<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 1-10233
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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)
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of
November 4, 1997: 31,173,993 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, 1997 and the results of operations and
cash flows for the three-month periods ended September 30, 1997 and 1996. 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, 1997 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, 1997 and JUNE 30, 1997
(amounts in thousands)
ASSETS September 30 June 30
- ------ ------------ -----------
(unaudited)
Current assets:
Cash $ 2,879 $ 6,138
Accounts receivable 190,326 191,011
Inventories 188,476 181,014
Prepaid expenses and other 36,748 28,976
----------- -----------
Total current assets 418,429 407,139
----------- -----------
Property, plant and equipment 417,237 407,997
Less-accumulated depreciation
and amortization 239,901 231,627
----------- -----------
177,336 176,370
----------- -----------
Goodwill 30,457 30,741
Deferred financing costs,
intangible and other assets 38,980 40,298
----------- -----------
Total Assets $ 665,202 $ 654,548
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 98,194 $ 97,060
Accrued liabilities 115,237 119,755
Current portion of long-term debt 3,300 3,109
----------- -----------
Total current liabilities 216,731 219,924
----------- -----------
Long-term debt, net of current portion 207,884 240,836
Other long-term obligations 69,943 71,273
Deferred income taxes 19,793 20,292
Commitments and contingencies
Stockholders' equity
Common stock 309 282
Other 150,542 101,941
----------- -----------
Total stockholders' equity 150,851 102,223
----------- -----------
Total Liabilities and
Stockholders' Equity $ 665,202 $ 654,548
----------- -----------
----------- -----------
See accompanying notes
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 and 1996
(amounts in thousands except per share data)
(unaudited)
1997 1996
---- ----
Net sales $ 286,487 $ 291,410
Cost of sales 229,032 236,568
----------- -----------
Gross profit 57,455 54,842
Selling, general and administrative 40,215 38,923
----------- -----------
Income from operations 17,240 15,919
Interest expense 4,753 7,532
Other expense, net 801 1,076
----------- -----------
Income before provision
for income taxes 11,686 7,311
Income taxes 4,207 2,996
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Net income $ 7,479 $ 4,315
----------- -----------
----------- -----------
EARNINGS PER COMMON SHARE
Primary:
Net income $ 0.25 $ 0.17
----------- -----------
----------- -----------
Fully diluted:
Net income $ 0.25 $ 0.17
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----------- -----------
See accompanying notes
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands)
(unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net Income $ 7,479 $ 4,315
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation and amortization 9,450 9,619
Changes in operating assets and liabilities (19,146) 6,409
----------- -----------
Total adjustments ( 9,696) 16,028
----------- -----------
Net cash provided by (used in) operating activities: ( 2,217) 20,343
----------- -----------
Cash flows from investing activities:
Proceeds from sale of businesses and assets - 2,425
Capital expenditures (10,133) ( 6,953)
Other investments 131 1,659
----------- -----------
Net cash used in investing activities (10,002) ( 2,869)
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Cash flows from financing activities:
Proceeds from issuance of common stock 2,227 30
Borrowing (repayment) of bank
and other long-term obligations 6,829 (11,743)
Increase in deferred financing costs ( 96) ( 195)
----------- -----------
Net cash provided by (used in) financing activities 8,960 (11,908)
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Net increase (decrease) in cash $ ( 3,259) $ 5,566
Cash at the beginning of period 6,138 871
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Cash at the end of period $ 2,879 $ 6,437
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(continued on next page)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands)
(unaudited)
1997 1996
---- ----
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,654 $ 4,832
Income Taxes $ 740 $ 200
During the three months ended September 30, 1997, an additional
2,471,898 shares of common stock were issued upon the conversion
of $39,590 of Convertible Notes.
(see accompanying notes)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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, 1997 and 1996 each contained thirteen weeks.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of MagneTek, Inc. and its subsidiaries (the
Company). All significant inter-company accounts and transactions
have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported
in the financial statements and the accompanying notes. Actual results
could differ from these estimates.
2. INVENTORIES
Inventories at September 30, 1997 and June 30, 1997 consist of the
following:
SEPTEMBER 30 JUNE 30
------------ ----------
Raw materials and stock parts $ 60,343 $ 55,584
Work-in-process 44,246 40,343
Finished goods 83,887 85,087
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$ 188,476 $ 181,014
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<PAGE>
3. REPOSITIONING COSTS
In fiscal 1996, as a result of significant declines in sales and profit
margins in both electronic and magnetic ballasts, the Company
initiated a review and analysis of actions to reduce costs and improve
future flexibility and profitability, focused to a large extent in its
Lighting products business. Subsequent to review and approval by the
Company's Board of Directors, certain reserves were established and
charges recorded in the year ended June 30, 1996. These charges were
associated with a variety of repositioning actions and included severance,
termination benefits and asset write-downs related to facility closures.
Reserves were also established for estimated increases in warranty
(primarily related to the electronic ballast product line) and other costs.
Charges recorded in connection with these reserves and asset write-downs
related primarily to the Lighting Products segment and aggregated $79,717.
The net cash outlays related to those reserves for the first quarter of
fiscal 1998 were $3,500 of which $1,500 related to warranty, $1,600 in
severance and termination benefits and $400 in plant and other
repositioning charges. The Company does not anticipate total cash outlays
associated with these reserves to exceed $20,000 in fiscal 1998.
4. LONG TERM DEBT AND BANK BORROWING ARRANGEMENTS
The Company has an agreement with a group of banks (Bank Loan Agreement)
that have committed to lend up to $350,000 under a revolving loan facility
through June, 2002. Borrowings under the credit facility bear interest at
the bank's prime lending rate or, at the Company's option, the London
Interbank Offered Rate plus five-eighths percent. These rates may be
reduced or increased based upon the level of certain debt-to-cash flow
ratios.
During the three months ended September 30, 1997, holders of the
Company's 8% Convertible Subordinated Notes converted $39,590 into
2,471,898 shares of common stock as a result of a call of the
Convertible Notes by the Company (representing the entire remaining
balance of the Notes).
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company and certain of its subsidiaries have been named as defendants
in a suit filed by Cooper Industries, Inc. ("Cooper"), alleging
breach of the 1986 agreement by which the Company acquired certain
businesses from Cooper. At issue in the litigation is the question
of which party has responsibility in connection with pending lawsuits
(the "lawsuits") involving numerous plaintiffs who allege injurious
exposure to asbestos contained in products manufactured by current
or former subsidiaries and divisions of Cooper. Cooper claims that
the Company is obligated to defend and indemnify Cooper in connection
with the lawsuits. The Company has denied that it is obligated
under the agreement to defend and indemnify Cooper in connection
with the lawsuits, and has filed a counterclaim asserting that Cooper is
obligated under the agreement to defend and indemnify the Company in
connection with the lawsuits and that certain insurance coverage
available to Cooper should be applied to the lawsuits. The Company
intends to litigate its position vigorously.
In 1994, the Company sold the assets of one of its subsidiaries to
Patriot Sensors and Controls ("Patriot") pursuant to an agreement
which provides that the parties will share responsibility for most
of the lawsuits over a five year period, with Patriot bearing full
responsibility for the lawsuits thereafter. Patriot has stated that it
may be financially unable to perform its indemnification obligations
with respect to the lawsuits. Patriot has filed a suit against the
Company, alleging that the Company breached certain obligations
concerning the costs of defending and settling some of the lawsuits.
The Company denies these allegations and intends to litigate its
position vigorously.
Due to (i) the early stage of the Cooper litigation and the Patriot
litigation, (ii) the potential that Patriot may or may not perform
some or all of its indemnification obligations to the Company, and
(iii) the ongoing review of strategies and defense available to the
Company in the lawsuits, it is difficult to predict the outcome of the
foregoing legal proceedings. However, management of the Company
does not believe that the financial impact of the foregoing legal
proceedings will be material.
<PAGE>
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS 1996
NET SALES AND GROSS PROFIT.
MagneTek's net sales for the first quarter of fiscal 1998 were $286.5
million, a 1.7% decrease from the first quarter of fiscal 1997 at
$291.4 million. Sales comparisons were impacted by a deterioration
in the deutchmark and lira versus the dollar. Conversion of the
Company's European sales from local currency to U.S. dollars created a
sixteen to twenty percent reduction in German and Italian revenues
when translated into U.S. dollars. The Company also sold certain
small transformer businesses during fiscal 1997 which, while
included in first quarter 1997 results, no longer exist for fiscal 1998.
Sales in the Lighting products segment declined 10.8% due primarily
to lower sales of magnetic and electronic ballasts and currency
translation. Net sales for the Power Supplies segment declined by
10% but would have increased if adjusted for currency fluctuations and
the sale of the small transformer business. Motors and Controls
segment sales increased 8.2% due to stronger sales of generators,
commercial fractional horsepower motors and standard drives.
The Company's gross profit increased to $57.5 million (20.1% of net
sales) in the first quarter of fiscal 1998 from $54.8 million (18.8%
of net sales) in the first quarter of fiscal 1997. Gross profit
improvement for the first quarter of fiscal 1998 was focused primarily
in the Motor and Controls segment. While Lighting products revenues
declined from the year earlier quarter, gross margins (expressed as
a percent of sales) improved from the first quarter of fiscal 1997.
Continued transition of Lighting Products manufacturing to areas of
low cost labor and further domestic plant consolidations have continued
to reduce overall product cost. Operations in Germany have also
improved due to cost reductions efforts and a move to Hungarian
production for certain products. Higher generator sales positively
affected gross margins in the Motors and Controls segment while motor
product margins were consistent with the year earlier period. Gross
profits for power supplies were consistent with prior year on lower
sales.
OPERATING EXPENSES.
Selling, general and administrative (SG&A) expense was $40.2 million
(14.0% of net sales) in the first quarter of fiscal 1998 versus
$38.9 million (13.4% of net sales) in the first quarter of fiscal
1997. Increased spending was primarily in the areas of manning and
support costs for new programs. Systems enhancements, quality
initiatives and repositioning activities are conscious investments
to improve future performance. Revenue growth in the Motors and
Controls segment resulted in higher variable costs (e.g. freight,
commissions) associated with higher sales levels.
<PAGE>
INTEREST AND OTHER EXPENSE.
Interest expense of $4.8 million in the first quarter of fiscal 1998
compared to $7.5 million in the first quarter of fiscal 1997. Lower
interest expense reflects the impact of lower overall interest rates
with the elimination of the Company's 10-3/4% Senior Subordinated debt
in fiscal 1997, the conversion to common stock of $35.4 million of the
8% Convertible Debentures and lower overall debt levels. Other
expense for the first quarter of fiscal 1997 was $.8 million down
from $1.1 million in the first quarter of fiscal 1997. Lower
amortization of deferred financing costs due to the earlier
extinguishment of debt was the primary factor.
NET INCOME.
The Company recorded an after-tax profit of $7.5 million in the first
quarter of fiscal 1998 compared to an after-tax profit of $4.3
million in the first quarter of fiscal 1997. The tax provision in
the first quarter of fiscal 1998 was $4.2 million (36% effective tax
rate) versus $3.0 million (41% effective tax rate) in the first
quarter of fiscal 1997. The lower effective tax rate primarily
reflects tax deductions associated with repositioning reserves for
which no tax benefit was previously recorded. The Company expects this
lower tax rate to continue throughout the year.
LIQUIDITY AND CAPITAL RESOURCES:
In the fourth quarter of fiscal 1997, the Company amended its Bank Loan
Agreement to provide up to $350 million under a revolving loan facility
through June, 2002. Currently the credit facility bears interest at the
bank's prime lending rate or, at the London Interbank Offered rate plus
five-eighths of one percent. As of September 30, 1997, the Company had
approximately $150 million of available borrowings under the Bank Loan
Agreement. At present, the Bank Loan Agreement provides both short term
working capital availability and longer term financing needs for the Company.
On September 22, 1997, the Company called the remaining $39.6 million of the
8% Convertible Notes, which were converted by the holders into shares of the
Company's common stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Note 5.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Computation of per share earnings
(b) Reports on Form 8-K
None
<PAGE>
ITEM 6. EXHIBIT (a)- Computation of per share earnings
FISCAL YEAR
-----------------------
1Q 1Q
1998 1997
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(in thousands, except per share amounts)
Primary:
Weighted average shares outstanding 28,541 25,465
Dilutive stock options based upon 918 278
the treasury stock method using the
average market price.
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Total 29,459 25,743
-------- --------
-------- --------
Net Earnings $ 7,479 $ 4,315
-------- --------
-------- --------
Pere Share Earnings $ 0.25 $ 0.17
-------- --------
-------- --------
Fully Diluted:
Weighted average shares outstanding 28,443 25,468
Dilutive stock options based upon 1,268 337
the treasury stock method using the
year-end market price, if higher than
average market price.
Effect of Convertible debt to equity 2,229 4,688
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Total 31,940 30,493
-------- --------
-------- --------
Earnings $ 7,479 $ 4,315
Add: Interest savings on Convertible 466 885
debt after tax
-------- --------
Net Earnings $ 7,945 $ 5,200
-------- --------
-------- --------
Per Share Earnings $ 0.25 $ 0.17
-------- --------
-------- --------
<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 4, 1997 _______________________________
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
<PAGE>
November 4, 1997
New York Stock Exchange
20 Broad Street
New York, New York 10005
Attn: Ms. Lorraine Holowka
Re.: MagneTek, Inc. - Form 10-Q
Dear Ms. Holowka:
Enclosed for filing by MagneTek, Inc. (the "Company") is one copy of the
Company's report on Form 10-Q for the quarter ended September 30, 1997.
If you should have any questions or comments, please do not hesitate to call
me.
Very truly yours,
David P. Reiland
Executive Vice President
and Chief Financial Officer
DPR/jf
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<PAGE>
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<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
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<SECURITIES> 0
<RECEIVABLES> 195,633
<ALLOWANCES> 5,307
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0
0
<COMMON> 309
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