<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, 1999
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.
Nashville, Tennessee 37214
(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 5,
1999, 24,101,133 shares.
<PAGE>
2000 MAGNETEK FORM 10-Q
TABLE OF CONTENTS FOR THE QUARTERLY REPORT ON 10Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
MAGNETEK, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits on form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
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, 1999 and the results of operations and cash flows
for the three-month periods ended September 30, 1999 and 1998. 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, 1999 are not necessarily indicative of results which may be experienced for
the full fiscal year.
This document contains "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995, that are subject to risks and
uncertainties which, in many cases, are beyond the control of the Company. These
include but are not limited to economic conditions in general, business
conditions in electrical and electronic equipment markets, competitive factors
such as pricing and technology, and the risk that the Company's ultimate costs
of doing business exceed present estimates. Further information on factors which
could affect MagneTek's financial results are described in the Company's filings
with the Securities and Exchange Commission.
<PAGE>
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 and JUNE 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
------------ ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 17,010 $ 6,880
Accounts receivable 123,119 111,105
Inventories 129,316 116,316
Prepaid expenses and other 35,723 35,404
--------- ---------
Total current assets 305,168 269,705
--------- ---------
Property, plant and equipment 243,064 238,554
Less-accumulated depreciation
and amortization 138,139 133,489
--------- ---------
104,925 105,065
--------- ---------
Net assets of discontinued operations -- 173,779
Goodwill 61,371 37,548
Deferred financing costs,
intangible and other assets 59,926 59,477
--------- ---------
Total Assets $531,390 $645,574
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,913 $ 73,266
Accrued liabilities 96,146 87,742
Current portion of long-term debt 4,186 4,141
--------- ---------
Total current liabilities 176,245 165,149
--------- ---------
Long-term debt, net of current portion 14,946 179,093
Other long-term obligations 50,120 54,262
Deferred income taxes 62,437 43,139
Commitments and contingencies
Stockholders' equity
Common stock 283 300
Paid in capital in excess of par value 144,821 160,574
Retained earnings 104,218 66,210
Accumulated other comprehensive loss (21,680) (23,153)
--------- ---------
Total stockholders' equity 227,642 203,931
--------- ---------
Total Liabilities and
Stockholders' Equity $531,390 $645,574
--------- ---------
--------- ---------
</TABLE>
<PAGE>
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
September 30, 1999 and 1998
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 3,489 $ 3,291
Adjustments to reconcile income to net cash used in
operating activities:
Depreciation and amortization 6,289 5,214
Changes in operating assets and liabilities
of continuing operations (18,532) (20,568)
--------- ---------
Total adjustments (12,243) (15,354)
--------- ---------
Net cash used in operating activities (8,754) (12,063)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of Motor business and other assets 253,000 --
Purchase of and investment in companies, net of cash acquired (38,245) --
Capital expenditures (3,426) (6,107)
Other investments (5) (197)
--------- ---------
Net cash provided by (used in) investing activities 211,324 (6,304)
--------- ---------
Cash flow from financing activities:
Borrowings under bank and other long-term obligations -- 24,649
Proceeds from issuance of common stock 1,582 642
Stock repurchases (17,248) (5,353)
Repayment of bank and other long term obligations (164,102) --
Increase in deferred financing costs (467) --
--------- ---------
Net cash provided by (used in) financing activities (180,235) 19,938
--------- ---------
Net cash provided by continuing operations 22,335 1,571
--------- ---------
Cash flow from discontinued operations:
Income (loss) from discontinued operations (528) 5,726
Adjustments to reconcile income to net cash provided by
discontinued operations:
Depreciation and amortization 1,039 4,360
Changes in operating assets and liabilities
of discontinued operations, including fees and
expenses of disposal (11,713) (10,694)
Capital expenditures (1,003) (5,138)
--------- ---------
Net cash used in discontinued operations (12,205) (5,746)
--------- ---------
Net increase (decrease) in cash $ 10,130 $ (4,175)
Cash at the beginning of the period 6,880 5,976
--------- ---------
Cash at the end of the period $ 17,010 $ 1,801
--------- ---------
--------- ---------
</TABLE>
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(amounts in thousands)
(unaudited)
1999 1998
---- ----
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $3,738 $5,796
Income taxes $3,577 $ 832
(see accompanying notes)
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
September 30, 1999 and 1998
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $182,053 $165,683
Cost of sales 147,456 132,512
--------- ---------
Gross profit 34,597 33,171
Selling, general and administrative 28,126 27,186
--------- ---------
Income from operations 6,471 5,985
Interest expense 309 567
Other expense, net 534 579
--------- ---------
Income from continuing operations before
provision for income taxes 5,628 4,839
Provision for income taxes 2,139 1,548
--------- ---------
Income from continuing operations 3,489 3,291
Discontinued operations -
Income (loss) from operations (net of taxes) (528) 5,726
Gain on Motor sale (net of taxes) 35,047 --
--------- ---------
Net income $ 38,008 $ 9,017
--------- ---------
--------- ---------
EARNINGS PER COMMON SHARE
Basic:
Income from continuing operations 0.12 0.11
Income (loss) from discontinued operations (0.02) 0.18
Gain on Motor sale (net of taxes) 1.19 --
--------- ---------
Net income $ 1.29 $ 0.29
--------- ---------
--------- ---------
Diluted:
Income from continuing operations 0.12 0.11
Income (loss) from discontinued operations (0.02) 0.18
Gain on Motor sale (net of taxes) 1.19 --
--------- ---------
Net income $ 1.29 $ 0.29
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
<PAGE>
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(All dollar amounts are in 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, 1999 and 1998 contained fourteen weeks and thirteen weeks
respectively.
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, 1999 and June 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
------------ -------
<S> <C> <C>
Raw materials and stock parts $ 50,849 $ 51,489
Work-in-process 17,770 19,244
Finished goods 60,697 45,583
------------ ---------
$129,316 $116,316
------------ ---------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of product liability lawsuits, many
of which involve fires allegedly caused by defective ballasts. All of
these cases are being defended by the Company, and management believes
that its insurers will bear all liability, except for applicable
deductibles, and that none of these proceedings individually or in the
aggregate will have a material effect on the Company.
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District
Court for the Northern District of Illinois alleging the Company is
infringing seven of his patents pertaining to electronic ballast
technology. The plaintiff seeks an unspecified amount of damages and an
injunction to preclude the Company from making, using or selling those
products allegedly infringing his patents. The Company denies that it
has infringed, or is infringing, any of the plaintiff's patents, and
has asserted several affirmative defenses. The Company also filed a
counterclaim seeking judicial declaration that it is not infringing
(and has not infringed) the patents
<PAGE>
asserted by the plaintiff, and that such asserted patents are invalid.
The Company intends to defend this matter vigorously. Due to the
preliminary state of the litigation, it is difficult to predict the
outcome of the foregoing legal proceeding. However, management of the
Company does not believe that the financial impact of such litigation
will be material.
The Company has from time to time discovered contamination by hazardous
substances at certain of its facilities. In response to such a
discovery, the Company conducts remediation activities to bring the
facility into compliance with applicable laws and regulations. The
Company's remediation activities for fiscal 1999 did not entail
material expenditures, and its remediation activities for fiscal 2000
are not expected to entail material expenditures. Future discoveries of
contaminated areas could entail material expenditures, depending upon
the extent and nature of the contamination.
Prior to its purchase by the Company in 1986, Century Electric, Inc.
("Century Electric") acquired a business from Gould Inc. ("Gould") in
May 1983 which included a leasehold interest in a fractional horsepower
electric motor manufacturing facility located in McMinnville,
Tennessee. In connection with this acquisition, Gould agreed to
indemnify Century Electric from and against liabilities and expenses
arising out of the handling and cleanup of certain waste materials,
including but not limited to cleaning up any PCBs at the McMinnville
facility (the "1983 Indemnity"). Investigation has revealed the
presence of PCBs and other substances, including solvents, in portions
of the soil and in the groundwater underlying the facility and in
certain offsite soil, sediment and biota samples. Century Electric has
kept the Tennessee Department of Environment and Conservation, Division
of Superfund, apprised of test results from the investigation. The
McMinnville plant has been listed as a Tennessee Inactive Hazardous
Substance Site, a report on that site has been presented to the
Tennessee legislature, and community officials and plant employees have
been notified of the presence of contaminants as above described. In
1995, Gould completed an interim remedial measure of excavating and
disposing onsite soil containing PCBs. Gould also conducted preliminary
investigation and cleanup of certain onsite and offsite contamination.
The cost of any further investigation and cleanup of onsite and offsite
contamination cannot presently be determined. The Company recently sold
its leasehold interest in the McMinnville plant and believes that the
costs for further onsite and offsite cleanup (including ancillary
costs) are covered by the 1983 Indemnity. While the Company believes
that Gould will continue to perform substantially under its indemnity
obligations, Gould's substantial failure to perform such obligations
could have a material adverse effect on the Company.
The Company has been identified by the United States Environmental
Protection Agency and certain state agencies as a potentially
responsible party for cleanup costs associated with alleged past waste
disposal practices at several offsite locations. Due, in part, to the
existence of indemnification from the former owners of certain acquired
businesses for cleanup costs at certain of these sites, the Company's
estimated share in liability (if any) at the offsite facilities is not
expected to be material. It is possible that the Company will be named
as a potentially responsible party in the future with respect to other
sites.
In selling certain business operations, the Company from time to time
has agreed, subject to various conditions and limitations, to
<PAGE>
indemnify buyers with respect to environmental liabilities associated
with the acquired operations. The Company's indemnification obligations
pursuant to such agreements did not entail material expenditures for
fiscal 1999, and its indemnification obligations for fiscal 2000 are
not expected to entail material expenditures. Future expenditures
pursuant to such agreements could be material, depending upon the
nature of any future asserted claims subject to indemnification.
4. DISCONTINUED OPERATIONS
On August 2, 1999, the Company sold its Motor business to A.O. Smith
for $253 million. The results of the Motor business have been reflected
as discontinued operations in the accompanying consolidated financial
statements. A portion of the Company's interest expense has been
allocated to discontinued operations based upon the debt attributable
to those operations. Taxes have been allocated using the same overall
rate incurred by the Company in the first quarter of fiscal year 2000.
The Company recorded an after-tax gain of $35 million in the first
quarter of fiscal year 2000 upon the sale of its Motor business.
5. ACQUISITIONS
On July 23, 1999, the Company purchased the assets of Electric Motor
Systems, Inc., Electromotive Systems, Inc., and EMS/Rosa Automation
Engineering, Inc., (the EMS Group) for a cash purchase price of
approximately $38 million. The EMS Group manufactures and purchases for
resale, adjustable speed drives. The acquisition was accounted for
under the purchase method of accounting and, accordingly, the purchase
price has been preliminarily allocated to the net assets acquired based
on their estimated fair market values. Operating results of the EMS
Group are included in the Company's consolidated results effective as
of the acquisition date.
6. COMPREHENSIVE INCOME
During the first quarter of fiscal 2000 and 1999, total
comprehensive income was $39,481 and $9,361 respectively.
<PAGE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) FISCAL YEAR
------------------------------
1Q 1Q
2000 1999
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 3,489 $ 3,291
Income (loss) from discontinued operations (528) 5,726
Gain of sale of Motor business (net of taxes) 35,047 --
----------- -----------
Net income $38,008 $ 9,017
Weighted average shares for basic earnings per share 29,359 31,203
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.12 $ 0.11
Income (loss) from discontinued operations (0.02) 0.18
Gain on sale of Motor business (net of taxes) 1.19 --
----------- -----------
BASIC EARNINGS PER SHARE: $ 1.29 $ 0.29
----------- -----------
----------- -----------
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 3,489 $ 3,291
Income (loss) from discontinued operations (528) 5,726
Gain on sale of Motor business (net of taxes) 35,047 --
----------- -----------
Net income $38,008 $ 9,017
Weighted average shares for basic earnings per share 29,359 31,203
Effect of dilutive stock options 203 290
----------- -----------
Weighted average shares for diluted earnings per share 29,562 31,493
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.12 $ 0.11
Income (loss) from discontinued operations (0.02) 0.18
Gain on sale of Motor business (net of taxes) 1.19 --
----------- -----------
DILUTED EARNINGS PER SHARE: $ 1.29 $ 0.29
----------- -----------
----------- -----------
</TABLE>
<PAGE>
8. SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDING SEPTEMBER 30, 1999 ENDING SEPTEMBER 30, 1998
--------------------------------------------- -----------------------------------------------
LIGHTING POWER DRIVES & LIGHTING POWER DRIVES &
POWER ELECTRONIC SYSTEMS POWER ELECTRONIC SYSTEMS
PRODUCTS PRODUCTS PRODUCTS TOTAL PRODUCTS PRODUCTS PRODUCTS TOTAL
---------- ---------- ---------- ----- --------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $104,023 $42,920 $35,110 $182,053 $104,628 $39,906 $21,149 $165,683
Operating profit 2,579 1,690 2,202 6,471 4,530 174 1,281 5,985
</TABLE>
Lighting Power Products segment sales were comparable to the year earlier
period. Power Electronic Products segment sales increased 7.6% due to stronger
European sales. Drives & Systems revenues increased 66.1% due to the acquisition
of the EMS Group. Excluding the sales from the acquisition, segment sales
increased 15.2%.
A reconciliation of combined operating profits for Lighting
Power Products, Power Electronic Products and Drives & Systems products to
consolidated income from continuing operations before taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDING
9/30/99 9/30/98
------- -------
<S> <C> <C>
Total profit for reportable segments $6,471 $5,985
Interest expense 309 567
Other expense 534 579
---------- ----------
Income from continuing operations before
provision for income taxes $5,628 $4,839
---------- ----------
---------- ----------
</TABLE>
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. 1998
NET SALES AND GROSS PROFIT
During fiscal 1999, after a period of declining revenues and pressure
on operating profits, MagneTek undertook a review of strategic
alternatives for improving shareholder value. Based on this review,
which was conducted by both internal and outside analysts, the Company
concluded that its electronic product lines offer the best opportunity
for growth, profitability and value enhancement. Moreover, the Motor
and Generator businesses were being impacted by industry consolidation,
exposing the Company to unknown costs to remain competitive. Therefore,
the Company elected to divest these businesses and use the proceeds to
reduce debt, repurchase Company stock and strengthen electronic product
lines.
The Generator business was sold to Emerson Electric Co. in April 1999
for $115 million. In August, just after fiscal year end, the Motor
business was sold to A.O. Smith Corporation for $253 million. These
businesses are reported as discontinued operations in the accompanying
Consolidated Financial Statements. Proceeds from the divestitures were
used to repay all borrowings under the Company's domestic bank lines of
credit, to continue the stock repurchase program previously authorized
by the Board, and to acquire
<PAGE>
substantially all of the assets of EMS group (see Note 5). This
acquisition significantly increases MagneTek's share of the North
American A/C (alternating current) electronic drives market.
MagneTek now operates in three business segments: Lighting Power
Products (LP), Power Electronic Products (PE), and Drives & Systems
(DS). LP makes power devices called "ballasts" that energize and
operate fluorescent and other types of lamps, as well as certain
ballast components. PE produces electronic converters, rectifiers and
battery chargers, generally known as "power supplies," primarily for
data processing and communications equipment, as well as component
transformers. Previously part of the Motors & Controls segment, DS
supplies electronic "drives" for regulating motor speed, as well as
related hardware and software.
MagneTek's net sales for the first quarter of fiscal 2000 were $182.1
million, a 9.9% increase from the first quarter of fiscal 1999 at
$165.7 million. As a result of the Company's 52/53 week fiscal year,
the fiscal 2000 quarter contained 14 weeks compared to 13 weeks in the
fiscal 1999 quarter. Sales in the Drives and Systems segment increased
66.1% from the prior year due primarily to the acquisition of the EMS
Group in July 1999. Excluding the effect of the acquisition, sales
increased 15.2% due to stronger sales of standard drives products.
Sales in the Power Electronic Products segment increased 7.6% due to
increased sales of custom power supplies primarily in the segment's
European operations. Sales of power supply products increased 15% and
were offset by lower sales of small transformer products. Sales in the
Lighting Power Products segment were flat with the year earlier
quarter.
The Company's gross profit increased to $34.6 million (19.0% of net
sales) in the first quarter of fiscal 2000 from $33.2 million (20% of
net sales) in the first quarter of fiscal 1999. The gross profit
increase was due to the increase in sales discussed above. Gross profit
levels for the Company were negatively impacted by final transitional
costs associated with consolidating domestic power electronics to a
single domestic manufacturing site. Lighting Power Products gross
profits continue to be adversely effected by competitive pricing
actions in selected markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expense was $28.1 million
(15.5% of net sales) in the first quarter of fiscal 2000 compared to
$27.2 million (16.4% of net sales) in the first quarter of fiscal 1999.
The increase in SG&A spending reflects the SG&A expense of the recently
acquired EMS Group offset by lower spending for corporate costs,
primarily reduced manning levels.
INTEREST AND OTHER EXPENSE
Interest expense of $.3 million in the first quarter of fiscal 2000
compared to $.6 million in the first quarter of fiscal 1999. The first
quarter of fiscal 2000 results reflected the elimination of domestic
bank debt with proceeds from the Motor sale.
<PAGE>
NET INCOME
The Company recorded an after-tax profit from continuing operations of
$3.5 million in the first quarter of fiscal 2000 compared to an
after-tax profit of $3.3 million in the first quarter of fiscal 1999.
Results for discontinued operations in the first quarter of fiscal 2000
were an after-tax loss of $.5 million compared to an after-tax profit
of $5.7 million in the first quarter of fiscal 1999. The Company sold
its Motor business in the first quarter of fiscal 2000 and recognized
an after-tax gain of $35.0 million. The tax provision for continuing
operations in the first quarter of fiscal 2000 was $2.1 million (38%
effective tax rate) versus $1.5 million in the first quarter of fiscal
1999 (32% effective tax rate). The tax rates applied to discontinued
operations and the gain on sale of the Motors business are consistent
with the tax rates used for continuing operations. The Company expects
rates used in the first quarter of fiscal 2000 to continue throughout
the year.
LIQUIDITY AND CAPITAL RESOURCES
Effective September 27, 1999, the Company amended its Bank Loan
Agreement to adjust covenants for the reclassification of the motor and
generator businesses as discontinued operations and the impact of
certain charges recorded in the fourth quarter of fiscal 1999.
Currently, borrowings under Bank Loan Agreement bear interest at the
bank's prime lending rate or, at the Company's option, the London
Interbank Offered Rate plus one and a half percent. These rates may be
reduced or increased based on the level of certain debt-to-cash flow
ratios. The Bank Loan Agreement provides funds for both short-term
working capital requirements and long term financing needs for the
Company. As of October 1, 1999, the Company had no borrowing
outstanding under the facility. Under terms of the amendment, the Bank
Loan Agreement also limits the amount of certain distributions the
Company can make including share repurchases to no more than $60
million through December 31, 1999, and $90 million throughout the term
of the Agreement. During the first quarter of fiscal year 2000, the
Company repurchased 1.86 million shares for approximately $17 million
in open market transactions. Through October 18, 1999, the Company had
repurchased approximately $55 million of stock subject to the $60
million limitation noted above.
During the first quarter, the Company purchased the EMS/ESI group for
approximately $38 million and sold its Motor business for $253 million
(see Notes 4 and 5).
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET LIST
The Company is exposed to market risks in the areas of commodity
prices, foreign exchange and interest rates. To mitigate the effect of
such risks, the Company selectively utilizes specific financial
instruments. Company policy clearly prohibits the use of such financial
instruments for trading or speculative purposes. There have been no
material changes in the reported market risks since that reported in
the Company's Annual Report and 10-K dated June 30, 1999.
<PAGE>
IMPACT OF YEAR 2000
As previously reported in the 1999 Annual Report, the Company initiated in
fiscal 1997 a comprehensive systems review, which resulted in the purchase of an
Oracle "Enterprise Resource Planning" software package. While the primary
purpose of the software was to improve business processed, it also enables the
Company to resolve Year 2000 issues. The Company has essentially completed its
system conversion. The Company expects to complete final conversion of all
software to eliminate Year 2000 problems prior to December 31, 1999. Management
estimates that the total cost of the project attributable to continuing
operations approximates $8.5 million with funding occurring from the operating
cash flows of the Company. The Company estimates that as of the end of the first
quarter of fiscal 2000 approximately $1.0 million of spending associated with
continuing operations remains. Management believes that the likelihood of a
material adverse impact due to problems with internal systems is remote.
The Company has also initiated an evaluation of other potential areas which
could be impacted by the Year 2000 issue. The Company has, and continues to
contact critical suppliers to determine that the products and services they
provide are Year 2000 compliant. These external vendor products and systems are
expected to function properly in the Year 2000. Notwithstanding those efforts,
there can be no assurance that another company's failure to ensure Year 2000
capability would not have an adverse effect on the Company.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Note 3.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on
October 19, 1999.
(b) The following named person were elected as directors at such
meeting:
Andrew G. Galef
Thomas G. Boren
Dewain K. Cross
Paul J. Kofmehl
Frederick D. Lawrence
Robert E. Wycoff
(a) The votes cast for and withheld with respect to each nominee
for director are as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Andrew G. Galef 23,573,017 812,379
Thomas G. Boren 23,575,144 810,252
Dewain K. Cross 23,575,744 809,652
Paul J. Kofmehl 23,575,044 810,352
Frederick D. Lawrence 23,575,344 810,052
Robert E. Wycoff 23,575,309 810,087
</TABLE>
The votes cast for, against and abstaining with
respect to the adoption of the 1999 Stock Incentive
Plan of MagneTek, Inc. are as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NO VOTES
--- ------- ------- ---------------
<S> <C> <C> <C>
21,352,427 1,072,089 17,175 1,943,705
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fourth Amendment dated as of September 27, 1999, to
the Restated Credit Agreement dated as of June 20,
1997.
10.2 1999 Stock Incentive Plan of MagneTek, Inc. (the
"1999 Plan").
10.3 2000 Employee Stock Plan of MagneTek, Inc. (the "2000
Plan").
10.4 Standard Terms and Conditions Relating to
Non-Qualified Stock Options, effective as of October
19, 1999, pertaining to the 1999 Plan and the 2000
Plan.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated August 2, 1999, reporting
the sale of its Motors business to A.O. Smith Corporation.
<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 10, 1999
---------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
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