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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
(Mark One) ------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number: 1-6112
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Nortek, Inc.
(exact name of Registrant as specified in its charter)
Delaware 05-0314991
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
50 Kennedy Plaza 02903-2360
Providence, Rhode Island (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 751-1600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1.00 par value New York Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Special Common Stock, $1.00 par value
Indicate by check mark whether 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. __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 15, 1994 was $88,952,237. See Item 12.
The number of shares of Common Stock outstanding as of March 15, 1994 was
11,981,179. The number of shares of Special Common Stock outstanding as of
March 15, 1994 was 560,768.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for use at its 1994 Annual Meeting
of Shareholders are incorporated by reference into Part III.
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PART I
Item 1. Business.
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. (As used in this report, the term "Company" refers to
Nortek, Inc., together with its subsidiaries, unless the context indicates
otherwise.)
The Company's performance is dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
and non-residential construction, all of which are affected by such factors as
interest rates, inflation and unemployment. In recent periods, the Company's
product groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly new housing starts which
decreased 43.8% between 1986 and 1991. New residential construction has made a
modest recovery since 1991, although housing starts remain significantly below
levels experienced in the mid-1980's. The Company's operations have been
significantly affected by the difficult economic conditions, particularly in
the Northeastern United States and California. However, the actions taken to
reduce production costs and overhead levels and improve the efficiency and
profitability of the Company's operations have enabled the Company to
significantly increase operating earnings in a slow economy, as well as to
position the Company for growth should there be a recovery in the Company's
markets. In the near term, the Company expects to operate in an environment of
relatively stable levels of construction and remodeling activity, without
significant further declines or improvements in such levels.
Additional information concerning the Company's business is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7, Part II of this Report (pages 15 through 27) and
incorporated herein by reference.
Residential Building Products Group
The Residential Building Products Group manufactures and distributes built-
in products primarily for the residential new construction, do-it-yourself and
professional remodeling and renovation markets. The principal
products sold by the Group are kitchen range hoods, bath fans, combination
units (fan, heater and light combinations) and bath cabinets. The Group is one
of the largest suppliers in the United States and Canada of range hoods, bath
fans and combination units. Products are sold under the Broan(R), Nautilus(R)
and Air Care (TM) brand names, among others, to distributors and dealers of
electrical and lighting products, kitchen and bath dealers, retail home centers
and OEMs (original equipment manufacturers). Other products sold by this Group
include, among others, wireless security products, garage door openers, built-
in home intercoms and entertainment systems and door chimes.
Customers for the Group's products include residential and electrical
contractors, professional remodelers and do-it-yourself homeowners. The
Group's products are sold on a wholesale basis through distributors and dealers
of electrical and lighting products, on a retail basis through building supply
centers and to OEMs for inclusion in their product lines.
A key component of the Group's operating strategy is the introduction of
new products which capitalize on the strong Broan (R), Nautilus(R) and Air Care
(TM) brand names and the extensive distribution system of the Group's
businesses. Recent product introductions under these brand names include:
indoor air quality systems for continuous and intermittent home ventilation;
down-draft ventilating systems for cooking ranges; SensAire (R) (humidity and
motion sensing) bath fans; and the Rangemaster(R) line of commercial-style
range hoods for use in the home. Consumer preferences are important in
developing new products and establishing marketing strategies, and the Company
believes that the Group's ability to develop new and improved product styles
and features provides a significant competitive advantage.
With respect to certain product lines, several private label customers
account for a substantial portion of revenues. In 1993, approximately 12.8% of
the total sales of such product lines were made to private label customers.
Production generally consists of fabrication from coil and sheet steel and
formed metal utilizing stamping, pressing and welding methods, assembly with
components and subassemblies purchased from outside sources (motors, fan
blades, heating elements, wiring harnesses, controlling devices, glass mirrors,
lighting fixtures, lumber, wood and polyethylene components, speakers, grilles,
radio receivers and similar electronic components, and record and tape player
mechanisms) and painting and finishing.
The Group offers a broad array of products with various features and
styles across a range of price points. The Company believes that the Group's
variety of product offerings helps the Group maintain and improve its market
position for its principal products. In addition, the popularity of higher
priced, higher margin products tends to decline in difficult economic times,
and thus, the Company believes that the Group's ability to offer low- and mid-
priced products gives it desirable sales diversification. At the same time,
the Company believes that the Group's status as a low-cost producer, in large
part as a result of cost reduction initiatives, provides the Group with a
competitive advantage.
With respect to range hoods, bath fans, combination units and radio
intercoms, the Company believes that the Group's primary competitor is NuTone,
a division of Williams Holdings Companies. The market for bath cabinets is
highly fragmented with no single dominant supplier. The Group's other products
compete with many domestic and international suppliers in their various
markets. The Group competes with suppliers of competitive products primarily
on the basis of quality, distribution, delivery and price. Although the Group
believes it competes favorably with respect to each of these factors,
competition among suppliers of the Group's products is intense and certain of
these suppliers have greater financial and marketing resources than the Group.
The Group has nine manufacturing plants and employed 1,751 full-time
people as of December 31, 1993, 178 of which are covered by collective
bargaining agreements which expire in 1994 and 1996. The Company believes that
the Group's relationships with its employees are satisfactory.
Air Conditioning and Heating Products Group
The Air Conditioning and Heating Products Group manufactures and sells
HVAC systems for custom-designed commercial applications and for manufactured
and site-built residential housing. The Group's commercial products consists
of HVAC and air handler systems which are custom-designed to meet customer
specifications for commercial offices, manufacturing and educational
facilities, hospitals, retail stores and governmental buildings. Such systems
are primarily designed to operate on building rooftops (including large self-
contained walk-in-units) or on individual floors within a building, and range
from 40 to 600 tons of cooling capacity. The Group markets its commercial
products under the Governair(R), Mammoth(R) and Temtrol(TM) brand names. For
manufactured and site-built residential housing, the Group's products include
central air conditioners, heat pumps, furnaces and a wide range of accessories
marketed under the Intertherm(R) and Miller(R) brand names. Residential
central air conditioning products range from 1.5 to 5 tons of cooling capacity
and furnaces range from 45,000 BTU's to 144,000 BTU's of heating capacity. The
Group's residential products also include portable and permanent electric
baseboard heating products.
Commercial Products. The Group's commercial products include packaged rooftop
units and airhandlers, custom walk-in units, individual floor units and heat
pumps. The market for commercial HVAC equipment is segmented between standard
and custom-designed equipment. Standard equipment can be manufactured at a
lower cost and therefore offered at substantially lower initial prices than
custom-designed equipment. As a result, suppliers of standard equipment
generally have a larger share of the overall commercial HVAC market than
suppliers of custom-designed equipment, including the Group. However, because
of certain building designs, shapes or other characteristics, the Company
believes there are many applications for which custom-designed equipment is
required or is more cost effective over the life of the building. Unlike
standard equipment, the Group's commercial HVAC equipment can be designed to
match the exact space, capacity and performance requirements of the customer.
The Group sells its commercial products primarily to contractors, owners and
developers of commercial office buildings, manufacturing and educational
facilities, hospitals, retail stores and government buildings. The Group seeks
to maintain strong relationships nationwide with design engineers, owners and
developers, the persons who are most likely to value the benefits and long-term
cost efficiencies of the Group's custom-designed equipment.
The Company estimates that more than half of the Group's commercial sales
in 1993 were attributable to replacement and retrofit activity, which typically
is less cyclical than new construction activity and generally commands higher
margins. The Group continues to develop product and marketing programs to
increase penetration in the growing replacement and retrofit market.
For many commercial applications, the ability to provide a custom-designed
system is the principal concern of the customer. The Group's packaged rooftop
and self-contained walk-in units maximize a building's rentable floor space
because they are located outside the building. In addition, factors relating
to the manner of construction and timing of installation of commercial HVAC
equipment can often favor custom-designed rather than standard systems. As
compared with site-built HVAC systems, the Group's systems are factory
assembled and then installed, rather than assembled on site, permitting
extensive testing prior to shipment. As a result, the Group's commercial
systems can be installed later in the construction process than site-built
systems, thereby saving the owner or developer construction and labor costs.
The Group's individual floor units offer flexibility in metering and billing, a
substantial advantage if a building is to be occupied in stages or where HVAC
usage varies significantly from floor to floor.
The Group's commercial products are marketed through independently owned
manufacturers' representatives and an in-house sales, marketing and engineering
group of 100 persons as of December 31, 1993. The independent representatives
are typically HVAC engineers, a factor which is significant in marketing the
Group's commercial products because of the design intensive nature of the
market segment in which the Group competes.
The Company believes that the Group is among the largest suppliers of
custom-designed commercial HVAC products in the United States. The Group's
five largest competitors in the commercial HVAC market are Brod & McClung, Inc.
(which sells under the "Pace" tradename), Carrier Corporation, McQuay (a
division of Snyder-General Corporation), Miller-Picking (a division of York
International Corporation) and The Trane Company (a subsidiary of American
Standard Inc.). The Group competes primarily on the basis of engineering
support, quality, flexibility in design and construction and total installed
system cost. Although the Company believes that the Group competes favorably
with respect to certain of these factors, most of the Group's competitors have
greater financial and marketing resources than the Group and enjoy greater
brand awareness. However, the Company believes that the Group's ability to
produce equipment that meets the performance characteristics required by the
particular product application provides it with advantages not enjoyed by
certain of these competitors.
Residential Products. The Group is one of the largest suppliers of air
conditioners, heat pumps and furnaces to the manufactured housing market in the
United States. In addition, the Group manufactures and markets HVAC products
for site-built homes, a business it entered in 1987.
The principal factors affecting the market for the Group's residential
HVAC products are the levels of manufactured housing shipments and housing
starts and the demand for replacement and modernization of existing equipment.
The Company anticipates that the replacement market will continue to expand as
a large number of previously installed heating and cooling products become
outdated or reach the end of their useful lives during the 1990s. This growth
may be accelerated by a tendency among consumers to replace older heating and
cooling products with higher efficiency models prior to the end of such
equipment's useful life. The Company estimates that less than half of the
Group's net sales of residential HVAC products in 1993 were attributable to the
replacement market, which tends to be less cyclical than the new construction
market. The market for residential cooling products, including those sold by
the Group, is affected by spring and summer temperatures. The Group does not
sell window air conditioners, a segment of the market which is highly seasonal
and especially affected by spring and summer temperatures. The Company
believes that the Group's ability to offer both heating and cooling products
helps offset the effects of seasonality of the Group's sales.
The Group sells its manufactured housing products to builders of
manufactured housing and, through distributors, to manufactured housing dealers
and owners of such housing. The majority of sales to builders of manufactured
housing consist of furnaces designed and engineered to meet or exceed certain
standards mandated by federal agencies. These standards differ in several
important respects from the standards for furnaces used in site-built
residential homes. The after market channel of distribution includes sales of
both new and replacement air conditioning units and heat pumps.
A substantial portion of site-built residential products have been
introduced in the last three years, including a reengineered line of high
efficiency air conditioners, heat pumps and furnaces. Residential HVAC
products for use in site-built homes are sold through independently-owned
distributors who sell to HVAC dealers and contractors.
The Group is one of the largest suppliers of HVAC equipment for the
manufactured housing market in the United States. The Company believes that
the Group has one major competitor in this market, Evcon Industries, which
markets its products under the "Evcon/Coleman" name. Competition in the site-
built residential HVAC market is intense, and many suppliers of such equipment
have substantially greater financial and marketing resources than the Group and
enjoy greater brand awareness. In these markets, the Group competes with,
among others, Carrier Corporation, Lennox Industries, Trane Company and York
International Corporation. The Group competes in both the manufactured housing
and site-built markets on the basis of breadth and quality of its product line,
distribution, product availability and price. The Company believes that the
Group competes favorably with respect to these factors.
The Group has eight manufacturing plants and employed 1,660 full-time
people as of December 31, 1993, 201 of which are covered under a collective
bargaining agreement which expires in 1995. The Company believes that the
Group's relationships with its employees are satisfactory.
Plumbing Products Group
The Plumbing Products Group manufactures and sells vitreous china bathroom
fixtures (including sinks, toilet bowls and tanks), fiberglass and acrylic
fixtures, brass, including die cast, and plastic faucets, bath cabinets and
vanities and shower doors, and also markets stainless steel and enameled steel
tubs and sinks. In addition to its standard product offerings, the Group also
sells designer bathroom fixtures, 1.5 gallon water-efficient toilets and a
variety of products that are accessible to physically challenged individuals.
Products are sold under the URC(TM), Universal-Rundle(R), CareFree(R),
Milwaukee Faucets(TM) and Raphael(R) brand names principally to wholesale
plumbing distributors and retail home centers. End customers of the Group's
products are generally home builders, do-it-yourself homeowners, remodeling
contractors and commercial builders.
The Group sells its products to distributors and home centers through
independently owned manufacturer's representatives supported by 67 sales and
marketing personnel employed by the Group as of December 31, 1993.
The Group competes with many suppliers of plumbing and related products,
several of which have greater financial and marketing resources than the Group
and greater brand awareness. The Group's competitors include American Standard
Inc., Eljer Industries and Kohler Company. The Group competes primarily on the
basis of price, quality, service and breadth of product line offerings. The
Group believes it competes favorably by offering quality products at a
reasonable price and by developing products using new technologies.
The Plumbing Products Group has eight manufacturing facilities and
employed 1,321 full-time people as of December 31, 1993, approximately 980 of
whom are covered by collective bargaining agreements which expire between 1994
and 1997. The Company believes that the Group's relationships with its
employees are satisfactory.
Business Held for Sale
In October 1993, the Company decided to sell its Dixieline Lumber Company
subsidiary ("Dixieline") through which the Company conducts its Retail Home
Center Operations. This business consists of a chain of ten retail home center
stores, a contractor and wholesale lumberyard and a truss manufacturing yard in
the greater San Diego, California area. Dixieline provides a wide assortment
of lumber, plywood, building materials and home improvement products serving
the new residential construction and residential replacement and remodeling
markets, and also provides delivery and lumber cutting and milling services.
The contractor and wholesale lumberyard sells lumber, plywood and building
materials to professional contractors and wholesalers, and supplies such
products for sale in its own retail home center stores. The Company reduced
its investment in this business to estimated net realizable value and recorded
a pre-tax valuation reserve of $20.3 million in the third quarter of 1993. The
Company currently intends to operate this business until a sale is consummated.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7 of Part II of this report and Note 9, Notes to Consolidated
Financial Statements, Item 8 of Part II of this report, incorporated herein by
reference.
Dixieline competes primarily with Home Base and Home Depot. Certain of
its competitors have greater financial and marketing resources than Dixieline.
Dixieline competes primarily on the basis of price, product availability and
the knowledge of its sales staff. The Company believes Dixieline competes
favorably with respect to these factors.
Dixieline employed 687 full-time people as of December 31, 1993, 153 of
whom are covered by collective bargaining agreements which expire in 1995. The
Company believes that Dixieline's relationships with its employees are
satisfactory.
GENERAL CONSIDERATIONS
Employees
The Company employed approximately 5,640 persons at December 31, 1993.
Backlog
Backlog expected to be filled during 1994 was approximately $95,839,000,
at December 31, 1993 ($80,181,000 at December 31, 1992). Backlog is not
regarded as a significant factor for operations where orders are generally for
prompt delivery. While backlog stated for December 31, 1993 is believed to be
firm, the possibility of cancellations makes it difficult to assess the
firmness of backlog with certainty.
Research and Development
The Company's research and development activities are principally new
product development and do not involve significant expenditures.
Patents and Trademarks
The Company holds numerous design and process patents that it considers
important, but no single patent is material to the overall conduct of its
business. It is the Company's policy to obtain and protect patents whenever
such action would be beneficial to the Company. The Company owns several
trademarks that it considers material to the marketing of its products,
including Broan(R), Nautilus(R), Air Care(TM), Governair(R), Mammoth(R),
Temtrol(TM), Miller(R), Intertherm(R), URC(TM) and Universal-Rundle(R). The
Company believes that its rights in these trademarks are adequately protected.
Raw Materials
The company purchases raw materials and most components used in its
various manufacturing processes. The principal raw materials purchased by the
Company are rolled sheet, formed and galvanized steel, copper, aluminum, plate
mirror glass, silica, lumber, plywood, paints, chemicals, resins and plastics.
The materials, molds and dies, subassemblies and components purchased from
other manufacturers, and other materials and supplies used in manufacturing
processes have generally been available from a variety of sources. Whenever
practical, the Company establishes multiple sources for the purchase of raw
materials and components to achieve competitive pricing, ensure flexibility and
protect against supply disruption.
Working Capital
The carrying of inventories to support distributors and to permit prompt
delivery of finished goods requires substantial working capital. Substantial
working capital is also required to carry receivables. See "Liquidity and
Capital Resources" in Management's Discussion and Analysis of Financial
Condition and Results of Operations, beginning on Page 23 of this report,
incorporated herein by reference.
Executive Officers of the Registrant
Name Age Position
Richard L. Bready 49 Chairman, President and
Chief Executive Officer
Almon C. Hall 47 Vice President, Controller
and Chief Accounting Officer
Richard J. Harris 57 Vice President and Treasurer
Siegfried Molnar 53 Senior Vice President -
Group Operations
Kenneth J. Ortman 58 Senior Vice President -
Group Operations
Kevin W. Donnelly 39 Vice President, General Counsel
and Secretary
The executive officers have served in the same or substantially similar
executive positions with the Company for at least the past five years, except
Mr. Bready, who became Chairman and Chief Executive Officer in 1990 after
serving as President, Chief Operating and Chief Financial Officer of the
Company for more than the past five years; Mr. Molnar, who was President and
Chief Operating Officer (1987-1990) of RB&W Corporation prior to joining the
Company in March, 1990; and Mr. Ortman, who was Vice President, Operations and
later Senior Vice President and General Manager of the Supply Division of the
Wheelabrator Corporation division of Wheelabrator Technologies (1984-1988)
prior to joining the Company in September, 1989.
Executive Officers are elected annually by the Board of Directors of the
Company and serve until their successors are chosen and qualified. Mr. Bready
has an employment agreement with the Company providing for his employment as
Chief Executive Officer through 1998. The Company's executive officers include
only those officers of the Company who perform policy-making functions for the
Company as a whole and have managerial responsibility for major aspects of the
Company's overall operations. A number of other individuals who serve as
officers of the Company or its subsidiaries perform policy-making functions and
have managerial responsibilities for the subsidiary or division by which they
are employed, although not for the Company overall. Certain of these
individuals could, depending on earnings of such unit, be more highly
compensated than some executive officers of the Company.
Item 2. Properties
Set forth below is a brief description of the location and general
character of the principal administrative, sales and manufacturing facilities
and other material real properties of the Company. All properties are owned,
except for those indicated by an asterisk, which are leased.
Approximate
Location Description Square Feet
Union, IL Manufacturing/Warehouse/Administrative 174,000*
Hartford, WI Manufacturing/Warehouse/Administrative 402,000
Old Forge, PA Warehouse/Administrative 40,000
Bensenville, IL Warehouse/Administrative 69,000*
Mississauga, ONT Manufacturing/Administrative 108,000
Elk Grove Village, IL Manufacturing/Warehouse/Administrative 106,000*
Dallas, TX Manufacturing/Administrative 71,000
Carlsbad, CA Warehouse/Administrative 46,000*
Hong Kong Manufacturing 30,000*
Waupaca, WI Manufacturing 35,000
St. Peters, MO Warehouse/Administrative 250,000*
St. Louis, MO Manufacturing 214,000
Boonville, MO Manufacturing 250,000*
Minneapolis, MN Manufacturing 200,000*
Oklahoma City, OK Manufacturing/Administrative 117,000
Okarche, OK Manufacturing/Administrative 107,000
Los Angeles, CA Manufacturing/Administrative 177,000
San Diego, CA(1) Retail/Warehouse/Administrative 180,000*
New Castle, PA Manufacturing/Administrative 420,000
Hondo, TX Manufacturing/Administrative 404,000
Monroe, GA Manufacturing/Administrative 414,000
Union Point, GA Manufacturing/Administrative 191,000
Ottumwa, IA Manufacturing/Administrative 85,000
Milwaukee, WI Manufacturing/Administrative 76,000
Rensselaer, IN Manufacturing/Administrative 271,000
Chicago, IL Manufacturing/Sales/Administrative 100,000
Providence, RI Administrative 31,000*
_______________
(1) In addition, Dixieline owns or leases nine other retail locations
containing between 13,000 and 56,000 square feet, plus warehouse and
outdoor storage space for a total of approximately 3,770,000 square feet.
The Company considers its material properties to be in satisfactory
repair. The St. Louis plant, which is part of the Company's Air Conditioning
and Heating Products Group and manufactures products for the residential site-
built and manufactured housing markets, experienced damage as a result of the
flooding of the Mississippi River in July 1993. The plant was closed for
several weeks, but returned to full operation in late August 1993. The Company
believes that it has adequate insurance coverage and does not expect this event
to have a material adverse effect on the Company's financial condition or
results of operations. See Note 7, Notes to Consolidated Financial
Statements, Item 8 of Part II of this report, incorporated herein by reference.
Item 3. Legal Proceedings.
The Company and its operating units are subject to numerous federal, state
and local laws and regulations, including environmental laws and regulations
that impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company believes that it is in substantial compliance
with the material laws and regulations applicable to it. The Company and its
subsidiaries or former subsidiaries are involved in current, and may become
involved in future, remedial actions under federal and state environmental laws
and regulations which impose liability on companies to clean up, or contribute
to the cost of cleaning up, sites at which their hazardous wastes or materials
were disposed of or released. Such claims may relate to properties or business
lines acquired by the Company after a release has occurred. In other
instances, the Company may be partially liable under law or contract to other
parties that have acquired businesses or assets from the Company for past
practices relating to hazardous substances management. The Company believes
that all such claims asserted against it, or such obligations incurred by it,
will not have a material adverse effect upon the Company's financial condition
or results of operations. Expenditures in 1992 and 1993 to evaluate and
remediate such sites were not material. However, the Company is presently
unable to estimate accurately its ultimate financial exposure in connection
with identified or yet to be identified remedial actions due among other
reasons to: (i) uncertainties surrounding the nature and application of
environmental regulations, (ii) the Company's lack of information about
additional sites at which it may be listed as a potentially responsible party
("PRP"), (iii) the level of clean-up that may be required at specific sites and
choices concerning the technologies to be applied in corrective actions and
(iv) the time periods over which remediation may occur. Furthermore, since
liability for site remediation is joint and several, each PRP is potentially
wholly liable for other PRPs that become insolvent or bankrupt. Thus, the
solvency of other PRPs could directly affect the Company's ultimate aggregate
clean-up costs. In certain circumstances, the Company's liability for clean-up
costs may be covered in whole or in part by insurance or indemnification
obligations of third parties.
In addition to the legal matters described above, the Company and its
subsidiaries are parties to various legal proceedings incident to the conduct
of their businesses. None of these proceedings is expected to have a material
adverse effect, either individually or in the aggregate, on the Company's
financial position or results of operations. See Note 7, Notes to Consolidated
Financial Statements, Item 8 of Part II of this report, incorporated herein by
reference.
Item 4. Submission of Matters of a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders Matters.
Stockholders of record of Nortek Common and Special Common Stock at March
15, 1994, numbered approximately 4,542 and 3,392, respectively. There were no
dividends declared on the Common and Special Common in 1992 or 1993. The high
and low sales prices of Nortek's Common Stock traded on the New York Stock
Exchange in each quarter of 1993 and 1992 were:
1993
Quarter High Low
First 6 1/8 4 7/8
Second 5 1/2 4 3/4
Third 6 4 3/8
Fourth 9 6
1992
Quarter High Low
First 5 3/4 1 5/8
Second 7 3/8 4 1/2
Third 6 1/8 4 3/8
Fourth 5 1/2 3 3/4
See Note 5, Notes to Consolidated Financial Statements, Page F-18 of this
report.
Item 6. Consolidated Selected Financial Data
Nortek, Inc. and Subsidiaries
For the Five Years Ended December 31, 1993
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In Thousands Except Per Share Amounts)
Consolidated Summary of
Operations:
Net sales $744,113 $799,979 $917,049 $1,037,239 $1,080,225
Operating earnings (loss) 30,346 20,436 11,015 (16,512) 981
Pre-tax loss on businesses
sold or held for sale (20,300) (14,500) (15,200) --- ---
Loss from continuing
operations (12,600) (21,000) (34,700) (41,400) (42,500)
Earnings (loss) from dis-
continued operations --- (3,300) --- (6,600) 14,000
Extraordinary gain (loss)
from debt retirements (6,100) 100 7,600 9,900 16,000
Cumulative effect of an
accounting change (2,100) --- --- --- ---
Net loss (20,800) (24,200) (27,100) (38,100) (12,500)
Financial Position:
Unrestricted cash, invest-
ments and marketable
securities $ 82,498 $ 73,748 $ 42,919 $ 61,098 $160,202
Working capital 117,926 132,587 139,657 176,742 322,419
Total assets 509,209 515,373 582,372 715,427 856,765
Total Debt--
Current 37,539 6,810 4,875 68,483 33,052
Long-term 178,210 201,863 232,581 284,323 400,825
Current ratio 1.6:1 1.9:1 1.9:1 1.9:1 2.8:1
Debt to equity ratio 2.1:1 1.6:1 1.6:1 2.0:1 2.0:1
Depreciation and amortiza-
tion 20,726 23,644 28,373 31,050 33,273
Capital expenditures 10,809 8,804 16,015 24,523 35,303
Stockholders' investment 104,007 126,906 152,929 180,743 218,031
Common and Special Common
shares outstanding 12,542 12,526 13,079 13,512 13,928
Per Share:
Loss from continuing operations--
Primary $ (1.00) $ (1.67) $ (2.57) $ (3.07) $ (3.10)
Fully diluted (1.00) (1.67) (2.57) (3.07) (3.10)
Net loss--
Primary (1.66) (1.92) (2.01) (2.83) (.91)
Fully diluted (1.66) (1.92) (2.01) (2.83) (.91)
Cash dividends--
Common --- --- --- .10 .10
Special Common --- --- --- .04 .04
Stockholders' investment 8.29 10.13 11.69 13.38 15.65
See Notes 7 to 12 and Note 14 of the Notes to Consolidated Financial
Statements, Pages F-21 to F-25 and F-26, respectively, of this report and Item
7 of Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 15, regarding the effect on operating results of businesses
sold and other matters.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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.
In October 1993, the Company made the strategic decision to sell its Retail
Home Center Operations ("Dixieline") to increase the Company's focus on its
other building products businesses. Although the Company currently intends to
operate this business until a sale is consummated, for the purposes of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the results of operations attributable to Dixieline have been
excluded from all data that is reported as being from ongoing operations,
including net sales, cost of products sold, selling, general and administrative
expense and segment earnings. Total consolidated operating results of the
Company, however, include the operating results of Dixieline through October 2,
1993, the date that such business was accounted for as a business held for
sale. (See Notes 1 and 9 of the Notes to Consolidated Financial Statements.)
Results of Operations
The following tables set forth, for the three years ended December 31, 1993,
(a) certain consolidated operating results, (b) the percentage change of
certain such results as compared to the prior year, (c) the percentage which
certain of such results bears to net sales and (d) the change of certain of
such percentages (to net sales) as compared to the prior year:
Percentage
Change
------
Year Ended December 31, 1992 1991
----------------------- to to
1993 1992 1991 1993 1992
-------- ---- ---- ----
(Amounts in Millions)
Net sales $744.1 $800.0 $917.0 (7.0) (12.8)%
Cost of products sold 532.5 595.2 693.1 10.5 14.1
Selling, general and admini-
strative expense 181.3 184.4 212.9 1.7 13.4
Operating earnings 30.3 20.4 11.0 48.5 85.5
Interest expense (26.5) (29.2) (39.2) 9.3 25.5
Interest and dividend income 3.2 4.4 8.8 (27.3) (50.0)
Net gain on investment and
marketable securities 1.7 0.9 0.4 88.9 125.0
Settlement of litigation --- --- (11.5) --- 100.0
Loss on businesses sold or held
for sale (20.3) (14.5) (15.2) (40.0) 4.6
Loss from continuing operations
before provision (credit) for
income taxes (11.6) (18.0) (45.7) 35.6 60.6
Provision (credit) for
income taxes 1.0 3.0 (11.0) 66.7 (127.3)
Loss from continuing operations (12.6) (21.0) (34.7) 40.0 39.5
Loss from discontinued
operations --- (3.3) --- 100.0 ---
Extraordinary gain (loss) from
debt retirements (6.1) 0.1 7.6 --- (98.7)
Cumulative effect of an account-
ing change (2.1) --- --- --- ---
Net loss (20.8) (24.2) (27.1) 14.1 10.7
Change in
Percentage
----------
Percentage of Net Sales 1992 1991
Year Ended December 31, to to
-----------------------
1993 1992 1991 1993 1992
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% --- ---
Cost of products sold 71.5 74.4 75.6 2.9 1.2
Selling, general and admini-
strative expense 24.4 23.0 23.2 (1.4) 0.2
Operating earnings 4.1 2.6 1.2 1.5 1.4
Interest expense (3.6) (3.7) (4.3) .1 0.6
Interest and dividend income .4 .6 1.0 (.2) (0.4)
Net gain on investment and
marketable securities .2 --- --- .2 ---
Settlement of litigation --- --- (1.3) --- 1.3
Loss on businesses sold (2.7) (1.8) (1.6) (.9) (0.2)
Loss from continuing opera-
tions before provision
(credit) for income taxes (1.6) (2.3) (5.0) .7 2.7
Provision (credit) for
income taxes .1 0.3 (1.2) .2 (1.5)
Loss from continuing opera-
tions (1.7) (2.6) (3.8) .9 1.2
Loss from discontinued
operations --- (0.4) --- .4 (0.4)
Extraordinary gain (loss)
from debt retirements (.8) --- 0.8 (.8) (0.8)
Cumulative effect of an
accounting change (.3) --- --- (.3) ---
Net loss (2.8) (3.0) (3.0) .2 ---
The following table presents the net sales for the Company's principal product
groups for the three years ended December 31, 1993, and the percentage change
of such results as compared to the prior year.
Percentage
Change
--------
1992 1991
Year Ended December 31, to to
-----------------------
1993 1992 1991 1993 1992
---- ---- ---- ---- ----
Net Sales:
Residential Building
Products $257.2 $249.2 $241.5 3.2% 3.2%
Air Conditioning and
Heating Products 275.6 237.0 221.1 16.3 7.2
Plumbing Products 128.1 126.1 112.7 1.6 11.9
----- ----- ----- ----- -----
Net Sales from Ongoing
Operations 660.9 612.3 575.3 7.9 6.4
Businesses Sold or Held
for Sale and Other 83.2 187.7 341.7 (55.7) (45.1)
----- ----- ----- ----- -----
Total $744.1 $800.0 $917.0 (7.0)% (12.8)%
===== ===== ===== ===== =====
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
Net sales from ongoing operations increased approximately $48,598,000, or
approximately 7.9%, in 1993 as compared to 1992. Total net sales decreased
approximately $55,866,000, or approximately 7.0%, in 1993 as compared to 1992
as a result of businesses sold in 1992 and the effect of Dixieline, partially
offset by the following factors. Net sales from ongoing operations increased
principally as a result of increased sales volume of residential air
conditioning and heating products (in part, as a result of the addition of
certain distributors) and increased shipments of new and replacement air
conditioning and heating products to manufactured housing customers by the Air
Conditioning and Heating Products Group. To a lesser extent, increased sales
levels in the Residential Building Products Group and increased sales levels of
bathroom fixtures (principally vitreous china products) by the Plumbing
Products Group were also a factor.
Cost of products sold from ongoing operations as a percentage of net sales from
ongoing operations decreased from approximately 72.5% in 1992 to approximately
71.1% in 1993. Total cost of products sold as a percentage of total net sales
decreased from approximately 74.4% in 1992 to approximately 71.5% in 1993 as a
result of the effect of businesses sold in 1992, which was partially offset by
the effect of increases in cost of products sold as a percentage of net sales
at Dixieline and the following factors. The decrease in cost of products sold
from ongoing operations as a percentage of net sales from ongoing operations
primarily was attributable to increased sales levels and a reduction in cost in
the Plumbing Products Group, and to a lesser extent, increased sales in the
Residential Building Products Group and the Air Conditioning and Heating
Products Group, in both cases, without a proportionate increase in costs. The
improvement in cost levels was due, in part, to the Company's ongoing cost
control efforts.
Selling, general and administrative expense from ongoing operations, as a
percentage of net sales from ongoing operations increased from approximately
23.3% in 1992 to approximately 24.3% in 1993. Total selling, general and
administrative expense, as a percentage of total net sales increased from
approximately 23.0% in 1992 to approximately 24.4% in 1993 as a result of the
factors described below and the effect of businesses sold in 1992, which sold
businesses operated at lower expense levels than the Company's other product
groups, partially offset by lower expense levels at Dixieline. The increase in
the percentage of net sales from ongoing operations in 1993 was principally due
to the effect of a pre-tax loss in the fourth quarter of 1993 of approximately
$2,800,000 in connection with the curtailment of certain product lines by the
Company's Plumbing Products Group and the effect of pre-tax losses in the third
quarter of 1993 of approximately $1,600,000 as a result of the sale in October
1993 of certain real property and approximately $700,000 in connection with the
consolidation of certain manufacturing facilities by the Company's Residential
Building Products Group. The increase in the percentage of net sales from
ongoing operations was partially offset by the effect of increased sales volume
of residential and manufactured housing air conditioning and heating products
by the Air Conditioning and Heating Products Group, without proportionate
increases in expense.
Segment earnings from ongoing operations were approximately $47,200,000 for
1993 as compared to approximately $38,100,000 for 1992. Total segment earnings
were approximately $46,900,000 for 1993, as compared to approximately
$32,700,000 for 1992 as a result of the effect of changes in the operating
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
(Continued)
results of Dixieline and a business sold in 1992 and the following factors.
Total segment earnings are operating earnings (loss) plus corporate and other
expenses not directly attributable to the Company's operating activities. The
increase in segment earnings from ongoing operations principally was due to the
increased sales level and reduced costs in the Plumbing Products Group, in
part, due to the Company's ongoing cost control efforts, and increased sales
volume of residential and manufactured housing air conditioning and heating
products by the Air Conditioning and Heating Products Group and increased sales
level in the Residential Building Products Group, without a proportionate
increase in cost and expense. The increase in segment earnings from ongoing
operations was partially offset by the effect of a pre-tax loss in the fourth
quarter of 1993 of approximately $2,800,000 and the effect of pre-tax losses in
the third quarter 1993 of approximately $1,600,000 and $700,000 described
above.
Foreign segment earnings, consisting primarily of the results of operations of
the Company's Canadian subsidiary which manufactures built-in ventilating
products, declined to approximately 11% of segment earnings from ongoing
operations in 1993 from approximately 16% of such earnings in 1992. This
decline was primarily due to an approximately 30% increase in domestic segment
earnings from ongoing operations in 1993, as well as an approximate 11%
decrease in foreign segment earnings in 1993. The decrease in foreign segment
earnings was primarily the result of the continued weakness in the residential
construction market in Canada.
Dixieline's operating loss decreased by approximately $700,000 to a loss of
approximately $300,000 in 1993. Net sales of Dixieline were approximately
$83,200,000 in 1993 and approximately $94,800,000 in 1992. Total consolidated
operating results of the Company include the operating results of Dixieline
through October 2, 1993. Weakness in the San Diego area residential
construction market and increased competition continued to affect Dixieline's
results adversely.
Operating earnings in 1993 increased approximately $9,900,000, or approximately
48.5%, as compared to 1992, primarily as a result of the factors discussed
above and include the effect of the results of Dixieline and a business sold in
1992.
Interest expense in 1993 decreased approximately $2,700,000, or approximately
9.3%, as compared to 1992, primarily as a result of purchases, at a discount,
in open market and negotiated transactions of the Company's debentures and
notes in 1992 and the payment of current maturities of long-term debt.
Interest income in 1993 decreased approximately $1,200,000, or approximately
27.3%, as compared to 1992, principally due to lower average invested balances
of short-term investments, marketable securities and other investments (in
part, due to a reduction in indebtedness), and lower yields earned on
investment and marketable securities.
The net gain on investment and marketable securities was approximately
$1,650,000 for 1993, as compared to approximately $850,000 for 1992.
Year Ended December 31, 1993 as Compared to the Year Ended December 31, 1992
(Continued)
The pre-tax loss on businesses sold or held for sale of approximately
$20,300,000 in 1993 and approximately $14,500,000 in 1992 resulted in the
approximately $11,600,000 loss before provision for income taxes in 1993 and
was the primary reason for the approximately $18,000,000 loss before provision
for income taxes in 1992. The pre-tax loss on businesses sold or held for sale
in 1993 resulted from the Company's decision to sell Dixieline and therefore to
reduce the Company's net investment in such business to estimated net
realizable value. (See Notes 1 and 9 of Notes to Consolidated Financial
Statements.)
The provision for income taxes was approximately $1,000,000 for 1993, as
compared to approximately $3,000,000 for 1992. The provision for income taxes
as a percentage of the pre-tax loss from continuing operations was
approximately 8.6% in 1993 as compared to approximately 16.7% in 1992. The
income tax rates differed from the United States federal statutory rate of 35%
in 1993 and 34% in 1992 as a result of the effect of an increase in income tax
valuation reserves in 1993 and higher foreign income tax on foreign source
income, a limited amount of state income tax benefits recorded, and
nondeductible amortization expense (for tax purposes) in both years, and, in
1992, as a result of certain nondeductible costs associated with a business
sold and unrecorded income tax credits relating to capital loss carryforwards
since the income tax benefits attributable thereto may not be realized. (See
Note 3 of the Notes to Consolidated Financial Statements.)
An extraordinary loss of approximately $6,100,000 in 1993 compared to an
approximate $100,000 gain in 1992. The loss in 1993 resulted primarily from
the call for redemption on February 22, 1994 of certain of the Company's
various Notes and Debentures in connection with the financing described in Note
4 of Notes to Consolidated Financial Statements.
The charge to operations in 1993 from the cumulative effect of an accounting
change of approximately $2,100,000 resulted from the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 106. (See Note 6 of Notes to
Consolidated Financial Statements.)
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
Net sales from ongoing operations increased approximately $36,982,000, or
approximately 6.4%, in 1992 as compared to 1991. Total net sales decreased
approximately $117,070,000, or approximately 12.8%, in 1992 as compared to 1991
due to the effect of businesses sold in 1991 and 1992 partially offset by the
following factors. Net sales from ongoing operations increased principally as
a result of increased sales volume of residential air conditioning and heating
products by the Air Conditioning and Heating Products Group and increased sales
prices and sales volume of bathroom fixtures by the Plumbing Products Group.
To a lesser extent, increased sales levels in the Residential Building Products
Group were also a factor.
Cost of products sold from ongoing operations as a percentage of net sales from
ongoing operations decreased slightly from approximately 72.7% in 1991 to
approximately 72.5% in 1992. Total cost of products sold as a percentage of
total net sales decreased from approximately 75.6% in 1991 to approximately
74.4% in 1992. This differential is attributable to the fact that the
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
businesses sold by the Company during this period operated at higher cost
levels than the Company's other product groups. The decrease in cost of
products sold from ongoing operations as a percentage of net sales from ongoing
operations in 1992 was primarily attributable to increased sales levels of
residential air conditioning and heating products by the Air Conditioning and
Heating Products Group, and increased sales levels by the Plumbing Products and
Residential Building Products Groups, in each case without a proportionate
increase in cost. This decrease in the percentage was partially offset by
increased costs on slightly lower sales in commercial and industrial air
conditioning and heating products by the Air Conditioning and Heating Products
Group.
Selling, general and administrative expense from ongoing operations as a
percentage of net sales from ongoing operations decreased from approximately
24.7% in 1991 to approximately 23.3% in 1992. Total selling, general and
administrative expense as a percentage of total net sales decreased from
approximately 23.2% in 1991 to approximately 23.0% in 1992. This differential
is attributable to the fact that the businesses sold by the Company during this
period operated at lower expense levels than the Company's other product
groups. The decrease in selling, general and administrative expense from
ongoing operations as a percentage of net sales from ongoing operations in 1992
was principally due to increased sales of bathroom fixtures by the Plumbing
Products Group, without a proportionate increase in expense. A reduction in
the level of expense in the Residential Building Products Group also
contributed to the decrease in the percentage. Net settlements of litigation
and related expenses of approximately $700,000 in 1992 as compared to
approximately $2,300,000 in 1991 were also factors.
Segment earnings from ongoing operations were approximately $38,100,000 for
1992 and approximately $27,800,000 for 1991. Total segment earnings were
approximately $32,700,000 for 1992 as compared to approximately $23,800,000 in
1991. The increase in total segment earnings is primarily a result of the
factors that follow partially offset by the effect of businesses sold. The
increase in segment earnings from ongoing operations was due principally to
reduced expense levels in the Residential Building Products Group and increased
sales levels of residential air conditioning and heating products by the Air
Conditioning and Heating Products Group. To a lesser extent, increased sales
levels of plumbing products by the Plumbing Products Group contributed to the
increase in segment earnings from ongoing operations. A decline in 1992 in the
amount of net settlements of litigation and related expenses was also a factor
in the increase in segment earnings from ongoing operations in 1992. These
increases in segment earnings from ongoing operations were partially offset by
slightly lower earnings attributable to commercial and industrial air
conditioning and heating products by the Air Conditioning and Heating Products
Group resulting from a slight decrease in net sales of such products, without a
proportionate decrease in costs.
Foreign segment earnings declined to approximately 16% of total segment
earnings from ongoing operations in 1992 from approximately 30% of such
earnings in 1991. This decline was primarily due to an approximate 64%
increase in domestic segment earnings from ongoing operations in 1992, as well
as an approximate 27% decrease in foreign segment earnings in 1992. The
decrease in foreign segment earnings was due primarily to a sales decrease in
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
the Company's Canadian operations resulting from weakness in the residential
construction market in Canada.
The operating loss from Dixieline increased by approximately $500,000 to a loss
of $1,100,000 in 1992. The increased loss resulted primarily from a decline in
net sales of approximately $9,700,000, or approximately 9.3%, to approximately
$94,800,000 in 1992 from approximately $104,500,000 in 1991. Weakness in the
San Diego area residential construction market and increased competition were
primarily responsible for the lower sales and increased loss.
Operating earnings in 1992 increased approximately $9,400,000, or approximately
85.5%, as compared to 1991, primarily as a result of the factors discussed
above for segment earnings from ongoing operations, partially offset by an
increase in the operating loss of businesses sold to the date of sale. Lower
unallocated corporate expenses were also a factor.
Interest expense in 1992 decreased approximately $10,000,000, or approximately
25.5% as compared to 1991, principally as a result of purchases, at a discount,
in open market and negotiated transactions of the Company's debentures and
notes in 1992 and 1991, payment of current maturities of long-term debt and a
reduction in net short-term borrowings.
Interest income in 1992 decreased approximately $4,400,000, or approximately
50.0% as compared to 1991, principally due to lower average invested balances
of short-term investments, marketable securities and other investments (in
part, due to a reduction in indebtedness), and significantly lower yields
earned on investments and marketable securities.
The net gain on investment and marketable securities was approximately $850,000
for 1992, as compared to approximately $400,000 in 1991. The gain on
investment and marketable securities for 1991 was net of a loss of
approximately $1,600,000 on the sale of the Company's investment in Stanley
Interiors Corporation preferred stock.
The pre-tax loss on businesses sold of approximately $14,500,000 in 1992 was
the primary factor in the approximately $18,000,000 loss from continuing
operations before provision for income taxes in 1992. The approximately
$15,200,000 pre-tax loss on businesses sold and the approximately $11,500,000
loss on settlement of litigation in 1991 were significant factors in the
approximately $45,700,000 loss from continuing operations before income tax
credit in 1991.
The provision for income taxes from continuing operations was approximately
$3,000,000 for 1992 as compared to an approximately $11,000,000 income tax
credit in 1991. The provision for income taxes as a percentage of the pre-tax
loss from continuing operations was approximately 16.7% for 1992 compared to an
income tax credit of approximately 24.1% for 1991. The income tax rate
differed from the U. S. Federal statutory rate of 34% for both years as a
result of the effect of certain nondeductible costs associated with businesses
sold (approximately $2,827,000 in 1992 and approximately $968,000 in 1991),
higher foreign income tax on foreign source income (approximately $1,127,000 in
1992 and approximately $2,728,000 in 1991), a limited amount of state income
tax benefits recorded (since the income tax benefits attributable to operating
Year Ended December 31, 1992 as Compared to the Year Ended December 31, 1991
(Continued)
losses for state income tax purposes may not be realized), nondeductible
amortization expense (for tax purposes), and in 1992 approximately $3,990,000
of unrecorded income tax credits relating to capital loss carryforwards.
Results of discontinued operations in 1992 included a pre-tax gain of
$1,474,000 (approximately $900,000 after-tax) which was attributable to the
exchange of securities resulting from the settlement of derivative litigation.
(See Note 7 of Notes to Consolidated Financial Statements.) During 1992,
results of discontinued operations also included pre-tax valuation reserves of
approximately $1,400,000 recorded in the third quarter and approximately
$5,000,000 recorded in the fourth quarter. The Company remains contingently
liable under approximately $7,100,000 of obligations under Industrial Revenue
Bond ("IRB's") agreements, plus unpaid interest, relating to facilities of a
previously discontinued business. This discontinued business defaulted on
certain principal and interest payments related to these IRB's during 1992 and,
in February 1993, filed for protection under federal bankruptcy laws. The
Company continues to vigorously pursue all available remedies to minimize any
liability that may ultimately result from the outcome of this matter. The
Company believes that the resolution of this matter, after giving consideration
to amounts previously provided, will not have a material adverse effect on the
financial position or results of operations of the Company. (See Notes 7 and
10 of Notes to Consolidated Financial Statements.) Results of discontinued
operations in 1991 included other income and expense items relating to
businesses discontinued in prior years, including a pre-tax gain of
approximately $700,000 as a result of proceeds from the settlement of certain
litigation.
Extraordinary gain from debt retirements decreased approximately $7,500,000 in
1992 as compared to 1991.
Liquidity and Capital Resources
The Company's primary sources of liquidity in 1993 and 1992 have been funds
provided by subsidiary operations, unrestricted investments and marketable
securities and net proceeds from businesses sold or discontinued. The
Company's Canadian subsidiary, Broan Limited, has a $20,100,000 Canadian
(approximately $15,200,000 U. S. at exchange rates prevailing at December 31,
1993) secured line of credit, of which approximately $14,800,000 Canadian
(approximately $11,200,000 U. S. at exchange rates prevailing at December 31,
1993), in the aggregate, is available to the Company (the "Line of Credit").
The Line of Credit prohibits dividends or other distributions to the Company
from Broan Limited in excess of $14,800,000 Canadian (approximately $11,200,000
U. S. at exchange rates prevailing at December 31, 1993). 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
$500,000 Canadian (approximately $378,000 U. S. at exchange rates prevailing at
December 31, 1993). 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 review by the lender in April 1994.
Liquidity and Capital Resources (Continued)
As of March 15, 1994, there were $2,346,000 U. S. in outstanding borrowings
under the Line of Credit, all of the proceeds of such borrowings were advanced
to the Company, and $3,850,000 U. S. of additional available borrowings could
be advanced to the Company.
Unrestricted cash and investments were $56,606,000 at December 31, 1993. 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. A portion of the net proceeds from the sale of
the 9-7/8% Notes were used to redeem, on March 24, 1994, approximately
$153,000,000 of certain of the Company's outstanding principal amount of
indebtedness and pay accrued interest. The call for redemption on February 22,
1994 of this indebtedness resulted in an after-tax extraordinary loss of
approximately $6,100,000, which was recorded in the fourth quarter of 1993.
(See Note 4 of Notes to the Consolidated Financial Statements.)
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 ongoing business needs through, at least,
1994. Capital expenditures were approximately $10,400,000 in 1993, and are
expected to be approximately $14,000,000 in 1994.
The Indenture governing the 9-7/8% Notes restricts, among other things, the
payment of cash dividends, the repurchase of the Company's capital stock, the
making of certain other restricted payments and the incurrence of additional
indebtedness. (See Note 4 of Notes to Consolidated Financial Statements.)
The Company's investment in marketable securities at December 31, 1993
consisted primarily of investments in United States Treasury securities. At
December 31, 1993, approximately $6,687,000 of the Company's cash and
investments were pledged as collateral with an insurance company and were
classified as restricted in current assets in the Company's accompanying
consolidated balance sheet.
In 1993, approximately $5,507,000 of cash was utilized by the Company and its
subsidiaries to pay indebtedness, including purchases, at a slight discount, in
open market transactions of approximately $1,202,000 principal amount of the
Company's debentures.
At December 31, 1993, the Company remains contingently liable under
approximately $7,100,000 of obligations under Industrial Revenue Bond ("IRB's")
agreements, plus unpaid interest, relating to facilities of a previously owned
subsidiary. This former subsidiary defaulted on certain principal and interest
payments related to these IRB's during 1992 and, in February 1993, filed for
protection under federal bankruptcy laws. In March 1994, the Company paid
approximately $1,594,000 to the Trustee of these IRB's for interest payments
through that date. The Company continues to vigorously pursue all available
remedies to minimize any liability that may ultimately result from the outcome
of this matter. The Company believes that the resolution of this matter, after
giving consideration to amounts previously provided, will not have a material
Liquidity and Capital Resources (Continued)
adverse effect on the financial position or results of operations of the
Company. (See Note 7 of Notes to Consolidated Financial Statements.)
In 1993, the Company adopted the accounting requirements of SFAS No. 106 for
post-retirement health care and related benefits and recorded the accumulated
post-retirement benefit obligation of approximately $2,100,000, after an income
tax credit of approximately $1,000,000 ($.17 per share, net of tax) as the
cumulative effect of an accounting change. Previously, such health care and
related benefits for qualified and retired beneficiaries were charged to
operating results in the period that such benefits were paid. Approximately
$950,000 of the accumulated post-retirement benefit obligation was paid during
1993 as a result of certain plan modifications. (See Note 6 to the Notes to
Consolidated Financial Statements.)
In 1993, the Company decided to sell Dixieline and recorded a pre-tax valuation
reserve of approximately $20,300,000 (approximately $14,900,000 after-tax) in
the third quarter of 1993 to reduce the Company's net investment in such
business to estimated net realizable value. The Company is in preliminary
discussions with a potential purchaser of these operations; however, no
agreement has yet been reached, and there can be no assurance that any
transaction will be consummated. The Company has reflected Dixieline's current
assets, non-current assets, current liabilities and long-term mortgage notes
payable separately in its consolidated balance sheet. (See Notes 1 and 9 of
Notes to Consolidated Financial Statements.)
The Company's working capital and current ratio decreased from approximately
$132,587,000 and approximately 1.9:1, respectively, at December 31, 1992 to
approximately $117,926,000 and approximately 1.6:1, respectively, at December
31, 1993. These decreases include the effect of the change in the method of
accounting for income taxes, pursuant to SFAS 109, adopted in the first
quarter of 1993. (See Note 3 of Notes to Consolidated Financial Statements.)
Disregarding the effect of SFAS 109 working capital decreased approximately
$18,263,000, or approximately 13.8%, from December 31, 1992 to December 31,
1993.
Accounts receivable, excluding those of Dixieline, increased approximately
$6,480,000, or approximately 8.3%, between December 31, 1992 and December 31,
1993, while net sales from ongoing operations increased approximately 5.6% in
the fourth quarter of 1993 as compared to the fourth quarter of 1992. This
increase 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.
In recent periods, the Company has not experienced any significant changes in
credit terms, collection efforts, credit utilization or delinquency.
Inventories, excluding those of Dixieline, increased approximately $5,870,000
or approximately 7.7%, between December 31, 1992 and December 31, 1993.
Liquidity and Capital Resources (Continued)
Disregarding the effect of SFAS 109, inventories increased approximately
$523,000, or approximately .7%.
Unrestricted cash and investments increased approximately $33,139,000 (of which
$22,600,000 was used to retire certain indebtedness on January 14, 1994 - see
Note 4 of Notes to Consolidated Financial Statements) from December 31, 1992 to
December 31, 1993, principally as a result of cash provided (used) by the
following:
Condensed
Consolidated
Cash Flows
------------
Operating Activities--
Cash flow from operations, net $21,476,000
Increase in accounts receivable, net (11,033,000)
Increase in inventories (2,854,000)
Increase in accounts payable 4,360,000
Change in accrued expenses, taxes, prepaids,
other assets, liabilities, and other, net 476,000
Investing Activities--
Net cash payments relating to businesses
sold or discontinued (2,420,000)
Proceeds from the sale of investment
and marketable securities, net of purchases 26,039,000
Proceeds from the sale of property and
equipment 5,242,000
Capital expenditures (10,436,000)
Financing Activities--
Increases in borrowings, net of payments,
including purchase of debentures 1,841,000
All other, net 448,000
----------
$33,139,000
==========
The Company's debt-to-equity ratio increased from approximately 1.6:1 at
December 31, 1992 to approximately 2.1:1 at December 31, 1993, primarily as a
result of the net loss of $20,800,000 in 1993 and a net increase in borrowings
of approximately $7,100,000.
At December 31, 1993 and subsequently thereafter, the payment of cash dividends
or stock payments was prohibited under the most restrictive of the Company's
indentures and loan agreements. (See Note 4 of Notes to Consolidated Financial
Statements.)
The Company's St. Louis, Missouri plant, which is part of the Company's Air
Conditioning and Heating Products Group and manufactures products for the
residential site-built and manufactured housing markets, experienced damage as
a result of the flooding of the Mississippi River in July 1993. The plant was
closed for several weeks, but returned to full operation in late August 1993.
At December 31, 1993, the Company accrued for estimated losses of approximately
$14,500,000 related to the flooding, recorded a receivable of approximately
$14,500,000 for casualty, property damage and business interruption insurance
claims due from its insurance carrier and recorded as a liability approximately
$13,200,000 of cash advances received relating to such claims. The Company
believes that it has adequate insurance coverage and does not expect this event
Liquidity and Capital Resources (Continued)
to have a material adverse effect on the Company's financial condition or
results of operations. (See Note 7 of Notes to Consolidated Financial
Statements.)
At December 31, 1993, the Company has approximately $8,000,000 of net U. S.
Federal prepaid income tax assets which are expected to be realized through
future operating earnings. (See Note 3 of Notes to Consolidated Financial
Statements.)
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions. The
Company regularly reviews potential acquisitions which would increase or expand
the market penetration of, or otherwise complement, its current product lines,
although there are no pending agreements or negotiations for any material
acquisitions and the Company has made no material acquisitions since early
1988.
Inflation, Trends and General Considerations
The Company's performance is dependent to a significant extent upon the levels
of new residential construction, residential replacement and remodeling and non-
residential construction, all of which are affected by such factors as interest
rates, inflation and unemployment. In recent periods, the Company's product
groups have operated in an environment of flat to declining levels of
construction and remodeling activity, particularly new housing starts which
decreased 43.8% between 1986 and 1991. New residential construction has made a
modest recovery since 1991, although housing starts remain significantly below
levels experienced in the mid-1980s. The Company's operations have been
significantly affected by the difficult economic conditions, particularly in
the Northeastern United States and California. However, the actions taken to
reduce production costs and overhead levels and improve the efficiency and
profitability of the Company's operations have enabled the Company to
significantly increase operating earnings in a slow economy, as well as to
position the Company for growth should there be a recovery in the Company's
markets. In the near term, the Company expects to operate in an environment of
relatively stable levels of construction and remodeling activity, without
significant further declines or improvements in such levels.
In recent periods, inflation has not had, and is not expected to have for the
foreseeable future, a material effect on the Company's results of operations
and financial condition.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data required by this Item 8 are set
forth at the pages indicated in Item 14(a) included elsewhere herein.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant
See Election of Directors in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference. See
also Part I, Item 1, Business-General Considerations-Executive Officers of the
Registrant.
Item 11. Executive Compensation
See Executive Compensation in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See Security Ownership of Certain Beneficial Owners and Management in the
definitive Proxy Statement for the Company's 1994 Annual Meeting of
Stockholders, incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See Election of Directors in the definitive Proxy Statement for the Company's
1994 Annual Meeting of Stockholders, incorporated herein by reference.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements and Schedules
The following documents are filed as part of this report:
1. Financial Statements: Page No.
Report of Independent
Public Accountants F-1
Consolidated Statement of
Operations for the three
years ended December 31,
1993 F-2
Consolidated Balance Sheet
as of December 31, 1993
and 1992 F-3
Consolidated Statement of
Cash Flows for the three
years ended December 31,
1993 F-5
Consolidated Statement of
Stockholders' Investment
for the three years ended
December 31, 1993 F-6
Notes to Consolidated
Financial Statements F-7
2. Financial Statement Schedules:
Schedule I - Marketable
Securities F-28
Schedule II - Notes and
Accrued Interest Receivable
from Employees F-29
Schedule V - Property and
Equipment F-30
Schedule VI - Accumulated
Depreciation and Amorti-
zation of Property and
Equipment F-31
Schedule VIII - Valuation
and Qualifying Accounts F-32
Schedule IX - Short-Term
Borrowings F-33
Schedule X - Supplementary
Profit and Loss Infor-
mation F-34
Schedules III, IV, VII, XI, XII, XIII and XIV are omitted as not
applicable or not required under the rules of Regulation S-X.
3.The exhibits are listed in the Exhibit Index, which is incorporated
herein by reference.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report:
October 12, 1993. Item 5. Other Events, Item 7. Financial Statements,
Pro Forma Financial Information and Exhibits.
December 15, 1993. Item 5. Other Events.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 25, 1994.
NORTEK, INC.
By:
/s/Richard L. Bready
-------------------
Richard L. Bready
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, as of March 25, 1994.
/s/Richard L. Bready /s/D. Stevens McVoy
- ------------------------------- ----------------------------------
Richard L. Bready, Chairman D. Stevens McVoy, Director
of the Board and President
(principal executive officer)
/s/Richard J. Harris /s/J. Peter Lyons
- ------------------------------- ----------------------------------
Richard J. Harris, Vice President J. Peter Lyons, Director
and Treasurer (principal financial
officer) and Director
/s/Almon C. Hall /s/Dennis J. McGillicuddy
- ------------------------------- ----------------------------------
Almon C. Hall, Vice President Dennis J. McGillicuddy, Director
and Controller (principal
accounting officer)
/s/Philip B. Brooks /s/Barry Silverstein
- ------------------------------- ----------------------------------
Philip B. Brooks, Director Barry Silverstein, Director
Report of Independent Public Accountants
To Nortek, Inc.:
We have audited the accompanying consolidated financial statements of
Nortek, Inc. (a Delaware corporation) and subsidiaries listed in Item
14(a)(1) of this Form 10-K. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nortek, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As explained in Note 6 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for post-
retirement benefits other than pensions.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item
14(a)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts,
March 24, 1994
Nortek, Inc. and Subsidiaries
Consolidated Statement of Operations
For the Three Years ended December 31, 1993
1993 1992 1991
------ ------ -----
(In Thousands Except Per Share Amounts)
Net Sales $744,113 $799,979 $917,049
------- ------- -------
Costs and Expenses:
Cost of products sold 532,488 595,177 693,091
Selling, general and administrative
expense 181,279 184,366 212,943
------- ------- -------
713,767 779,543 906,034
------- ------- -------
Operating earnings 30,346 20,436 11,015
Interest expense (26,519) (29,232) (39,184)
Interest and dividend income 3,223 4,446 8,769
Net gain on investment and
marketable securities 1,650 850 400
Settlement of litigation --- --- (11,500)
Loss on businesses sold or held for
sale (20,300) (14,500) (15,200)
------- ------- -------
Loss from continuing operations before
provision (credit) for income taxes (11,600) (18,000) (45,700)
Provision (credit) for income taxes 1,000 3,000 (11,000)
------- ------- -------
Loss from continuing operations (12,600) (21,000) (34,700)
Loss from discontinued operations --- (3,300) ---
------- ------- -------
Loss before extraordinary gain (loss) (12,600) (24,300) (34,700)
Extraordinary gain (loss) from debt
retirements (6,100) 100 7,600
------- ------- -------
Loss before the cumulative effect of
an accounting change (18,700) (24,200) (27,100)
Cumulative effect of an accounting
change (2,100) --- ---
------- ------- -------
Net Loss $(20,800)$(24,200) $(27,100)
======= ======= =======
Net Earnings (Loss) Per Share:
Continuing operations--
Primary $ (1.00) $ (1.67) $ (2.57)
------- ------- -------
Fully diluted $ (1.00) $ (1.67) $ (2.57)
------- ------- -------
Discontinued operations--
Primary --- (.26) ---
-------------- -------
Fully diluted --- (.26) ---
------- ------- -------
Loss before extraordinary gain (loss)--
Primary (1.00) (1.93) (2.57)
------- ------- -------
Fully diluted (1.00) (1.93) (2.57)
------- ------- -------
Extraordinary gain (loss)--
Primary (.49) .01 .56
------- ------- -------
Fully diluted (.49) .01 .56
------- ------- -------
Cumulative Effect of an Accounting
Change--
Primary (.17) --- ---
------- ------- -------
Fully diluted (.17) --- ---
------- ------- -------
Net Loss--
Primary $ (1.66) $ (1.92) $ (2.01)
======= ======= =======
Fully diluted $ (1.66) $ (1.92) $ (2.01)
======= ======= =======
Weighted Average Number of Shares:
Primary 12,622 12,645 13,460
======= ======= =======
Fully diluted 13,362 13,411 14,312
======= ======= =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1993 and 1992
Assets 1993 1992
------ ------
(Amounts in Thousands)
Current Assets:
Unrestricted--
Cash and investments at cost which
approximates market $ 34,006 $ 23,467
Short-term investments held for
redemption of debentures 22,600 ---
Marketable securities 25,892 50,281
Restricted--
Cash and investments at cost which
approximates market 6,687 8,187
Accounts receivable, less allowances
of $4,198,000 and $3,961,000 84,843 78,363
Inventories--
Raw materials 27,603 27,269
Work in process 9,227 9,792
Finished goods 45,183 39,082
------- -------
82,013 76,143
------- -------
Current assets of business held
for sale 23,736 18,990
Insurance claims receivable 14,500 ---
Prepaid expenses and other current
assets 7,541 8,069
U. S. Federal prepaid income taxes 17,000 22,000
------- -------
Total Current Assets 318,818 285,500
------- -------
Property and Equipment, at cost:
Land 5,833 7,376
Buildings and improvements 52,309 54,416
Machinery and equipment 108,983 103,246
------- -------
167,125 165,038
Less--Accumulated depreciation 76,546 66,469
------- -------
Total Property and Equipment, net 90,579 98,569
------- -------
Other Assets:
Goodwill, less accumulated amortization
of $19,180,000 and $16,857,000 75,599 78,406
Non-current assets of business held for
sale 11,987 30,785
Other 12,226 22,113
------- -------
99,812 131,304
------- -------
$509,209 $515,373
======= =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1993 and 1992
1993 1992
------ ------
(Amounts in Thousands)
Liabilities and Stockholders' Investment
Current Liabilities:
Notes payable, current maturities
of long-term debt and other
short-term obligations $ 14,957 $ 6,810
11 1/2% Senior Subordinated
Debentures, net 22,582 ---
Accounts payable 46,923 45,052
Accrued expenses and taxes, net 91,422 92,276
Current liabilities of business
held for sale 11,769 8,775
Insurance claims advances 13,239 ---
------- -------
Total Current Liabilities 200,892 152,913
------- -------
Other Liabilities:
Deferred income taxes 18,000 29,696
Other 8,100 3,995
------- -------
26,100 33,691
------- -------
Notes, Mortgage Notes and Debentures
Payable, Less Current Maturities 169,664 192,938
------- -------
Mortgage Notes Payable of business
held for sale 8,546 8,925
------- -------
Commitments and Contingencies (Note 7)
Stockholders' Investment:
Preference stock, $1 par value; authorized
7,000,000 shares, none issued --- ---
Common stock, $1 par value; authorized
40,000,000 shares, 15,758,974 and
15,602,142 shares issued 15,759 15,602
Special common stock, $1 par value;
authorized 5,000,000 shares, 849,575
and 990,007 shares issued 849 990
Additional paid-in capital 134,627 134,599
Retained earnings (accumulated deficit) (17,034) 3,766
Cumulative translation, pension
and other adjustments (2,143) ---
Less --treasury common stock at cost,
3,795,028 shares (26,371) (26,371)
--treasury special common stock
at cost, 271,574 shares (1,680) (1,680)
------- -------
Total Stockholders' Investment 104,007 126,906
------- -------
$509,209 $515,373
======= =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Years Ended December 31, 1993
1993 1992 1991
------ ------ ------
(Amounts in Thousands)
Cash flows from operating activities:
Net loss $(20,800) $(24,200) $(27,100)
Adjustments to reconcile net loss to cash:
Depreciation and amortization 20,726 23,644 28,373
Gain on sale of investment and
marketable securities (1,650) (850) (400)
(Gain) loss on debt retirements 9,275 (150) (12,600)
Loss on businesses sold or held for sale 20,300 19,500 15,200
Settlement of litigation --- --- 11,500
Cumulative effect of an accounting change 3,100 --- ---
Deferred federal income tax credit from
continuing operations (6,300) (1,700) (9,350)
Deferred federal income tax credit on
extraordinary loss (3,175) --- ---
Changes in certain assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable, net (11,033) (7,323) (8,862)
Prepaids and other current assets (937) 2,443 (2,019)
U. S. Federal income tax refund --- 1,803 16,401
Inventories (2,854) (2,807) 11,703
Net assets of discontinued operations --- --- 1,797
Accounts payable 4,360 (1,638) 18,735
Accrued expenses and taxes (3,913) 3,398 (3,087)
Long-term assets, liabilities and
other, net 5,326 (21) (673)
------- ------- -------
Total adjustments to net loss 33,225 36,299 66,718
------- ------- -------
Net Cash Provided by Operating
Activities 12,425 12,099 39,618
------- ------- -------
Cash Flows from investing activities:
Capital expenditures (10,436) (8,804) (15,902)
Proceeds from the sale of property
and equipment 5,242 1,045 3,573
Purchase of investments and marketable
securities (87,922) (94,671) (195,677)
Purchase of restricted investments
and marketable securities --- (603)
Proceeds from the sale of investments
and marketable securities 113,961 72,280 203,133
Proceeds from the sale of restricted
investments and marketable securities --- --- 2,972
Net cash proceeds (payments) relating
to businesses sold or discontinued (2,420) 38,813 38,496
Change in restricted cash and
investments 2,552 13,030 13,972
Other, net (777) 1,080 296
------- ------- -------
Net Cash Provided by Investing
Activities 20,200 22,773 50,260
------- ------- -------
Cash Flows from financing activities:
Purchase of debentures and notes
payable (1,383) (21,693) (43,444)
Increase in borrowings 7,348 4,197 15,860
Payment of borrowings (4,124) (5,692) (73,911)
Cash dividends paid --- --- (324)
Purchase of Nortek Common and
Special Common Stock --- (2,006) (713)
Other, net (1,327) (2,720) (2,357)
------- ------- -------
Net Cash Provided by (Used in)
Financing Activities 514 (27,914) (104,889)
------- ------- -------
Net increase (decrease) in unre-
stricted cash and investments 33,139 6,958 (15,011)
Unrestricted cash and investments
at the beginning of the year 23,467 16,509 31,520
------- ------- -------
Unrestricted cash and investments
at the end of the year $56,606 $ 23,467 $ 16,509
======= ======= =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Investment
For the Three Years Ended December 31, 1993
Cumulative
Translation,
Addi- Retained Pension
Special tional Earnings and Other
Common Common Paid-in (Accumulat- Adjust-Treasury
Stock Stock Capital ed Deficit) ments Stock
------ ------- ------- -------- -------
(Amounts in Thousands)
Balance, December 31,
1990 $15,312 $1,203 $134,493 $55,066 $ ---$(25,331)
126,817 shares of
special common stock
converted into 126,817
shares of common stock 126 (126) --- --- --- ---
432,292 shares of common
treasury stock and 777
shares of special
common treasury stock
acquired --- --- --- --- --- (714)
Net loss --- --- --- (27,100) --- ---
------ ------ ------- ------- ------ -------
Balance, December 31,
1991 15,438 1,077 134,493 27,966 --- (26,045)
86,345 shares of special
common stock converted
into 86,345 shares of
common stock 87 (87) --- --- --- ---
631,701 shares of common
treasury stock acquired,
net --- --- --- --- --- (2,006)
77,837 shares of common
stock issued upon
exercise of stock
options 77 --- 106 --- --- ---
Net loss --- --- --- (24,200) --- ---
------ ------ ------- ------- ------ -------
Balance, December 31,
1992 15,602 990 134,599 3,766 --- (28,051)
140,432 shares of
special common stock
converted into 140,432
shares of common stock 141 (141) --- --- --- ---
16,400 shares of common
stock issued upon
exercise of stock
options 16 --- 28 --- --- ---
Translation adjustment --- --- --- --- (1,337) ---
Pension adjustment --- --- --- --- (806) ---
Net loss --- --- --- (20,800) --- ---
------ ------ ------- ------- ------ -------
Balance, December 31,
1993 $15,759$ 849 $134,627 $(17,034) $(2,143)$(28,051)
====== ====== ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Nortek, Inc. and
all of its significant wholly-owned subsidiaries (the "Company" or "Nortek")
after elimination of intercompany accounts and transactions. Certain amounts
in the prior years' financial statements have been reclassified to conform to
the presentation at December 31, 1993. On October 2, 1993, the Company began
to account for its Dixieline Lumber Company, Inc. subsidiary ("Dixieline") as a
business held for sale, through which business the Company conducts its Retail
Home Center Operations. As a result, Dixieline's assets and liabilities have
been separately reflected in the Company's accompanying consolidated balance
sheet, and Dixieline's operating results through October 2, 1993 have been
included in the Company's consolidated statement of operations for the year
ended December 31, 1993. The Company intends to operate this business until a
sale is consummated. (See Note 9.)
Cash, Investments and Marketable Securities
Investments consist of short-term (maturities of less than 30 days) highly
liquid investments which are readily convertible into cash. Investments and
marketable securities are carried at the lower of aggregate cost or approximate
market price.
The Company has classified as restricted, certain cash, investments and
marketable securities that are not fully available for use in its operations.
At December 31, 1993, approximately $6,687,000 of cash and investments has been
pledged as collateral for insurance and other requirements and is classified as
restricted in current assets in the accompanying consolidated balance sheet.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of each
class of financial instruments for which it is practicable to estimate that
value:
Cash and Investments--
The carrying amount approximates fair value because of the short maturity
of those instruments.
Marketable Securities--
The fair value of marketable securities is based on quoted market prices.
At December 31, 1993, the fair value of marketable securities approximated
the amount on the Company's consolidated balance sheet.
Long-Term Debt--
The fair value of long-term indebtedness was estimated based on prices
related to transactions involving the Company's long-term indebtedness or
the Company's 1994 debt redemptions. (See Note 4.) At December 31, 1993,
the fair value of long-term indebtedness approximates the amount on the
Company's consolidated balance sheet.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Inventories
Inventories in the accompanying consolidated balance sheet are valued at the
lower of cost or market. At December 31, 1993 and 1992, approximately
$53,154,000 and $45,834,000 of total inventories, respectively, were valued on
the last-in, first-out method (LIFO). Under the first-in, first-out method
(FIFO) of accounting, such inventories would have been $4,982,000 and
$11,735,000 greater at December 31, 1993 and 1992, respectively. All other
inventories were valued under the FIFO method. The increase in the amount of
LIFO inventories in 1993 primarily results from the change in accounting for
income taxes. (See Note 3.)
Sales Recognition
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. The Company also provides
for its estimate of warranty and bad debts at the time of shipment as selling,
general and administrative expense.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign subsidiaries
at the exchange rates in effect at year-end. Net sales and expenses are
translated using exchange rates in effect during the year. Gains and losses
from foreign currency translation are credited or charged to cumulative
translation adjustment included in stockholders' investment in the accompanying
consolidated balance sheet. Gains and losses from foreign currency
transactions were not material in 1992 and 1991.
Depreciation and Amortization
Depreciation and amortization of property and equipment is provided on a
straight-line basis over the estimated useful lives which are generally as
follows:
Buildings and improvements 10-35 years
Machinery and equipment, including leases 3-15 years
Leasehold improvements term of lease
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals and betterments are capitalized. When assets are
sold, or otherwise disposed of, the cost and accumulated depreciation are
eliminated and the resulting gain or loss is recognized.
Goodwill
The Company has classified as goodwill the cost in excess of fair value of the
net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized on a straight-line method over 40
years. Amortization charged to continuing operations amounted to $2,418,000,
$2,548,000 and $2,759,000 for 1993, 1992 and 1991, respectively. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectations of non-discounted cash flows and operating income for each
subsidiary having a material goodwill balance. Based upon its most recent
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
analysis, the Company believes that no material impairment of goodwill exists
at December 31, 1993.
Net Earnings (Loss) Per Share
Net earnings (loss) per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding during each
year. Earnings (loss) per share calculations for all periods presented do not
include the effect of common stock equivalents or convertible debentures (and
the reduction in related interest expense) because the assumed exercise of
stock options and conversion of debentures is anti-dilutive for the net loss
per share amounts. Special Common Stock is treated as the equivalent of Common
Stock in determining earnings per share results.
2. Cash Flows
Interest paid was $26,981,000, $27,436,000 and $38,658,000 in 1993, 1992 and
1991, respectively.
The following table summarizes the activity of businesses sold or discontinued
included in the accompanying consolidated statement of cash flows:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Fair value of assets sold $ --- $ 52,793 $ 58,624
Liabilities assumed by the purchaser --- (13,329) (11,530)
Notes receivable and other non-cash
proceeds received as part of the
proceeds --- (316) (10,090)
Cash (paid) received relating to
businesses sold or discontinued (2,420) (335) 1,492
------ ------ ------
Net cash proceeds (payments) relating
to businesses sold or discontinued $(2,420) $38,813 $38,496
====== ====== ======
The following summarizes other non-cash financing and investing activities:
Year Ended
December 31,
-----------------------
1992 1991
---- ---- ----
(Amounts in Thousands)
Use of restricted cash and investments
in settlement of certain litigation
(see Note 7) $11,800 $ ---
Exchange of debentures (see Note 7) 4,050 ---
Settlement of 11% subordinated notes
receivable (see Note 7) 2,576 ---
Non-compete agreement --- 540
Capitalized lease obligations incurred --- 113
Other 1,556 1,174
Non-cash financing and investing activities were not significant for the year
ended December 31, 1993.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
3. Income Taxes
In the first quarter of 1993, the Company adopted SFAS No. 109, as a change in
accounting method. Prior year financial statements have not been restated to
reflect the new accounting method. The effect of adopting this new accounting
method in the first quarter of 1993 was not significant to the provision for
income taxes as compared to the prior accounting method. For years through
December 31, 1992, the provision (credit) for income taxes was computed in
accordance with the comprehensive income tax allocation method, which
recognizes the tax effects of all income and expense transactions included in
each year's consolidated statement of operations, regardless of the year the
transactions are reported for tax purposes.
The effect of this change in accounting method did not result in a charge to
operations for the cumulative effect of an accounting change, but did result in
changes to certain account balances on January 1, 1993 relating principally to
net deferred income tax liabilities arising from acquisitions that were netted
against certain asset and liability balances in the Company's consolidated
balance sheet at December 31, 1992 as follows:
Effect of
Accounting
Change
----------
(Amounts in Thousands)
Increase in inventory, net $5,347
Increase in property and equipment, net 1,883
Decrease in accrued liabilities and
taxes, net 1,833
Increase in other liabilities 99
Decrease in U. S. Federal prepaid
income taxes 3,578
Increase in deferred income tax liabilities 5,386
The tax effect of temporary differences which gave rise to significant portions
of deferred income tax assets and liabilities as of January 1, 1993 and
December 31, 1993, as adjusted for the adoption of SFAS No. 109, is as follows:
Dec. 31, Jan. 1,
1993 1993
-------- -------
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred) Income Tax
Assets Arising From:
Accounts receivable $ 1,387 $ 1,353
Inventory (666) (2,229)
Insurance reserves 4,576 4,682
Other reserves, liabilities and
assets, net 11,725 13,162
Other, net (22) 32
------ ------
$17,000 $17,000
====== ======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Dec. 31, Jan. 1,
1993 1993
-------- -------
(Amounts in Thousands)
Deferred (Prepaid) Income Tax Liabilities
Arising From:
Property and equipment, net $11,709 $16,188
Prepaid pension assets 1,666 1,977
Unamortized debt discount 102 2,369
Insurance reserves (1,024) (556)
Other reserves, liabilities and
assets, net 844 3,621
Capital loss carryforward (6,217) (5,925)
Unrealized loss on business held
for sale (3,405) ---
Net operating loss carryforward --- (1,350)
Contribution carryforward --- (544)
Alternative minimum tax carryforward --- (509)
Valuation allowances 14,326 11,714
Other, net (1) 15
------ ------
$18,000 $27,000
====== ======
At December 31, 1993, 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 deferred income tax assets, since realization
of these deferred income tax assets, in part, is dependent on future taxable
income which cannot be reasonably assured. At December 31, 1993, the Company
has approximately $8,000,000 of net U.S. Federal prepaid income tax assets
which are expected to be realized through future operating earnings.
At December 31, 1992, under the prior accounting method, prepaid income taxes
of approximately $22,000,000, relating principally to accruals not deductible
currently, were classified as a current asset, while cumulative deferred income
tax liabilities of approximately $29,696,000, relating principally to
depreciation differences, were classified as a non-current liability in the
accompanying consolidated balance sheet.
The following is a summary of the components of loss from continuing operations
before income tax credit:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Domestic $(17,000) $(24,400) $(52,900)
Foreign 5,400 6,400 7,200
------ ------- -------
$(11,600) $(18,000) $(45,700)
====== ======= =======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following is a summary of the provision (credit) for income taxes from
continuing operations included in the accompanying consolidated statement of
operations:
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Federal Income Taxes--
Current $2,800 $ 600 $(5,400)
Deferred (6,300) (1,700) (9,350)
----- ------ -------
(3,500) (1,100) (14,750)
Foreign 2,600 3,200 3,000
State 1,900 900 750
----- ------ -------
$1,000 $ 3,000 $(11,000)
===== ====== =======
The deferred federal income tax credit from continuing operations includes the
following timing differences:
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Business held for sale $(7,277) $ --- $ ---
Change in valuation reserve 2,618 --- ---
Accelerated depreciation (1,378) (1,550) (1,320)
Accruals not deductible currently 426 1,625 (3,975)
Capitalization of inventory
for tax purposes (35) 250 (25)
Effect of capital loss --- (1,400) ---
Alternative minimum income tax --- (275) (3,750)
Other, net (654) (350) (280)
----- ------ ------
Total deferred federal income tax
credit from continuing operations $(6,300) $(1,700) $(9,350)
===== ====== ======
Income tax (payments) refunds, net, were approximately $(11,950,000),
$(1,600,000) and $5,700,000 in 1993, 1992 and 1991, respectively.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The table below reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 8.6%, 16.7% and
24.1% in 1993, 1992 and 1991, respectively.
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Income tax credit from continuing
operations at the Federal
statutory rate $(4,060) $(6,120) $(15,538)
Net change from statutory
rate:
Change in valuation reserve 2,618 --- ---
Effect of unrecognized capital
losses --- 3,990 ---
State taxes, net of federal tax
effect 1,235 594 495
Amortization not deductible for
tax purposes 746 552 358
Businesses sold (172) 2,827 968
Foreign source deemed income 700 648 2,182
Tax effect on foreign income 196 479 546
Other, net (263) 30 (11)
----- ------ -------
Income tax provision (credit)
from continuing operations $ 1,000 $ 3,000 $(11,000)
===== ====== =======
The Company recorded a $1,000,000 income tax credit (principally deferred) in
the first quarter of 1993 relating to the cumulative effect of an accounting
change for certain post-retirement benefits. In the fourth quarter of 1993,
the Company recorded a $3,175,000 deferred income tax credit relating to the
extraordinary loss, arising from indebtedness called for redemption. (See Note
4.) In 1991, the Company recorded a $5,000,000 current income tax provision
relating to the extraordinary gain on debt retirements.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
4. Notes, Mortgage Notes and Debentures Payable
Notes, mortgage notes and debentures payable in the accompanying consolidated
balance sheet at December 31, 1993 and 1992 consist of the following:
December 31,
-------------
1993 1992
---- ----
(Amounts in Thousands)
Notes payable to banks $ 7,348 $ ---
Mortgage notes payable 8,188 11,676
Other 1,141 4,085
9 3/4% Senior Notes due 1997
("9 3/4% Senior Notes"), net of
unamortized original issue
discount of $293,000 and
$6,967,000 51,152 44,478
13 1/2% senior subordinated
debentures due 1997 ("13 1/2%
Debentures"), net of unamortized
original issue discount of
$53,000 and $438,000 79,305 79,685
11 1/2% senior subordinated
debentures due 1994 ("11 1/2%
Debentures"), net of unamortized
original issue discount of
$18,000 and $69,000 22,582 22,531
11% subordinated sinking fund
debentures due 2004 ("11%
Debentures"), net of unamortized
debt discount of $18,000 and
$666,000 19,406 18,758
10% subordinated sinking fund
debentures due 1999 ("10%
Debentures"), net of unamortized
debt discount of $8,000 and
$269,000 2,587 2,742
7 1/2% convertible sinking fund
debentures due 2006 ("7 1/2%
Convertible Debentures") 15,494 15,793
------- -------
207,203 199,748
Less amounts included in current
liabilities 37,539 6,810
------- -------
$169,664 $192,938
======= =======
On January 14, 1994, the Company redeemed $22,600,000 principal amount of its
11-1/2% Debentures, which were called for redemption in December 1993 and are
classified as a current liability in the accompanying consolidated balance
sheet.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
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 discount of
approximately $1,717,000, which will be amortized over the life of the issue.
Net proceeds from the sale of the 9-7/8% Notes, after deducting underwriting
commissions and expenses, amounted to approximately $207,695,000, and a portion
of such proceeds were used to redeem on March 24, 1994 the Company's
outstanding principal amount of indebtedness and pay accrued interest on
$51,445,000 of its 9-3/4% Senior Notes, $79,358,000 of its 13-1/2% Debentures,
$2,595,000 of its 10% Debentures, and $19,424,000 of its 11% Debentures, all of
which were called for redemption on February 22, 1994. The 13-1/2% Debentures
were redeemed at 101.5% of the outstanding principal amount thereof, while the
other issues were redeemed at par. The call for these debt redemptions
resulted in an extraordinary loss of approximately $6,100,000 ($.49 per share)
net of an income tax credit of approximately $3,175,000, which was recorded in
the fourth quarter of 1993.
The unaudited pro forma consolidated loss from continuing operations and fully
diluted loss per share would have been $11,800,000 and $.94, respectively for
the year ended December 31, 1993, as adjusted for the pro forma effect of this
financing and the redemption of the Company's indebtedness, had such
transactions been completed as of January 1, 1993. The pro forma data does not
purport to be indicative of the results which would actually have been
reported, or which may be reported in the future. The pro forma data includes a
net after-tax loss of approximately $14,900,000 ($1.19 per share) as a result
of the valuation reserve provided on Dixieline (See Note 9). In computing the
pro forma loss 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 13.3%
(including amortization of debt discounts and deferred debt expense), net of
the tax effect. Interest expense was included on the 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%.
The 9-7/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time and from time to time, at 104.214% on March 1, 1999,
declining to 100% on March 1, 2002 and thereafter.
The Company's Canadian subsidiary has a $15,200,000 secured line of credit, of
which approximately $11,200,000 in the aggregate is available to the Company.
At December 31, 1993, there was approximately $7,000,000 outstanding (all of
the proceeds of which borrowings were advanced to the Company) under this
secured line of credit bearing interest at rates that approximate the prime
rate of interest. At March 15, 1994, there was approximately $2,346,000
outstanding borrowings under this secured line of credit. The line of credit
facility is subject to review by April 30, 1994. The Canadian subsidiary pays a
commitment fee of .25% per annum on the unutilized portion of the line of
credit payable monthly on a pro rata basis. Borrowings are available for
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
working capital and other general corporate purposes, of which approximately
$3,850,000 at March 15, 1994 is available for Nortek and its other
subsidiaries' requirements.
Mortgage notes payable include various mortgage notes and other related
indebtedness payable in installments through 1998 and bearing interest at rates
ranging from 2% to 13.5%. Approximately $8,038,000 of such indebtedness is
collateralized by property and equipment with an aggregate net book value of
approximately $5,901,000 at December 31, 1993.
Other obligations include borrowings relating to equipment purchases and other
borrowings bearing interest from 2% to 5% and maturing at various dates through
2001. Approximately $1,141,000 of such indebtedness is collateralized by
property and equipment with an aggregate net book value of approximately
$1,338,000 at December 31, 1993.
Mortgage notes payable of a business held for sale principally include various
mortgage notes payable of Dixieline in installments through 1997 and bearing
interest at an adjustable rate equal to three points over the U. S. treasury
bill rate. At December 31, 1993, the current interest rate was approximately
6.23% under these mortgage notes payable. Approximately $8,546,000 of such
indebtedness is collateralized by property and equipment with an aggregate net
book value of $10,095,000 at December 31, 1993. Maturities of such indebtedness
are $255,000 in 1995, $2,769,000 in 1996 and $5,522,000 in 1997.
During 1993, the Company acquired, at a discount, in open market transactions
approximately $1,202,000 principal amount of its various notes and debentures.
These purchases did not result in a gain or loss. During 1992 and 1991, the
Company acquired, at a discount, in open market and negotiated transactions,
approximately $26,398,000 and $56,485,000, respectively, principal amount of
its various notes and debentures. These transactions resulted in an
extraordinary gain of $200,000, net of income taxes of $150,000 ($.01 per
share) in the second quarter of 1992, an extraordinary loss of $100,000, net of
an income tax credit of $100,000 ($.01 per share) in the third quarter of 1992,
extraordinary gains of $3,500,000, net of income taxes of $2,500,000 ($.26 per
share) in the first quarter of 1991, $1,200,000, net of income taxes of
$650,000 ($.09 per share) in the second quarter of 1991, and $2,900,000, net of
income taxes of $1,850,000 ($.22 per share) in the fourth quarter of 1991.
Discount and deferred costs relating to various notes and debentures in 1993
were principally being amortized over the original life of those issues. Such
amortization of discount and deferred costs was approximately $2,100,000,
$2,000,000 and $2,000,000 in 1993, 1992 and 1991, respectively. In the fourth
quarter of 1993, as a result of the call for redemption of certain of the
Company's indebtedness described above, the Company wrote off approximately
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
$8,100,000 of unamortized deferred debt expense and debt discount and provided
a redemption premium of approximately $1,175,000, both of which were recorded
as an extraordinary loss.
The indenture governing the 9-7/8% Notes restricts, among other things, the
payment of cash dividends, repurchase of the Company's capital stock and the
making of certain other restricted payments, the incurrence of additional
indebtedness, the making of certain investments, mergers, consolidations and
sale of assets (all as defined in the indenture). Upon certain asset sales (as
defined in the indenture), the Company will be required to offer to purchase,
at 100% principal amount plus accrued interest to the date of purchase, 9-7/8%
Notes in a principal amount equal to any net cash proceeds (as defined in the
indenture) that are not invested in properties and assets used primarily in the
same or related business to those owned and operated by the Company at the
issue date of the 9-7/8% Notes or at the date of such asset sale and such net
cash proceeds were not applied to permanently reduce Senior Indebtedness (as
defined in the indenture).
The indenture governing the 7 1/2% Convertible Debentures limits the payment of
cash dividends and stock payments and requires that the Company maintain a
minimum net worth, as defined, of $100,000,000. If the net worth at the end of
any two consecutive fiscal quarters falls below the minimum, then on the last
day of the fiscal quarter (the "Accelerated Payment Date") next following such
second fiscal quarter, the Company will be required to accelerate the then
outstanding principal amount due after such Accelerated Payment Date. Such
redemptions will continue until the Company's net worth exceeds $100,000,000 or
until all the 7 1/2% Convertible Debentures are redeemed.
The redemption price of the 7 1/2% Convertible Debentures will be their
principal amount plus accrued interest to the Accelerated Payment Date. The
Company may credit against its obligation to redeem the 7 1/2% Convertible
Debentures upon any Accelerated Payment Date the principal amount of (i) 7-
1/2% Convertible Debentures acquired by the Company and surrendered for
cancellation (including converted 7 1/2% Convertible Debentures), and (ii) 7
1/2% Convertible Debentures redeemed or called for redemption otherwise than
through operation of the sinking fund or through redemption on an Accelerated
Payment Date. In no event shall the failure to meet the minimum net worth
stated above at the end of any fiscal quarter be counted toward more than one
acceleration of any sinking fund payment.
All sinking fund requirements of the 7 1/2% Convertible Debentures have been
met.
The 7 1/2% Convertible Debentures are redeemable at the option of the Company
as a whole or from time to time in part, at 102.25% (as of December 31, 1993)
declining to 100% on May 1, 1996.
At December 31, 1993 and 1992, the 7 1/2% Convertible Debentures were
convertible into shares of Common Stock of the Company at $21.56 per share,
which is subject to adjustment under certain conditions.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following is a summary of maturities of all of the Company's debt
obligations, excluding unamortized debt discount, due after December 31, 1994,
as adjusted for the pro forma effect of the financing and the redemption of the
Company's indebtedness on March 24, 1994:
(Amounts in Thousands)
1995 $ 498
1996 533
1997 527
1998 488
Thereafter 234,223
-------
$236,269
=======
After the redemption on March 24, 1994 of certain indebtedness noted above, the
indenture governing the 7-1/2% Convertible Debentures will be the most
restrictive of the Company's loan agreements and indentures. The payment of
cash dividends and stock payments was prohibited at December 31, 1993 and
subsequently thereafter.
5. Common Stock, Special Common Stock, Stock Options and Deferred
Compensation
Each share of Special Common Stock has 10 votes on all matters submitted to a
stockholder vote, except that the holders of Common Stock, voting separately as
a class, have the right to elect 25% of the directors to be elected at a
meeting to the Company's Board of Directors, with the remaining 75% being
elected by the combined vote of both classes. Shares of Special Common Stock
are generally non-transferable, but are freely convertible on a share-for-share
basis into shares of Common Stock.
The Company has a rights plan which provides for the right to purchase for $75,
one one-hundredth of a share of $1.00 par value Series A Participating
Preference Stock for each right held. 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.
At December 31, 1993, a total of 2,360,521 shares of Common Stock was reserved
as follows:
Conversion of convertible debentures 718,646
Stock option plans 792,300
Conversion of special common stock 849,575
---------
2,360,521
=========
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1993, a total of 43,500 shares of Special Common Stock was
reserved for stock option plans.
The Company has several stock option plans which provide for the granting of
options to certain officers, employees and non-employee directors of the
Company. Options granted under the plans vest over periods ranging up to five
years and expire from eight to ten years from the date of grant. These Plans
provide for the issuance of 1,183,333 shares of the Company's Common Stock and
Special Common Stock, and at December 31, 1993, there were options outstanding
covering 503,900 shares of Common and Special Common Stock, of which 233,200
options are currently exercisable.
Options for 65,100 and 41,400 shares of Common and Special Common Stock became
exercisable during 1993 and 1992, respectively. Proceeds from options
exercised are credited to common stock and additional paid-in capital.
The following table summarizes all Common and Special Common Stock option
transactions for the three years ended December 31, 1993:
Option Price
Number ------------
of Shares Per Share Total
--------- --------- -----
Options outstanding at
December 31, 1990 354,300 $2.25-$15.69 $1,529,634
Granted 30,000 2.88 86,250
Canceled (7,800) 2.88 (22,425)
Options outstanding at
December 31, 1991 376,500 $2.25-$15.69 $1,593,459
Exercised (85,700) 2.25-2.88 (240,613)
Canceled (50,500) 2.25-8.69 (288,008)
Options outstanding at
December 31, 1992 240,300 $2.25-$15.69 1,064,838
Granted 280,000 8.75 2,450,000
Exercised (16,400) 2.25-2.875 (44,000)
------- ----------- ---------
Options outstanding at
December 31, 1993 503,900 $2.25-15.69 $3,470,838
======= =========== =========
On January 31, 1992, the Company acquired 625,000 shares of its Common Stock in
a negotiated transaction for approximately $1,975,000 including expenses. (See
Note 4 with respect to limitations on the payment of cash dividends and stock
payments.)
6. Pension, Retirement, Profit Sharing Plans and Post-Retirement Benefits
The Company and its subsidiaries have various pension, retirement and profit
sharing plans requiring contributions to qualified trusts and union
administered funds. Pension and profit sharing expense charged to operations
aggregated approximately $1,683,000 in 1993, $2,130,000 in 1992, and $1,938,000
in 1991. The Company's policy is to fund currently the actuarially determined
annual contribution.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The Company's net pension expense (credit) for its defined benefit plans for
1993, 1992 and 1991 consists of the following components:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(Amounts in Thousands)
Service costs $1,685 $1,584 $1,213
Interest cost 1,989 1,967 1,818
Actual net income on
plan assets (3,295) (3,173) (4,762)
Net amortization and deferred
items 822 1,070 2,635
----- ----- -----
Net pension expense $1,201 $1,448 $ 904
===== ===== =====
The following table sets forth the funded status of the Company's defined
benefit plans and amounts recognized in the Company's consolidated balance
sheet:
Dec. 31,
Dec. 31, 1993 1992
------------- ---------
Plan Assets Accumulated Plan Assets
Exceeding Benefit Exceeding
Accumulated Obligation Accumulated
Benefit Exceeding Benefit
Obligation Plan Assets Obligation
(Amounts in Thousands)
Actuarial present value of benefit
obligations at September 30:
Vested benefits $17,799 $ 4,221 $17,535
Non-vested benefits 434 305 552
------ ------ ------
Accumulated benefit obligation 18,233 4,526 18,087
Effect of projected future
compensation levels 5,936 --- 5,829
------ ------ ------
Projected benefit obligation 24,169 4,526 23,916
Plan assets at fair value at
September 30 24,055 3,678 26,065
------ ------ ------
Plan assets in excess of (less than)
the projected benefit obligation (114) (848) 2,149
Unrecognized net loss 7,294 806 5,930
Unrecognized transition net
asset at January 1 (2,971) --- (3,320)
Unrecognized prior service costs 312 652 985
Additional minimum liability --- (1,458) ---
------ ------ ------
Prepaid pension costs (liability)
at December 31 $ 4,521 $ (848) $ 5,744
====== ====== ======
Plan assets include commingled funds, marketable securities, insurance
contracts and cash and short-term investments. The weighted average discount
rate and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation were 7.125 percent
and 5.5 percent, respectively, in 1993, and 8 percent and 6 percent,
respectively, in 1992 and 1991. The expected long-term rate of return on
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
assets was 8.5 percent in 1993 and 9.5 percent in 1992 and 1991.
In 1993, a minimum pension liability and an intangible asset for certain plans
was recognized, resulting in a reduction in the Company's stockholders'
investment of approximately $806,000.
Certain of the Company's subsidiaries provided health care and related
benefits, which were modified in 1993, to qualified active and retired
beneficiaries. These benefits are net of reimbursement by Medicare and other
insurance coverages. Effective January 1, 1993, the Company adopted the
accounting requirements of Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than
Pensions" and recorded an accumulated post-retirement benefit obligation
("APBO") of approximately $3,100,000 (before income tax credit of approximately
$1,000,000) at January 1, 1993 as a charge to operations ($.17 per share, net
of tax) as the cumulative effect of an accounting change. Previously, such
benefits were charged to operating results in the period that such benefits
were paid. Approximately $950,000 of the APBO was paid during 1993 as a result
of certain plan modifications. The annual expense for 1993 from adopting SFAS
106 was approximately equal to the expense that would have been recorded under
the previous accounting method. The discount rate used in determining the APBO
at January 1, 1993 was 8 percent. A 17 percent annual rate of increase in the
per capita cost of such health care and related benefits was assumed for
determining the APBO at January 1, 1993, decreasing gradually to 6 percent in
the year 2009. If the assumed health care and related cost trend rates
increased 1 percent for all future years, the APBO at January 1, 1993 could
have increased 10 percent. At December 31, 1993, the actuarially determined
APBO for remaining plan benefits was approximately $1,400,000, relating
principally to one subsidiary of the Company. The annual expense and liability
related to these benefits is not significant to the Company's operations or
financial position.
7. Commitments and Contingencies
The Company provides accruals for all direct and indirect costs associated with
the estimated resolution of contingencies at the earliest date at which the
incurrence of a liability is deemed probable and the amount of such liability
can be reasonably estimated.
The Company's Air Conditioning and Heating Products Group's plant in St. Louis,
Missouri, which manufactures products for the residential and manufactured
housing markets, experienced damage as a result of the flooding of the
Mississippi River in July 1993. The plant was closed for several weeks, but
returned to full operation in late August 1993. At December 31, 1993, the
Company accrued for estimated losses of $14,500,000 related to the flooding,
recorded a receivable of approximately $14,500,000 for casualty, property
damage and business interruption insurance claims due from its insurance
carrier and recorded as a liability approximately $13,200,000 of cash advances
received relating to such claims. The Company believes that it has adequate
insurance coverage and does not expect this event to have a material adverse
effect on the Company's financial condition or results of operations.
In July 1992, derivative litigation against the Company and its directors
challenging the transactions involving the retirement in 1990 of the Company's
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
former Chairman was settled. In connection with the settlement, the Company
recorded a net after-tax gain on discontinued operations, in the third quarter,
of approximately $900,000 ($.07 per share), resulting from the exchange of
certain notes (carried at approximately $2,576,000 on Nortek's books at the
date of the exchange) due from a company controlled by Nortek's former Chairman
and held by the Company for $4,050,000 principal amount of Nortek 13-1/2%
Debentures held by such company controlled by Nortek's former Chairman.
In December 1991, the Company recorded an $11,500,000 pre-tax charge ($.47 per
share, net of tax) in connection with the settlement of litigation with the
former selling shareholders of the Company's former Bend Millwork Systems
Company.
At December 31, 1993, the Company and its subsidiaries, excluding Dixieline,
are obligated under lease agreements for the rental of certain real estate and
machinery and equipment used in its operations. Minimum annual rental expense
aggregates approximately $12,728,000 at December 31, 1993. The obligations are
payable as follows:
1994 $4,966,000
1995 2,431,000
1996 1,691,000
1997 1,416,000
1998 1,343,000
Thereafter 881,000
Certain of these lease agreements provide for increased payments based on
changes in the consumer price index. Rental expense, from continuing
operations in the accompanying consolidated statement of operations, excluding
Dixieline, for the years ended December 31, 1993, 1992 and 1991 was
approximately $6,562,000, $8,716,000 and $10,583,000, respectively. Under
certain of these lease agreements, the Company and its subsidiaries are also
obligated to pay insurance and taxes.
At December 31, 1993, Dixieline is obligated under lease agreements for the
rental of certain real estate and machinery and equipment used in its
operations. Minimum rental expense (net of minimum sub lease rental income of
approximately $9,327,000) aggregates approximately $25,086,000 at December 31,
1993. Obligations are payable as follows:
1994 $ 2,190,000
1995 1,863,000
1996 1,596,000
1997 1,513,000
1998 1,492,000
Thereafter 16,432,000
Certain of these lease obligations provide for increased payments based on
changes in the consumer price index. Dixieline's rental expense, net, from
continuing operations included in the Company's accompanying consolidated
statement of operations for the years ended December 31, 1993, 1992 and 1991
was approximately $1,225,000, $1,910,000 and $1,851,000, respectively. Under
certain of these lease agreements, Dixieline is obligated to pay insurance and
taxes.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1993, the Company is contingently liable for obligations
(approximately $7,500,000) under Industrial Revenue Bond agreements ("IRB's")
relating to facilities of previously owned subsidiaries. During 1992, the
Company was notified of events of default relating to the failure of one of
these previously owned subsidiaries, obligated on $7,100,000 of these IRB's, to
make interest payments of approximately $800,000 due in March and September
1992 and a $75,000 payment of principal and interest due in May 1992. In
February 1993, the Company was informed that this former subsidiary filed for
protection under Federal bankruptcy laws. The Company has not been informed of
what actions might be taken by the holders of these bonds, but it is possible
there may be a call for acceleration of payment of the bonds. In March 1994,
the Company paid approximately $1,594,000 to the Trustee of these IRB's for
interest payments through that date. The Company believes that any liability
that may ultimately result from the resolution of this matter, in excess of
amounts provided, will not have a material adverse effect on financial position
or results of operations of the Company.
The Company is subject to other contingencies, including additional legal
proceedings and claims arising out of its businesses that cover a wide range of
matters, including, among others, environmental matters, contract and
employment claims, product liability, warranty and modification, adjustment or
replacement of component parts of units sold, which may include product
recalls. The Company has used various substances in its products and
manufacturing operations which have been or may be deemed to be hazardous or
dangerous, and the extent of its potential liability, if any, under
environmental, product liability and worker's compensation statutes, rules,
regulations and case law is unclear. Further, due to the lack of adequate
information and the potential impact of present regulations and any future
regulations, there are certain circumstances in which no range of potential
exposure may be reasonably estimated.
While it is impossible to ascertain the ultimate legal and financial liability
with respect to contingent liabilities, including lawsuits, the Company
believes that the aggregate amount of such liabilities, if any, in excess of
amounts provided, will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
8. Operating Segment Information and Concentration of Credit Risk
The Company operates in one industry segment, Residential and Commercial
Building Products. No single customer accounts for 10% or more of consolidated
net sales. More than 90% of net sales and identifiable segment assets are
related to the Company's domestic operations.
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
credit quality financial institutions and limits the amount of credit exposure
to any one financial institution. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different geographical regions. At December 31, 1993, the Company had no
significant concentrations of credit risk.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
9. Businesses Sold or Held for Sale
In October 1993, the Company decided to sell Dixieline and provided a pre-tax
valuation reserve of approximately $20,300,000 ($1.19 per share, net of tax) in
the third quarter of 1993 to reduce the Company's net investment in such
business to estimated net realizable value.
On January 2, 1992, the Company's Dixieline Products, Inc. subsidiary sold the
assets, subject to certain liabilities of its subsidiary, L. J. Smith, Inc.
("L. J. Smith") for approximately $24,000,000. The Company recorded a pre-tax
gain on the sale of L. J. Smith of approximately $8,000,000 ($.34 per share,
net of tax) in the first quarter of 1992. On October 2, 1992, the Company sold
all of the capital stock of its wholly-owned subsidiary, Bend Millwork Systems,
Inc. ("Bend") for approximately $17,200,000 in cash and recorded a pre-tax loss
on sale in the third quarter of 1992 of approximately $20,500,000 ($1.43 per
share, net of tax). In the fourth quarter of 1992, the Company provided
additional reserves of approximately $2,000,000 ($.17 per share, net of tax) in
connection with the sale of Bend related to purchase price negotiations and
settlements.
The combined unaudited net sales and pre-tax loss for all businesses sold or
held for sale in 1993 and 1992 included in the consolidated statement of
operations of the Company were approximately $83,205,000 and $600,000,
respectively, for the year ended December 31, 1993, and approximately
$185,431,000 and $2,250,000, respectively, for the year ended December 31,
1992.
10. Discontinued Operations
Results of discontinued operations include other income and expense items
relating to businesses discontinued in prior years, including an increase in
reserves of approximately $1,400,000 in the third quarter and $5,000,000 in the
fourth quarter of 1992.
Results of discontinued operations in 1991 include other income and expense
items relating to businesses discontinued in prior years, including proceeds
received from the settlement of certain litigation that was pending prior to
the sale in 1989 of the Company's former Bradford-White Corporation subsidiary
which resulted in a pre-tax gain of approximately $700,000 in the first quarter
of 1991 ($.03 per share, net of tax).
11. Net Gain (Loss) on Investment and Marketable Securities
During 1993, the Company recorded a pre-tax gain on investment and marketable
securities of $1,000,000 ($0.05 per share, net of tax) in the first quarter, a
pre-tax gain of $450,000 ($0.02 per share, net of tax) in the second quarter, a
$900,000 pre-tax gain ($0.05 per share, net of tax) in the third quarter and a
pre-tax loss of $700,000 ($0.04 per share, net of tax) in the fourth quarter.
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
During 1992, the Company recorded a pre-tax loss on investment and marketable
securities of $500,000 ($.03 per share, net of tax) in the first quarter, a pre-
tax gain of $850,000 ($.04 per share, net of tax) in the second quarter, a
$1,050,000 pre-tax gain ($.06 per share, net of tax) in the third quarter and a
pre-tax loss of $550,000 ($.04 per share, net of tax) in the fourth quarter.
During 1991, the Company recorded a pre-tax gain on investment and marketable
securities of approximately $200,000 ($.01 per share, net of tax) in the first
quarter, a pre-tax loss of $1,850,000 ($.09 per share, net of tax) in the
second quarter, a pre-tax gain of $350,000 ($.02 per share, net of tax) in the
third quarter and a pre-tax gain of $1,700,000 ($.09 per share, net of tax) in
the fourth quarter. The pre-tax loss in the second quarter includes a
$1,600,000 pre-tax loss ($.07 per share, net of tax) from the sale of the
Company's investment in Stanley Interiors' preferred stock (previously recorded
in other assets) for approximately $1,000,000 in cash.
12. Selling, General and Administrative Expense
In the fourth quarter of 1993, the Company's Plumbing Products Group recorded a
pre-tax loss of approximately $2,800,000 ($.15 per share, net of tax) in
connection with the curtailment of certain product lines. In the third quarter
of 1993, the Company recorded a pre-tax loss of approximately $1,600,000 ($.08
per share, net of tax) as a result of the sale in October 1993 of certain real
property and provided a pre-tax reserve of approximately $700,000 ($.04 per
share, net of tax) in connection with the consolidation of certain of its
manufacturing facilities.
During 1991, the Company increased reserves (primarily related to businesses
sold) for bad debts and warranties and recorded net after-tax charges of
approximately $800,000 ($.06 per share) in the first quarter, $600,000 ($.04
per share) in the second quarter, $600,000 ($.04 per share) in the third
quarter, and $800,000 ($.06 per share) in the fourth quarter. Also during 1991,
the Company recorded net after-tax charges of approximately $400,000 ($.03 per
share) in the second quarter, $800,000 ($.06 per share) in the third quarter
and $200,000 ($.01 per share) in the fourth quarter in connection with various
litigation matters.
13. Accrued Expenses and Taxes, Net
Accrued expenses and taxes, net, consist of the following at December 31, 1993
and 1992:
December 31,
-------------
1993 1992
---- ----
(Amounts in Thousands)
Interest $ 4,759 $ 4,840
Insurance 17,677 18,071
Payroll, management incentive and
accrued employee benefits 11,647 10,567
Businesses sold or discontinued 8,650 12,963
Other, net 48,689 45,835
------- ------
$91,422 $92,276
======= ======
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
14. Summarized Quarterly Financial Data (Unaudited)
The following summarizes unaudited quarterly financial data for the years ended
December 31, 1993 and December 31, 1992:
For the Quarters Ended
----------------------
April 3 July 3 Oct. 2 Dec. 31
------- ------- ------ -------
(In Thousands except per share amounts)
1993
Net sales $178,707 $195,058 $202,030 $168,318
Gross profit 49,545 54,665 56,985 50,430
Earnings (loss) from
continuing operations (1,400) 1,500 (12,900) 200
Earnings (loss) per share
from continuing operations:
Primary $ (.11) $ .12 $ (1.03) $ .02
Fully diluted $ (.11) $ .12 $ (1.03) $ .02
Net earnings (loss) $ (3,500) $ 1,500 $(12,900) $ (5,900)
Net earnings (loss) per share:
Primary $ (.28) $ .12 $ (1.03) $ (.47)
Fully diluted $ (.28) $ .12 $ (1.03) $ (.47)
For the Quarters Ended
----------------------
March 28 June 27 Sept. 26 Dec. 31
-------- ------- ------ -------
(In Thousands except per share amounts)
1992
Net sales $188,868 $215,862 $212,500 $182,749
Gross profit 46,017 54,239 51,317 53,229
Earnings (loss) from
continuing operations 100 100 (19,800) (1,400)
Earnings (loss) per share
from continuing operations:
Primary $ .01 $ .01 $ (1.58) $ (.11)
Fully diluted $ .01 $ .01 $ (1.58) $ (.11)
Net earnings (loss) $ 100 $ 300 $(19,900) $ (4,700)
Net earnings (loss) per share:
Primary $ .01 $ .02 $ (1.59) $ (.37)
Fully diluted $ .01 $ .02 $ (1.59) $ (.37)
The Company's earnings (loss) from continuing operations in 1993 includes an
approximately $14,900,000 net after tax loss ($1.19 per share) in the third
quarter relating to a valuation reserve to reduce the Company's investment in
Dixieline to estimated net realizable value. (See Notes 1 and 9.) The net
earnings (loss) in 1993 also includes an approximately $2,100,000 net after-tax
loss ($0.17 per share) related to the cumulative effect of an accounting change
in the first quarter (see Note 6), and an approximately $6,100,000 after-tax
extraordinary loss ($0.49 per share) in the fourth quarter related to the call
for debt redemption in the first quarter of 1994. (See Note 4.)
The Company's earnings (loss) from continuing operations in 1992 includes a net
after-tax gain of approximately $4,200,000 ($.34 per share) in the first
quarter, a net after-tax loss of approximately $18,200,000 ($1.43 per share)
Nortek, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
in the third quarter and a net after-tax loss of approximately $2,000,000 ($.17
per share) in the fourth quarter on businesses sold. The Company's net loss in
the fourth quarter of 1992 also includes a $3,300,000 after-tax loss ($.27 per
share) on discontinued operations (see Notes 7 and 9).
See Notes 4, 5, 9, 10, 11 and 12 regarding certain other quarterly transactions
included in the operating results in the above table.
Lower net sales in 1993 and 1992, as compared to the prior year principally
reflect the effect of businesses sold or held for sale, partially offset by
increased net sales of ongoing operations, in part, resulting from the slight
improvement in the residential housing market. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations).
SCHEDULE I
NORTEK, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES
DECEMBER 31, 1993
NUMBER OF
SHARES, MARKET AMOUNT
UNITS OR COST VALUE ON THE
PRINCIPAL OF EACH OF EACH BALANCE
DESCRIPTION AMOUNT ISSUE ISSUE SHEET
- ----------- --------- ------- ------- -------
(Dollar Amounts in Thousands)
Unrestricted marketable
securities:
U. S. Governmental and Agency
Securities 26,000 $26,321 $25,892 $25,892
SCHEDULE II
NORTEK, INC. AND SUBSIDIARIES
NOTES AND ACCRUED INTEREST RECEIVABLE FROM EMPLOYEES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE DEDUCTIONS BALANCE
BEGINNING AMOUNTS AMOUNTS END OF YEAR
------------ -----------
NAME OF YEAR ADDITIONS COLLECTED WRITTEN OFF CURRENT NON-CURRENT
1991
Ralph R.
Papitto(c) $324,940$27,253(a) $ --- $ --- $ --- $352,193
1992
Ralph R.
Papitto(c) $352,193$27,253(a) $ --- $ --- $379,446 $ ---
======= ====== ==== ==== ======= =======
1993
Ralph R.
Papitto(c) $379,446$22,711(a) $ ---$402,157(b) $ --- $ ---
======= ====== ==== ======= ======= =======
(a) Accrued interest at a rate of 8.95%.
(b) Amounts forgiven and recorded as compensation expense.
(c) In connection with the retirement and settlement of the employment
agreement and other matters involving the Company's former Chairman, the
remaining principal balance and accrued interest was forgiven on October
31, 1993.
SCHEDULE V
NORTEK, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
OTHER (e)
BALANCE AT CHANGES BALANCE
BEGINNING ADDITIONS DEBIT/ AT END
CLASSIFICATION OF YEAR AT COST (CREDIT) OF YEAR
- -------------- ---------- --------- ------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Land $ 23,797 $ 33 $ (822) (a)$23,043
(430) (b)
465 (c)
Buildings and (2,647) (a)
Improvements 95,113 2,201 (8,997) (b)89,027
3,357 (c)
(2,575) (a)
Machinery and (18,054) (b)
Equipment and other 133,658 13,781 (5,304) (c)121,506
------- ------ ------- -------
$252,568 $16,015 $(35,007) $233,576
======= ====== ======= =======
For the year ended December 31, 1992:
$ (94) (a)
Land $ 23,043 $ 10 (1,409) (b)$20,822
(728) (c)
Buildings and (1,104) (a)
Improvements 89,027 316 (9,915) (b)71,388
(6,936) (c)
(4,162) (a)
Machinery and (12,790) (b)
Equipment and other 121,506 8,478 (1,154) (c)111,878
------- ------ ------- -------
$233,576 $ 8,804 $(38,292) $204,088
======= ====== ======= =======
For the year ended December 31, 1993:
Land $ 20,822 $ 60 $ (1,603) (c)$ 5,833
(13,446) (d)
(103) (a)
Buildings and (902) (c)
Improvements 71,388 305 (18,379) (d)52,309
(2,649) (a)
Machinery and (2,146) (c)
Equipment and other 111,878 10,444 (8,544) (d)108,983
------- ------ ------- -------
$204,088 $10,809 $(47,772) $167,125
======= ====== ======= =======
(a) Sale, retirement or transfers of property and equipment
(b) Sale of businesses
(c) Other
(d) Transfer of property and equipment of Dixieline to non-current assets of
business held for sale
(e) The total amount of property and equipment at December 1992, of
approximately $204,088,000 above, includes approximately $39,050,000 of
Dixieline property and equipment classified as non-current assets of
business held for sale in the accompanying consolidated balance sheet.
SCHEDULE VI
NORTEK, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
ADDITIONS (a)
BALANCE ATCHARGED TORETIREMENTS BALANCE
BEGINNING COSTS AND AND AT END
CLASSIFICATION OF YEAR EXPENSES OTHER OF YEAR
- -------------- ------------------------------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Buildings and
Improvements $19,737 $ 5,189 $ (3,004) $21,922
Machinery and
Equipment 46,722 15,563 (9,574) 52,711
------ ------ ------- ------
$66,459 $20,752 $(12,578) $74,633
====== ====== ======= ======
For the year ended December 31, 1992:
Buildings and
Improvements $21,922 $ 4,241 $ (5,797) $20,366
Machinery and
Equipment 52,711 13,041 (10,811) 54,941
------ ------ ------- ------
$74,633 $17,282 $(16,608) $75,307
====== ====== ======= ======
For the year ended December 31, 1993:
Buildings and
Improvements $20,366 $ 3,596 $ (7,777) $16,185
Machinery and
Equipment 54,941 11,397 (5,977) 60,361
------ ------ ------- ------
$75,307 $14,993 $(13,754) $76,546
====== ====== ======= ======
(a) The total amount of accumulated depreciation at December 31, 1992 of
approximately $75,307,000 above includes approximately $8,838,000 of
Dixieline accumulated depreciation classified in non-current assets of
business held for sale in the accompanying consolidated balance sheet.
SCHEDULE VIII
NORTEK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGED
AT TO COSTS CHARGED DEDUCTIONS BALANCE
BEGINNING AND TO OTHER FROM AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- -------------- --------- -------- -------- ---------- -------
(Amounts in Thousands)
For the year ended December 31, 1991:
Allowances for doubtful
accounts and sales
allowances $4,633 $3,349$(1,160)(b)$(2,189)(a) $4,633
===== ===== ====== ====== =====
For the year ended December 31, 1992:
Allowances for doubtful
accounts and sales
allowances $4,633 $2,362$ (573)(b)$(2,354)(a) $4,068
===== ===== ===== ====== =====
For the year ended December 31, 1993:
Allowances for doubtful
accounts and sales
allowances $4,068 $1,832$ (125)(c)$(1,577)(a) $4,198
===== ===== ===== ====== =====
(a) Amounts written off, net of recoveries.
(b) Sale of businesses.
(c) Transfer of allowances for doubtful accounts of Dixieline to current
assets of business held for sale.
SCHEDULE IX
NORTEK, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
DECEMBER 31, 1993
WEIGHTED MAXIMUM AVERAGE
AVERAGE AMOUNT AMOUNT AVERAGE
INTEREST OUT- OUT- INTEREST
CATEGORY OF BALANCE RATE STANDING STANDING RATE
AGGREGATE SHORT- AT END AT END DURING DURING DURING
TERM BORROWINGS OF YEAR OF YEAR THE YEAR THE YEAR THE YEAR
- ---------------- ------- -------- -------- ---------- ----------
(Dollar Amounts in Thousands)
Year ended December
31, 1991:
Credit Line Borrowings(a) $ --- --- $15,600 $10,900 10.38%
Margin Borrowings(b) --- --- 9,000 --- ---
Year ended December
31, 1992:
Margin Borrowings(b) $ --- --- $13,100 $ 4,831 6.34%
Year ended December
31, 1993:
Credit Line Borrowings(c) $7,000 6.15% $7,000 $7,000 6.15%
Margin Borrowings(b) --- --- 7,000 5,293 5.50%
(a) During 1991, the Company's Canadian subsidiary had up to approximately
$15,600,000 of borrowings under a secured line of credit. The average
amount outstanding and average interest rate during the year was
calculated based on outstanding balances and weighted average interest
rates at each month end during the year, respectively.
(b) During 1991, the Company had margin borrowings outstanding of $9,000,000
for three days at 7.75%. During 1992, the Company had margin borrowings
outstanding for 141 days at a weighted average interest rate of
approximately 6.34% and a weighted average amount outstanding of
approximately $4,831,000. During 1993, the Company had margin borrowings
outstanding for 51 days at a weighted average interest rate of
approximately 5.50% and a weighted average amount outstanding of
approximately $5,293,000. There were no borrowings outstanding at
December 31, 1993.
(c) On December 30, 1993, the Company's Canadian subsidiary borrowed
approximately $7,000,000 under its secured line of credit, and such
borrowings were advanced to Nortek, Inc. (See Note 4 of the Notes to
Consolidated Financial Statements, included elsewhere herein.)
SCHEDULE X
NORTEK, INC. AND SUBSIDIARIES
SUPPLEMENTARY PROFIT AND LOSS INFORMATION (a)
Year Ended December 31,
-----------------------
1993 1992 1991
-------- ----
(Amounts in Thousands)
Maintenance and repairs $ 8,258 $10,955 $11,640
====== ====== ======
Advertising $12,186 $10,963 $11,945
====== ====== ======
(a)Depreciation and amortization of intangible assets and similar deferrals
have been disclosed separately in the Registrant's consolidated
financial statements for the three years ended December 31, 1993.
Taxes, other than payroll and income taxes, and royalties, as reported
in the related consolidated statement of operations, did not exceed 1%
of net sales and are therefore not required to be disclosed separately.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nortek, Inc.:
As independent public accountants, we hereby consent to the
incorporation of our report dated March 24, 1994 included in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8
(File Nos. 33-22527 and 33-47897) and Form S-3 (File No. 33-4693).
ARTHUR ANDERSEN & CO.
Boston, Massachusetts,
March 24, 1994
EXHIBIT INDEX
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference. Exhibits marked with a double asterisk identify each
management contract or compensatory plan or arrangement.
3.1 Restated Certificate of Incorporation of Nortek, Inc. (Exhibit 2
to Form 8-K filed April 23, 1987, File No. 1-6112).
3.2 Amendment to Restated Certificate of Incorporation of Nortek,
Inc. effective May 10, 1989 (Exhibit 3.2 to Form 10-K filed March 30,
1990, File No. 1-6112).
*3.3 By-laws of Nortek, Inc. (as amended through November 30, 1993).
4.1 Indenture dated as of May 1, 1986 between the Company and Fleet
National Bank relating to the 7 1/2% Convertible Debentures due 2006
(Exhibit 4.1 to Registration Statement No. 33-4693 filed April 23,
1986).
4.2 First Supplemental Indenture dated as of April 23, 1987 between
the Company and Fleet National Bank supplementing the Indenture dated
May 1, 1986 relating to the 7 1/2% Convertible Debentures due 2006
(Exhibit 4.11 to Form 10-K filed March 30, 1988, File No. 1-6112).
4.3 Rights Agreement dated as of March 31, 1986 as amended and
restated as of March 18, 1991 between the Company and State Street
Bank and Trust Company, as Rights Agent (Exhibit 1 to Form 8-K filed
March 26, 1991, File No. 1-6112).
4.4 Amendment No. 1 dated as of October 6, 1993 to Amended and
Restated Rights Agreement dated as of March 18, 1991 (Exhibit 1 to
Form 8-K filed October 12, 1993, File No. 1-6112).
*4.5 Indenture dated as of February 14, 1994 between the Company and
State Street Bank and Trust Company, as Trustee, relating to the 9
7/8% Senior Subordinated Notes due 2004.
**10.1 Employment Agreement between Richard L. Bready and the
Company, dated as of January 1, 1984 (Exhibit 10.2 to Form 10-K filed
March 31, 1986, File No. 1-6112).
**10.2 Amendment dated as of March 3, 1988 to Employment Agreement
between Richard L. Bready and the Company dated as of January 1, 1984
(Exhibit 19.2 to Form 10-Q filed May 17, 1988, File No. 1-6112).
**10.3 Second Amendment dated as of November 1, 1990 to Employment
Agreement between Richard L. Bready and the Company dated as of
January 1, 1984 (Exhibit 10.3 to Form 10-K filed April 1, 1991, File
No. 1-6112).
**10.4 Deferred Compensation Agreement dated March 7, 1983 between
Richard L. Bready and the Company (Exhibit 10.4 to Registration
Statement No. 33-69778 filed February 9, 1994).
**10.5 Deferred Compensation Agreement dated March 7, 1983 between
Almon C. Hall and the Company (Exhibit 10.5 to Registration Statement
No. 33-69778 filed February 9, 1994.
**10.6 Deferred Compensation Agreement dated March 7, 1983 between
Richard J. Harris and the Company (Exhibit 10.6 to Registration
Statement No. 33-69778 filed February 9, 1994).
**10.7 1984 Stock Option Plan, as amended through May 27, 1987
(Exhibit 28.2 to Registration Statement No. 33-22527 filed June 15,
1988).
**10.8 Change in Control Severance Benefit Plan for Key Employees
adopted February 10, 1986, and form of agreement with employees
(Exhibit 10.19 to Form 10-K filed March 31, 1986, File No. 1-6112).
**10.9 1987 Stock Option Plan (Exhibit 28.3 to Registration
Statement No. 33-22527 filed June 15, 1988).
**10.10 Form of Indemnification Agreement between the Company and
its directors and certain officers (Appendix C to Proxy Statement
dated March 23, 1987 for Annual Meeting of Nortek Stockholders, File
No. 1-6112).
**10.11 1988 General Stock Option Plan (Appendix A to Proxy
Statement dated April 1, 1988 for Annual Meeting of Nortek
Stockholders, File No. 1-6112).
**10.12 1988 General Stock Option Plan III (Appendix C to Proxy
Statement dated April 12, 1989 for Annual Meeting of Nortek
Stockholders, File No. 1-6112).
10.13 Registration Rights Agreement dated as of October 31, 1990
between the Company and Bready Associates (Exhibit 4 to Schedule 13D
filed November 13, 1990 by Bready Associates relating to the Common
Stock, par value $1.00 per share, of the Company).
**10.14 1990 General Stock Option Plan (Appendix A to Proxy
Statement dated April 17, 1991 for Annual Meeting of Nortek
Stockholders, File No. 1-6112).
*11.1 Calculation of Shares Used in Determining Earnings Per
Share.
*22.1 List of subsidiaries.