-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzgAJSZOHEhOuVQwk2NY4TRIk5Q8nFiH9Ka63JaglR+npR0OlVnHw+je4Qcb6gT5 pn0P4GAwOhxddqNXtLbARQ== 0000072423-96-000014.txt : 19960812 0000072423-96-000014.hdr.sgml : 19960812 ACCESSION NUMBER: 0000072423-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 050314991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06112 FILM NUMBER: 96607359 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLZ CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4017511600 MAIL ADDRESS: STREET 1: 50 KENNEDY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 29, 1996 ---------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File No. 1-6112 --------------------------------------- NORTEK, INC. - ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 05-0314991 - ---------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Kennedy Plaza, Providence, RI 02903-2360 - ---------------------------------------------------------- (Address of principal executive offices) (Zip Code) (401) 751-1600 - ----------------------------------------------------------- (Registrant's telephone number, including area code) N/A - ---------------------------------------------------------- (Former name, former address and former fiscal year if changed since last year) 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 ---------- ----------- The number of shares of Common Stock outstanding as of August 2, 1996 was 9,495,384. The number of shares of Special Common Stock outstanding as of August 2, 1996 was 478,448. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) June 29, Dec. 31, 1996 1995 ---- ---- (Unaudited) ASSETS Current Assets: Unrestricted-- Cash and investments at cost which approximates market $ 39,269 $ 60,079 Marketable securities available for sale 40,174 43,234 Restricted-- Investments and marketable securities at cost which approximates market 9,519 9,411 Accounts receivable, less allowances of $4,914 and $4,546 145,262 118,017 Inventories: Raw materials 41,852 42,601 Work in process 13,112 14,319 Finished goods 52,455 53,132 ------- ------- 107,419 110,052 ------- ------- Prepaid expenses and other current assets 15,181 16,927 U. S. Federal prepaid income taxes 19,100 19,100 ------- ------- Total Current Assets 375,924 376,820 ------- ------- Property and Equipment, at cost: Land 6,616 6,508 Buildings and improvements 69,399 69,125 Machinery and equipment 164,700 157,884 ------- ------- 240,715 233,517 Less--Accumulated depreciation 103,911 97,255 ------- ------- Total Property and Equipment, net 136,804 136,262 ------- ------- Other Assets: Goodwill, less accumulated amortiza- tion of $25,460 and $23,978 90,626 91,347 Deferred debt expense 7,111 7,574 Other 16,214 13,476 ------- ------- 113,951 112,397 ------- ------- $626,679 $625,479 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (Dollar Amounts in Thousands) June 29, Dec. 31, 1996 1995 ---- ---- (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Notes payable and other short- term obligations $ 30,808 $ 30,226 Current maturities of long-term debt 10,156 11,824 Accounts payable 89,774 73,047 Accrued expenses and taxes, net 107,221 100,970 ------- ------- Total Current Liabilities 237,959 216,067 ------- ------- Other Liabilities: Deferred income taxes 22,360 27,780 Other 14,074 9,945 ------- ------ 36,434 37,725 ------- ------ Notes, Mortgage Notes and Other Notes Payable 244,547 240,396 ------- ------- Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common Stock, $1 par value; authorized 40,000,000 shares, 15,915,976 shares and 15,883,427 shares issued 15,916 15,883 Special Common Stock, $1 par value; authorized 5,000,000 shares, 758,660 shares and 774,366 shares issued 758 774 Additional paid-in capital 134,746 134,690 Retained earnings 23,966 15,766 Cumulative translation, pension and other adjustments (3,193) (2,742) Less - treasury common stock at cost, 6,423,935 shares and 4,306,706 shares (62,723) (31,351) - treasury special common stock at cost, 276,869 shares and 276,784 shares (1,731) (1,729) ------- ------- Total Stockholders' Investment 107,739 131,291 ------- ------- $626,679 $625,479 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For The Three Months Ended ------------------ June 29, July 1, 1996 1995 ---- ---- (Unaudited) Net Sales $260,235 $194,206 ------- ------- Costs and Expenses: Cost of products sold 191,623 144,701 Selling, general and administrative expense 52,833 39,316 ------- ------- 244,456 184,017 ------- ------- Operating earnings 15,779 10,189 Interest expense (7,677) (5,929) Interest income 898 1,640 Net loss on marketable securities --- (200) ------- ------- Earnings before provision for income taxes 9,000 5,700 Provision for income taxes 3,200 2,500 ------- ------- Net Earnings $ 5,800 $ 3,200 ======= ======= Net Earnings Per Share: Primary $ .55 $ .25 ======= ======= Fully diluted $ .55 $ .25 ======= ======= Weighted Average Number of Shares: Primary 10,531 12,691 ======= ======= Fully diluted 10,531 12,691 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For The Six Months Ended ------------------ June 29, July 1, 1996 1995 ---- ---- (Unaudited) Net Sales $481,220 $379,015 ------- ------- Costs and Expenses: Cost of products sold 357,210 280,141 Selling, general and administrative expense 98,243 79,652 ------- ------- 455,453 359,793 ------- ------- Operating earnings 25,767 19,222 Interest expense (15,486) (11,839) Interest income 2,819 3,217 Net loss on marketable securities --- (200) ------- ------- Earnings before provision for income taxes 13,100 10,400 Provision for income taxes 4,900 4,700 ------- ------- Net Earnings $ 8,200 $ 5,700 ======= ======= Net Earnings Per Share: Primary $ .73 $ .45 ======= ======= Fully diluted $ .73 $ .45 ======= ======= Weighted Average Number of Shares: Primary 11,186 12,706 ====== ====== Fully diluted 11,199 12,706 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) For the Six Months Ended ---------------- June 29, July 1, 1996 1995 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 8,200 $ 5,700 ------ ------ Adjustments to reconcile net earnings to cash: Depreciation and amortization 11,820 9,651 Net loss on marketable securities --- 200 Deferred federal income tax provision (credit) from continuing operations 450 (500) Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (26,712) (14,310) Prepaids and other current assets 577 (1,534) Inventories 3,528 (2,598) Accounts payable 16,919 6,056 Accrued expenses and taxes 1,149 (2,682) Long-term assets, liabilities and other, net (1,215) 1,107 ------ ------- Total adjustments to net earnings 6,516 (4,610) ------ ------- Net Cash Provided by Operating Activities 14,716 1,090 ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,611) (7,966) Purchase of investments and marketable securities (20,140) (10,085) Proceeds from sale of investments and marketable securities 22,677 20,772 Cash paid relating to a business sold --- (1,745) Other, net (66) (94) ------ ------- Net Cash (Used in) Provided by Investing Activities (5,140) 882 ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings 9,980 --- Payment of borrowings (8,702) (573) Purchase of Nortek Common and Special Common Stock (31,738) --- Other, net 74 11 ------- ------ Net Cash Used in Financing Activities (30,386) (562) ------- ------ Net (decrease) increase in unrestricted cash and investments (20,810) 1,410 Unrestricted cash and investments at the beginning of the period 60,079 77,106 ------ ------ Unrestricted cash and investments at the end of the period $39,269 $78,516 ====== ====== Interest paid $15,217 $11,339 ====== ====== Income taxes paid, net $ 5,650 $ 3,106 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Nortek, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders' Investment For the Three Months Ended June 29, 1996 and July 1, 1995 (Dollar Amounts in Thousands) Cumulative Translation, Addi- Pension Special tional and Other Common Common Paid-in Retained Adjust- Treasury Stock Stock Capital Earnings ments Stock ----- ----- ------- -------- ------ ---- (Unaudited) Balance, April 1, 1995 $15,820 $796 $134,627 $ 3,266 $(4,612) $(28,051) 6,146 shares of special common stock converted into 6,146 shares of common stock 6 (6) --- --- --- --- 3,000 shares of common stock issued upon exercise of stock options 3 --- 4 --- --- --- Translation adjust- ment --- --- --- --- (4) --- Unrealized appreci- ation in marketable securities --- --- --- --- 1,431 --- Net earnings --- --- --- 3,200 --- --- ------ --- ------- ------- ------ ------- Balance, July 1, 1995 $15,829 $790 $134,631 $ 6,466 $(3,185) $(28,051) ====== === ======= ======= ======= ======== Balance, March 30, 1996 $15,897 $763 $134,694 $18,166 $(3,070) $(41,126) 4,667 shares of special common stock converted into 4,667 shares of common stock 5 (5) --- --- --- --- 13,843 shares of common stock issued upon exercise of stock options 14 --- 52 --- --- --- 1,400,483 shares of treasury stock acquired --- --- --- --- --- (23,328) Translation adjust- ment --- --- --- --- 396 --- Unrealized decline in marketable securities --- --- --- --- (519) --- Net earnings --- --- --- 5,800 --- --- ----- --- ------ ------ ----- ----- Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454) ====== === ======= ====== ===== ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Nortek, Inc. and Subsidiaries Condensed Consolidated Statement of Stockholders' Investment For the Six Months Ended June 29, 1996 and July 1, 1995 (Dollar Amounts in Thousands) Cumulative Translation, Addi- Pension Special tional and Other Common Common Paid-in Retained Adjust- Treasury Stock Stock Capital Earnings ments Stock ----- ----- ------- --------- ------ ----- (Unaudited) Balance, December 31, 1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051) 11,864 shares of special common stock converted into 11,864 shares of common stock 12 (12) --- --- --- --- 3,600 shares of common stock issued upon exercise of stock options 3 --- 4 --- --- --- Translation adjust- ment --- --- --- --- 499 --- Unrealized appreci- ation in marketable securities --- --- --- --- 2,484 --- Net earnings --- --- --- 5,700 --- --- ------ --- ------- ------- ------ ------- Balance, July 1, 1995 $15,829 $790 $134,631 $ 6,466 $(3,185) $(28,051) ====== === ======= ======= ====== ======= Balance, December 31, 1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080) 15,706 shares of special common stock converted into 15,706 shares of common stock 16 (16) --- --- --- --- 16,843 shares of common stock issued upon exercise of stock options 17 --- 56 --- --- --- 2,117,314 shares of treasury stock acquired --- --- --- --- --- (31,374) Translation adjust- ment --- --- --- --- 471 --- Unrealized decline in marketable securities --- --- --- --- (922) --- Net earnings --- --- --- 8,200 --- --- ------ --- ------- ------ ------ ------- Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454) ====== ==== ========= ======= ====== ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1996 AND JULY 1, 1995 (A) The unaudited condensed consolidated financial statements presented ("Unaudited Financial Statements") have been prepared by Nortek, Inc. and include all of its wholly-owned subsidiaries (the "Company") after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although, the Company believes that the disclosures included are adequate to make the information presented not misleading. Certain amounts in the Unaudited Financial Statements for the prior periods have been reclassified to conform to the presentation at June 29, 1996. It is suggested that these Unaudited Financial Statements be read in conjunction with the financial statements and the notes included in the Company's latest Annual Report on Form 10-K. (B) Acquisitions are accounted for as purchases and, accordingly, have been included in the Company's consolidated results of operations since the acquisition date. Purchase price allocations are subject to refinement until all pertinent information regarding the acquisitions is obtained. In the fourth quarter of 1995, several of the Company's wholly owned subsidiaries completed the acquisition of the assets, subject to certain liabilities, of Rangaire Company ("Rangaire"), all the capital stock of Best S.p.A. and related entities ("Best") and all the capital stock of Venmar Ventilation inc. ("Venmar") and accounted for these acquisitions under the purchase method of accounting. The following table presents the approximate unaudited pro forma operating results of the Company for the second quarter and first half of 1995 and the year ended December 31, 1995, as adjusted for the pro forma effect of the acquisitions discussed above, assuming that these transactions occurred at January 1, 1995: Three Months Six Months Ended Ended Year Ended July 1, July 1, Dec. 31, 1995 1995 1995 ------------ ---------- --------- (Amounts in Thousands except per share amounts) Net sales $227,433 $443,977 $886,210 Operating earnings 12,022 22,421 47,355 Net earnings 3,200 5,400 15,100 Fully diluted net earnings per share $ .25 $ .42 $ 1.20 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1996 AND JULY 1, 1995 (Continued) In computing the pro forma results, net earnings have been reduced by net interest income on the aggregate cash portion of the purchase price of such acquisitions at the historical rates earned by the Company and by interest expense on indebtedness incurred in connection with the acquisitions, net of the tax effect. Earnings have also been reduced by amortization of goodwill and reflect net adjustments to depreciation expense, as a result of an increase to estimated fair market value of property and equipment. The pro forma information presented does not purport to be indicative of the results which would have been reported if these transactions had occurred on January 1, 1995, or which may be reported in the future. (C) On January 1, 1996, the Company adopted the accounting requirements of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement also requires that certain long- lived assets and identifiable intangibles that are to be disposed, be reported at the lower of the carrying amount or fair value less cost to sell. The application of SFAS No. 121 did not have a significant impact on the Company's results of operations or financial condition. (D) In December 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Stock-Based Compensation," which became effective for fiscal years beginning after December 15, 1995. SFAS No. 123 requires that employee stock-based compensation be either recorded or disclosed at its fair value. Management will continue to account for stock-based compensation under Accounting Principles Board No. 25 and will not adopt the new accounting provisions for stock-based compensation under SFAS No. 123, but will include the additional required disclosures, as necessary, in the Company's consolidated financial statements for the year ended December 31, 1996. (E) At June 29, 1996 and December 31, 1995, the reduction in the Company's stockholders' investment for gross unrealized losses was approximately $922,000 and $410,000, respectively. At June 29, 1996, there were no gross unrealized gains on the Company's marketable securities. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1996 AND JULY 1, 1995 (Continued) During the second quarter of 1995, the Company recorded a pre-tax loss of approximately $200,000 on the sale of marketable securities. (F) The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of June 29, 1996 and December 31, 1995 is as follows: June 29, Dec. 31, 1996 1995 ---- ---- (Amounts in Thousands) U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From: Accounts receivable $ 1,588 $ 1,425 Inventory (712) (577) Insurance reserves 5,752 6,036 Other reserves, liabilities and assets, net 12,472 12,216 ------ ------ $19,100 $19,100 ====== ====== Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $15,452 $15,233 Prepaid pension assets 1,127 1,323 Insurance reserves (273) (273) Other reserves, liabilities and assets, net 4,657 8,797 Capital loss carryforward (7,313) (7,260) Other, net (1,714) (1,658) Valuation allowances 10,424 11,618 ------ ------ $22,360 $27,780 ====== ====== At June 29, 1996, the Company has a capital loss carryforward of approximately $20,900,000, of which approximately $17,500,000 expires in the year 1997. The Company has provided a valuation allowance equal to the tax effect of capital loss carryforwards and certain other tax assets, since realization of these tax assets cannot be reasonably assured. At June 29, 1996, the Company has approximately $500,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. NORTEK, INC. ANDSUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1996 AND JULY 1, 1995 (Continued) The table below reconciles the federal statutory income tax rate to the effective tax rate from continuing operations of approximately 35.6% and 43.9% in the second quarter of 1996 and 1995, respectively and 37.4% and 45.2% in the first six months of 1996 and 1995, respectively. Three Six Months Ended Months Ended ------------ ------------ June 29, July 1, June 29, July 1, 1996 1995 1996 1995 ---- ---- ---- ----- (Amounts in Thousands) Provision for income taxes at the federal statutory rate $3,150 $1,995 $4,585 $3,640 Net change from statutory rate: State taxes, net of federal tax effect 325 195 487 390 Non-deductible amortization for tax purposes 277 185 523 369 Other non-deductible items 50 81 118 79 Change in valuation reserve (577) 6 (748) 70 Tax effect on foreign income (25) 70 (65) 151 Other, net --- (32) --- 1 ----- ----- ----- ---- Provision for income taxes from continuing operations $3,200 $2,500 $4,900 $4,700 ===== ===== ===== ===== (G) On April 26, 1996, the Company purchased 1,189,809 shares of its common stock, or approximately 10.6% of its outstanding shares, from three of its directors, who also resigned from the Company's Board of Directors, for approximately $20,200,000. The Company accounted for such share purchases as Treasury Stock. From the date the Company authorized a stock purchase program on November 16, 1995, through June 29, 1996 the Company purchased 2,301,009 shares of its Common Stock for approximately $33,238,197 in cash, in negotiated and open market transactions. Had these shares been purchased as of January 1, 1995, unaudited pro forma net earnings and fully diluted net earnings per share would have been: Year Three Months Ended Six Months Ended Ended June 29, July 1, June 29, July 1, Dec.31, 1996 1995 1996 1995 1995 (Amounts in Thousands except per share amounts) Net Earnings $5,700 $3,000 $7,900 $5,200 $13,900 ===== ===== ===== ===== ====== Fully diluted net earnings per share $ .55 $ .28 $ .76 $ .49 $ 1.36 ===== ===== ===== ===== ====== NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 1996 AND JULY 1, 1995 (Continued) (H) At June 29, 1996, approximately $2,998,270 was available for the payment of cash dividends or stock payments under the terms of the Company's Indenture governing the 9 7/8% Notes. (I) Net earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each period. (J) On April 1, 1996, the Company extended and amended its shareholder rights plan to March 31, 2006. Under the amended plan, each right previously issued under the plan in effect to date, or subsequently issued under the amended and restated plan, entitles shareholders to buy 1/100 of a share of a new series of preferred stock of Nortek at an exercise price of $72 per share, subject to adjustments for stock dividends, splits and similar events. The rights, that are not currently exercisable, are attached to each share of Common Stock and may be redeemed by the Directors at $.01 per share at any time. After a shareholder acquires beneficial ownership of 17% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and become exercisable entitling a rights holder to acquire additional shares of the Company's Common Stock having a market value equal to twice the amount of the exercise price of the right. In addition, after a person or group ("Acquiring Company") commences a tender offer or announces an intention to acquire 30% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and, under certain circumstances, will permit each rights holder to acquire common stock of the Acquiring Company, having a market value equal to twice the amount of the exercise price of the right. (K) The accompanying unaudited condensed consolidated statement of cash flows for the six months ended July 1, 1995 includes approximately $1,745,000 of cash paid relating to a business sold. Significant unaudited non-cash financing and investing activities excluded from the accompanying unaudited condensed consolidated statement of cash flows include a decrease of approximately $922,000 in the six months ended June 29, 1996 and an increase of approximately $2,484,000 in the first six months of 1995 in the approximate market price of marketable securities available for sale. Depreciation and amortization expense included in the Company's unaudited condensed consolidated statement of cash flows for the six months ended June 29, 1996 and July 1, 1995, includes approximately $650,000 and approximately $500,000 of amortization of deferred debt expense and debt discount, respectively, which is recorded as interest expense in the accompanying unaudited condensed consolidated statement of operations. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 The Company is a diversified manufacturer of residential and commercial building products, operating within three principal product groups: the Residential Building Products Group; the Air Conditioning and Heating Products Group; and the Plumbing Products Group. Through these product groups, the Company manufactures and sells, primarily in the United States, Canada and Europe, a wide variety of products for the residential and commercial construction, manufactured housing, and the do-it-yourself and professional remodeling and renovation markets. During the fourth quarter of 1995, the Company acquired three businesses, which are included in the Residential Building Products Group, and accounted for these acquisitions under the purchase method of accounting. Accordingly, the results of such acquisitions are included in the Company's consolidated results since the date of acquisition. (See Liquidity and Capital Resources and Note B of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) Results of Operations The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the change in the amount and the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bears to net sales and (d) the change of such percentages as compared to the prior comparable period. The results of operations for the second quarter ended June 29, 1996 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in Second Quarter Ended Second Quarter 1996 June 29, July 1, as Compared to 1995 ---------------- 1996 1995 $ % ---- ---- ----- ---- (Dollar amounts in millions) Net sales $260.2 $194.2 66.0 34.0% Cost of products sold 191.6 144.7 (46.9) (32.4) Selling, general and administrative expense 52.8 39.3 (13.5) (34.4) Operating earnings 15.8 10.2 5.6 54.9 Interest expense (7.7) (5.9) (1.8) (30.5) Interest income .9 1.6 (.7) (43.8) Net loss on marketable securities --- (.2) .2 --- Earnings before provision for income taxes 9.0 5.7 3.3 57.9 Provison for income taxes 3.2 2.5 (.7) (28.0) ----- ----- --- ----- Net earnings $ 5.8 $ 3.2 2.6 81.2% ===== ===== === ===== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) Change in Percentage of Net Sales Percentage Second Quarter Ended for the Second June 29, July 1, Quarter 1996 1996 1995 as compared to 1995 ---- ---- ------------ Net sales 100.0% 100.0% --- Cost of products sold 73.6 74.5 .9 Selling, general and administrative expense 20.3 20.2 (.1) Operating earnings 6.1 5.3 .8 Interest expense (3.0) (3.0) --- Interest income .3 .8 (.5) Net loss on marketable securities --- (.1) .1 Earnings before provision for income taxes 3.4 3.0 .4 Provision for income taxes 1.2 1.3 .1 ---- ---- --- Net earnings 2.2 1.7 .5 ==== ==== === The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the change in the amount and the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bears t to net sales and (d) the change of such percentages as compared to the prior comparable period. The results of operations for the six months ended June 29, 1996 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in Six Months Ended Six Months 1996 June 29, July 1, as Compared to 1995 1996 1995 $ % ---- ---- ------------------- (Dollar amounts in millions) Net sales $481.2 $379.0 102.2 27.0% Cost of products sold 357.2 280.1 (77.1) (27.5) Selling, general and administrative expense 98.2 79.7 (18.5) (23.2) Operating earnings 25.8 19.2 6.6 34.4 Interest expense (15.5) (11.8) (3.7) (31.4) Interest income 2.8 3.2 (.4) (12.5) Net loss on marketable securities --- (.2) .2 --- Earnings before provision for income taxes 13.1 10.4 2.7 26.0 Provision for income taxes 4.9 4.7 (.2) (4.3) ----- ----- ---- ---- Net earnings $ 8.2 $ 5.7 $ 2.5 43.9% ===== ===== ==== ===== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) Change in Percentage of Net Sales Percentage Six Months Ended for the Six - June 29, July 1, Months 1996 as 1996 1995 Compared to 1995 ---- ---- ------------------- Net sales 100.0% 100.0% --- Cost of products sold 74.2 73.9 (.3) Selling, general and administrative expense 20.4 21.0 .6 Operating earnings 5.4 5.1 .3 Interest expense (3.2) (3.1) (.1) Interest income .5 .8 (.3) Net loss on marketable securities --- (.1) .1 Earnings before provision for income taxes 2.7 2.7 --- Provision for income taxes 1.0 1.2 .2 ---- ----- --- Net earnings 1.7% 1.5 .2 ==== ===== === The following table presents the net sales for the Company's principal product groups for the second quarter and six months ended June 29, 1996 as compared to the second quarter and six months ended July 1, 1995 and the amount and the percentage change of such results as compared to the prior comparable period. The results of operations for the second quarter and first six months are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Second Quarter Ended June 29, July 1, Increase (Decrease) 1996 1995 $ % ---- ---- ----- ------ (000's omitted) Net Sales: Residential Building Products $106,744 $ 62,389 $44,355 71.1% Air Conditioning and Heating Products 117,090 98,679 18,411 18.7 Plumbing Products 36,401 33,138 3,263 9.9 ------- ------- ----- ---- Total $260,235 $194,206 $66,029 34.0% ===== ====== ===== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) Six Months Ended June 29, July 1, Increase (Decrease) 1996 1995 $ % ---- ---- ----- ------ (000's omitted) Net Sales: Residential Building Products $207,504 $130,079 $77,425 59.5% Air Conditioning and Heating Products 203,327 182,141 21,186 11.6 Plumbing Products 70,389 66,795 3,594 5.4 ------- ------- ------ ---- Total $481,220 $379,015 $102,205 27.0% ======= ======= ======= ==== Operating Results Net sales increased approximately $66,000,000, or approximately 34%, and increased approximately $102,200,000, or approximately 27%, for the second quarter and the first six months of 1996, respectively, as compared to 1995. The Residential Building Products Group net sales increased principally as a result of acquisitions in the fourth quarter of 1995, which contributed approximately $37,300,000 and $71,700,000 in the second quarter and first six months, respectively. Shipments of new and replacement air conditioning and heating ("HVAC") products to manufactured housing customers and increased sales levels of commercial and industrial HVAC products were the primary reasons for increased sales in the Air Conditioning and Heating Products Group. Modest sales prices increases, principally in the second quarter in certain product lines of the Residential Building Products Group, were also a factor, and were partially offset by lower sales prices of certain products in the Plumbing Products Group. Cost of products sold as a percentage of net sales decreased from approximately 74.5% in the second quarter of 1995 to approximately 73.6% in the second quarter of 1996, and increased from approximately 73.9% in the first six months of 1995 to approximately 74.2% in the first six months of 1996. Excluding fourth quarter 1995 acquisitions, which have a higher level of cost of sales to net sales than the overall group of businesses owned prior to the acquisitions, cost of products sold as a percentage of net sales decreased to approximately 73.0% and 73.6% in the second quarter and first six months of 1996, respectively. These decreases in the percentages principally resulted from a reduction in price in the second quarter of certain raw materials compared to prices in effect in 1995 and decreased overhead costs as a percentage of sales in the Residential Building Products and Air Conditioning and Heating Products Groups due to increased volume and improved efficiency, partially offset by increased direct labor and overhead costs in the Plumbing Products Group. Overall, changes in cost of products sold as a percentage of net sales for one period as compared to another period may reflect the effect of a number of factors, including changes in the relative mix of products sold, the effect of changes in sales prices, the unit cost of products sold and changes in productivity levels. Selling, general and administrative expense as a percentage of net sales increased slightly from approximately 20.2% in the second quarter of 1995 to approximately 20.3% in the second quarter of 1996 and decreased from approximately 21.0% in the first six months of 1995 to approximately 20.4% in the first six months of 1996. The decrease in the first six months is due partially to the fourth quarter 1995 acquisitions which have a lower level of selling, general and administrative expense to net sales than the overall group of businesses owned prior to the acquisitions. Excluding these acquisitions, selling, general and administrative expenses as a percentage of net sales increased from approximately 20.2% in the second quarter of 1995 to approximately 21.4% in the second quarter of 1996, and increased from approximately 21.0% in the first six months of 1995 to approximately 21.3% in the first six months of 1996. These increases in the percentages were primarily due to increased expense levels in the Air Conditioning and Heating Products Group in both periods and increased unallocated expense in the second quarter partially offset by increased sales levels without a proportionate increase in expense in the Residential Building Products Group and the Plumbing Products Group. Segment earnings were approximately $20,500,000 for the second quarter of 1996, as compared to approximately $12,550,000 for the second quarter of 1995, and approximately $32,900,000 for the first six months of 1996 as compared to approximately $24,100,000 for the first six months of 1995. Fourth quarter 1995 acquisitions contributed approximately $3,300,000 to segment earnings in the second quarter of 1996 and approximately $5,000,000 for the first six months of 1996. Segment earnings have been reduced by depreciation and amortization expense of approximately $5,600,000 and approximately $4,500,000 for the second quarter of 1996 and 1995, respectively, and by approximately $11,100,000 and approximately $9,000,000 for the first six months of 1996 and 1995, respectively. Acquisitions contributed approximately $1,300,000 and approximately $2,400,000 of the increase in depreciation and amortization expense in the second quarter and first six months of 1996, respectively. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) Foreign segment earnings, consisting primarily of the results of operations of the Company's Canadian and European subsidiaries, which manufacture built-in ventilating products, increased to approximately 15.4% of segment earnings in the second quarter of 1996 from approximately 4.2% of such earnings in the second quarter of 1995 and to approximately 13.9% of segment earnings in the first six months of 1996 from approximately 5.5% of such earnings in the first six months o of 1995. These increases were primarily attributable to earnings of the Company's European subsidiaries, which were acquired in the fourth quarter of 1995, offset by a decline in earnings in Canada due to weakness in the residential construction markets. Sales and earnings derived from the international market are subject to the risks of currency fluctuations. Operating earnings in the second quarter of 1996 increased approximately $5,600,000, or approximately 54.9%, as compared to the second quarter of 1995 and increased approximately $6,600,000, or approximately 34.4%, for the first six months of 1996 as compared to 1995, primarily due to the factors previously discussed. Interest expense in the second quarter of 1996 increased approximately $1,800,000, or approximately 30.5%, as compared to the second quarter of 1995, and increased approximately $3,700,000, or approximately 31.4%, as compared to the first six months of 1995, primarily as a result of higher borrowings resulting from the 1995 acquisitions including existing shortterm working capital borrowings of the acquired subsidiaries. Interest income in the second quarter of 1996 decreased approximately $700,000, or approximately 43.8%, as compared to the second quarter of 1995, and decreased approximately $400,000, or approximately 12.5%, as compared to the first six months of 1995, principally due to lower average invested balances of short-term investments and marketable securities, primarily in the second quarter. The provision for income taxes was approximately $3,200,000 for the second quarter of 1996, as compared to approximately $2,500,000 for the second quarter of 1995 and was approximately $4,900,000 for the first six months of 1996, as compared to approximately $4,700,000 for the first six months of 1995. The income tax rates principally differed from the United States Federal statutory rate of 35%, as a result of state income tax provisions, nondeductible amortization expense (for tax purposes), the change in tax valuation reserves and the effect of foreign income tax on foreign source income in both periods. (See Note F of the Notes to the Unaudited Financial Statements included elsewhere herein.) NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) Liquidity and Capital Resources The Company's primary sources of liquidity in 1996 and 1995 have been funds provided by subsidiary operations and unrestricted short-term investments and marketable securities. Unrestricted cash, investments and marketable securities were approximately $79,443,000 at June 29, 1996 as compared to $103,313,000 at December 31, 1995. The Company's investment in marketable securities at June 29, 1996 consisted primarily of investments in United States Treasury securities, certificates of deposit and bank notes and at June 29, 1996, approximately $9,519,000 of the Company's cash and investments were pledged as collateral for insurance and other requirements and were classified as restricted in current assets in the Company's accompanying unaudited condensed consolidated balance sheet. On November 16, 1995, the Company's Board of Directors authorized a program to purchase shares of the Company's Common Stock, subject to market conditions and cash availability. On April 26, 1996, the Company announced the purchase of 1,189,809 shares of its common stock, or approximately 10.6% of its outstanding shares, from three of its directors, who also resigned from the Company's Board of Directors, for approximately $20,200,000. From November 16, 1995 to June 29, 1996, the Company purchased 2,301,009 shares of its Common Stock for approximately $33,238,197. (See below and Note G of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) At June 29, 1996, approximately $2,998,270 was available for the payment of cash dividends or stock payments under the terms of the Company's indenture governing the 9 7/8% Notes. The Company's working capital and current ratio decreased from approximately $160,753,000 and 1.7:1, respectively, to approximately $137,965,000 and 1.6:1, respectively, between December 31, 1995 and June 29, 1996, principally as a result of the share buyback as described above and the factors described below. Working capital included approximately $103,313,000 at December 31, 1995 and approximately $79,443,000 at June 29, 1996 of unrestricted cash, investments and marketable securities. Accounts receivable increased approximately $27,245,000, or approximately 23.1%, between December 31, 1995 and June 29, 1996, while net sales increased approximately 27.8% in the second quarter of 1996 as compared to the fourth quarter of 1995. The increase in accounts receivable is principally as a result of increased net sales of new and replacement products by the Air Conditioning and Heating Products Group and increased sales levels of vitreous china products in the Plumbing Products Group. The rate of change in accounts receivable in certain periods may be different than the rate of change in sales in such periods principally due to the timing of net sales. Significant increases or decreases in net sales near the end of any period generally result in significant changes in the amount of accounts receivable on the date of the balance sheet at the end of such period, as was the situation on June 29, 1996 as compared to December 31, 1995. The Company has not experienced any significant changes in credit terms, collection efforts, credit utilization or delinquency in accounts receivable in 1995 or 1996. Inventories decreased approximately $2,633,000 or approximately 2.4%, between December 31, 1995 and June 29, 1996. Accounts payable increased approximately $16,727,000 or approximately 22.9% between December 31, 1995 and June 29, 1996. Unrestricted cash and investments decreased approximately $20,810,000 from December 31, 1995 to June 29, 1996, principally as a result of the following: Condensed Consolidated Cash Flows ------------ Operating Activities-- Cash flow from operations, net $ 20,470,000 Increase in accounts receivable, net (26,712,000) Decrease in inventories 3,528,000 Increase in trade accounts payable 16,919,000 Increase in accrued expenses and taxes 1,149,000 Investing Activities-- Purchase of marketable securities (20,140,000) Proceeds from the sale of marketable securities 22,677,000 Capital expenditures (7,611,000) Financing Activities-- Increase in borrowings 9,980,000 Payment of borrowings (8,702,000) Purchase of Nortek Common and Special Common Stock (31,738,000) Other, net (630,000) ----------- $(20,810,000) =========== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996 AND THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 1995 (Continued) The Company's debt-to-equity ratio increased from approximately 2.2:1 at December 31, 1995 to 2.7:1 at June 29, 1996, primarily as a result of the effect of the purchase of the Company's Common and Special Common Stock (see Note G of the Notes to the Unaudited Condensed Consolidated Financial Statements) and a net increase in borrowings, partially offset by net earnings for the first six months of 1996. (See the Company's Unaudited Condensed Consolidated Statement of Stockholders' Investment included elsewhere herein.) At June 29, 1996, the Company has approximately $500,000 of net U.S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. (See Note F of Notes to the Unaudited Condensed Consolidated Financial Statements.) On April 1, 1996, the Company extended and amended its shareholder rights plan to March 31, 2006. Under the amended plan, each right previously issued under the plan in effect to date, or subsequently issued under the amended and restated plan, entitles shareholders to buy 1/100 of a share of a new series of preferred stock of Nortek at an exercise price of $72 per share, subject to adjustments for stock dividends, splits and similar events. (See Note J of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) The Company believes that its growth will be generated largely by internal growth in each of its product groups, augmented by strategic acquisitions. The Company regularly evaluates potential acquisitions which would increase or expand the market penetration of, or otherwise complement, its current product lines. When used in this discussion, the words "believes," "anticipates," and "expects" and similar expressions are intended to identify forward- looking statements. Such statements are subject to certain risks and uncertainties, over which the Company has no control, which could cause actual results to differ materially from those projected. These risks and uncertainties include increases in raw material costs (including, among others, steel, copper, packaging material, plastics, resins and aluminum) and purchased component costs, the level of domestic and foreign construction and remodeling activity affecting residential and commercial markets, interest rates, inflation, consumer spending levels, operating in international economies, the rate of sales growth, price and product competition, new product introduction, material shortages and product liability claims. Readers are cautioned not to place undue reliance on these forward- looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date thereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company, in this report, as well as the Company's periodic reports on Forms 10-K, 10Q and 8-K filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11.1 Calculation of shares used in determining earnings per share (filed herewith). 27 Financial Data Schedule (filed herewith). (b) The following reports on Form 8-K were filed by the Registrant during the period: April 1, 1996. Item 5. Other Events and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. April 26, 1996. Item 5. Other Events and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. SIGNATURE 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. NORTEK, INC. (Registrant) /s/ Almon C. Hall ------------------------------- Almon C. Hall, Vice President and Controller and Chief Accounting Officer August 9, 1996 - ------------------------- (Date) EX-11 2 EXHIBIT 11.1 (Page 1 of 2) NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Three Months Ended -------------------------- June 29, July 1, 1996 1995 ---- ---- Calculation of the number of shares to be used in computing primary earnings per share: Weighted average common and special common shares issued during the period 17,023,815 16,618,505 Less average common and special common shares held in the Treasury (6,700,804) (4,066,815) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 10,323,011 12,551,690 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 208,074 139,777 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 10,531,085 12,691,467 ========== ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 10,323,011 12,551,690 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the greater of the price at the end of the period or the average price during the period 208,074 139,777 ---------- ---------- 10,531,085 12,691,467 ========== ========== EXHIBIT 11.1 (Page 2 of 2) NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Six Months Ended ------------------------ June 29, July 1, 1996 1995 ---- ---- Calculation of the number of shares to be used in computing primary earnings per share: Weighted average common and special common shares issued during the period 17,705,992 16,617,583 Less average common and special common shares held in the Treasury (6,700,804) (4,066,815) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 11,005,188 12,550,768 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 180,728 154,770 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 11,185,916 12,705,538 ========== ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 11,005,188 12,550,768 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the greater of the price at the end of the period or the average price during the period 193,870 154,770 ---------- ---------- 11,199,058 12,705,538 ========== ========== EX-27 3
5 1000 6-MOS DEC-31-1996 JUN-29-1996 44,986 43,976 150,176 4,914 107,419 376,193 240,715 103,911 626,679 237,959 244,547 0 0 16,674 91,065 626,679 481,220 481,220 357,210 357,210 0 0 15,486 13,100 4,900 8,200 0 0 0 8,200 .73 .73
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