities --- --- --- --- 1,431 ---
Net earnings --- --- --- 3,200 --- ---
------ --- ------- ------- ------ -------
Balance, July 1, 1995 $15,829 $790 $134,631 $ 6,466 $(3,185) $(28,051)
====== === ======= ======= ======= ========
Balance, March 30,
1996 $15,897 $763 $134,694 $18,166 $(3,070) $(41,126)
4,667 shares of
special common stock
converted into
4,667 shares of
common stock 5 (5) --- --- --- ---
13,843 shares of
common stock issued
upon exercise of
stock options 14 --- 52 --- --- ---
1,400,483 shares of
treasury stock
acquired --- --- --- --- --- (23,328)
Translation adjust-
ment --- --- --- --- 396 ---
Unrealized decline
in marketable
securities --- --- --- --- (519) ---
Net earnings --- --- --- 5,800 --- ---
----- --- ------ ------ ----- -----
Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454)
====== === ======= ====== ===== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders'
Investment For the Six Months Ended June 29, 1996 and July 1, 1995
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Pension
Special tional and Other
Common Common Paid-in Retained Adjust- Treasury
Stock Stock Capital Earnings ments Stock
----- ----- ------- --------- ------ -----
(Unaudited)
Balance, December 31,
1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051)
11,864 shares of
special common stock
converted into
11,864 shares of
common stock 12 (12) --- --- --- ---
3,600 shares of
common stock issued
upon exercise of
stock options 3 --- 4 --- --- ---
Translation adjust-
ment --- --- --- --- 499 ---
Unrealized appreci-
ation in marketable
securities --- --- --- --- 2,484 ---
Net earnings --- --- --- 5,700 --- ---
------ --- ------- ------- ------ -------
Balance, July 1, 1995 $15,829 $790 $134,631 $ 6,466 $(3,185) $(28,051)
====== === ======= ======= ====== =======
Balance, December 31,
1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080)
15,706 shares of
special common stock
converted into
15,706 shares of
common stock 16 (16) --- --- --- ---
16,843 shares of
common stock issued
upon exercise of
stock options 17 --- 56 --- --- ---
2,117,314 shares of
treasury stock
acquired --- --- --- --- --- (31,374)
Translation adjust-
ment --- --- --- --- 471 ---
Unrealized decline
in marketable
securities --- --- --- --- (922) ---
Net earnings --- --- --- 8,200 --- ---
------ --- ------- ------ ------ -------
Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454)
====== ==== ========= ======= ====== =======
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
JUNE 29, 1996 AND JULY 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 June 29, 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 ("Rangaire"),
all the capital stock of Best S.p.A. and related entities ("Best")
and all the capital stock of Venmar Ventilation inc. ("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 second quarter and
first half 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:
Three Months Six Months
Ended Ended Year Ended
July 1, July 1, Dec. 31,
1995 1995 1995
------------ ---------- ---------
(Amounts in Thousands except
per share amounts)
Net sales $227,433 $443,977 $886,210
Operating earnings 12,022 22,421 47,355
Net earnings 3,200 5,400 15,100
Fully diluted net earnings
per share $ .25 $ .42 $ 1.20
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS JUNE 29, 1996 AND JULY 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 June 29, 1996 and December 31, 1995, the reduction in the
Company's stockholders' investment for gross unrealized losses was
approximately $922,000 and $410,000, respectively. At June 29,
1996, there were no gross unrealized gains on the Company's
marketable securities.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996 AND JULY 1, 1995
(Continued)
During the second quarter of 1995, the Company recorded a pre-tax
loss of approximately $200,000 on the sale of marketable securities.
(F) The tax effect of temporary differences which gave rise to
significant portions of deferred income tax assets and liabilities
as of June 29, 1996 and December 31, 1995 is as follows:
June 29, Dec. 31,
1996 1995
---- ----
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred)
Income Tax Assets Arising From:
Accounts receivable $ 1,588 $ 1,425
Inventory (712) (577)
Insurance reserves 5,752 6,036
Other reserves, liabilities
and assets, net 12,472 12,216
------ ------
$19,100 $19,100
====== ======
Deferred (Prepaid) Income Tax
Liabilities Arising From:
Property and equipment, net $15,452 $15,233
Prepaid pension assets 1,127 1,323
Insurance reserves (273) (273)
Other reserves, liabilities and
assets, net 4,657 8,797
Capital loss carryforward (7,313) (7,260)
Other, net (1,714) (1,658)
Valuation allowances 10,424 11,618
------ ------
$22,360 $27,780
====== ======
At June 29, 1996, the Company has a capital loss carryforward of
approximately $20,900,000, of which approximately $17,500,000 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 June 29, 1996, the Company has approximately
$500,000 of net U. S. Federal prepaid income tax assets which are
expected to be realized through future operating earnings.
NORTEK, INC. ANDSUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996 AND JULY 1, 1995
(Continued)
The table below reconciles the federal statutory income tax rate
to the effective tax rate from continuing operations of
approximately 35.6% and 43.9% in the second quarter of 1996 and
1995, respectively and 37.4% and 45.2% in the first six months
of 1996 and 1995, respectively.
Three Six
Months Ended Months Ended
------------ ------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
---- ---- ---- -----
(Amounts in Thousands)
Provision for income taxes
at the federal statutory
rate $3,150 $1,995 $4,585 $3,640
Net change from statutory
rate:
State taxes, net of federal
tax effect 325 195 487 390
Non-deductible amortization
for tax purposes 277 185 523 369
Other non-deductible
items 50 81 118 79
Change in valuation reserve (577) 6 (748) 70
Tax effect on foreign income (25) 70 (65) 151
Other, net --- (32) --- 1
----- ----- ----- ----
Provision for income taxes
from continuing operations $3,200 $2,500 $4,900 $4,700
===== ===== ===== =====
(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
accounted for such share purchases as Treasury Stock. From the
date the Company authorized a stock purchase program on November
16, 1995, through June 29, 1996 the Company purchased 2,301,009
shares of its Common Stock for approximately $33,238,197 in cash,
in negotiated and open market transactions. 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
Three Months Ended Six Months Ended Ended
June 29, July 1, June 29, July 1, Dec.31,
1996 1995 1996 1995 1995
(Amounts in Thousands except per share amounts)
Net Earnings $5,700 $3,000 $7,900 $5,200 $13,900
===== ===== ===== ===== ======
Fully diluted net
earnings per
share $ .55 $ .28 $ .76 $ .49 $ 1.36
===== ===== ===== ===== ======
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996 AND JULY 1, 1995
(Continued)
(H) At June 29, 1996, approximately $2,998,270 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.
(I) Net earnings per share amounts have been computed using the
weighted average number of common and common equivalent shares
outstanding during each period.
(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 six months ended July 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 $922,000 in the six months ended June 29, 1996 and an
increase of approximately $2,484,000 in the first six months of
1995 in the approximate market price of marketable securities
available for sale.
Depreciation and amortization expense included in the
Company's unaudited condensed consolidated statement of cash flows
for the six months ended June 29, 1996 and July 1, 1995,
includes approximately $650,000 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 SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 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 second
quarter ended June 29, 1996 are not necessarily indicative of the
results of operations to be expected for any other interim period or
the full year.
Change in
Second Quarter Ended Second Quarter 1996
June 29, July 1, as Compared to 1995
----------------
1996 1995 $ %
---- ---- ----- ----
(Dollar amounts in millions)
Net sales $260.2 $194.2 66.0 34.0%
Cost of products sold 191.6 144.7 (46.9) (32.4)
Selling, general and
administrative expense 52.8 39.3 (13.5) (34.4)
Operating earnings 15.8 10.2 5.6 54.9
Interest expense (7.7) (5.9) (1.8) (30.5)
Interest income .9 1.6 (.7) (43.8)
Net loss on marketable
securities --- (.2) .2 ---
Earnings before provision
for income taxes 9.0 5.7 3.3 57.9
Provison for income taxes 3.2 2.5 (.7) (28.0)
----- ----- --- -----
Net earnings $ 5.8 $ 3.2 2.6 81.2%
===== ===== === =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
Change in
Percentage of Net Sales Percentage
Second Quarter Ended for the Second
June 29, July 1, Quarter 1996
1996 1995 as compared to 1995
---- ---- ------------
Net sales 100.0% 100.0% ---
Cost of products sold 73.6 74.5 .9
Selling, general and
administrative expense 20.3 20.2 (.1)
Operating earnings 6.1 5.3 .8
Interest expense (3.0) (3.0) ---
Interest income .3 .8 (.5)
Net loss on marketable
securities --- (.1) .1
Earnings before provision
for income taxes 3.4 3.0 .4
Provision for income taxes 1.2 1.3 .1
---- ---- ---
Net earnings 2.2 1.7 .5
==== ==== ===
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 t
to net sales and (d) the change of such percentages as compared to the prior
comparable period. The results of operations for the six months ended
June 29, 1996 are not necessarily indicative of the results of
operations to be expected for any other interim period or the full year.
Change in
Six Months Ended Six Months 1996
June 29, July 1, as Compared to 1995
1996 1995 $ %
---- ---- -------------------
(Dollar amounts in millions)
Net sales $481.2 $379.0 102.2 27.0%
Cost of products sold 357.2 280.1 (77.1) (27.5)
Selling, general and
administrative expense 98.2 79.7 (18.5) (23.2)
Operating earnings 25.8 19.2 6.6 34.4
Interest expense (15.5) (11.8) (3.7) (31.4)
Interest income 2.8 3.2 (.4) (12.5)
Net loss on marketable
securities --- (.2) .2 ---
Earnings before provision
for income taxes 13.1 10.4 2.7 26.0
Provision for income taxes 4.9 4.7 (.2) (4.3)
----- ----- ---- ----
Net earnings $ 8.2 $ 5.7 $ 2.5 43.9%
===== ===== ==== =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
Change in
Percentage of Net Sales Percentage
Six Months Ended for the Six -
June 29, July 1, Months 1996 as
1996 1995 Compared to 1995
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 74.2 73.9 (.3)
Selling, general and
administrative expense 20.4 21.0 .6
Operating earnings 5.4 5.1 .3
Interest expense (3.2) (3.1) (.1)
Interest income .5 .8 (.3)
Net loss on marketable
securities --- (.1) .1
Earnings before provision
for income taxes 2.7 2.7 ---
Provision for income taxes 1.0 1.2 .2
---- ----- ---
Net earnings 1.7% 1.5 .2
==== ===== ===
The following table presents the net sales for the Company's
principal product groups for the second quarter and six months ended June
29, 1996 as compared to the second quarter and six months ended July 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 second quarter and first six months are not necessarily
indicative of the results of operations to be expected for any other
interim period or the full year.
Second Quarter Ended
June 29, July 1, Increase (Decrease)
1996 1995 $ %
---- ---- ----- ------
(000's omitted)
Net Sales:
Residential Building
Products $106,744 $ 62,389 $44,355 71.1%
Air Conditioning and
Heating Products 117,090 98,679 18,411 18.7
Plumbing Products 36,401 33,138 3,263 9.9
------- ------- ----- ----
Total $260,235 $194,206 $66,029 34.0%
===== ====== ===== ====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
Six Months Ended
June 29, July 1, Increase (Decrease)
1996 1995 $ %
---- ---- ----- ------
(000's omitted)
Net Sales:
Residential Building
Products $207,504 $130,079 $77,425 59.5%
Air Conditioning and
Heating Products 203,327 182,141 21,186 11.6
Plumbing Products 70,389 66,795 3,594 5.4
------- ------- ------ ----
Total $481,220 $379,015 $102,205 27.0%
======= ======= ======= ====
Operating Results
Net sales increased approximately $66,000,000, or approximately 34%,
and increased approximately $102,200,000, or approximately 27%, for the
second quarter and the first six months of 1996, respectively, as
compared to 1995. The Residential Building Products Group net sales
increased principally as a result of acquisitions in the fourth quarter of
1995, which contributed approximately $37,300,000 and $71,700,000 in the
second quarter and first six months, respectively. Shipments of new
and replacement air conditioning and heating ("HVAC") products to
manufactured housing customers and increased sales levels of commercial
and industrial HVAC products were the primary reasons for increased
sales in the Air Conditioning and Heating Products Group. Modest
sales prices increases, principally in the second quarter in
certain product lines of the Residential Building Products Group,
were also a factor, and were partially offset by lower sales prices of
certain products in the Plumbing Products Group.
Cost of products sold as a percentage of net sales decreased
from approximately 74.5% in the second quarter of 1995 to approximately
73.6% in the second quarter of 1996, and increased from approximately
73.9% in the first six months of 1995 to approximately 74.2% in the
first six months of 1996. Excluding fourth quarter 1995 acquisitions,
which have a higher level of cost of sales to net sales than the
overall group of businesses owned prior to the acquisitions, cost of
products sold as a percentage of net sales decreased to approximately
73.0% and 73.6% in the second quarter and first six months of 1996,
respectively. These decreases in the percentages principally
resulted from a reduction in price in the second quarter of certain
raw materials compared to prices in effect in 1995 and decreased
overhead costs as a percentage of sales in the Residential Building
Products and Air Conditioning and Heating Products Groups due to
increased volume and improved efficiency, partially offset by
increased direct labor and overhead costs in the Plumbing Products
Group. 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, the unit cost of
products sold and changes in productivity levels.
Selling, general and administrative expense as a percentage of net
sales increased slightly from approximately 20.2% in the second quarter
of 1995 to approximately 20.3% in the second quarter of 1996 and
decreased from approximately 21.0% in the first six months of 1995 to
approximately 20.4% in the first six months of 1996. The decrease in the
first six months 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 increased from approximately 20.2% in the
second quarter of 1995 to approximately 21.4% in the second quarter of
1996, and increased from approximately 21.0% in the first six months
of 1995 to approximately 21.3% in the first six months of 1996. These
increases in the percentages were primarily due to increased expense
levels in the Air Conditioning and Heating Products Group in both
periods and increased unallocated expense in the second quarter
partially offset by increased sales levels without a proportionate
increase in expense in the Residential Building Products Group and the
Plumbing Products Group.
Segment earnings were approximately $20,500,000 for the second quarter
of 1996, as compared to approximately $12,550,000 for the second
quarter of 1995, and approximately $32,900,000 for the first six
months of 1996 as compared to approximately $24,100,000 for the first
six months of 1995. Fourth quarter 1995 acquisitions contributed
approximately $3,300,000 to segment earnings in the second quarter of 1996
and approximately $5,000,000 for the first six months of 1996. Segment
earnings have been reduced by depreciation and amortization expense of
approximately $5,600,000 and approximately $4,500,000 for the
second quarter of 1996 and 1995, respectively, and by approximately
$11,100,000 and approximately $9,000,000 for the first six months of
1996 and 1995, respectively. Acquisitions contributed approximately
$1,300,000 and approximately $2,400,000 of the increase in depreciation
and amortization expense in the second quarter and first six months of
1996, respectively.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
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
15.4% of segment earnings in the second quarter of 1996 from
approximately 4.2% of such earnings in the second quarter of 1995
and to approximately 13.9% of segment earnings in the first six months
of 1996 from approximately 5.5% of such earnings in the first six months o
of 1995. These increases were 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 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 second quarter of 1996 increased
approximately $5,600,000, or approximately 54.9%, as compared to the second
quarter of 1995 and increased approximately $6,600,000, or approximately
34.4%, for the first six months of 1996 as compared to 1995, primarily due
to the factors previously discussed.
Interest expense in the second quarter of 1996 increased approximately
$1,800,000, or approximately 30.5%, as compared to the second quarter of
1995, and increased approximately $3,700,000, or approximately 31.4%,
as compared to the first six months of 1995, primarily as a result of
higher borrowings resulting from the 1995 acquisitions including
existing shortterm working capital borrowings of the acquired subsidiaries.
Interest income in the second quarter of 1996 decreased
approximately $700,000, or approximately 43.8%, as compared to the
second quarter of 1995, and decreased approximately $400,000, or
approximately 12.5%, as compared to the first six months of 1995,
principally due to lower average invested balances of short-term
investments and marketable securities, primarily in the second quarter.
The provision for income taxes was approximately $3,200,000 for the
second quarter of 1996, as compared to approximately $2,500,000 for
the second quarter of 1995 and was approximately $4,900,000 for the
first six months of 1996, as compared to approximately $4,700,000 for
the first six months 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), the change in tax valuation reserves 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.)
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
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 $79,443,000 at June 29,
1996 as compared to $103,313,000 at December 31, 1995.
The Company's investment in marketable securities at June 29,
1996 consisted primarily of investments in United States Treasury
securities, certificates of deposit and bank notes and at June 29, 1996,
approximately $9,519,000 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. From November 16, 1995
to June 29, 1996, the Company purchased 2,301,009 shares of its
Common Stock for approximately $33,238,197. (See below and Note G of
the Notes to the Unaudited Condensed Consolidated Financial Statements
included elsewhere herein.)
At June 29, 1996, approximately $2,998,270 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.
The Company's working capital and current ratio decreased
from approximately $160,753,000 and 1.7:1, respectively, to
approximately $137,965,000 and 1.6:1, respectively, between December 31,
1995 and June 29, 1996, principally as a result of the share buyback
as described above and the factors described below. Working capital included
approximately $103,313,000 at December 31, 1995 and approximately
$79,443,000 at June 29, 1996 of unrestricted cash, investments and
marketable securities.
Accounts receivable increased approximately $27,245,000, or
approximately 23.1%, between December 31, 1995 and June 29, 1996,
while net sales increased approximately 27.8% in the second 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 and increased sales levels of vitreous china
products in the Plumbing 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 June 29, 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 decreased approximately $2,633,000 or approximately 2.4%,
between December 31, 1995 and June 29, 1996. Accounts payable increased
approximately $16,727,000 or approximately 22.9% between December 31, 1995
and June 29, 1996.
Unrestricted cash and investments decreased approximately $20,810,000
from December 31, 1995 to June 29, 1996, principally as a result
of the following:
Condensed
Consolidated
Cash Flows
------------
Operating Activities--
Cash flow from operations, net $ 20,470,000
Increase in accounts receivable, net (26,712,000)
Decrease in inventories 3,528,000
Increase in trade accounts payable 16,919,000
Increase in accrued expenses and taxes 1,149,000
Investing Activities--
Purchase of marketable securities (20,140,000)
Proceeds from the sale of marketable securities 22,677,000
Capital expenditures (7,611,000)
Financing Activities--
Increase in borrowings 9,980,000
Payment of borrowings (8,702,000)
Purchase of Nortek Common and Special
Common Stock (31,738,000)
Other, net (630,000)
-----------
$(20,810,000)
===========
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995
(Continued)
The Company's debt-to-equity ratio increased from approximately 2.2:1
at December 31, 1995 to 2.7:1 at June 29, 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 six months of 1996. (See the
Company's Unaudited Condensed Consolidated Statement of Stockholders'
Investment included elsewhere herein.)
At June 29, 1996, the Company has approximately $500,000 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.)
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.
When used in this discussion, the words "believes," "anticipates,"
and "expects" and similar expressions are intended to identify forward-
looking statements. Such statements are subject to certain
risks and uncertainties, over which the Company has no control, which
could cause actual results to differ materially from those projected.
These risks and uncertainties include increases in raw material costs
(including, among others, steel, copper, packaging material, plastics,
resins and aluminum) and purchased component costs, the level of
domestic and foreign construction and remodeling activity affecting
residential and commercial markets, interest rates, inflation, consumer
spending levels, operating in international economies, the rate of
sales growth, price and product competition, new product
introduction, material shortages and product liability claims.
Readers are cautioned not to place undue reliance on these forward-
looking statements which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements
to reflect events or circumstances after the date thereof or to reflect
the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the
Company, in this report, as well as the Company's periodic reports on
Forms 10-K, 10Q and 8-K filed with the Securities and Exchange Commission.
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).
27 Financial Data Schedule (filed herewith).
(b) The following reports on Form 8-K were filed by the
Registrant during the period:
April 1, 1996. Item 5. Other Events and Item
7. Financial Statements, Pro Forma Financial
Information and Exhibits.
April 26, 1996. Item 5. Other Events and Item
7. Financial Statements, Pro Forma Financial
Information and Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTEK, INC.
(Registrant)
/s/ Almon C. Hall
-------------------------------
Almon C. Hall, Vice President and
Controller and Chief Accounting
Officer
August 9, 1996
- -------------------------
(Date)
EXHIBIT
11.1
(Page 1 of
2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
June 29, July 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 17,023,815 16,618,505
Less average common and special common shares
held in the Treasury (6,700,804) (4,066,815)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 10,323,011 12,551,690
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 208,074 139,777
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 10,531,085 12,691,467
========== ==========
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 10,323,011 12,551,690
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 208,074 139,777
---------- ----------
10,531,085 12,691,467
========== ==========
EXHIBIT 11.1
(Page 2 of 2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Six Months Ended
------------------------
June 29, July 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 17,705,992 16,617,583
Less average common and special common shares
held in the Treasury (6,700,804) (4,066,815)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 11,005,188 12,550,768
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 180,728 154,770
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 11,185,916 12,705,538
========== ==========
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 11,005,188 12,550,768
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 193,870 154,770
---------- ----------
11,199,058 12,705,538
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 44,986
<SECURITIES> 43,976
<RECEIVABLES> 150,176
<ALLOWANCES> 4,914
<INVENTORY> 107,419
<CURRENT-ASSETS> 376,193
<PP&E> 240,715
<DEPRECIATION> 103,911
<TOTAL-ASSETS> 626,679
<CURRENT-LIABILITIES> 237,959
<BONDS> 244,547
0
0
<COMMON> 16,674
<OTHER-SE> 91,065
<TOTAL-LIABILITY-AND-EQUITY> 626,679
<SALES> 481,220
<TOTAL-REVENUES> 481,220
<CGS> 357,210
<TOTAL-COSTS> 357,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,486
<INCOME-PRETAX> 13,100
<INCOME-TAX> 4,900
<INCOME-CONTINUING> 8,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,200
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
