<PAGE>
FORM 10-Q\A Amendment #1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
OR
[ ] AMENDMENT TO 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 2, 1998: 31,578,486 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, 1998 and the results of operations and cash flows
for the three-month periods ended September 30, 1998 and 1997. 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, 1998 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, 1998 and JUNE 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS September 30 June 30
------------ --------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,801 $ 5,976
Accounts receivable 187,159 197,284
Inventories 209,519 196,830
Prepaid expenses and other 21,869 17,464
-------- --------
Total current assets 420,348 417,554
-------- --------
Property, plant and equipment 458,105 440,127
Less-accumulated depreciation
and amortization 254,497 243,657
-------- --------
203,608 196,470
-------- --------
Goodwill 54,715 53,576
Deferred financing costs,
intangible and other assets 64,304 63,138
-------- --------
Total Assets $742,975 $730,738
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $101,484 $113,377
Accrued liabilities 99,853 107,539
Current portion of long-term debt 6,137 5,527
-------- --------
Total current liabilities 207,474 226,443
-------- --------
Long-term debt, net of current portion 263,766 239,577
Other long-term obligations 65,380 66,213
Deferred income taxes 12,160 11,784
Commitments and contingencies
Stockholders' equity
Common stock 311 313
Paid in capital in excess of par value 171,664 176,464
Retained earnings 36,754 27,737
Accumulated other comprehensive loss (14,534) (17,793)
-------- --------
Total stockholders' equity 194,195 186,721
-------- --------
Total Liabilities and
Stockholders' Equity $742,975 $730,738
-------- --------
-------- --------
</TABLE>
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 and 1997
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales $289,832 $286,487
Cost of sales 234,494 229,032
-------- --------
Gross profit 55,338 57,455
Selling, general and administrative 36,517 40,215
-------- --------
Income from operations 18,821 17,240
Interest expense 4,820 4,753
Other expense, net 740 801
-------- --------
Income before provision for
income taxes 13,261 11,686
Income taxes 4,244 4,207
Net income $ 9,017 $ 7,479
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
Basic:
Net income $0.29 $0.26
-------- --------
-------- --------
Diluted:
Net income $0.29 $0.25
-------- --------
-------- --------
</TABLE>
See accompanying notes
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,017 $ 7,479
Adjustments to reconcile income to net
cash used in operating activities:
Depreciation and amortization 9,574 9,450
Changes in operating assets and
liabilities (29,876) (19,146)
-------- --------
Total adjustments (20,302) (9,696)
-------- --------
Net cash used in operating activities: (11,285) ( 2,217)
-------- --------
Cash flows from investing activities:
Capital expenditures (13,214) (10,133)
Other investments 236 131
-------- --------
Net cash used in investing activities (12,978) (10,002)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 642 2,227
Repurchase of common stock (5,353) -
Borrowings under bank
and other long-term obligations 24,799 6,829
Increase in deferred financing costs - (96)
-------- --------
Net cash provided by financing
activities: 20,088 8,960
-------- --------
Net decrease in cash $ (4,175) $ (3,259)
Cash at the beginning of period 5,976 6,138
-------- --------
Cash at the end of period $ 1,801 $ 2,879
-------- --------
-------- --------
</TABLE>
(continued on next page)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 5,796 $ 5,654
Income Taxes $ 832 $ 740
-------- --------
</TABLE>
(see accompanying notes)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, 1998
and 1997 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.
EARNINGS PER SHARE - In 1997, the Financial Accounting Standards Board
issued statement of Financial Accounting Standards No. 128, Earnings per
share. Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement
128 requirements.
2. INVENTORIES
Inventories at September 30, 1998 and June 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
September 30 June 30
------------ --------
<S> <C> <C>
Raw materials and stock parts $ 69,185 $ 64,714
Work-in-process 44,355 38,620
Finished goods 95,979 93,496
-------- --------
$209,519 $196,830
-------- --------
-------- --------
</TABLE>
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
In December, 1996 the Company and certain of its subsidiaries were named as
defendants in a suit filed by Cooper Industries, Inc. ("Cooper") in the
U.S. District Court for the Southern District of Texas, 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 "asbestos
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 asbestos
lawsuits. The Company has denied that it is obligated under the agreement
to defend and indemnify Cooper in connection with the asbestos lawsuits,
and has filed a counterclaim asserting that Cooper is obligated under the
agreement to defend and indemnify the Company in connection with the
asbestos lawsuits and that certain insurance coverage available to Cooper
should be applied to the asbestos lawsuits. The Company and Cooper have
engaged in settlement discussions. In July 1998, the Court granted partial
summary judgement in favor of the Company, ruling that the Company has no
obligation to indemnify Cooper in connection with the asbestos lawsuits.
Management of the Company does not believe that the financial impact of the
foregoing legal proceeding will be material.
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 on
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 asserted by the plaintiff, and that such asserted patents are
invalid. The Company intends to defend this matter vigorously. Due to the
early 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.
<PAGE>
4. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 130 "Reporting Comprehensive Income," as of the first quarter of fiscal
1999. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components, however it has no impact on the
Company's net income or stockholders' equity. SFAS 130 requires foreign
currency translation adjustments, which, prior to adoption were reported
separately in stockholders equity, to be included in other comprehensive
income. Prior year financial statements have been restated to conform to
the requirements of SFAS 130.
During the first quarter of fiscal 1999 and 1998, total comprehensive
income was $12,276 and $7,362 respectively.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Fiscal Year
------------------
1Q 1Q
1999 1998
------ ------
<S> <C> <C>
(in thousands, except per share data)
BASIC
Weighted average shares outstanding 31,203 28,425
EARNINGS:
Net income $9,017 $7,479
Per Share Earnings: $ 0.29 $ 0.26
------ ------
------ ------
DILUTED
Weighted average shares outstanding 31,203 28,425
Dilutive stock options based upon
the treasury stock method using
average market price. 290 1,091
Effect of Convertible debt to equity - 2,284
------ ------
Total diluted shares outstanding 31,493 31,800
EARNINGS:
Net Income $9,017 $7,479
Add: Interest savings on Convertible
debt after tax $ 0 $ 466
------ ------
Net Income $9,017 $7,945
Per Share Earnings: $ 0.29 $ 0.25
------ ------
------ ------
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. 1997
NET SALES AND GROSS PROFIT.
MagneTek's net sales for the first quarter of fiscal 1999 were $289.8
million, a 1.2% increase from the first quarter of fiscal 1998 at $286.5
million. Sales in the Motors and Controls segment increased 1.1% due to
improved demand for commercial fractional and integral horsepower products
and generators offset by generally lower sales in the drives business.
Sales in the Lighting Products segment declined 2.2% due to lower sales of
magnetic and electronic fluorescent ballasts partially offset by higher
sales of high intensity discharge and compact fluorescent ballasts. Power
Supplies segment sales increased 10.7%, due primarily to the acquisition of
Omega Power Systems in June of 1998. Excluding the results of Omega, sales
for the Power Supplies segment increased 1.6%.
The Company's gross profit decreased to $55.3 million (19.1% of net sales)
in the first quarter of fiscal 1999 from $57.5 million (20.1% of net sales)
in the first quarter of fiscal 1998. The gross profit decline was
primarily focused in the Power Supplies segment. Sales and production
volume reductions for European and domestic power supplies adversely
affected margin performance. The Lighting Products segment had increased
gross margins on lower sales, due to earlier consolidation efforts and
transition of manufacturing capability to lower cost facilities. The
Motors and Controls segment had flat margin performance for motor and
generator products and lower gross margins for drives.
OPERATING EXPENSES.
Selling, general and administrative (SG&A) expense was $36.5 million (12.6%
of net sales) in the first quarter of fiscal 1999 compared to $40.2 million
(14.0% of net sales) in the first quarter of fiscal 1998. Lower spending
occurred primarily in the general and administrative area as a result of
lower employee benefits, recruitment and relocation expenditures.
INTEREST AND OTHER EXPENSE.
Interest expense of $4.8 million in the first quarter of fiscal 1999 was
consistent with the expense incurred in the first quarter of fiscal 1998.
Interest expense from higher debt levels in fiscal 1999, impacted by the
funding of the Omega acquisition and higher working capital balances, was
offset by the elimination of interest expense on convertible debentures.
<PAGE>
NET INCOME.
The Company recorded an after-tax profit of $9.0 million in the first
quarter of fiscal 1999 compared to an after-tax profit of $7.5 million in
the first quarter of fiscal 1998. The tax provision in the first quarter
of fiscal 1999 was $4.2 million (32% effective tax rate) versus $4.2
million in the first quarter of fiscal 1998 (36% effective tax rate). The
lower provision for taxes reflects the Company's projected lower deferred
tax asset valuation requirement and a reduction in certain foreign tax
rates. The Company expects this lower overall rate to continue throughout
the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a Bank Loan Agreement which provides for borrowings of up
to $350 million under a revolving loan facility through June, 2002.
Borrowings under the facility bear 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, 1998, the Company had approximately $82
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. The
Company's Board of Directors has approved the repurchase of up to two
million shares of its common stock. In the first quarter of fiscal 1999,
the Company repurchased 427,000 shares for approximately $5 million through
open market transactions.
IMPACT OF YEAR 2000
As previously reported in the 1998 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 processes, it also
enables the Company to resolve Year 2000 issues. Through the first quarter
of fiscal 1999, the Company has completed approximately 60% of its system
conversion. The Company currently expects to complete conversion of all
software to eliminate Year 2000 problems by early in the second half of
calendar 1999. Total costs of the project are anticipated at approximately
$16 million of which $11 million has been spent through the first quarter
of fiscal 1999. Management believes that the likelihood of a material
adverse impact due to problems with internal systems is remote.
<PAGE>
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.
The Company will conduct periodic reviews to monitor implementation plans
associated with the Year 2000 problem. In the event these reviews would
indicate the Company's implementation dates are at risk, contingency plans
will be established.
<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 20, 1998.
(b) The following named persons were elected as directors
at such meeting:
Andrew G. Galef
Thomas G. Boren
Ronald N. Hoge
Dewain K. Cross
Paul J. Kofmehl
Frederick D. Lawrence
Marguerite W. Sallee
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 27,385,983 271,039
Ronald N. Hoge 27,413,820 243,202
Thomas G. Boren 27,440,720 216,302
Dewain K. Cross 27,427,540 229,482
Paul J. Kofmehl 27,417,351 239,671
Frederick D. Lawrence 27,434,781 222,241
Marguerite W. Sallee 27,425,840 231,182
Robert E. Wycoff 27,425,140 231,882
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) 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: January 25, 1999 /s/ DAVID P. REILAND
--------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
