<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 1-10233
MAGNETEK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3917584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
26 CENTURY BLVD.
P. O. BOX 290159
NASHVILLE, TENNESSEE 37229-0159
(Address of principal executive offices)
(Zip Code)
(615) 316-5100
(Registrant's telephone number, including area code)
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of
November 7, 1995: 24,700,384 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments necessary to fairly present the
financial position as of September 30, 1995 and the results of operations and
cash flows for the three-month periods ended September 30, 1995 and 1994. It
is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and notes included
in the company's latest annual report on Form 10-K. Results for the three
months ended September 30, 1995 are not necessarily indicative of results
which may be experienced for the full fiscal year.
<PAGE>
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 and JUNE 30 , 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30 JUNE 30
------ ------------ -------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 1,311 $ 311
Accounts receivable 197,263 235,252
Inventories 237,718 225,461
Prepaid expenses and other 32,066 29,212
--------- ---------
Total current assets 468,358 490,236
--------- ---------
Property, plant and equipment 409,983 401,851
Less-accumulated depreciation
and amortization 209,995 201,751
--------- ---------
199,988 200,100
--------- ---------
Net assets of discontinued operations 24,489 98,118
Goodwill 33,034 33,134
Deferred financing costs,
intangible and other assets 32,372 35,580
--------- ---------
Total Assets $ 758,241 $ 857,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 100,352 $ 118,002
Accrued liabilities 75,878 79,234
Current portion of long-term debt 2,620 17,580
--------- ---------
Total current liabilities 178,850 214,816
--------- ---------
Long-term debt, net of current portion 369,574 430,887
Other long-term obligations 82,727 81,369
Deferred income taxes 12,563 12,818
Commitments and contingencies
Stockholders' equity
Common stock 247 247
Other 114,280 117,031
--------- ---------
Total stockholders' equity 114,527 117,278
--------- ---------
Total Liabilities and Stockholders'
Equity $ 758,241 $ 857,168
========= =========
</TABLE>
See accompanying notes
<PAGE>
ITEM 1 (CONTINUED)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
1995 1994
---------- ---------
Net sales $ 272,670 $ 274,755
Cost of sales 229,579 223,035
---------- ---------
Gross profit 43,091 51,720
Selling, general and administrative 37,845 38,375
---------- ---------
Income from operations 5,246 13,345
Interest expense 8,558 7,716
Other expense, net 1,110 1,047
---------- ---------
Income (loss) from continuing
operations before provision for
income taxes (4,422) 4,582
Income taxes (884) 1,924
---------- ---------
Income (loss) from continuing
operations (3,538) 2,658
Discontinued operations --
Income (loss) from operations
(net of taxes) -- --
Gain on disposal -- 3,100
---------- ---------
Net income (loss) $ (3,538) $ 5,758
========== =========
EARNINGS PER COMMON SHARE
Primary:
Income (loss) from continuing
operations $ (0.14) $ .11
Gain on disposal
(net of taxes) -- .12
---------- ---------
Net income $ (0.14) $ .23
========== =========
Fully diluted:
Income (loss) from continuing
operations $ * .11
Gain on disposal
(net of taxes) .12
---------- ---------
Net income (loss) $ * $ .23
========== =========
(*) Per share amounts on a fully diluted basis have been omitted as
such amounts are anti-dilutive in relation to primary per share
amounts.
See accompanying notes
<PAGE>
ITEM 1 (CONTINUED)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (3,538) $ 2,658
-------- --------
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 9,931 9,538
Changes in operating assets and liabilities
of continuing operations 5,079 8,838
-------- --------
Total adjustments 15,010 18,376
-------- --------
Net cash provided by operating activities: 11,472 21,034
-------- --------
Cash flows from investing activities:
Proceeds from sale of businesses and assets 75,367 43,260
Capital expenditures ( 8,910) (8,038)
Annuity contract and other investments 808 (55)
-------- --------
Net cash provided by investing activities 67,265 35,167
-------- --------
Cash flows from financing activities:
Borrowings under bank and other long-term
obligations -- 9,116
Proceeds from issuance of common stock 147 23
Repayment of bank and other long-term
obligations (76,273) (62,376)
Decrease (increase) in deferred financing
costs (3) 47
-------- --------
Net cash used in financing activities (76,129) (53,190)
-------- --------
Net cash provided by continuing operations 2,608 3,011
-------- --------
</TABLE>
(continued on next page)
<PAGE>
ITEM 1 (CONTINUED)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from discontinued operations:
Income from discontinued operations $ -- $ 3,100
---------- ----------
Adjustments to reconcile income to net cash
used in discontinued operations:
Depreciation and amortization 784 1,879
(Gain) on sale of businesses (3,100)
Changes in operating assets and
liabilities of discontinued operations (2,203) (5,794)
Capital expenditures (189) (405)
---------- ----------
Net cash used in discontinued operations (1,608) (4,320)
---------- ----------
Net increase (decrease) in cash 1,000 (1,309)
Cash at the beginning of period 311 7,013
---------- ----------
Cash at the end of period $ 1,311 $ 5,704
========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 6,856 $ 5,612
Income Taxes $ 50 $ 685
</TABLE>
(see accompanying notes)
<PAGE>
ITEM 1 (CONTINUED)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(ALL DOLLAR AMOUNTS ARE IN THE THOUSANDS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL PERIOD - The Company uses a fifty-two, fifty three week
fiscal year. Fiscal periods end on the Sunday nearest the end of
the month. For clarity of presentation, all periods are presented
as if they ended on the last day of the calendar period. The three
month periods ended September 30, 1995 and 1994 each contained
thirteen weeks.
2. INVENTORIES
Inventories at September 30, 1995 and June 30, 1995 consist of the
following:
SEPTEMBER 30 JUNE 30
------------ ---------
Raw materials and stock parts $ 68,306 $ 66,507
Work-in-process 50,679 45,803
Finished goods 118,733 113,151
------------ ---------
$ 237,718 $ 225,461
============ =========
3. DISCONTINUED OPERATIONS
During the first three months of fiscal year 1996, the Company sold
all of the assets, subject to certain liabilities of its Medium
Power Transformer business and its insulation and form coil
business in Brownsville, Texas in separate transactions. The net
cash proceeds realized from the sales of these businesses,
including post closing adjustments, approximated $75 million and
were used to repay bank borrowings primarily under the term loan
facility. The Company is in various stages of consummating other
transactions for the remaining minor discontinued operations and
expects to complete its divestiture program during the first half
of fiscal 1996. Gross proceeds from transactions with the entire
divestiture program, cumulatively exceed $200 million as of
September 30, 1995.
During the first quarter of fiscal 1996, activity associated with
discontinued operations has been charged to reserves provided for
estimated losses on disposal (including interim operating losses)
which were established in the prior fiscal year.
4. LONG TERM DEBT AND BANK BORROWING ARRANGEMENTS
In July, 1995, the Company fully repaid all borrowings under the
term loan facility with the proceeds from the sale of its Medium
Power Transformer business. Based on the achievement of debt-to-
cash flow targets, interest rates under the Bank Loan Agreement
were reduced by one-quarter percent in September 1995. As a result
of recent operating performance, the Company violated one of the
covenants included in its Bank Loan Agreement. Effective November
13, 1995, the Company amended the
<PAGE>
Agreement to change certain definitions of the covenant and adjust
the covenant prospectively to reflect expected future operating
results. All other terms and conditions of the Agreement remain
the same.
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
Net Sales and Gross Profit.
MagneTek's net sales in the first quarter of fiscal 1996 were
$272.7 million a 1% decrease from the first quarter of fiscal 1995
at $274.8 million. Sales in the Ballasts and Transformers segment
decreased 5% due primarily to lower sales of magnetic ballasts
partially offset by higher sales of power supplies sales in Europe.
Sales in the Motors and Controls segment increased 5% due to
increasing sales of generators and adjustable speed drives. Some
softer demand levels were experienced in residential fractional
horsepower motors. The Company expects future revenues of magnetic
ballasts to decline as customers substitute electronic products for
magnetic units to capitalize on potential energy savings.
The Company's gross profit dropped to $43.1 million in the first
quarter of fiscal 1996 from $51.7 million in the first quarter of
fiscal 1995. The gross margin percent fell to 15.8% of net sales
versus 18.8% of net sales in fiscal 1995. Gross profit and margin
declines for the first quarter of fiscal 1996 were unfavorable to
prior year performance due entirely to lower sales and production
levels associated with domestic magnetic ballasts. Price erosion
and unfavorable manufacturing performance also existed for ballasts
produced and sold in Germany. Motors and Controls performance
improved slightly from strong results posted for the first quarter
of fiscal 1995. Supporting those results was positive performance
for generators and AC drives and systems both in revenues and gross
profits. Declining volume and margin in residential horsepower
motors occurred as housing starts slowed. Included in the
Company's first quarter results were $1.7 million of severance
related costs primarily associated with the ballast and transformer
segment of the business. Exclusive of severance charges incurred
in the first quarter of fiscal 1996, actual gross profits as a
percent of sales were 16.4%.
Operating expenses.
Selling, general and administrative (SG&A) expense was $37.8
million (13.9% of net sales) in the first quarter of fiscal 1996,
compared to $38.4 million (14% of net sales) in the first quarter
of fiscal 1995. SG&A comparisons benefited primarily from lower
variable costs associated with reduced magnetic ballasts sales and
reductions in administrative personnel versus the year earlier
period.
Interest and other expense.
Interest expense of $8.6 million in the first quarter of fiscal
1996 was up from the $7.7 million in the first quarter of fiscal
1995. Bank borrowings were down on a period to period basis,
however, the level of interest allocable to discontinued operations
declined due to the completion of the sales of the majority of non-
core businesses. Other expense for the first quarter of fiscal
1996 was comparable to the levels in the first quarter of fiscal
1995.
Net income.
The Company recorded a loss from continuing operations of $3.5
million compared to income of $2.7 million in the first quarter of
fiscal 1995. Total net income in the first quarter fiscal 1995 was
$5.8 million,
<PAGE>
which included income of $3.1 million representing the net again on
the sale of the Company's Controls business. This compares to a
total net loss of $3.5 million in the first quarter of fiscal 1996.
The tax benefit in the first quarter of fiscal 1996 was less than
the statutory rate due to the Corporation's inability to tax effect
losses incurred in Germany for the period.
LIQUIDITY AND CAPITAL RESOURCES:
In July of 1995, the Company sold its Medium Power Transformer
business for a cash purchase of $76 million subject to certain post
closing adjustments. In September of 1995, the Company sold
certain assets and liabilities of its form coil and insulation
business in Brownsville, Texas. The proceeds from said
transactions were used primarily to repay the Company's $75 million
term loan outstanding under the Company's Bank Loan Agreement.
These transactions complete the majority of the Corporations
divestiture program with minor transactions remaining. The Company
expects to complete the majority of the remaining divestitures by
the end of the second quarter of fiscal 1996. The Company intends
to focus on future periods on the reduction of inventory and
accounts receivable balances with the objective of further
reductions in debt.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on
October 26, 1995.
(b) The following named persons were elected as directors, such persons
constituting all of the directors of the Company:
Andrew G. Galef
Dewain K. Cross
Paul J. Kofmehl
A. Carl Kotchian
Crocker Nevin
Kenneth A. Ruck
Marguerite W. Sallee
(c) The votes cast for and withheld with respect to each nominee for
director is as follows:
NOMINEE FOR WITHHELD
------- --- --------
Andrew G. Galef 19,092,859 162,407
Dewain K. Cross 19,125,576 129,690
Paul J. Kofmehl 19,122,010 133,256
A. Carl Kotchian 19,117,579 137,687
Crocker Nevin 19,120,460 134,806
Kenneth A. Ruck 19,115,182 140,084
Marguerite W. Sallee 19,120,676 134,950
The votes cast for, against or withheld (including abstentions
and broker non-votes) with respect to the matter of whether to
approve the adoption of the Company's Non-Employee Director
Stock Option Plan is as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
13,392,477 4,517,458 1,345,331 0
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
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.
MAGNETEK, INC.
(Registrant)
Date: November 16, 1995 /s/ DAVID P. REILAND
---------------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,311
<SECURITIES> 0
<RECEIVABLES> 202,324
<ALLOWANCES> 5,061
<INVENTORY> 237,718
<CURRENT-ASSETS> 468,358
<PP&E> 409,983
<DEPRECIATION> 209,995
<TOTAL-ASSETS> 758,241
<CURRENT-LIABILITIES> 178,850
<BONDS> 372,194
<COMMON> 247
0
0
<OTHER-SE> 114,280
<TOTAL-LIABILITY-AND-EQUITY> 758,241
<SALES> 272,670
<TOTAL-REVENUES> 272,670
<CGS> 229,579
<TOTAL-COSTS> 229,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,558
<INCOME-PRETAX> (4,422)
<INCOME-TAX> (884)
<INCOME-CONTINUING> (3,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,538)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Per share amounts on a fully diluted basis have been omitted as such amounts
are anti-dilutive to primary per share amounts.
</FN>
</TABLE>
