-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, KQ8EjNZyQ4zJuUqO2chBPkookeI+5z6Xji7O5Kx9WNJtDZpCeihxYIttpLgmHY6x XsuJJYGiBM7t72DY5+C9bA== 0000072423-95-000010.txt : 19950511 0000072423-95-000010.hdr.sgml : 19950511 ACCESSION NUMBER: 0000072423-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950401 FILED AS OF DATE: 19950509 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: SHEET METAL WORK [3444] 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: 95535600 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 April 1, 1995 ----------------------------- 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 May 5, 1995 was 12,027,325. The number of shares of Special Common Stock outstanding as of May 5, 1995 was 522,924. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) April 1, Dec. 31, 1995 1994 ---- ---- (Unaudited) ASSETS Current Assets: Unrestricted-- Cash and investments at cost which approximates market $ 55,255 $ 77,106 Marketable securities available for sale 27,035 27,974 Restricted-- Cash, investments and marketable securities at cost which approximates market 9,337 9,337 Accounts receivable, less allowances of $4,201 and $4,030 105,265 91,687 Inventories: Raw materials 32,147 32,660 Work in process 10,995 9,497 Finished goods 56,916 53,191 ------- ------- 100,058 95,348 ------- ------- Prepaid expenses and other current assets 6,506 7,542 U. S. Federal prepaid income taxes 19,800 19,800 ------- ------- Total Current Assets 323,256 328,794 ------- ------- Property and Equipment, at cost: Land 6,127 6,069 Buildings and improvements 55,524 55,639 Machinery and equipment 126,326 123,848 ------- ------- 187,977 185,556 Less--Accumulated depreciation 89,592 87,475 ------- ------- Total Property and Equipment, net 98,385 98,081 ------- ------- Other Assets: Goodwill, less accumulated amortiza- tion of $22,067 and $21,459 72,281 72,682 Deferred debt expense 8,271 8,502 Other 10,775 11,158 ------- ------- 91,327 92,342 ------- ------- $512,968 $519,217 ======= ======= 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) April 1, Dec. 31, 1995 1994 ---- ---- (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- Current Liabilities: Notes payable, current maturities of long-term debt and other short- term obligations $ 4,573 $ 4,629 Accounts payable 55,707 52,697 Accrued expenses and taxes, net 84,904 98,009 ------- ------- Total Current Liabilities 145,184 155,335 ------- ------- Other Liabilities: Deferred income taxes 18,193 18,232 Other 7,818 7,909 ------- ------- 26,011 26,141 ------- ------- Notes, Mortgage Notes and Debentures Payable 219,927 219,951 ------- ------- Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common Stock, $1 par value; authorized 40,000,000 shares, 15,820,564 shares and 15,814,246 shares issued 15,820 15,814 Special Common Stock, $1 par value; authorized 5,000,000 shares, 796,379 shares and 802,097 shares issued 796 802 Additional paid-in capital 134,627 134,627 Retained earnings 3,266 766 Cumulative translation, pension and other adjustments (4,612) (6,168) Less - treasury common stock at cost, 3,795,106 shares and 3,795,028 shares (26,371) (26,371) - treasury special common stock at cost, 271,582 shares and 271,574 shares (1,680) (1,680) ------- ------- Total Stockholders' Investment 121,846 117,790 ------- ------- $512,968 $519,217 ======= ======= 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 ------------------ April 1, April 2, 1995 1994 ---- ---- (Unaudited) Net Sales $184,809 $169,020 ------ ------- Costs and Expenses: Cost of products sold 135,440 119,302 Selling, general and administrative expense 40,336 41,444 ------- ------- 175,776 160,746 ------- ------- Operating earnings 9,033 8,274 Interest expense (5,910) (7,875) Interest income 1,577 1,201 ------- ------- Earnings before provision for income taxes 4,700 1,600 Provision for income taxes 2,200 900 ------- ------- Earnings before extraordinary gain 2,500 700 Extraordinary gain from debt retirements --- 400 ------- ------- Earnings before the cumulative effect of an accounting change 2,500 1,100 Cumulative effect of an accounting change --- 400 ------- ------- Net Earnings $ 2,500 $ 1,500 ======= ======= Net Earnings Per Share: Earnings Before Extraordinary Gain-- Primary $ .20 $ .06 ------- ------- Fully diluted $ .20 $ .06 ------- ------- Extraordinary Gain-- Primary $ --- $ .03 ------- ------- Fully diluted $ --- $ .03 ------- ------- Cumulative Effect of an Accounting Change-- Primary $ --- $ .03 ------- ------- Fully diluted $ --- $ .03 ------- ------- Net Earnings-- Primary $ .20 $ .12 ====== ======= Fully diluted $ .20 $ .12 ====== ======= Weighted Average Number of Shares: Primary 12,720 12,685 ======= ======= Fully diluted 12,720 13,400 ======= ======= 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 Three Months Ended ------------------ April 1, April 2, 1995 1994 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,500 $ 1,500 ------ ------ Adjustments to reconcile net earnings to cash: Depreciation and amortization 4,873 5,052 Extraordinary gain from debt retirements --- (600) Cumulative effect of an accounting change --- (400) Deferred federal income tax credit from continuing operations (300) (500) Deferred federal income tax provision on extraordinary items --- 1,350 Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (13,570) (11,856) Prepaids and other current assets 1,008 (1,091) Inventories (4,537) (7,449) Accounts payable 3,010 6,976 Accrued expenses and taxes (11,207) (3,036) Long-term assets, liabilities and other, net 632 (4,134) ------ ------ Total adjustments to net earnings (20,091) (15,688) ------ ------- Net Cash Used in Operating Activities (17,591) (14,188) ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,389) (3,763) Purchase of investments and marketable securities (10,085) (5,032) Proceeds from sale of investments and marketable securities 12,067 --- Proceeds (payments) relating to businesses sold or discontinued, net (1,745) 20,280 Other, net --- (943) ------ ------ Net Cash Provided by (Used in) Investing Activities (4,152) 10,542 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Sale of Notes --- 209,195 Purchase and redemption of debentures and notes payable --- (176,611) Payment of borrowings (108) (5,458) Other net --- (91) ------- ------ Net Cash Provided by (Used in) Financing Activities (108) 27,035 ------- ------ Net increase (decrease) in unrestricted cash and investments (21,851) 23,389 Unrestricted cash and investments at the beginning of the period 77,106 56,606 ------ ------ Unrestricted cash and investments at the end of the period $55,255 $79,995 ====== ====== Interest paid $11,162 $ 6,997 ====== ====== Income taxes paid, net $ 1,312 $ 2,753 ====== ====== 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 April 1, 1995 and April 2, 1994 (Dollar Amounts in Thousands) Cumulative Translation, Addi- Retained Pension Special tional Earnings and Other Common Common Paid-in (Accumulat- Adjust-Treasury Stock Stock Capital ed Deficit) ments Stock ----- ----- ------- ----------- ------ ----- (Unaudited) Balance, December 31, 1993 $15,759 $849 $134,627 $(17,034) $(2,143) $(28,051) 19,156 shares of special common stock converted into 19,156 shares of common stock 19 (19) --- --- --- --- Translation adjustment --- --- --- --- (652) --- Cumulative effect of an accounting change (see Note D) --- --- --- --- (400) --- Unrealized decline in marketable securities --- --- --- --- (1,515) Net earnings --- --- --- 1,500 --- --- ------ --- ------- ------ ------ ------ Balance, April 2, 1994 $15,778 $830 $134,627 $(15,534) $(4,710) $(28,051) ====== === ======= ====== ====== ======= Balance, December 31, 1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051) 5,718 shares of special common stock converted into 5,718 shares of common stock 6 (6) --- --- --- --- Translation adjustment --- --- --- --- 503 --- Unrealized appreciation of marketable securities --- --- --- --- 1,053 --- Net earnings --- --- --- 2,500 --- --- ------ --- ------- ------- ------ ------ Balance, April 1, 1995 $15,820 $796 $134,627 $ 3,266 $(4,612) $(28,051) ======= ====== ======== ======= ======= ========= 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 APRIL 1, 1995 AND APRIL 2, 1994 (A) The unaudited condensed consolidated financial statements presented ("Unaudited Financial Statements") have been prepared by Nortek, Inc. and subsidiaries (the "Company") 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 April 1, 1995. 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) On January 14, 1994, the Company redeemed $22,600,000 principal amount of its 11 1/2% Senior Subordinated Debentures due May 1994, which were called for redemption in December 1993. In February 1994, the Company sold in a public offering $218,500,000 of its 9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes") at a slight discount. On March 24, 1994, a portion of the net proceeds from the sale of the 9 7/8% Notes was used to redeem approximately $153,000,000 of certain of the Company's outstanding principal amount of indebtedness, and to pay accrued interest. Interest expense, net of interest income, in the first quarter of 1994 was approximately $1,300,000 greater than it would have been had the debt redemption occurred on the same day as the financing. Net sales, earnings from continuing operations and fully diluted earnings per share for the three months ended April 2, 1994, as adjusted for the pro forma effect of the debt financing and the debt redemptions was $169,020,000, $1,600,000 and $.13, respectively. In computing the pro forma earnings from continuing operations, interest expense on the indebtedness redeemed during the period that such indebtedness was outstanding was excluded from operating results at an average interest rate of approximately 13.5% (including amortization of debt discounts and deferred debt expense), net of the tax effect. Interest expense was included on the 9 7/8% Notes at a rate of approximately 9 7/8%, plus amortization of deferred debt expense and debt discount, net of the tax effect. Investment income was assumed earned on the remaining cash proceeds from the debt financing at a rate of 3.5%. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 1, 1995 AND APRIL 2, 1994 (Continued) On March 31, 1994, the Company sold all the capital stock of its Dixieline Lumber Company subsidiary ("Dixieline") for approximately $18,800,000 in cash and $6,000,000 in preferred stock of the purchaser. In the third quarter of 1993, the Company provided a valuation reserve of approximately $20,300,000 ($1.19 per share, net of tax) to reduce the Company's net investment in Dixieline to estimated net realizable value. No additional loss in 1994 was necessary in connection with the sale. (C) During the first quarter of 1994, the Company purchased, at a discount, in the open market approximately $4,000,000 principal amount of its 7 1/2% convertible sinking fund debentures due 2006 ("7 1/2% Convertible Debentures"). This transaction resulted in an extraordinary gain of approximately $400,000, net of income taxes of approximately $200,000 ($.03 per share) in the first quarter of 1994. (D) On January 1, 1994, the Company adopted the accounting requirements of Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities", and recorded as income the accumulated unrealized marketable security reserve recorded at December 31, 1993 of approximately $400,000 ($.03 per share) as the cumulative effect of an accounting change. Under the new accounting method, the Company records unrealized gains or losses on such investment securities as adjustments to stockholders' investment. Previously, such gains or losses were recorded in the Company's statement of operations. At April 1, 1995, the accumulated reduction in the Company's stockholders' investment under the new accounting method for unrealized losses was approximately $2,326,000 as compared to approximately $3,379,000 at December 31, 1994. There were no material realized gains or losses recorded in the first quarter of 1995 or 1994. At April 1, 1995, there were no unrealized gains on the Company's marketable securities. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 1, 1995 AND APRIL 2, 1994 (Continued) (E) The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of April 1, 1995 and December 31, 1994 is as follows: April 1, Dec. 31, U. S. Federal Prepaid (Deferred) 1995 1994 ---- ---- (Amounts in Thousands) Income Tax Assets Arising From: Accounts receivable $ 1,457 $ 1,399 Inventory (226) (468) Insurance reserves 7,977 7,688 Other reserves, liabilities and assets, net 10,592 11,181 ------ ------ $19,800 $19,800 ====== ====== Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $12,485 $12,406 Prepaid pension assets 1,185 1,230 Insurance reserves (643) (643) Other reserves, liabilities and assets, net 2,277 2,476 Capital loss carryforward (6,828) (6,217) Unrealized loss on business sold (478) (604) Other tax assets (2,726) (3,642) Valuation allowances 12,921 13,226 ------ ------ $18,193 $18,232 ====== ====== At April 1, 1995, the Company has a capital loss carryforward of approximately $17,700,000, which 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 April 1, 1995, the Company has approximately $3,400,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 1, 1995 AND APRIL 2, 1994 (Continued) The table below reconciles the federal statutory income tax rate to the effective tax rate from continuing operations of approximately 46.8% and 56.3% in 1995 and 1994, respectively. Three Months Ended ------------------ April 1, April 2, 1995 1994 ---- ---- (Amounts in Thousands) Income tax provision from continuing operations at the Federal statutory rate $1,645 $ 560 Net Change from Statutory Rate: Change in valuation reserve, net 64 (77) State taxes, net of federal tax effect 195 163 Amortization not deductible for tax purposes 184 184 Other nondeductible items (2) 74 Tax effect on foreign income 81 86 Other, net 33 (90) ----- ---- $2,200 $ 900 ===== ==== (F) Net earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. Earnings per share calculations for the first quarter of 1994 do not include the effect of convertible debentures (and the reduction in related interest expense) because the assumed conversion of debentures is anti- dilutive. (G) At April 1, 1995, approximately $30,000,000 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. (H) The following table summarizes the unaudited activity of businesses sold or discontinued included in the accompanying unaudited condensed consolidated statement of cash flows: Three Months Ended ------------------ April 1, April 2, 1995 1994 ---- ---- (Amounts in Thousands) Fair value of assets sold $ --- $39,439 Non-cash proceeds received as part of the proceeds --- (6,000) Liabilities assumed by the purchaser --- (16,143) Cash received (paid) relating to businesses sold (1,745) 2,984 ------ ------ Net cash proceeds (payments) relating to businesses sold $(1,745) $20,280 ====== ====== NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APRIL 1, 1995 AND APRIL 2, 1994 (Continued) Significant unaudited non-cash financing and investing activities excluded from the accompanying unaudited condensed consolidated statement of cash flows include an increase of approximately $1,053,000 in the first quarter ended April 1, 1995 and a decline of approximately $1,515,000 in the first quarter of 1994 in the fair market value of marketable securities available for sale. Depreciation and amortization included in the Company's unaudited condensed consolidated statement of cash flows for the three months ended April 1, 1995 and April 2, 1994, includes approximately $250,000 and approximately $600,000 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 FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 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 and Canada, a wide variety of products for the residential and commercial construction, manufactured housing, and the do-it-yourself and professional remodeling and renovation markets. Results of Operations The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the percentage change in the amount and percentage 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 first quarter ended April 1, 1995 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. First Quarter Ended Change in ------------------- April 1, April 2, First Quarter 1995 ------------------ 1995 1994 $ % ---- ---- ----- ------ (Dollar amounts in millions) Net sales $184.8 $169.0 15.8 9.3 Cost of products sold 135.5 119.3 (16.2) (13.6) Selling, administrative and other, net 40.3 41.4 1.1 2.7 Operating earnings 9.0 8.3 .7 8.4 Interest expense (5.9) (7.9) 2.0 25.3 Interest income 1.6 1.2 .4 33.3 Earnings before provision for income taxes 4.7 1.6 3.1 193.7 Provision for income taxes 2.2 .9 (1.3) (144.4) Earnings before extraordinary gain 2.5 .7 1.8 257.1 Extraordinary gain from debt retirements --- .4 (.4) (100.0) Earnings before the cumulative effect of an accounting change 2.5 1.1 1.4 127.3 Cumulative effect of an accounting change --- .4 (.4) (100.0) ---- ---- ---- ------ Net earnings $ 2.5 $ 1.5 1.0 66.7 ==== ==== ==== ====== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) Change in Percentage of Net Sales Percentage First Quarter Ended for the First ------------------- April 1, April 2, Quarter 1995 1995 1994 as compared to 1994 ---- ---- ------------------- Net sales 100.0% 100.0% --- Cost of products sold 73.3 70.6 (2.7) Selling, administrative and other, net 21.8 24.5 2.7 Operating earnings 4.9 4.9 --- Interest expense (3.2) (4.6) 1.4 Interest income .9 .7 .2 Earnings before provision for income taxes 2.6 1.0 1.6 Provision for income taxes 1.2 .5 (.7) Earnings before extra- ordinary gain 1.4 .5 .9 Extraordinary gain from debt retirements --- .2 (.2) Earnings before the cumulative effect of an accounting change 1.4 .7 .7 Cumulative effect of an accounting change --- .2 (.2) ---- ---- ---- Net earnings 1.4 .9 .5 ==== ==== ==== The following table presents the net sales for the Company's principal product groups for the first quarter ended April 1, 1995 as compared to the first quarter ended April 2, 1994 and the amount and the percentage change of such results as compared to the prior comparable period. The results of operations for the first quarter are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. First Quarter Ended ------------------- April 1, April 2, Increase (Decrease) 1995 1994 $ % ---- ---- ----- ----- (000's omitted) Net Sales: Residential Building Products $ 67,690 $ 63,950 3,740 5.8 Air Conditioning and Heating Products 83,462 73,473 9,989 13.6 Plumbing Products 33,657 31,597 2,060 6.5 ------- ------- ------ ---- Total $184,809 $169,020 15,789 9.3 ======= ======= ====== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) Operating Results - ----------------- Net sales increased approximately $15,800,000, or approximately 9.3%, in the first quarter 1995 as compared to the first quarter of 1994 principally as a result of increased sales volume of residential air conditioning and heating ("HVAC") products, increased shipments of new and replacement HVAC products to manufactured housing customers, and increased sales levels of commercial and industrial HVAC products. To a lesser extent, increased sales levels in the Residential Building Products Group and increased sales of vanities and related products by the Plumbing Products Group were also a factor. These increases were partially offset by lower sales volume and prices of vitreous china products in the Plumbing Products Group. Cost of products sold as a percentage of net sales increased from approximately 70.6% in the first quarter of 1994 to approximately 73.3% in the first quarter of 1995 primarily as a result of higher material costs in the Plumbing Products Group, residential and manufactured housing HVAC products of the Air Conditioning and Heating Products Group and (to a lesser extent) built-in ventilation products of the Residential Building Products Group. Increased sales levels in the Air Conditioning and Heating Products Group, which group has a higher cost level than the total cost level of the Company, was also a factor in the increase in the percentage. Selling, general and administrative expense, as a percentage of net sales decreased from approximately 24.5% in the first quarter of 1994 to approximately 21.8% in the first quarter of 1995 principally as a result of increased HVAC product net sales without a proportionate increase in expense and lower non-segment expense. To a lesser extent, increased net sales and lower expense in the Plumbing Products Group was also a factor. Segment earnings were approximately $11,550,000 for the first quarter of 1995, as compared to approximately $12,100,000 for the first quarter of 1994. The decrease in segment earnings principally was due to higher material costs as noted above, partially offset by increased earnings from higher sales volume of HVAC products, without proportionate increases in selling, general and administrative expenses. Operating earnings in the first quarter of 1995 increased approximately $700,000, or approximately 8.4%, as compared to the first quarter of 1994, primarily as a result of the factors discussed above. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) Interest expense in the first quarter of 1995 decreased approximately $2,000,000, or approximately 25.3%, as compared to the first quarter of 1994. In February 1994, the Company sold in a public offering $218,500,000 of its 9 7/8% Notes and used a portion of the proceeds to redeem, on March 24, 1994 approximately $153,000,000 of certain of the Company's outstanding indebtedness. Interest expense (net of interest income) for the first quarter of 1994 was approximately $1,300,000 greater than it would have been had the debt redemption occurred on the same day as the financing. The effect of the redemption of certain other outstanding indebtedness in January 1994 was also a factor. (See Note B of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) Interest income in the first quarter of 1995 increased approximately $400,000, or approximately 33.3%, as compared to the first quarter of 1994, principally due to higher yields earned on short-term investments and marketable securities, partially offset by lower average invested balances of short-term investments and marketable securities. The provision for income taxes was approximately $2,200,000 for the first quarter of 1995, as compared to approximately $900,000 for the first quarter of 1994. The income tax rates principally differed from the United States Federal statutory rate of 35%, as a result of state income tax provisions, the effect of foreign income tax on foreign source income and nondeductible amortization expense (for tax purposes) in both periods. (See Note E of the Notes to Unaudited Financial Statements included elsewhere herein.) The Company recorded an extraordinary gain of approximately $400,000 in the first quarter of 1994. The gain resulted from the purchase in the open market of the Company's 7 1/2% Convertible Debentures in March 1994. (See Note C of the Notes to Financial Statements included elsewhere herein.) The cumulative effect of an accounting change resulted in earnings of approximately $400,000 in the first quarter of 1994 from the adoption of SFAS No. 115. (See Notes D of the Notes to Unaudited Financial Statements included elsewhere herein.) Inflation has not had a material effect on the Company's results of operations and financial condition until mid-1994, when the Company experienced increases in certain costs and expenses including raw material costs. In the first quarter of 1995, material costs as a percentage of net sales increased by 2.9% as compared to the first quarter of 1994. There can be no assurance that the Company will be able to sufficiently increase its sales prices if these cost increases persist. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) Liquidity and Capital Resources The Company's primary sources of liquidity in 1995 and 1994 have been funds provided by subsidiary operations, unrestricted short-term investments and marketable securities and in 1994 included funds from the sale of 9 7/8% Notes (See Note B of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein) and proceeds from a business sold. Unrestricted cash, investments and marketable securities were approximately $82,290,000 at April 1, 1995 as compared to $105,080,000 at December 31, 1994. The Company's Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian (approximately $14,400,000 U. S. at exchange rates prevailing at April 1, 1995) secured line of credit, of which approximately $14,800,000 Canadian (approximately $10,950,000 U. S. at exchange rates prevailing at May 5, 1995), in the aggregate, is available to the Company (the "Line of Credit") at May 5, 1995. Borrowings under the Line of Credit are available for working capital and other general corporate purposes. The Line of Credit contains covenants requiring Broan Limited to maintain (i) a ratio of earnings before interest and taxes to interest of at least 2 to 1, (ii) a working capital ratio of at least 1.5 to 1 and (iii) a debt to equity ratio of no higher than 3 to 1. The Line of Credit also limits the annual amount of capital expenditures which Broan Limited may make to $1,000,000 Canadian (approximately $700,000 U. S. at exchange rates prevailing at April 1, 1995). Broan Limited pays a commitment fee of .25% per annum on the unutilized portion of the Line of Credit payable monthly on a pro rata basis, and the Line of Credit is subject to an annual review by the lender in April of each year. As of May 5, 1995, there were no outstanding borrowings under the Line of Credit. The Company believes that cash flow from subsidiary operations, unrestricted cash and marketable securities and borrowings under the Line of Credit or under new credit facilities or arrangements which may be entered into will provide sufficient liquidity to meet the Company's working capital, capital expenditure, debt service and other business needs through the next 12 months. The Company's investment in marketable securities at April 1, 1995 consisted primarily of investments in United States Treasury securities. (See Note D of Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) At April 1, 1995, approximately $9,337,000 of the Company's cash and investments were pledged as collateral with insurance companies and were classified as restricted in current assets in the Company's accompanying unaudited condensed consolidated balance sheet. At April 1, 1995, approximately $30,000,000 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. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) The Company's working capital and current ratio increased from approximately $173,459,000 and approximately 2.1:1, respectively, at December 31, 1994 to approximately $178,072,000 and approximately 2.2:1, respectively, at April 1, 1995, principally as a result of the factors described below. Accounts receivable increased approximately $13,578,000, or approximately 14.8%, between December 31, 1994 and April 1, 1995, while net sales increased approximately 4.2% in the first quarter of 1995 as compared to the fourth quarter of 1994. The increase in accounts receivable is principally as a result of increased net sales of new and replacement products from residential and manufactured housing customers by the Air Conditioning and Heating 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 net sales near the end of any period generally result in significant amounts of accounts receivable on the date of the balance sheet at the end of such period, as was the situation on April 1, 1995 as compared to December 31, 1994. In recent periods, the Company has not experienced any significant changes in credit terms, collection efforts, credit utilization or delinquency. Inventories increased approximately $4,710,000 or approximately 4.9%, between December 31, 1994 and April 1, 1995. Accounts payable increased approximately $3,010,000 or approximately 5.7% between December 31, 1994 and April 1, 1995. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED APRIL 1, 1995 AND THE FIRST QUARTER ENDED APRIL 2, 1994 (Continued) Unrestricted cash and investments decreased approximately $21,851,000 from December 31, 1994 to April 1, 1995, principally as a result of cash provided by (used in) the following: Condensed Consolidated Cash Flows ---------- Operating Activities-- Cash flow from operations, net $ 7,073,000 Increase in accounts receivable, net (13,570,000) Increase in inventories (4,537,000) Increase in trade accounts payable 3,010,000 Change in accrued expenses, taxes, prepaids, other assets, liabilities, and other, net (9,567,000) Investing Activities-- Cash payment relating to a business sold (1,745,000) Purchase of marketable securities (10,085,000) Proceeds from the sale of marketable securities 12,067,000 Capital expenditures (4,389,000) Financing Activities-- Payment of borrowings (108,000) ---------- $(21,851,000) ========== The Company's debt-to-equity ratio decreased from approximately 1.9:1 at December 31, 1994 to 1.8:1 at April 1, 1995, primarily as a result of the effect of increased stockholders' investment as a result of net earnings and changes in the cumulative translation and marketable securities adjustments in the first quarter of 1995. (See Note D of the Notes to the Unaudited Condensed Consolidated Financial Statements and the Company's Unaudited Condensed Consolidated Statement of Stockholders' Investment included elsewhere herein.) At April 1, 1995, the Company has approximately $3,400,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. (See Note E of Notes to the Unaudited Condensed Consolidated Financial Statements.) 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 reviews potential acquisitions which would increase or expand the market penetration of, or otherwise complement, its current product lines. On April 28, 1995, the Company announced an agreement in principle to acquire Best S.P.A. and related entities ("Best"). Best is a manufacturer of Eurostyle kitchen range hoods headquartered in Fabriano, Italy. Best manufactures range hoods which are distributed to Eastern and Western Europe, North and South America, the Middle East, Australia, New Zealand and the Orient. Consummation of this transaction is subject to numerous conditions and requirements including the negotiation of a definitive purchase and sale agreement. Accordingly, there can be no assurance that this acquisition will be consummated. 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). 99 Nortek, Inc. and Subsidiaries Unaudited Statement of Operations for the twelve months ended April 1, 1995 (filed herewith) (b) No reports on Form 8-K were filed by the Registrant during the period. 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 May 5, 1995 - ------------------------- (Date) EX-11 2 EXHIBIT 11.1 NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Three Months Ended -------------------------- April 1, April 2, 1995 1994 ---- ---- 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 16,616,532 16,608,549 Less average common and special common shares held in the Treasury (4,066,688) (4,066,602) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 12,549,844 12,541,947 Dilutive effect of stock options computed under the treasury stock method using the average price during the period 169,763 142,965 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 12,719,607 12,684,912 ========== ========== 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 12,549,844 12,541,947 Dilutive effect of stock options 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 169,763 142,965 Dilutive effect of assuming conversion of the Company's 7.5% Convertible Debentures --- 714,612 ---------- ---------- 12,719,607 13,399,524 ========== ========== Note: Earnings per share calculations do not include the effect of convertible debentures (and the reduction in related expense), because the assumed conversion of debentures is anti-dilutive. EX-27 3
5 1000 3-MOS DEC-31-1995 APR-01-1995 64,592 27,035 109,466 4,201 100,058 323,256 187,977 89,592 512,968 145,184 219,927 16,616 0 0 105,230 512,968 184,809 184,809 135,440 135,440 0 0 5,910 4,700 2,200 2,500 0 0 0 2,500 .20 .20
EX-99 4 EXHIBIT 99 NORTEK, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For the Twelve Months Ended April 1, 1995 ------------- Net Sales $752,949 ------- Costs and Expenses: Cost of products sold 536,466 Selling, general and administrative expense 165,707 ------- 702,173 ------- Operating earnings 50,776 Interest expense (24,197) Interest income 5,671 Loss on business sold (1,750) ------- Earnings before provision for income taxes 30,500 Provision for income taxes 11,500 ------- Earnings before extraordinary loss 19,000 Extraordinary loss from debt retirements (200) ------- Net Earnings $ 18,800 ======= Net Earnings Per Share: Earnings Before Extraordinary Loss-- Primary $ 1.49 ------ Fully diluted $ 1.48 ------ Extraordinary Loss-- Primary $ (.01) ------ Fully diluted $ (.01) ------ Net Earnings-- Primary $ 1.48 ====== Fully diluted $ 1.47 ====== Weighted Average Number of Shares: Primary 12,712 ====== Fully diluted 12,941 ====== It is suggested that this Unaudited Condensed Consolidated Statement of Operations be read in conjunction with the financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and the Quarterly Report on Form 10-Q for the first quarter ended April 1, 1995 contained herein. -----END PRIVACY-ENHANCED MESSAGE-----