-----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, GUnZplFy3FNxIpSA2JfNdrxal7BEkngzGzs0XWfXnNXV3yBfZAK86IEMlgwIgl9Y QifzdY4qEKwum49BQAZNuw== 0000072423-95-000019.txt : 19951119 0000072423-95-000019.hdr.sgml : 19951119 ACCESSION NUMBER: 0000072423-95-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 95590969 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 September 30, 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 November 3, 1995 was 11,722,228. The number of shares of Special Common Stock outstanding as of November 3, 1995 was 501,049. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) Sept. 30, Dec. 31, 1995 1994 ---- ---- (Unaudited) ASSETS Current Assets: Unrestricted-- Cash and investments at cost which approximates market $ 79,180 $ 77,106 Marketable securities available for sale 19,573 27,974 Restricted-- Cash and investments at cost which approximates market 9,434 9,337 Accounts receivable, less allowances of $4,204 and $4,030 107,665 91,687 Inventories: Raw materials 33,569 32,660 Work in process 11,244 9,497 Finished goods 51,100 53,191 ------- ------- 95,913 95,348 ------- ------- Prepaid expenses 6,224 4,611 Other current assets 3,744 2,931 U. S. Federal prepaid income taxes 17,500 19,800 ------- ------- Total Current Assets 339,233 328,794 ------- ------- Property and Equipment, at cost: Land 6,361 6,069 Buildings and improvements 56,138 55,639 Machinery and equipment 131,701 123,848 ------- ------- 194,200 185,556 Less--Accumulated depreciation 96,575 87,475 ------- ------- Total Property and Equipment, net 97,625 98,081 ------- ------- Other Assets: Goodwill, less accumulated amortiza- tion of $23,281 and $21,459 71,081 72,682 Deferred debt expense 7,805 8,502 Other 8,735 11,158 ------- ------- 87,621 92,342 ------- ------- $524,479 $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) Sept. 30, Dec. 31, 1995 1994 ---- ---- (Unaudited) LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- Current Liabilities: Notes payable, current maturities of long-term debt and other short- term obligations $ 4,464 $ 4,629 Accounts payable 56,651 52,697 Accrued expenses and taxes, net 88,255 98,009 ------- ------- Total Current Liabilities 149,370 155,335 ------- ------- Other Liabilities: Deferred income taxes 19,226 18,232 Other 7,450 7,909 ------- ------- 26,676 26,141 ------- ------- Notes, Mortgage Notes and Debentures Payable 219,583 219,951 ------- ------- Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common Stock, $1 par value; authorized 40,000,000 shares, 15,834,766 shares and 15,814,246 shares issued 15,834 15,814 Special Common Stock, $1 par value; authorized 5,000,000 shares, 785,177 and 802,097 shares issued 785 802 Additional paid-in capital 134,631 134,627 Retained earnings 11,666 766 Cumulative translation, pension and other adjustments (3,165) (6,168) Less - treasury common stock at cost, 4,093,982 shares and 3,795,035 shares (29,210) (26,371) - treasury special common stock at cost, 272,684 shares and 271,576 shares (1,691) (1,680) ------- ------- Total Stockholders' Investment 128,850 117,790 ------- ------- $524,479 $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 ------------------ Sept. 30, Oct. 1, 1995 1994 ---- ---- (Unaudited) Net Sales $193,567 $197,012 ------- ------- Costs and Expenses: Cost of products sold 143,891 138,937 Selling, general and administrative expense 39,596 42,721 ------- ------- 183,487 181,658 ------- ------- Operating earnings 10,080 15,354 Interest expense (5,945) (6,112) Interest income 1,565 1,258 Gain on sale of investment securities 2,200 --- ------- ------- Earnings before provision for income taxes 7,900 10,500 Provision for income taxes 2,700 4,100 ------- ------- Earnings before extraordinary loss 5,200 6,400 Extraordinary loss from debt retirements --- (100) ------- ------- Net Earnings $ 5,200 $ 6,300 ======= ======= Net Earnings (Loss) Per Share: Earnings Before Extraordinary Loss-- Primary $ .41 $ .50 ------- ------ Fully diluted $ .41 $ .50 ------- ------ Extraordinary Loss-- Primary $ --- $ (.01) ------- ------ Fully diluted $ --- $ (.01) ------- ------ Net Earnings-- Primary $ .41 $ .49 ====== ====== Fully diluted $ .41 $ .49 ====== ====== Weighted Average Number of Shares: Primary 12,579 12,730 ====== ====== Fully diluted 12,582 13,059 ====== ====== 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 Nine Months Ended ------------------ Sept. 30, Oct. 1, 1995 1994 ---- ---- (Unaudited) Net Sales $572,582 $559,754 ------- ------- Costs and Expenses: Cost of products sold 424,032 394,283 Selling, general and administrative expense 119,248 127,062 ------- ------- 543,280 521,345 ------- ------- Operating earnings 29,302 38,409 Interest expense (17,784) (20,198) Interest income 4,782 3,789 Net loss on marketable securities (200) --- Gain on sale of investment securities 2,200 --- ------- ------- Earnings before provision for income taxes 18,300 22,000 Provision for income taxes 7,400 9,400 ------- ------- Earnings before extraordinary gain 10,900 12,600 Extraordinary gain from debt retirements --- 200 ------- ------- Earnings before the cumulative effect of an accounting change 10,900 12,800 Cumulative effect of an accounting change --- 400 ------- ------- Net Earnings $ 10,900 $ 13,200 ======= ======= Net Earnings Per Share: Earnings Before Extraordinary Gain-- Primary $ .86 $ .99 ------- ------- Fully diluted $ .86 $ .98 ------- ------- Extraordinary Gain-- Primary $ --- $ .02 ------- ------- Fully diluted $ --- $ .02 ------- ------- Cumulative Effect of an Accounting Change-- Primary $ --- $ .03 ------- ------- Fully diluted $ --- $ .03 ------- ------- Net Earnings-- Primary $ .86 $ 1.04 ======= ======= Fully diluted $ .86 $ 1.03 ======= ======= Weighted Average Number of Shares: Primary 12,663 12,697 ====== ====== Fully diluted 12,664 13,212 ====== ====== 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 Nine Months Ended ------------------ Sept. 30, Oct. 1, 1995 1994 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $10,900 $ 13,200 ------ ------- Adjustments to reconcile net earnings to cash: Depreciation and amortization 14,384 14,060 Net loss on marketable securities 200 --- Gain on sale of investment securities (2,200) --- Extraordinary gain from debt retirements --- (250) Cumulative effect of an accounting change --- (400) Deferred federal income tax provision (credit) from continuing operations 1,100 (3,200) Deferred federal income tax provision on discontinued operations --- 2,200 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 (15,970) (26,228) Prepaids and other current assets (989) (3,436) Inventories (2,309) (12,083) Accounts payable 3,954 13,831 Accrued expenses and taxes (5,402) 11,550 Long-term assets, liabilities and other, net 1,377 (5,917) ------- ------- Total adjustments to net earnings (5,855) (8,523) ------- ------- Net Cash Provided by Operating Activities 5,045 4,677 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (11,120) (13,640) Purchase of investments and marketable securities (10,085) (5,032) Proceeds from sale of investments and marketable securities 20,772 --- Proceeds relating to businesses sold or discontinued, net 1,129 12,468 Change in restricted cash and investments (416) (2,475) Other, net 220 410 ------- ------- Net Cash Provided by (Used in) Investing Activities 500 (8,269) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of Notes, net --- 209,195 Purchase and redemption of debentures and notes payable --- (185,209) Payment of borrowings (633) (8,185) Purchase of Nortek Common and Special Common Stock (2,850) --- Other, net 12 (87) ------- ------- Net Cash Provided by (Used in) Financing Activities (3,471) 15,714 ------- ------- Net increase in unrestricted cash and investments 2,074 12,122 Unrestricted cash and investments at the beginning of the period 77,106 56,606 ------- ------- Unrestricted cash and investments at the end of the period $ 79,180 $ 68,728 ======= ======= Interest paid $ 22,530 $ 21,436 ======= ======= Income taxes paid, net $ 3,508 $ 4,530 ======= ======= 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 September 30, 1995 and October 1, 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, July 2, 1994 $15,788 $820 $134,627 $(10,134) $(5,390) $(28,051) 10,406 shares of special common stock converted into 10,406 shares of common stock 10 (10) --- --- --- --- 1,744 shares of common stock issued upon exercise of stock options 2 --- (2) --- --- --- Translation adjust- ment --- --- --- --- 430 --- Unrealized decline in marketable securities --- --- --- --- (261) --- Net earnings --- --- --- 6,300 --- --- ------ --- ------- ------ ------ ------- Balance, Oct. 1, 1994 $15,800 $810 $134,625 $(3,834) $(5,221) $(28,051) ====== === ======= ====== ====== ======= Balance, July 1, 1995 $15,829 $790 $134,631 $ 6,466 $(3,185) $(28,051) 5,056 shares of special common stock converted into 5,056 shares of common stock 5 (5) --- --- --- --- 299,851 shares of treasury stock acquired --- --- --- --- --- (2,850) Translation adjust- ment --- --- --- --- (18) --- Unrealized appreci- ation in marketable securities --- --- --- --- 38 --- Net earnings --- --- --- 5,200 --- --- ------ --- ------- ------ ----- ------- Balance, September 30, 1995 $15,834 $785 $134,631 $11,666 $(3,165) $(30,901) ====== === ======= ====== ====== ======= 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 Nine Months Ended September 30, 1995 and October 1, 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) 39,483 shares of special common stock converted into 39,483 shares of common stock 39 (39) --- --- --- --- 1,744 shares of common stock issued upon exercise of stock options 2 --- (2) --- --- --- Translation adjustment --- --- --- --- (161) --- Cumulative effect of an accounting change (see Note F) --- --- --- --- (400) --- Unrealized decline in marketable securities --- --- --- --- (2,517) --- Net earnings --- --- --- 13,200 --- --- ------ --- ------- ------- ------ ------ Balance, October 1, 1994 $15,800 $810 $134,625 $ (3,834) $(5,221) $(28,051) Balance, December 31, ======= ==== ======== ========= ======= ======== 1994 $15,814 $802 $134,627 $ 766 $(6,168) $(28,051) 16,920 shares of special common stock converted into 16,920 shares of common stock 17 (17) --- --- --- --- 3,600 shares of common stock issued upon exercise of stock options 3 --- 4 --- --- --- 300,055 shares of treasury stock acquired --- --- --- --- --- (2,850) Translation adjust- ment --- --- --- --- 481 --- Unrealized appreci- ation in marketable securities --- --- --- --- 2,522 --- Net earnings --- --- --- 10,900 --- --- Balance, September 30, ------- ---- -------- ------- ------- ------- 1995 $15,834 $785 $134,631 $11,666 $(3,165) $(30,901) ====== === ======= ======= ====== ======= 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 September 30, 1995 AND October 1, 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 September 30, 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) 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 of Cleburne, Texas ("Rangaire"), all the capital stock of Best S.p.A. of Fabriano, Italy and related entities ("Best") and all the capital stock of Venmar Ventilation, Inc. of Drummondville, Quebec, Canada ("Venmar"). The aggregate purchase price for these acquisitions was approximately $36,700,000, consisting of cash of approximately $26,000,000 and future payments of approximately $10,700,000 (including approximately $7,500,000 payable in January 1996). Certain of the selling shareholders of these acquisitions are entitled to additional purchase price payments of up to approximately $7,900,000, depending on subsequent operating results of such acquisitions. Approximately $9,600,000 of the cash was borrowed under the terms of the secured Line of Credit of the Company's wholly owned subsidiary, Broan Limited. Assuming that these acquisitions had occurred on January 1, 1994, the following table represents the unaudited pro forma operating results for the nine months ended September 30, 1995 and October 1, 1994 and for the year ended December 31, 1994: NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 AND October 1, 1994 (Continued) Nine Months Ended Year Ended ------------ ------------ Sept. 30, Oct. 1, Dec. 31, 1995 1994 1994 ---- ---- ---- (Amounts in Thousands Except Per Share Amounts) Net Sales $669,269 $643,139 $851,249 Earnings from Continuing Operations $ 10,800 $ 14,800 $ 19,900 Fully Diluted Earnings Per Share $ .85 $ 1.15 $ 1.55 In computing the pro forma results, earnings from continuing operations 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 during these periods, and by interest expense on indebtedness incurred in connection with the acquisitions for all periods presented, net of the tax effect. Earnings from continuing operations 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 and the Company's basis of accounting upon acquisition. The pro forma information presented does not purport to be indicative of the results which would have been reported if the acquisitions had occurred on January 1, 1994, or which may be reported in the future. (C) 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 and first nine months 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. Earnings from continuing operations and fully diluted earnings per share for the nine months ended October 1, 1994, as adjusted for the pro forma effect of the debt financing and the debt redemptions would have been $13,500,000 and $1.05, respectively. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 AND October 1, 1994 (Continued) 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%. 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 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. In the third quarter of 1995, the Company sold its investment in the preferred stock of Dixieline, which resulted in a pre-tax gain of approximately $2,200,000 ($.17 per share, net of tax). (D) In the second quarter of 1994, the Company recorded pre-tax income of approximately $3,200,000 ($1,900,000 after-tax, or $.14 per share) resulting from the settlement of certain insurance claims and disputes. (E) On October 24, 1994, the Company redeemed its remaining outstanding $6,373,000 principal amount of 7 1/2% Convertible Debentures due May 1, 2006 ("7 1/2% Debentures"), which were called for redemption in September 1994, plus paid accrued interest and a slight redemption premium. This call for redemption resulted in an extraordinary loss of approximately $100,000, net of income taxes of $100,000 ($.02 per share) in the third quarter of 1994. During the second quarter of 1994, the Company purchased in the open market approximately $5,121,000 principal amount of its 7 1/2% Debentures. 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% Debentures. These transactions resulted in an extraordinary loss of approximately $100,000, net of income taxes of $50,000 ($.01 per share) in the second quarter and an extraordinary gain of approximately $400,000, net of income taxes of $200,000 ($.03 per share) in the first quarter of 1994. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 AND October 1, 1994 (Continued) (F) 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 September 30, 1995, the accumulated reduction in the Company's stockholders' investment under the new accounting method for unrealized losses was approximately $857,000 as compared to approximately $3,379,000 at December 31, 1994. During the second quarter of 1995, the Company recorded a pre-tax loss of approximately $200,000 ($.02 per share, net of tax) on the sale of marketable securities. At September 30, 1995, there were no unrealized gains on the Company's marketable securities. (G) The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of September 30, 1995 and December 31, 1994 is as follows: Sept. 30, Dec. 31, 1995 1994 ---- ---- (Amounts in Thousands) U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From: Accounts receivable $ 1,456 $ 1,399 Inventory (100) (468) Insurance reserves 5,234 7,688 Other reserves, liabilities and assets, net 10,910 11,181 ------ ------ $17,500 $19,800 ====== ====== Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $12,489 $12,406 Prepaid pension assets 1,116 1,230 Insurance reserves (521) (643) Other reserves, liabilities and assets, net 3,621 2,476 Capital loss carryforward (6,898) (6,217) Unrealized loss on business sold --- (604) Other tax assets (2,266) (3,642) Valuation allowances 11,685 13,226 ------ ------ $19,226 $18,232 ====== ====== At September 30, 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 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 AND October 1, 1994 (Continued) tax assets, since realization of these tax assets cannot be reasonably assured. At September 30, 1995, the Company has approximately $2,000,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. The table below reconciles the provision for income taxes from continuing operations at the federal statutory income tax rate to the actual provision for income taxes: Three Nine Months Ended Months Ended ------------ ------------ Sept. 30, Oct. 1, Sept. 30, Oct. 1, 1995 1994 1995 1994 ---- ---- ---- ---- (Amounts in Thousands) Provision for income taxes at the federal statutory rate $2,765 $3,675 $6,405 $7,700 Net change from statutory rate: State taxes, net of federal tax effect 195 66 585 650 Non-deductible amortization for tax purposes 184 184 553 553 Other non-deductible items 163 91 243 273 Change in valuation reserve (730) 132 (660) 123 Tax effect on foreign income 73 142 224 292 Other, net 50 (190) 50 (191) ----- ----- ----- ----- Provision for income taxes from continuing operations $2,700 $4,100 $7,400 $9,400 ===== ===== ===== ===== (H) Net earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. Fully diluted earnings per share calculations for 1994 include the effect of convertible debentures (and the reduction in related interest expense). (I) At September 30, 1995, approximately $30,300,000 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. (J) On September 29, 1995, the Company acquired 298,772 shares of its Common Stock and 971 shares of its Special Common Stock in a negotiated transaction for approximately $2,848,000. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 AND October 1, 1994 (Continued) (K) The following table summarizes the unaudited activity of businesses sold or discontinued included in the accompanying unaudited condensed consolidated statement of cash flows: Nine Months Ended ------------------ Sept. 30, Oct. 1, 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 proceeds from the sale of Dixieline preferred stock (See Note C) 2,874 --- Cash paid relating to businesses sold or discontinued (1,745) (4,828) ------ ------ Net cash proceeds relating to businesses sold or discontinued $ 1,129 $12,468 ====== ====== Significant unaudited non-cash financing and investing activities excluded from the accompanying unaudited condensed consolidated statement of cash flows include an increase of approximately $2,522,000 in the first nine months ended September 30, 1995 and a decline of approximately $2,517,000 in the first nine months 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 nine months ended September 30, 1995 and October 1, 1994, includes approximately $800,000 and approximately $1,100,000 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 THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 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 unaudited consolidated operating results, (b) the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bear to net sales and (d) the change of such percentages as compared to the prior comparable period. The results for the third quarter ended September 30, 1995 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in the Third Quarter Ended Third Quarter 1995 Sept. 30, Oct. 1, As Compared to 1994 1995 1994 $ % ---- ---- ----- ------ (Dollar amounts in millions) Net sales $193.6 $197.0 (3.4) (1.7) Cost of products sold 143.9 138.9 (5.0) (3.6) Selling, general and administrative expense 39.6 42.8 3.2 7.5 Operating earnings 10.1 15.3 (5.2) (34.0) Interest expense (5.9) (6.1) .2 3.3 Interest income 1.5 1.3 .2 15.4 Gain on sale of investment securities 2.2 --- 2.2 --- Earnings before provision for income taxes 7.9 10.5 (2.6) (24.8) Provision for income taxes 2.7 4.1 1.4 34.1 Earnings before extra- ordinary loss 5.2 6.4 (1.2) (18.8) Extraordinary loss from debt retirements --- (.1) .1 100.0 ---- ---- ---- ----- Net earnings $ 5.2 $ 6.3 (1.1) (17.5) ==== ==== ===== ===== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) Percentage Change in of Net Sales Percentage Third Quarter Ended for the Third Sept. 30, Oct. 1, Quarter 1995 1995 1994 As Compared to 1994 ---- ---- ------------------- Net sales 100.0% 100.0% --- Cost of products sold 74.3 70.5 (3.8) Selling, general and administrative expense 20.5 21.7 1.2 Operating earnings 5.2 7.8 (2.6) Interest expense (3.0) (3.1) .1 Interest income .8 .7 .1 Gain on sale of investment securities 1.1 --- 1.1 Earnings before provision for income taxes 4.1 5.4 (1.3) Provision for income taxes 1.4 2.1 .7 Earnings before extraordinary loss 2.7 3.3 (.6) Extraordinary loss from debt retirements --- (.1) .1 ---- ---- ---- Net earnings 2.7 3.2 (.5) ==== ==== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) The tables below and on the next page set forth, for the periods presented, (a) certain unaudited consolidated operating results, (b) the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bear to net sales and (d) the change of such percentages as compared to the prior comparable period. The results for the nine months ended September 30, 1995 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in the First Nine Months Ended Nine Months of 1995 Sept. 30, Oct. 1, As Compared to 1994 1995 1994 $ % ---- ---- ----- ------ (Dollar amounts in millions) Net sales $572.5 $559.8 12.7 2.3 Cost of products sold 424.0 394.3 (29.7) (7.5) Selling, general and administrative expense 119.2 127.1 7.9 6.2 Operating earnings 29.3 38.4 (9.1) (23.7) Interest expense (17.8) (20.2) 2.4 11.9 Interest income 4.8 3.8 1.0 26.3 Net loss on marketable securities (.2) --- (.2) * Gain on sale of investment securities 2.2 --- 2.2 --- Earnings before provision for income taxes 18.3 22.0 (3.7) (16.8) Provision for income taxes 7.4 9.4 2.0 21.3 Earnings before extraordinary gain and the cumulative effect of an accounting change 10.9 12.6 (1.7) (13.5) Extraordinary gain from debt retirements --- .2 (.2) (100.0) Cumulative effect of an accounting change --- .4 (.4) (100.0) ----- ----- ---- ----- Net earnings $ 10.9 $ 13.2 (2.3) ( 17.4) ===== ===== ==== ====== *Not meaningful NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) Percentage of Net Sales Change in Percentage Nine Months Ended for the First Nine Sept. 30, Oct. 1, Months of 1995 1995 1994 As Compared to 1994 ---- ---- ------------------- Net sales 100.0% 100.0% --- Cost of products sold 74.1 70.5 (3.6) Selling, general and administrative expense 20.8 22.7 1.9 Operating earnings 5.1 6.8 (1.7) Interest expense (3.1) (3.6) .5 Interest income .8 .7 .1 Net loss on marketable securities --- --- --- Gain on sale of investment securities .4 --- .4 Earnings before provision for income taxes 3.2 3.9 (.7) Provision for income taxes 1.3 1.7 .4 Earnings before extraordinary gain and the cumulative effect of an accounting change 1.9 2.2 (.3) Extraordinary gain from debt retirements --- .1 (.1) Cumulative effect of an accounting change --- .1 (.1) ---- ---- ---- Net earnings 1.9 2.4 (.5) ==== ==== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) The following table presents the net sales for the Company's principal product groups for the third quarter and nine months ended September 30, 1995 as compared to the third quarter and nine months ended October 1, 1994 and the amount and the percentage change of such results as compared to the prior comparable period. The results of operations for the third quarter and first nine months of 1995 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Third Quarter Ended ---------------------------------------- Sept. 30, Oct. 1, Increase (Decrease) 1995 1994 $ % ---- ---- ----- ----- (000's omitted) Net Sales: Residential Building Products $ 64,518 $ 67,832 $(3,314) (4.9) Air Conditioning and Heating Products 95,707 93,573 2,134 2.3 Plumbing Products 33,342 35,607 (2,265) (6.4) ------- ------- ------ ---- Total $193,567 $197,012 $(3,445) (1.7) ======= ======= ====== ==== Nine Months Ended ---------------------------------------- Sept. 30, Oct. 1, Increase (Decrease) 1995 1994 $ % ---- ---- ----- ----- (000's omitted) Net Sales: Residential Building Products $194,597 $199,271 $(4,674) (2.3) Air Conditioning and Heating Products 277,848 258,082 19,766 7.7 Plumbing Products 100,137 102,401 (2,264 (2.2) ------- ------- ------ ---- Total $572,582 $559,754 $12,828 2.3 ======= ======= ====== ==== Operating Results Net sales decreased approximately $3,450,000, or approximately 1.7%, and increased approximately $12,800,000, or approximately 2.3%, for the third quarter and the first nine months of 1995, respectively, as compared to 1994. The increase in net sales in the first nine months was due principally as a result of increased shipments of new and replacement air conditioning and heating (HVAC) products to manufactured housing customers, increased sales levels of commercial and industrial HVAC products by the Air Conditioning and Heating Products Group, and increased sales volume of residential HVAC products. These increases were partially offset by lower sales levels in the Residential Building Products Group and lower sales volume and prices of vitreous china products in the Plumbing Products Group. The decrease in net sales in the third quarter is due primarily as a result of lower sales levels in the Residential Building Products Group, lower sales volume and prices of vitreous china products in the NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) Plumbing Products Group and a decrease in the sales volume of residential HVAC products. These decreases were partially offset by increased sales to manufactured housing customers and increased sales levels of commercial and industrial HVAC products by the Air Conditioning and Heating Products Group. Cost of products sold as a percentage of net sales increased from approximately 70.5% in the third quarter of 1994 to approximately 74.3% in the third quarter of 1995, and increased from approximately 70.5% in the first nine months of 1994 to approximately 74.1% in the first nine months of 1995 primarily as a result of higher material costs in each of the Company's operating groups in both periods of 1995. Increased direct labor and overhead costs in the Air Conditioning and Heating Products Group also contributed to the increased percentages. To a lesser extent, decreased sales levels (principally in the third quarter) without a proportionate decrease in overhead costs in Plumbing Products was also a factor. The increases in the percentages were partially offset by lower direct labor and overhead costs, in Residential Building Products. Selling, general and administrative expense as a percentage of net sales decreased from approximately 21.7% in the third quarter of 1994 to approximately 20.5% in the third quarter of 1995 and decreased from approximately 22.7% in the first nine months of 1994 to approximately 20.8% in the first nine months of 1995. The decreases in selling, general and administrative expense as a percentage of net sales in the third quarter and first nine months of 1995 were principally due to increased HVAC product net sales, principally to residential and manufactured housing customers, without a proportionate increase in expense. To a lesser extent, decreased expenses in the Plumbing Products Group and lower non- segment expense were also factors. These decreases in the percentage were partially offset by the effect of approximately $3,200,000 of income in 1994 from the settlement of insurance claims and disputes. Segment earnings were approximately $11,700,000 for the third quarter of 1995, as compared to approximately $17,700,000 for the third quarter of 1994, and approximately $35,800,000 for the first nine months of 1995 as compared to approximately $46,900,000 for the first nine months of 1994. The decline in segment earnings for both periods was due principally to increased material costs in each of the Company's operating groups, partially offset by higher earnings from increased sales volume of HVAC products, without a proportionate increase in expense, and lower selling, general and administrative expense (as a percentage of net sales) in the Air Conditioning and Heating Products and Plumbing Products Groups. Approximately $1,600,000 of the decline in segment earnings in the first nine months resulted from the effect of income in the second quarter of 1994 from the settlement of insurance claims and disputes. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) Operating earnings in the third quarter of 1995 decreased approximately $5,200,000, or approximately 34.0%, as compared to the third quarter of 1994 and decreased approximately $9,100,000, or approximately 23.7%, for the first nine months of 1995 as compared to 1994, primarily due to approximately $3,200,000 (including $1,600,000 relating to the Company's operating segments) of income in the second quarter of 1994 from the settlement of insurance claims and disputes and from the factors discussed above. Interest expense decreased approximately $200,000, or approximately 3.3% in the third quarter of 1995, as compared to 1994 and approximately $2,400,000, or approximately 11.9% in the first nine months of 1995, as compared to 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 nine months 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 the first nine months of 1994 was also a factor. (See Note C and E of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) Interest income increased approximately $200,000, or approximately 15.4%, and approximately $1,000,000, or approximately 26.3%, for the third quarter and first nine months of 1995, respectively, as compared to the same periods in 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 $2,700,000 for the third quarter of 1995, as compared to approximately $4,100,000 for the third quarter of 1994 and was approximately $7,400,000 for the first nine months of 1995, as compared to approximately $9,400,000 for 1994. The income tax rates principally differ from the United States federal statutory rate of 35% as a result of state income tax provisions, nondeductible amortization expense (for tax purposes), the effect of foreign income tax on foreign source income and the reversal in the third quarter of 1995 of certain tax valuation reserves no longer required (See Note G of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) The Company recorded an extraordinary loss of approximately $100,000 in the third quarter of 1994 and an extraordinary gain of approximately $200,000 in the first nine months of 1994. The extraordinary loss and gain resulted from the purchase in the open market of the Company's 7 1/2% Convertible debentures. (See Note E of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) The cumulative effect of an accounting change resulted in earnings of approximately $400,000 in the first nine months of 1994 from the adoption of SFAS No. 115. (See Note F of the Notes to Unaudited Condensed Consolidated 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 third quarter and first nine months of 1995, material costs as a percentage of net sales increased by 2.8% and 3.0%, respectively, as compared to the third quarter and first nine months of 1994. The Company has not been able to and there can be no assurance that the Company will be able to sufficiently increase its sales prices in the future. 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 C 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 $98,753,000 at September 30, 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 $15,000,000 U. S. at exchange rates prevailing at September 30, 1995) secured line of credit ("Line of Credit"). 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 $750,000 U. S. at exchange rates prevailing at September 30, 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. At November 3, 1995, borrowings outstanding under the Line of Credit were approximately $13,000,000 Canadian (approximately $9,600,000 U.S. at exchange rates prevailing at November 3, 1995). On October 9, 1995, the Company announced the completion of the purchase of the assets, subject to certain liabilities, of Rangaire Company of Cleburne, Texas ("Rangaire"). Rangaire manufactures and sells kitchen range hoods and lighting fixtures to appliance and original equipment manufacturing customers and electrical distributors. Rangaire also manufactures lighting fixtures for distribution primarily in the Southeastern United States. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) On October 31, 1995, certain wholly owned subsidiaries of the Company completed the acquisition of the capital stock of 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. On November 1, 1995, Broan Ltd., a wholly owned subsidiary of the Company acquired the stock of Venmar Ventilation, Inc. of Canada, along with related entities ("Venmar"). Venmar, a leader in the indoor air quality market in Canada, manufactures continuous ventilation systems and energy recovery ventilators for distribution primarily to Canadian and United States markets. Venmar is headquartered in Drummondville, Quebec, Canada. The aggregate purchase price for these acquisitions was approximately $36,700,000, consisting of cash of approximately $26,000,000 and future payments of approximately $10,700,000 (including approximately $7,500,000 payable in January 1996). Certain of the selling shareholders of these acquisitions are entitled to additional purchase price payments of up to approximately $7,900,000, depending on subsequent operating results of such acquisitions. Approximately $9,600,000 of the cash was borrowed under the terms of the Broan Limited 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. At November 3, 1995, approximately $1,800,000 Canadian (approximately $1,300,000 U. S. at exchange rates prevailing at November 3, 1995), in the aggregate is available to the Company under the Line of Credit. The Company's investment in marketable securities at September 30, 1995 consisted primarily of investments in United States Treasury securities. (See Note F of Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) At September 30, 1995, approximately $9,434,000 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 September 30, 1995, approximately $30,300,000 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. 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 $189,863,000 and approximately 2.3:1, respectively, at September 30, 1995, principally as a result of the factors described below. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) Accounts receivable increased approximately $15,978,000, or approximately 17.4%, between December 31, 1994 and September 30, 1995, while net sales increased approximately 9.1% in the third 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 September 30, 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 $565,000 or approximately .6%, between December 31, 1994 and September 30, 1995. Accounts payable increased approximately $3,954,000 or approximately 7.5% between December 31, 1994 and September 30, 1995. Unrestricted cash and investments increased approximately $2,074,000 from December 31, 1994 to September 30, 1995, principally as a result of cash provided by (used in) the following: Condensed Consolidated Cash Flows ---------- Operating Activities-- Cash flow from operations, net $24,384,000 Increase in accounts receivable, net (15,970,000) Increase in inventories (2,309,000) Increase in trade accounts payable 3,954,000 Change in accrued expenses, taxes, prepaids, other assets, liabilities, and other, net (5,014,000) Investing Activities-- Net cash proceeds relating to businesses sold 1,129,000 Purchase of marketable securities (10,085,000) Proceeds from the sale of marketable securities 20,772,000 Capital expenditures (11,120,000) Financing Activities-- Payment of borrowings (633,000) Purchase of Nortek Common and Special Common Stock (2,849,000) All other, net (185,000) ---------- $ 2,074,000 ========== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 1, 1994 (Continued) The Company's debt-to-equity ratio decreased from approximately 1.9:1 at December 31, 1994 to 1.7:1 at September 30, 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 nine months of 1995. (See Note F 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 September 30, 1995, the Company has approximately $2,000,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. (See Note G 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 evaluates potential acquisitions which would increase or expand the market penetration of, or otherwise complement, its current product lines. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 4.1 Amendment No. 2 dated as of September 27, 1995 to Amended and Restated Rights Agreement dated as of March 18, 1991 (incorporated herein by reference from Exhibit 1 to Form 8-K filed October 12, 1995, File No. 1-6112). 11.1 Calculation of shares used in determining earnings per share (filed herewith). 27. Financial Data Schedule (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 November 13, 1995 - ------------------------------ (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 -------------------------- Sept. 30, Oct 1, 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 16,844,777 16,609,857 Less average common and special common shares held in the Treasury (4,366,666) (4,066,602) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 12,478,111 12,543,255 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 100,658 187,141 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 12,578,769 12,730,396 ========== ========== 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 12,478,111 12,543,255 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 103,421 220,518 Dilutive effect of assuming conversion of the Company's 7.5% Convertible Debentures --- 295,594 ---------- ---------- 12,581,532 13,059,367 ========== ========== NOTE: Earnings per share calculations for 1994 include the effect of convertible debentures (and the reduction in related expense). EXHIBIT 11.1 (Page 2 of 2) NORTEK, INC. AND SUBSIDIARIES CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE For the Nine Months Ended -------------------------- Sept. 30, Oct. 1, 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 16,893,214 16,609,072 Less average common and special common shares held in the Treasury (4,366,666) (4,066,602) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 12,526,548 12,542,470 Dilutive effect of stock options considered common stock equivalents computed under the treasury stock method using the average price during the period 136,733 154,498 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 12,663,281 12,696,968 ========== ========== 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 12,526,548 12,542,470 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 137,654 168,606 Dilutive effect of assuming conversion of the Company's 7.5% Convertible Debentures --- 500,527 ---------- ---------- 12,664,202 13,211,603 ========== ========== Note: Earnings (loss) per share calculations for 1994 include the effect of convertible debentures (and the reduction in related expense). EX-27 3
5 1000 9-MOS DEC-31-1995 SEP-30-1995 88,614 19,573 111,869 4,204 95,913 339,233 194,200 96,575 524,479 149,370 219,583 16,619 0 0 112,231 524,479 572,582 572,582 424,032 424,032 0 0 17,784 18,300 7,400 10,900 0 0 0 10,900 .86 .86
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