<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: March 31, 1996
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 May 3,
1996: 24,712,094 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 March 31, 1996 and the results of operations and cash flows for
the three-month and nine month periods ended March 31, 1996 and 1995. 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 and
nine months ended March 31, 1996 are not necessarily indicative of results which
may be experienced for the full fiscal year.
<PAGE>
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 and JUNE 30, 1995
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS March 31 June 30
(unaudited)
----------- ---------
<S> <C> <C>
Current assets:
Cash $ 2,003 $ 311
Accounts receivable 199,720 235,252
Inventories 215,749 225,461
Prepaid expenses and other 31,920 29,212
--------- ---------
Total current assets 449,392 490,236
--------- ---------
Property, plant and equipment 423,260 401,851
Less-accumulated depreciation
and amortization 222,702 201,751
--------- ---------
200,558 200,100
--------- ---------
--------- ---------
Net assets of discontinued operations 26,116 98,118
Goodwill 33,033 33,134
Deferred financing costs,
intangible and other assets 35,058 35,580
--------- ---------
Total Assets $ 744,157 $ 857,168
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,447 $ 118,002
Accrued liabilities 81,558 79,234
Current portion of long-term debt 2,691 17,580
--------- ---------
Total current liabilities 177,696 214,816
--------- ---------
Long-term debt, net of current portion 357,198 430,887
Other long-term obligations 84,049 81,369
Deferred income taxes 10,857 12,818
Commitments and contingencies
Stockholders' equity
Common stock 247 247
Other 114,110 117,031
---------- ---------
Total stockholder's equity 114,357 117,278
---------- ---------
Total Liabilities and Stockholders'
Equity
$ 744,157 $ 857,168
--------- ---------
--------- ---------
See accompanying notes
</TABLE>
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $301,628 $318,652
Cost of sales 249,116 254,266
-------- ---------
Gross profit 52,512 64,386
Selling, general and administrative 40,677 42,201
-------- --------
Income from operations 11,835 22,185
Interest expense 7,545 9,224
Other expense, net 1,198 1,265
-------- -------
Income from continuing operations
before provision for income taxes 3,092 11,696
Income taxes 1,668 4,795
-------- -------
Income from continuing operations
before extraordinary item 1,424 6,901
Extraordinary item (net of taxes) -- (4,820)
------- -------
Net income $ 1,424 $ 2,081
------- -----
------- -----
EARNINGS PER COMMON SHARE
Primary:
Income from continuing operations $ 0.06 $ 0.28
Extraordinary item -- (0.20)
------- -----
Net income $ 0.06 $ 0.08
------- -----
------- -----
Fully diluted:
Income (loss) from continuing operations (*) $ 0.26
Extraordinary item -- (*)
------ ------
Net income (loss) (*) (*)
------ ------
------ ------
</TABLE>
(*) 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.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE NINE MONTHS ENDED
MARCH 31, 1996 AND 1995
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales $856,460 $884,034
Cost of sales 714,245 709,241
-------- --------
Gross profit 142,215 174,793
Selling, general and administrative 117,600 121,868
-------- --------
Income from operations 24,615 52,925
Interest expense 24,097 25,418
Other expense, net 3,589 3,503
-------- --------
Income (loss) from continuing operations before
provisions for income taxes (3,071) 24,004
Income taxes 573 9,965
--------- --------
Income (loss) from continuing operations before
extraordinary item (3,644) 14,039
Gain on disposal (net of taxes) -- 3,100
Extraordinary item (net of taxes) -- (4,820)
--------- --------
Net income (loss) $(3,644) $ 12,319
--------- --------
--------- --------
EARNINGS PER COMMON SHARE
Primary:
Income (loss) from continuing operations $ (0.15) $ 0.57
Income from discontinued operations -- 0.12
Extraordinary item -- (0.20)
------ -----
Net income (loss) $ (0.15) $ 0.49
--------- --------
--------- --------
Fully diluted:
Income (loss) from continuing operations (*) $ 0.55
Income from discontinued operations -- 0.10
Extraordinary item -- (*)
--------- --------
Net income (*) (*)
--------- --------
--------- --------
</TABLE>
(*) 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 NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(amounts in thousands)
(unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ (3,644) $ 14,039
--------- -------
Adjustments to reconcile income from
continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 29,645 28,652
Changes in operating assets and
liabilities of continuing operations 19,377 (48,477)
--------- -------
Total adjustments 49,022 (19,825)
--------- -------
Net cash provided by (used in) operating
activities: 45,378 (5,786)
--------- -------
Cash flows from investing activities:
Proceeds from sale of businesses and assets 75,883 94,305
Capital expenditures (28,265) (30,382)
Annuity contract and other investments (17) 2,630
--------- -------
Net cash provided by investing activities 47,601 66,553
--------- -------
Cash flows from financing activities:
Borrowings under bank and other long-term
obligations -- 77,272
Proceeds from issuance of common stock 352 1,541
Repayment of bank and other long-term
obligations (88,578) (149,527)
Increase in deferred financing costs (276) (5,275)
--------- ---------
Net cash used in financing activities (88,502) (75,989)
--------- ---------
Net cash provided (used in) by
continuing operations 4,477 (15,222)
--------- ---------
(continued on next page)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(amounts in thousands)
(unaudited)
1996 1995
---- ----
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 1,304 5,891
Gain on sale of businesses -- (3,100)
Changes in operating assets and
liabilities of discontinued operations (3,498) 4,660
Capital expenditures (591) (1,006)
--------- -------
Net cash provided by (used in)
discontinued operations (2,785) 9,545
--------- -------
Net increase (decrease) in cash 1,692 (5,677)
Cash at the beginning of period 311 7,013
--------- -------
Cash at the end of period $ 2,003 $ 1,336
--------- -------
--------- -------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 22,434 $ 31,203
Income Taxes $ 4,051 $ 12,646
(see accompanying notes)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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 and nine month periods ended March 31,
1996 and 1995 each contained thirteen weeks and thirty-nine weeks
respectively.
2. INVENTORIES
Inventories at March 31, 1996 and June 30, 1995 consist of the following:
March 31 June 30
-------- -------
Raw materials and stock parts $ 67,866 $ 66,507
Work-in-process 44,996 45,803
Finished goods 102,887 113,151
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$ 215,749 $ 225,461
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-------- ---------
3. DISCONTINUED OPERATIONS
During the first nine 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 sale of
these businesses, including post closing adjustments approximated $75,000
and were used to repay bank borrowings primarily under the term loan
facility. The Company is currently in the process of completing
transactions for the remainder of the discontinued operations including the
sale of the Company's network of service shops and remaining domestic
transformer business. This sale is expected to be completed in fiscal
1996.
During the first nine months 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. Net losses incurred for the first
nine months of fiscal 1996 were $489.
<PAGE>
4. LONG TERM DEBT AND BANK BORROWING ARRANGEMENTS
Due to lower than anticipated operating results, the Company was in
violation of certain convenants of its Bank Loan Agreement at March 31,
1996. The Company has received a waiver of the violations from its lenders
and has amended its Bank Loan Agreement to change the definition of one of
its convenants and revise other covenants prospectively to reflect expected
operating results. As a result of the amendment, the lending commitment
under the Bank Loan Agreement was reduced to $200 million from $225 million
and another tier of pricing was added resulting in an increase of twenty-
five basis points in the Company's borrowing rate from the previously
defined rate. This rate may be reduced in the future based upon the
achievement of specified cash flow levels. Based on the new bank
commitment level, the Company had available borrowing capacity of
approximately $64 million under its bank credit facility as of May 1, 1996.
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
Three Months ended March 31, 1996 vs. 1995
Net Sales and Gross Profit.
Net sales for MagneTek in the third fiscal quarter of 1996 were $301.6
million, a 5.3% reduction from the third quarter of fiscal 1995 results of
$318.7 million. Revenues within the Ballasts and Transformers segment
declined 8.0% from the year earlier period. Sales levels for domestic
electronic ballasts declined significantly. Revenue levels for magnetic
ballasts both domestically and in Europe were modestly reduced. European
power supplies sales continue to out pace prior year results due to
increased market penetration. Net sales for the Motors and Controls
segment decreased 1.9% over prior year. Lower sales in residential
fractional horsepower and direct current product was partially offset by
higher revenues of commercial fractional product. Integral motors and
generator sales were consistent with prior year levels. Drives sales while
slightly exceeding last years third quarter, were somewhat impeded by the
inability to obtain product from its offshore vendor.
The Company continues to experience stagnant order levels for electronic
ballasts which appears to be adversely affected by reduced utility rebates
and broad competitive pressures. European Power supplies and domestic
drives have booking rates which are stronger or comparable to prior year.
Motors orders were less than year ago results, however, the third quarter
of fiscal 1995 orders were exceptionally strong.
Gross profit decreased to $52.5 million (17.4% of net sales) in the third
quarter of fiscal 1996 from $64.4 million (20.2% of net sales) in the third
quarter of fiscal 1995. The reduced gross profit level performance was
specific to domestic lighting. Electronic ballast sales levels were
markedly lower and coupled with downward revisions to production levels
compressed margin performance. Magnetic ballasts activity included lower
sales domestically and conscious programs to reduce finished goods
inventory levels. The latter program, while
<PAGE>
beneficial to working capital levels, similarly deteriorated fixed cost
coverage at the manufacturing level through reduced production. Gross
profit levels within the Transformer element of the business exceeded prior
year results. Motor and Generator gross profits were slightly less than
the prior year third quarter. Generator margins were adversely impacted by
a January adjustment to generator (Caterpillar) demand. Gross margins of
all other businessess in the Motors and Controls segment were comparable to
the year earlier quarter.
Operating Expenses.
Selling, general and administration (SG&A) expense was $40.7 million (13.5%
of net sales) in the third quarter of fiscal 1996 down from $42.2 million
(13.2% of net sales) in the third quarter of fiscal 1995. The reduction in
SG&A expense was due partially to reduced sales volumes and attendant
variable costs as well as lower corporate office expense.
Interest and Other Expense.
Interest expense of $7.5 million in the third quarter of fiscal 1996 was
18.2% lower than the $9.2 million incurred in the third quarter of fiscal
1995. Debt levels of the Company have been reduced as the majority of the
sales of discontinued businesses have been completed and lower levels of
working capital effected. Other expense was approximately the same level
as in the prior year period.
Net Income.
The Company recorded a profit from continuing operations of $1.4 million in
the third quarter of fiscal 1996 compared to a profit from continuing
operations of $6.9 million in the third quarter of fiscal 1995. In the
third quarter of fiscal 1995 the Company additionally incurred an
extraordinary loss of $4.8 million related to expenses associated with
early debt retirement. Total net income for the third quarter of fiscal
1995 was $2.1 million. The tax expense in the third quarter of fiscal 1996
was greater than the statutory rate due to the inability to recognize a tax
benefit in the period for losses incurred in Germany.
During the fourth quarter of fiscal 1996, the Company is reviewing certain
assets in compliance with Financial Accounting Standard 121 (Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed Of) and expects that fourth quarter and full year results will be
negatively affected by this review.
NINE MONTHS ENDED MARCH 31, 1996 VS. 1995
Net Sales and Gross Profit.
MagneTek's net sales in the first nine months of fiscal 1996 were $856.5
million, a 3.1% reduction versus the first nine months of fiscal 1995 at
$884.0 million. Sales in the Ballast and Transformer segment declined
6.2%. Revenue levels for both electronic and magnetic ballasts eroded from
the year earlier nine month period, while power supplies sales rose both in
Europe and the United States. Motors and Controls sales increased 1.0%
from prior year. Increased sales for generators and drives were partially
offset by weaker revenue performance in both direct current and residential
fractional horsepower motors. Within the Motors and Controls segment,
industrial and commercial product demand has been positive with lower
activity in consumer driven markets.
Gross profit decreased to $142.2 million (16.6% of net sales) in the first
nine months of fiscal 1996 from $174.8 million (19.8% of net
<PAGE>
sales) in the first nine months of fiscal 1995. The diminished level of
gross profits was highly concentrated in the performance of both domestic
and German ballast operations due to lower sales volume and diminished
production requirements. Aggregate performance of Transformers product
within the segment exceeded the prior year nine month results primarily
based on European volume increases. Motors and Controls gross profits
decreased slightly due to residential fractional horsepower and direct
current motor results. Generators, drives and the balance of the segment
had comparable performance to the prior year period.
Operating Expenses.
Selling, general and administrative (SG&A) expense was $117.6 million
(13.7% of net sales) in the first nine months of fiscal 1996 compared to
$121.9 million (13.8% of net sales) in the first nine months of fiscal
1995. The reduction of cost occurred to a large extent at Corporate
headquarters due to reduced headcount levels and lower overall expenses.
Interest and Other Expense.
Interest expense of $24.1 million in the first nine months of fiscal 1996
compares favorably to the $25.4 million of interest expense in the first
nine months of fiscal 1995. The improved results were a direct result of
performance in the third quarter of fiscal 1996. Lower debt levels which
derived from completion of the majority of sales of discontinued operations
and lower net working capital requirements generated the improved results.
Positive performance occurred in the acceleration of overall receivables
collections and improved inventory turnover in certain motor and ballast
areas.
Net Income.
The Company recorded losses from continuing operations of $3.6 million in
the first nine months of fiscal 1996 compared to income of $14.0 million
for the same period in fiscal year 1995. In the first nine months of
fiscal 1995 the Company also recorded a gain of $3.1 million associated
with the sale of its controls business and $4.8 million of extraordinary
expense (deferred financing costs and call premiums on senior debt)
associated with early debt retirement. Total net income for the first nine
months of fiscal 1995 was $12.3 million. The tax expense in the first nine
months of fiscal 1996 was greater than the statutory rate due to the
inability to recognize a tax benefit in the period for losses incurred in
Germany.
LIQUIDITY AND CAPITAL RESOURCES:
Due to lower than anticipated operating results, the Company was in violation of
certain convenants of its Bank Loan Agreement at March 31, 1996. The Company
has received a waiver of the violations from its lenders and has amended its
Bank Loan Agreement to change the definition of one of its convenants and revise
other covenants prospectively to reflect expected operating results. As a
result of the amendment, the lending commitment under the Bank Loan Agreement
was reduced to $200 million from $225 million and another tier of pricing was
added resulting in an increase of twenty-five basis points in the Company's
borrowing rate from the previously defined rate. This rate may be reduced in
the future based upon the achievement of specified cash flow levels. Based on
the new bank commitment level, the Company had available borrowing capacity of
approximately $64 million under its bank credit facility as of May 1, 1996.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of MagneTek, Inc.,
(previously filed with the Registration Statement on Form
S-3 filed on August 1, 1991, Commission File No. 33-41854).
3.2 By-laws of MagneTek, Inc., as amended and restated
(previously filed with Form 10-K for Fiscal Year ended
June 30, 1995).
(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: May 13, 1996 /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> MAR-31-1996
<CASH> 2,003
<SECURITIES> 0
<RECEIVABLES> 204,698
<ALLOWANCES> 4,978
<INVENTORY> 215,749
<CURRENT-ASSETS> 449,392
<PP&E> 423,260
<DEPRECIATION> 222,702
<TOTAL-ASSETS> 744,157
<CURRENT-LIABILITIES> 177,696
<BONDS> 359,889
0
0
<COMMON> 247
<OTHER-SE> 114,110
<TOTAL-LIABILITY-AND-EQUITY> 744,157
<SALES> 856,460
<TOTAL-REVENUES> 856,460
<CGS> 714,245
<TOTAL-COSTS> 714,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,097
<INCOME-PRETAX> (3,071)
<INCOME-TAX> 573
<INCOME-CONTINUING> (3,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,644)
<EPS-PRIMARY> (.15)
<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>
