-----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, SI3fy8Y1g2oNTKwMdQ5akyjm3WwqaP5t1Jhp17fW1izZSEYQ38Oz+ZLMNWH5eUt3 Y35M44b3Vxgefz1lL/4kLA== 0000072423-96-000013.txt : 19960513 0000072423-96-000013.hdr.sgml : 19960513 ACCESSION NUMBER: 0000072423-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960510 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: 96559836 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 March 30, 1996 --------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- --------------------- Commission File No. 1-6112 -------------------------------------------------------- NORTEK, INC. - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 05-0314991 - --------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Kennedy Plaza, Providence, RI 02903-2360 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (401) 751-1600 - --------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - --------------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ----------- The number of shares of Common Stock outstanding as of April 26, 1996 was 9,506,557. The number of shares of Special Common Stock outstanding as of April 26, 1996 was 484,849. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar Amounts in Thousands) March 30, Dec. 31, 1996 1995 ---- ---- (Unaudited) ASSETS Current Assets: Unrestricted-- Cash and investments at cost which approximates market $ 50,354 $ 60,079 Marketable securities available for sale 30,335 43,234 Restricted-- Cash, investments and marketable securities at cost which approximates market 9,295 9,411 Accounts receivable, less allowances of $4,610 and $4,546 134,079 118,017 Inventories: Raw materials 44,106 42,601 Work in process 14,210 14,319 Finished goods 58,758 53,132 ------- ------- 117,074 110,052 ------- ------- Prepaid expenses and other current assets 15,956 16,927 U. S. Federal prepaid income taxes 19,100 19,100 ------- ------- Total Current Assets 376,193 376,820 ------- ------- Property and Equipment, at cost: Land 6,600 6,508 Buildings and improvements 68,338 69,125 Machinery and equipment 161,133 157,884 ------- ------- 236,071 233,517 Less--Accumulated depreciation 99,559 97,255 ------- ------- Total Property and Equipment, net 136,512 136,262 ------- ------- Other Assets: Goodwill, less accumulated amortiza- tion of $24,717 and $23,978 91,256 91,347 Deferred debt expense 7,342 7,574 Other 12,780 13,476 ------- ------- 111,378 112,397 ------- ------- $624,083 $625,479 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Continued) (Dollar Amounts in Thousands) March 30, Dec. 31, 1996 1995 LIABILITIES AND STOCKHOLDERS' INVESTMENT ---- ---- - ---------------------------------------- (Unaudited) Current Liabilities: Notes payable and other short- term obligations $ 34,837 $ 30,226 Current maturities of long-term debt 11,024 11,824 Accounts payable 84,056 73,047 Accrued expenses and taxes, net 91,291 100,970 ------- ------- Total Current Liabilities 221,208 216,067 ------- ------- Other Liabilities: Deferred income taxes 23,304 27,780 Other 10,478 9,945 ------- ------- 33,782 37,725 ------- ------- Notes, Mortgage Notes and Obligations Payable 243,769 240,396 ------- ------- Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common Stock, $1 par value; authorized 40,000,000 shares, 15,897,466 shares and 15,883,427 shares issued 15,897 15,883 Special Common Stock, $1 par value; authorized 5,000,000 shares, 763,327 shares and 774,366 shares issued 763 774 Additional paid-in capital 134,694 134,690 Retained earnings 18,166 15,766 Cumulative translation, pension and other adjustments (3,070) (2,742) Less - treasury common stock at cost, 5,023,526 shares and 4,306,706 shares (39,396) (31,351) - treasury special common stock at cost, 276,795 shares and 276,784 shares (1,730) (1,729) ------- ------- Total Stockholders' Investment 125,324 131,291 ------- ------- $624,083 $625,479 ======= ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Amounts) For The Three Months Ended ------------------ March 30, April 1, 1996 1995 ---- ---- (Unaudited) Net Sales $220,985 $184,809 ------- ------- Costs and Expenses: Cost of products sold 165,587 135,440 Selling, general and administrative expense 45,410 40,336 ------- ------- 210,997 175,776 ------- ------- Operating earnings 9,988 9,033 Interest expense (7,809) (5,910) Interest income 1,921 1,577 ------- ------- Earnings before provision for income taxes 4,100 4,700 Provision for income taxes 1,700 2,200 ------- ------- Net Earnings $ 2,400 $ 2,500 ======= ======= Net Earnings Per Share: Primary $ .20 $ .20 ======= ======= Fully diluted $ .20 $ .20 ======= ======= Weighted Average Number of Shares: Primary 11,841 12,720 ======= ======= Fully diluted 11,867 12,720 ======= ======= 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 ------------------ March 30, April 1, 1996 1995 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,400 $ 2,500 ------- ------- Adjustments to reconcile net earnings to cash: Depreciation and amortization 5,921 4,873 Deferred federal income tax provision (credit) from continuing operations 600 (300) Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (15,529) (13,570) Prepaids and other current assets 308 1,008 Inventories (6,127) (4,537) Accounts payable 11,026 3,010 Accrued expenses and taxes (14,086) (11,207) Long-term assets, liabilities and other, net (436) 632 ------- ------- Total adjustments to net earnings (18,323) (20,091) ------- ------- Net Cash Used in Operating Activities (15,923) (17,591) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,877) (4,389) Purchase of investments and marketable securities (10,173) (10,085) Proceeds from sale of investments and marketable securities 22,677 26,598 Cash paid relating to a business sold --- (1,745) Other, net (303) --- ------- ------- Net Cash Provided by Investing Activities 9,324 10,379 ------- ------- 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) (Continued) For the Three Months Ended ------------------ March 30, April 1, 1996 1995 ---- ---- (Unaudited) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings 11,632 --- Payment of borrowings (6,530) (108) Purchase of Nortek Common and Special Common Stock (8,235) --- Other, net 7 --- -------- ------- Net Cash Used in Financing Activities (3,126) (108) -------- ------- Net decrease in unrestricted cash and investments (9,725) (7,320) Unrestricted cash and investments at the beginning of the period 60,079 62,575 ------- ------ Unrestricted cash and investments at the end of the period $ 50,354 $55,255 ======= ====== Interest paid $ 13,316 $11,162 ======= ====== Income taxes paid, net $ 3,211 $ 1,312 ======= ====== 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 March 30, 1996 and April 1, 1995 (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, 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) ====== === ======= ====== ====== ======= Balance, December 31, 1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080) 11,039 shares of special common stock converted into 11,039 shares of common stock 11 (11) --- --- --- --- 3,000 shares of common stock issued upon exercise of stock options 3 --- 4 --- --- --- 716,831 shares of treasury stock acquired --- --- --- --- --- (8,046) Translation adjustment --- --- --- --- 75 --- Unrealized decline in the value of marketable securities --- --- --- --- (403) --- Net earnings --- --- --- 2,400 --- --- ------ --- ------- ------ ------ ------ Balance, March 30, 1996 $15,897 $763 $134,694 $18,166 $ (3,070) $(41,126) ====== ====== ======= ======= ====== ======== 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 MARCH 30, 1996 AND APRIL 1, 1995 (A) The unaudited condensed consolidated financial statements presented ("Unaudited Financial Statements") have been prepared by Nortek, Inc. and include all of its wholly-owned subsidiaries (the "Company") after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although, the Company believes that the disclosures included are adequate to make the information presented not misleading. Certain amounts in the Unaudited Financial Statements for the prior periods have been reclassified to conform to the presentation at March 30, 1996. It is suggested that these Unaudited Financial Statements be read in conjunction with the financial statements and the notes included in the Company's latest Annual Report on Form 10-K. (B) Acquisitions are accounted for as purchases and, accordingly, have been included in the Company's consolidated results of operations since the acquisition date. Purchase price allocations are subject to refinement until all pertinent information regarding the acquisitions is obtained. In the fourth quarter of 1995, several of the Company's wholly owned subsidiaries completed the acquisition of the assets, subject to certain liabilities, of Rangaire Company 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") and accounted for these acquisitions under the purchase method of accounting. The following table presents the approximate unaudited pro forma operating results of the Company for the first quarter of 1995 and the year ended December 31, 1995, as adjusted for the pro forma effect of the acquisitions discussed above, assuming that these transactions occurred at January 1, 1995: First Quarter Year Ended Ended April 1, Dec. 31, 1995 1995 ------------- ---------- (Amounts in Thousands except per share amounts) Net sales $216,544 $886,210 Operating earnings 10,399 47,355 Net earnings 2,200 15,100 Fully diluted net earnings per share $ .17 $ 1.20 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 AND APRIL 1, 1995 (Continued) In computing the pro forma results, net earnings have been reduced by net interest income on the aggregate cash portion of the purchase price of such acquisitions at the historical rates earned by the Company and by interest expense on indebtedness incurred in connection with the acquisitions, net of the tax effect. Earnings have also been reduced by amortization of goodwill and reflect net adjustments to depreciation expense, as a result of an increase to estimated fair market value of property and equipment. The pro forma information presented does not purport to be indicative of the results which would have been reported if these transactions had occurred on January 1, 1995, or which may be reported in the future. (C) On January 1, 1996, the Company adopted the accounting requirements of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement also requires that certain long-lived assets and identifiable intangibles that are to be disposed, be reported at the lower of the carrying amount or fair value less cost to sell. The application of SFAS No. 121 did not have a significant impact on the Company's results of operations or financial condition. (D) In December 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Stock-Based Compensation," which became effective for fiscal years beginning after December 15, 1995. SFAS No. 123 requires that employee stock-based compensation be either recorded or disclosed at its fair value. Management will continue to account for stock-based compensation under Accounting Principles Board No. 25 and will not adopt the new accounting provisions for stock-based compensation under SFAS No. 123, but will include the additional required disclosures, as necessary, in the Company's consolidated financial statements for the year ended December 31, 1996. (E) At March 30, 1996 and December 31, 1995, the reduction in the Company's stockholders' investment for gross unrealized losses was approximately $813,000 and $410,000, respectively. At March 30, 1996, there were no gross unrealized gains on the Company's marketable securities. NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 AND APRIL 1, 1995 (Continued) (F) The tax effect of temporary differences which gave rise to significant portions of deferred income tax assets and liabilities as of March 30, 1996 and December 31, 1995 is as follows: March 30, Dec. 31, 1996 1995 ---- ---- (Amounts in Thousands) U. S. Federal Prepaid (Deferred) Income Tax Assets Arising From: Accounts receivable $ 1,418 $ 1,425 Inventory (614) (577) Insurance reserves 6,122 6,036 Other reserves, liabilities and assets, net 12,174 12,216 ------ ------ $19,100 $19,100 ====== ====== Deferred (Prepaid) Income Tax Liabilities Arising From: Property and equipment, net $15,382 $15,233 Prepaid pension assets 1,293 1,323 Insurance reserves (273) (273) Other reserves, liabilities and assets, net 3,786 8,797 Capital loss carryforward (7,260) (7,260) Other, net 250 (1,658) Valuation allowances 10,126 11,618 ------ ------ $23,304 $27,780 ====== ====== At March 30, 1996, the Company has a capital loss carryforward of approximately $20,700,000, of which approximately $17,700,000 expires in the year 1997. The Company has provided a valuation allowance equal to the tax effect of capital loss carryforwards and certain other tax assets, since realization of these tax assets cannot be reasonably assured. At March 30, 1996, the Company has approximately $244,000 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 MARCH 30, 1996 AND APRIL 1, 1995 (Continued) The table below reconciles the federal statutory income tax rate to the effective tax rate from continuing operations of approximately 41.5% and 46.8% in 1996 and 1995, respectively. Three Months Ended ------------------ March 30, April 1, 1996 1995 ---- ---- (Amounts in Thousands) Income tax provision from continuing operations at the Federal statutory rate $1,435 $1,645 Net Change from Statutory Rate: Change in valuation reserve, net (171) 64 State taxes, net of federal tax effect 162 195 Amortization not deductible for tax purposes 246 184 Other nondeductible items 68 (2) Tax effect on foreign income (40) 81 Other, net --- 33 ----- ----- $1,700 $2,200 ===== ===== (G) On April 26, 1996, the Company purchased 1,189,809 shares of its common stock, or approximately 10.6% of its outstanding shares, from three of its directors, who also resigned from the Company's Board of Directors, for approximately $20,200,000. The Company will account for such share purchases as Treasury Stock in the second quarter of 1996. As of April 26, 1996, the Company has purchased 2,276,009 shares of its Common Stock for approximately $32,747,000 in cash in negotiated and open market transactions since the Company authorized a stock purchase program on November 16, 1995. Had these shares been purchased as of January 1, 1995, unaudited pro forma net earnings and fully diluted net earnings per share would have been: Year First Quarter Ended Ended March 30, April 1, Dec. 31, 1996 1995 1995 -------- ------- -------- (Amounts in Thousands except per share amounts) Net Earnings $2,200 $2,200 $13,900 Fully diluted net earnings per share $ .22 $ .21 $ 1.36 (H) At April 26, 1996, approximately $524,902 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 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1996 AND APRIL 1, 1995 (Continued) (I) Net earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each year. (J) On April 1, 1996, the Company extended and amended its shareholder rights plan to March 31, 2006. Under the amended plan, each right previously issued under the plan in effect to date, or subsequently issued under the amended and restated plan, entitles shareholders to buy 1/100 of a share of a new series of preferred stock of Nortek at an exercise price of $72 per share, subject to adjustments for stock dividends, splits and similar events. The rights that are not currently exercisable are attached to each share of Common Stock and may be redeemed by the Directors at $.01 per share at any time. After a shareholder acquires beneficial ownership of 17% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and become exercisable entitling a rights holder to acquire additional shares of the Company's Common Stock having a market value equal to twice the amount of the exercise price of the right. In addition, after a person or group ("Acquiring Company") commences a tender offer or announces an intention to acquire 30% or more of the Company's Common Stock and Special Common Stock, the rights will trade separately and, under certain circumstances, will permit each rights holder to acquire common stock of the Acquiring Company, having a market value equal to twice the amount of the exercise price of the right. (K) The accompanying unaudited condensed consolidated statement of cash flows for the three months ended April 1, 1995 includes approximately $1,745,000 of cash paid relating to a business sold. Significant unaudited non-cash financing and investing activities excluded from the accompanying unaudited condensed consolidated statement of cash flows include a decrease of approximately $403,000 in the first quarter ended March 30, 1996 and an increase of approximately $1,053,000 in the first quarter of 1995 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 March 30, 1996 and April 1, 1995, includes approximately $325,000 and approximately $250,000 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 MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 The Company is a diversified manufacturer of residential and commercial building products, operating within three principal product groups: the Residential Building Products Group; the Air Conditioning and Heating Products Group; and the Plumbing Products Group. Through these product groups, the Company manufactures and sells, primarily in the United States, Canada and Europe, a wide variety of products for the residential and commercial construction, manufactured housing, and the do-it-yourself and professional remodeling and renovation markets. During the fourth quarter of 1995, the Company acquired three businesses, which are included in the Residential Building Products Group, and accounted for these acquisitions under the purchase method of accounting. Accordingly, the results of such acquisitions are included in the Company's consolidated results since the date of acquisition. (See Liquidity and Capital Resources and Note B of the Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) Results of Operations - --------------------- The tables below and on the next page set forth, for the periods presented, (a) certain consolidated operating results, (b) the change in the amount and the percentage change of such results as compared to the prior comparable period, (c) the percentage which such results bears to net sales and (d) the change of such percentages as compared to the prior comparable period. The results of operations for the first quarter ended March 30, 1996 are not necessarily indicative of the results of operations to be expected for any other interim period or the full year. Change in First Quarter Ended First Quarter 1996 ------------------- March 30, April 1, as Compared to 1995 ------------------ 1996 1995 $ % ---- ---- ----- ------ (Dollar amounts in millions) Net sales $221.0 $184.8 36.2 19.6 Cost of products sold 165.6 135.5 (30.1) (22.2) Selling, general and administrative expense 45.4 40.3 (5.1) (12.7) Operating earnings 10.0 9.0 1.0 11.1 Interest expense (7.8) (5.9) (1.9) (32.2) Interest income 1.9 1.6 .3 18.8 Earnings before provision for income taxes 4.1 4.7 (.6) (12.8) Provision for income taxes 1.7 2.2 .5 22.7 ----- ----- ---- ---- Net earnings $ 2.4 $ 2.5 (.1) (4.0) ===== ===== ==== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) Change in Percentage of Net Sales Percentage First Quarter Ended for the First ------------------- March 30, April 1, Quarter 1996 1996 1995 as compared to 1995 ---- ---- ------------------- Net sales 100.0% 100.0% --- Cost of products sold 74.9 73.3 (1.6) Selling, general and administrative expense 20.5 21.8 1.3 Operating earnings 4.6 4.9 (.3) Interest expense (3.5) (3.2) (.3) Interest income .8 .9 (.1) Earnings before provision for income taxes 1.9 2.6 (.7) Provision for income taxes .8 1.2 .4 ---- ---- ---- Net earnings 1.1 1.4 (.3) ==== ==== ==== The following table presents the net sales for the Company's principal product groups for the first quarter ended March 30, 1996 as compared to the first quarter ended April 1, 1995 and the amount and the percentage change of such results as compared to the prior comparable period. The results of operations for the 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 ------------------- March 30, April 1, Increase 1996 1995 $ % ---- ---- ----- ----- (000's omitted) Net Sales: Residential Building Products $100,760 $ 67,690 $33,070 48.9% Air Conditioning and Heating Products 86,237 83,462 2,775 3.3 Plumbing Products 33,988 33,657 331 1.0 ------- ------- ------ ---- Total $220,985 $184,809 $36,176 19.6% ======= ======= ====== ==== NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) Operating Results - ----------------- Net sales increased approximately $36,200,000, or approximately 19.6%, in the first quarter of 1996 as compared to the first quarter of 1995, principally as a result of acquisitions in the fourth quarter of 1995, which contributed approximately $34,400,000 to net sales in the Residential Building Products Group in the first quarter of 1996 and increased sales levels of commercial and industrial air conditioning and heating ("HVAC") products by the Air Conditioning and Heating Products Group. These increases were partially offset by lower sales volume of residential HVAC products. Cost of products sold as a percentage of net sales increased from approximately 73.3% in the first quarter of 1995 to approximately 74.9% in the first quarter of 1996. This increase is due partially to the fourth quarter 1995 acquisitions. These acquisitions are included in the results for the first quarter of 1996 and have a higher level of cost of sales to net sales than the overall group of businesses owned prior to the acquisitions. Excluding these acquisitions, the cost of products sold as a percentage of net sales for the first quarter of 1996 would have been 74.3%. Overall, changes in cost of products sold as a percentage of net sales for one period as compared to another period may reflect the effect of a number of factors, including changes in the relative mix of products sold, the effect of changes in sales prices and the unit cost of products sold and changes in productivity levels. In the first quarter of 1996, the Company experienced lower prices of certain raw materials as compared to prices in effect over the second half of 1995 in most of its product lines. Material cost of sales as a percentage of net sales was approximately 48.1% in the first quarter of 1996 as compared to approximately 47.6% in the first quarter of 1995, approximately 48.9% in the fourth quarter of 1995 and approximately 48.6% for the year 1995. The increase in the percentage in 1996 as compared to the first quarter of 1995 was also affected by increased direct labor and overhead costs in the Plumbing Products Group, partially offset by decreased overhead costs in the Residential Building Products and Air Conditioning and Heating Products Groups. Selling, general and administrative expense as a percentage of net sales decreased from approximately 21.8% in the first quarter of 1995 to approximately 20.5% in the first quarter of 1996. The decrease is due partially to the fourth quarter 1995 acquisitions which have a lower level of selling, general and administrative expense to net sales than the overall group of businesses owned prior to the acquisitions. Excluding these acquisitions, selling, general and administrative expenses as a percentage of net sales for the first quarter of 1996 would have been 21.3%. The decrease in the percentage is also due to a reduction in expense levels in the Residential Building Products Group and lower unallocated expense, partially offset by increased expense levels in the Plumbing Products Group. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) Segment earnings were approximately $12,400,000 for the first quarter of 1996 as compared to approximately $11,500,000 for the first quarter of 1995. Fourth quarter 1995 acquisitions contributed approximately $1,750,000 to segment earnings in the first quarter of 1996. Segment earnings have been reduced by depreciation and amortization expense of approximately $5,500,000 for 1996 and approximately $4,500,000 for 1995. Acquisitions contributed approximately $1,100,000 of the increase in depreciation and amortization expense in 1996. Operating earnings from the 1995 acquisitions have been modest, principally Venmar Ventilation, inc. in Canada, which has been partly affected by the softness in the Canadian economy and partly due to the seasonal nature of Venmar's business cycle, which historically generates substantially all of its annual earnings during the second half of the year. The overall change in segment earnings was also affected by lower earnings in the Plumbing Products Group and lower earnings of products sold in Canada by the Residential Building Products Group, partially offset by increased earnings in the Air Conditioning and Heating Products Group as a result of the factors discussed above. Foreign segment earnings, consisting primarily of the results of operations of the Company's Canadian and European subsidiaries, which manufacture built-in ventilating products, increased to approximately 12.6% of segment earnings in the first quarter of 1996 from approximately 8.3% of such earnings in the first quarter of 1995. This increase was primarily attributable to earnings of the Company's European subsidiaries, which were acquired in the fourth quarter of 1995, offset by a decline in earnings in Canada due to the continued weakness in the residential construction markets. Sales and earnings derived from the international market are subject to the risks of currency fluctuations. Operating earnings in the first quarter of 1996 increased approximately $1,000,000, or approximately 11.1%, as compared to the first quarter of 1995, primarily as a result of the factors discussed above. Interest expense in the first quarter of 1996 increased approximately $1,900,000, or approximately 32.2%, as compared to the first quarter of 1995, primarily as a result of higher borrowings resulting from the 1995 acquisitions including higher short-term working capital borrowings by the Company's European subsidiary. Interest income in the first quarter of 1996 increased approximately $300,000, or approximately 18.8%, as compared to the first quarter of 1995, principally due to higher average invested balances of short-term investments and marketable securities. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) The provision for income taxes was approximately $1,700,000 for the first quarter of 1996, as compared to approximately $2,200,000 for the first quarter of 1995. The income tax rates principally differed from the United States Federal statutory rate of 35%, as a result of state income tax provisions, nondeductible amortization expense (for tax purposes) and the effect of foreign income tax on foreign source income in both periods. (See Note F of the Notes to the Unaudited Financial Statements included elsewhere herein.) Liquidity and Capital Resources - ------------------------------- The Company's primary sources of liquidity in 1996 and 1995 have been funds provided by subsidiary operations and unrestricted short-term investments and marketable securities. Unrestricted cash, investments and marketable securities were approximately $80,689,000 at March 30, 1996 as compared to $103,313,000 at December 31, 1995. The Company's investment in marketable securities at March 30, 1996 consisted primarily of investments in United States Treasury securities. At March 30, 1996, approximately $9,295,000 of the Company's cash and investments were pledged as collateral for insurance and other requirements and were classified as restricted in current assets in the Company's accompanying unaudited condensed consolidated balance sheet. On November 16, 1995, the Company's Board of Directors authorized a program to purchase shares of the Company's Common Stock, subject to market conditions and cash availability. On April 26, 1996, the Company announced the purchase of 1,189,809 shares of its common stock, or approximately 10.6% of its outstanding shares, from three of its directors, who also resigned from the Company's Board of Directors, for approximately $20,200,000. The Company has purchased 2,276,009 shares of its Common Stock for approximately $32,747,000 through April 26, 1996 since November 16, 1995, including a portion that will be recorded as treasury stock in the second quarter of l996. (See below and Note G of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) At April 26, 1996, approximately $524,902 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 MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) The Company's working capital decreased from approximately $160,753,000 to approximately $154,985,000 between December 31, 1995 and March 30, 1996 and the current ratio was approximately 1.7:1 at March 30, 1996 and December 31, 1995, principally as a result of the factors described below. Working capital included approximately $103,313,000 at December 31, 1995 and approximately $80,689,000 at March 30, 1996 of unrestricted cash, investments and marketable securities. Accounts receivable increased approximately $16,062,000, or approximately 13.6%, between December 31, 1995 and March 30, 1996, while net sales increased approximately 8.5% in the first quarter of 1996 as compared to the fourth quarter of 1995. The increase in accounts receivable is principally as a result of increased net sales of new and replacement products by the Air Conditioning and Heating Products Group. The rate of change in accounts receivable in certain periods may be different than the rate of change in sales in such periods principally due to the timing of net sales. Significant increases or decreases in net sales near the end of any period generally result in significant changes in the amount of accounts receivable on the date of the balance sheet at the end of such period, as was the situation on March 30, 1996 as compared to December 31, 1995. The Company has not experienced any significant changes in credit terms, collection efforts, credit utilization or delinquency in accounts receivable in 1995 or 1996. Inventories increased approximately $7,022,000 or approximately 6.4%, between December 31, 1995 and March 30, 1996. Accounts payable increased approximately $11,009,000 or approximately 15.1% between December 31, 1995 and March 30, 1996. NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) Unrestricted cash and investments decreased approximately $9,725,000 from December 31, 1995 to March 30, 1996, principally as a result of the following: Condensed Consolidated Cash Flows ---------- Operating Activities-- Cash flow from operations, net $ 8,921,000 Increase in accounts receivable, net (15,529,000) Increase in inventories (6,127,000) Increase in trade accounts payable 11,026,000 Decrease in accrued expenses and taxes (14,086,000) Investing Activities-- Purchase of marketable securities (10,173,000) Proceeds from the sale of marketable securities 22,677,000 Capital expenditures (2,877,000) Financing Activities-- Increase in borrowings 11,632,000 Payment of borrowings (6,530,000) Purchase of Nortek Common and Special Common Stock (8,235,000) Other, net (424,000) ----------- $ (9,725,000) =========== The Company's debt-to-equity ratio increased from approximately 2.2:1 at December 31, 1995 to 2.3:1 at March 30, 1996, primarily as a result of the effect of the purchase of the Company's Common and Special Common Stock (see Note G of the Notes to the Unaudited Condensed Consolidated Financial Statements) and a net increase in borrowings, partially offset by net earnings for the first quarter of 1996. (See the Company's Unaudited Condensed Consolidated Statement of Stockholders' Investment included elsewhere herein.) At March 30, 1996, the Company has approximately $244,000 of net U. S. Federal prepaid income tax assets which are expected to be realized through future operating earnings. (See Note F of Notes to the Unaudited Condensed Consolidated Financial Statements.) On April 1, 1996, the Company extended and amended its shareholder rights plan to March 31, 2006. Under the amended plan, each right previously issued under the plan in effect to date, or subsequently issued under the amended and restated plan, entitles shareholders to buy 1/100 of a share of a new series of preferred stock of Nortek at an exercise price of $72 per share, subject to adjustments for stock dividends, splits and similar events. (See Note J of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 30, 1996 AND THE FIRST QUARTER ENDED APRIL 1, 1995 (Continued) 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 2. Changes in Securities --------------------- As previously reported, the Company has extended and amended its shareholder rights plan. A copy of the Second Amended and Restated Rights Agreement dated as of April 1, 1996 between the Company and State Street Bank and Trust Company as Rights Agent has been previously filed as an exhibit to the Company's Form 8-K Report filed on April 2, 1996. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 4.1 Second Amended and Restated Rights Agreement dated as of April 1, 1996 between the Company and State Street Bank and Trust Company as Rights Agent (incorporated herein by reference from Exhibit 1 to Form 8-K filed April 2, 1996, 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 May 10, 1996 - ------------------------- (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 -------------------------- March 30, April 1, 1996 1995 ---- ---- Calculation of the number of shares to be used in computing primary earnings per share: Weighted average common and special common shares issued during the period 16,987,686 16,616,532 Less average common and special common shares held in the Treasury (5,300,321) (4,066,688) ---------- ---------- Weighted average number of common and special common shares outstanding during the period 11,687,365 12,549,844 Dilutive effect of stock options computed under the treasury stock method using the average price during the period 153,381 169,763 ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 11,840,746 12,719,607 ========== ========== Calculation of the number of shares to be used in computing fully diluted earnings per share: Weighted average number of common and special common shares outstanding during the period 11,687,365 12,549,844 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 179,666 169,763 ---------- ---------- 11,867,031 12,719,607 ========== ========== EX-27 3
5 1000 3-MOS DEC-31-1996 MAR-30-1996 55,839 34,145 138,689 4,610 117,074 376,193 236,071 99,559 624,083 221,208 243,769 0 0 16,660 108,664 624,083 220,985 220,985 165,587 165,587 0 0 7,809 4,100 1,700 2,400 0 0 0 2,400 .20 .20
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