NORTEK SALES/EARNINGS UP
FOR SECOND QUARTER
PROVIDENCE, RI, August 3, 2004—Nortek, Inc. (“Nortek”), a leading international designer, manufacturer and marketer of high-quality branded building products, today announced increased second quarter sales and earnings from a continuing strong residential housing and home improvement market.
Nortek second-quarter 2004 sales from continuing operations totaled $448 million, up 15 percent from the comparable period in 2003. Operating earnings from continuing operations for this year’s second quarter were $46.6 million compared to last year’s $43.8 million. The results from continuing operations exclude Nortek’s formerly owned subsidiary, Ply Gem Industries, Inc. (“Ply Gem”), which has been sold and accordingly treated as a discontinued operation.
Richard L. Bready, Chairman and Chief Executive Officer, said, “This was a very strong quarter in both revenue and earnings. Our operating performance was driven by strong sales gains in our Residential Building Products segment and the continuing benefit of Nortek’s manufacturing efficiency programs.”
On January 9, 2003, certain affiliates of Kelso & Company, L.P. and certain members of management acquired control of Nortek in a recapitalization transaction. Net sales for the nine-day period ending January 9, 2003 and the period from January 10 to July 5, 2003 were $25 million and $726 million, respectively. Operating earnings (loss) for the nine-day period ending January 9, 2003 and the period from January 10 to July 5, 2003 were $(81.8) million and
$78.4 million, respectively.
Key financial highlights from continuing operations for the first half of 2004 included:
Mr. Bready added, “Overall housing activity remains at very healthy levels and it is expected that overall residential housing markets will continue to be solid for the remainder of the year. The manufactured housing and commercial HVAC markets are not expected to see meaningful increases in 2004.”
Acquisitions contributed approximately $21.9 million and $37.3 million to net sales for the second quarter and six months ended July 3, 2004, respectively, and contributed approximately $4.0 million and $5.9 million to operating earnings for the second quarter and six months ended July 3, 2004, respectively. In addition, the six-month results for 2004 included a loss from early retirement of debt of approximately $12 million.
As of July 3, 2004, Nortek had approximately $128 million in unrestricted cash, equivalents and marketable securities and has no borrowings outstanding under its $175-million revolving credit facility.
On July 15, 2004, Thomas H. Lee Partners L.P., in partnership with certain members of Nortek’s management, entered into a stock purchase agreement with affiliates of Kelso and Company L.P. and certain other parties to purchase all of the outstanding capital stock of Nortek’s parent company, Nortek Holdings, Inc. (“Nortek Holdings”) in a transaction valued at approximately $1.74 billion before fees and expenses (the “THL transaction”). The THL transaction is subject to customary closing conditions and is expected to be consummated during the third quarter of 2004.
Nortek* (a wholly owned subsidiary of Nortek Holdings, Inc.) is a leading international manufacturer and distributor of high-quality, competitively priced
building, remodeling and indoor environmental control products for the residential and commercial markets. Nortek offers a broad array of products for improving the environments where people live and work. Its products currently include: range hoods and other spot ventilation products; heating and air conditioning systems; indoor air quality systems; and specialty electronic products.
*As used herein, the term “Nortek” refers to Nortek, Inc., together with its subsidiaries, unless the context indicates otherwise. This term is used for convenience only and is not intended as a precise description of any of the separate corporations, each of which manages its own affairs.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on Nortek’s current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors impacting such forward-looking statements include the availability and cost of raw materials and purchased components, the level of construction and remodeling activity, changes in general economic conditions, the rate of sales growth, and product liability claims. Nortek undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to the reports and filings of Nortek with the Securities and Exchange Commission.
# # #
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
|
|
|
|
|
For the Periods |
|
|
|
|
|
Post-Recapitalization |
Pre-Recapitalization |
| |
|
|
|
|
|
|
|
For the Three Months Ended |
Jan. 1, 2004 |
Jan. 10, 2003 |
Jan. 1, 2003 - |
|
|
|
July 3, 2004 |
July 5, 2003 |
July 3, 2004 |
July 5, 2003 |
Jan. 9, 2003 |
|
|
|
(Amounts in thousands) |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
448,393 |
|
$ |
390,029 |
|
$ |
855,836 |
|
$ |
726,106 |
|
$ |
24,951 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
316,409 |
|
|
280,737 |
|
|
605,081 |
|
|
520,394 |
|
|
18,635 |
|
|
Selling, general and administrative expense |
|
|
81,884 |
|
|
63,425 |
|
|
155,831 |
|
|
123,498 |
|
|
5,014 |
|
|
Amortization of intangible assets |
|
|
3,538 |
|
|
2,020 |
|
|
6,849 |
|
|
3,843 |
|
|
67 |
|
|
Expenses and charges arising from the Recapitalization |
|
|
--- |
|
|
--- |
|
|
--- |
|
|
--- |
|
|
83,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,831 |
|
|
346,182 |
|
|
767,761 |
|
|
647,735 |
|
|
106,716 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
|
46,562 |
|
|
43,847 |
|
|
88,075 |
|
|
78,371 |
|
|
(81,765 |
) |
|
Interest expense |
|
|
(9,293 |
) |
|
(12,636 |
) |
|
(25,870 |
) |
|
(29,427 |
) |
|
(1,054 |
) |
|
Loss from debt retirement |
|
|
--- |
|
|
--- |
|
|
(11,958 |
) |
|
--- |
|
|
--- |
|
|
Investment income |
|
|
331 |
|
|
289 |
|
|
1,253 |
|
|
656 |
|
|
119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before provision (benefit) for income taxes |
|
|
37,600 |
|
|
31,500 |
|
|
51,500 |
|
|
49,600 |
|
|
(82,700 |
) |
|
Provision (benefit) for income taxes |
|
|
14,700 |
|
|
13,000 |
|
|
20,200 |
|
|
20,100 |
|
|
(21,800 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
|
|
22,900 |
|
|
18,500 |
|
|
31,300 |
|
|
29,500 |
|
|
(60,900 |
) |
|
Earnings (loss) from discontinued operations |
|
|
(800 |
) |
|
7,400 |
|
|
67,400 |
|
|
1,900 |
|
|
(1,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
22,100 |
|
$ |
25,900 |
|
$ |
98,700 |
|
$ |
31,400 |
|
$ |
(61,900 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited condensed consolidated summary of operations.
A. The unaudited condensed consolidated summary of operations for Nortek, Inc. and its subsidiaries (the “Company” or “Nortek”), in the opinion of management, reflects all adjustments necessary for a fair statement of the periods presented. On February 12, 2004, the Company sold its’ wholly-owned subsidiary, Ply Gem Industries, Inc. (“Ply Gem”), to an affiliate of Caxton-Iseman Capital, Inc. Additionally, in 2002 and 2001, the Company sold certain subsidiaries of Ply Gem. The sales of Ply Gem and other subsidiaries and their related operating results have been excluded from earnings (loss) from continuing operations and are classified as discontinued operations for all periods presented (see Note H). Certain amounts in the prior year’s unaudited condensed consolidated summary of operations have been reclassified to conform to the current year presentation. It is suggested that thisThis unaudited condensed consolidated summary of operations should be read in conjunction with the consolidated financial statements and the notes included in the Company's latest annual report on Form 10-K, its latest quarterly report on Form 10-Q and its latest Current Reports on Form 8-K , its latest quarterly report on Form 10-Q and its latest Current Reports on Form 8-K as filed with the Securities and Exchange Commission (“SEC”).
On November 20, 2002, the Company reorganized into a holding company structure and each outstanding share of capital stock of the Company was converted into an identical share of capital stock of Nortek Holdings, Inc. (“Nortek Holdings”), a Delaware corporation formed in 2002, with Nortek Holdings becoming the successor public company and the Company becoming a wholly-owned subsidiary of Nortek Holdings (the “Nortek Holdings Reorganization”). On January 9, 2003, Nortek Holdings, the parent company of Nortek, was acquired by certain affiliates and designees of Kelso & Company L.P. (“Kelso”) and certain members of the Company’s management (the “Management Investors”) in accordance with the Agreement and Plan of Recapitalization by and among Nortek, Inc., Nortek Holdings, Inc. and K Holdings, Inc. (“K Holdings”) dated as of June 20, 2002, as amended, (the “Recapitalization Agreement”) in a transaction valued at approximately $1.6 billion, including all of the Company’s indebtedness (the “Recapitalization”). Refer to the Company’s Form 10-K as filed with the SEC for a more detailed description of the Recapitalization.
B. On February 12, 2004, the Company sold the capital stock of its wholly-owned subsidiary Ply Gem for net cash proceeds of approximately $506,700,000, after excluding approximately $21,400,000 of proceeds provided to fund liabilities of Ply Gem indemnified by the Company, and recorded a net after-tax gain on the sale of approximately $72,300,000 in the first quarter of 2004. Ply Gem, through its operating subsidiaries, is a manufacturer and distributor of a range of products for use in the residential new construction, do-it-yourself and professional renovation markets, including vinyl siding, windows, patio doors, fencing, railing, decking and accessories. The results of operations of the operating subsidiaries of Ply Gem comprised the Company’s entire Windows, Doors and Siding Products (“WDS”) reporting segment and the corporate expenses of Ply Gem were previously included in Unallocated other, net in the Company’s segment reporting.
The Company allocates interest to dispositions that qualify as a discontinued operation for debt instruments which are entered into specifically and solely with the entity disposed of and from debt which is settled with proceeds received from the disposition. For the six months ended July 3, 2004, interest allocated to discontinued operations, included in interest expense, net in the table below, was approximately $2,800,000 (net of taxes of approximately $1,600,000). For the second quarter ended July 5, 2003 and the periods from January 10, 2003 to July 5, 2003 and from January 1, 2003 to January 9, 2003, interest allocated to discontinued operations, included in interest expense, net in the table below, was approximately $6,000,000 (net of taxes of approximately $3,600,000), $11,400,000 (net of taxes of approximately $6,700,000) and $800,000 (net of taxes of approximately $400,000), respectively.
The sale of Ply Gem and the related operating results have been excluded from earnings (loss) from continuing operations and are classified as discontinued operations for all periods presented.
The table that follows presents a summary of the results of discontinued operations for the three months ended July 3, 2004 and July 5, 2003:
|
|
|
Post-Recapitalization |
|
|
|
For the Three |
|
|
|
Months Ended |
|
|
|
July 3, 2004 |
July 5, 2003 |
|
|
|
(Amounts in thousands) |
|
|
|
(Unaudited) |
|
|
|
|
|
|
Net sales |
|
$ |
--- |
|
$ |
154,500 |
|
| |
|
|
|
|
|
|
Operating earnings (loss) of discontinued operations * |
|
$ |
(1,200 |
) |
$ |
21,581 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
--- |
|
|
(9,881 |
) |
| |
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
|
(1,200 |
) |
|
11,700 |
|
|
Provision (benefit) for income taxes |
|
|
(400 |
) |
|
4,300 |
|
| |
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
$ |
(800 |
) |
$ |
7,400 |
|
| |
|
|
|
|
|
|
Depreciation and amortization expense |
|
$ |
--- |
|
$ |
3,731 |
|
| |
|
|
|
|
|
* Operating earnings of discontinued operations are net of Ply Gem corporate expenses previously included within Unallocated other, net in the Company’s segment reporting.
Operating earnings of discontinued operations for the three months ended July 5, 2003 include approximately $100,000 of severance and other costs associated with the closure of certain manufacturing facilities.
Operating earnings for the three months ended July 3, 2004 reflect the pre-tax impact of stock-based employee compensation charges of approximately $1,200,000 related to Nortek Holdings’ stock options retained by employees of Ply Gem subsequent to the sale of Ply Gem.
The table that follows presents a summary of the results of discontinued operations for the periods presented:
|
|
|
For the Periods |
|
|
|
Post-Recapitalization |
Pre-Recapitalization |
|
|
|
Jan. 1, 2004 - |
Jan. 10, 2003 - |
Jan. 1, 2003 - |
|
|
|
July 3, 2004 |
July 5, 2003 |
Jan. 9, 2003 |
|
|
|
(Amounts in thousands) |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Net sales |
|
$ |
40,600 |
|
$ |
253,600 |
|
$ |
8,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) of discontinued operations * |
|
$ |
(3,244 |
) |
$ |
21,771 |
|
$ |
(368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(4,556 |
) |
|
(18,671 |
) |
|
(1,232 |
) |
| |
|
|
|
|
|
|
|
|
Earnings (loss) before provision (benefit) for income taxes |
|
|
(7,800 |
) |
|
3,100 |
|
|
(1,600 |
) |
|
Provision (benefit) for income taxes |
|
|
(2,900 |
) |
|
1,200 |
|
|
(600 |
) |
| |
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
|
(4,900 |
) |
|
1,900 |
|
|
(1,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations |
|
|
122,700 |
|
|
--- |
|
|
--- |
|
|
Income tax provision on sale of discontinued operations |
|
|
50,400 |
|
|
--- |
|
|
--- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
72,300 |
|
|
--- |
|
|
--- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
$ |
67,400 |
|
$ |
1,900 |
|
$ |
(1,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
$ |
1,359 |
|
$ |
8,478 |
|
$ |
315 |
|
| |
|
|
|
|
|
|
|
* Operating earnings (loss) of discontinued operations are net of Ply Gem corporate expenses previously included within Unallocated other, net in the Company’s segment reporting.
Operating earnings (loss) of discontinued operations for the period from January 10, 2003 to July 5, 2003 include approximately $600,000 of severance and other costs associated with the closure of certain manufacturing facilities. Operating earnings (loss) of discontinued operations for the period from January 10, 2003 to July 5, 2003 also include approximately $1,300,000 of costs and expenses for expanded distribution including new customers.
Operating earnings for the six months ended July 3, 2004 reflect the pre-tax impact of stock-based employee compensation charges of approximately $1,900,000 related to Nortek Holdings’ stock options retained by employees of Ply Gem subsequent to the sale of Ply Gem.
C. The Company has two reportable segments: the Residential Building Products Segment and the Air Conditioning and Heating Products Segment. In the tables below, Unallocated includes corporate related items, intersegment eliminations and certain income and expense items not allocated to reportable segments.
The Company evaluates segment performance based on operating earnings before allocations of corporate overhead costs. Intersegment net sales and intersegment eliminations were not material for any of the periods presented. The income statement impact of all purchase accounting adjustments, including goodwill and intangible asset amortization, is reflected in the operating earnings of the applicable operating segment.
Net sales, operating earnings and pre-tax earnings from continuing operations for the Company’s segments for the three months ended July 3, 2004 and July 5, 2003 were as follows:
|
|
|
Three Months Ended |
|
|
|
July 3, 2004 |
July 5, 2003 |
|
|
|
(Amounts in thousands) |
|
|
|
(Unaudited) |
|
Net sales: |
|
|
|
|
|
|
|
|
Residential building products |
|
$ |
245,627 |
|
$ |
194,928 |
|
|
Air conditioning and heating products |
|
|
202,766 |
|
|
195,101 |
|
| |
|
|
|
|
|
|
Consolidated net sales |
|
$ |
448,393 |
|
$ |
390,029 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings: |
|
|
|
|
|
|
|
|
Residential building products * |
|
$ |
41,706 |
|
$ |
31,551 |
|
|
Air conditioning and heating products * |
|
|
16,218 |
|
|
19,016 |
|
| |
|
|
|
|
|
|
Subtotal |
|
|
57,924 |
|
|
50,567 |
|
|
Unallocated: |
|
|
|
|
|
|
|
|
Strategic sourcing software and |
|
|
|
|
|
|
|
|
systems development expense |
|
|
--- |
|
|
(300 |
) |
|
Stock based compensation charges |
|
|
(2,100 |
) |
|
(200 |
) |
|
Other, net |
|
|
(9,262 |
) |
|
(6,220 |
) |
| |
|
|
|
|
|
|
Consolidated operating earnings |
|
|
46,562 |
|
|
43,847 |
|
|
Interest expense |
|
|
(9,293 |
) |
|
(12,636 |
) |
|
Investment income |
|
|
331 |
|
|
289 |
|
| |
|
|
|
|
|
|
Earnings before provision for income taxes |
|
$ |
37,600 |
|
$ |
31,500 |
|
| |
|
|
|
|
|
* The operating results of the Air Conditioning and Heating Products Segment for the three months ended July 3, 2004 and July 5, 2003 include approximately $600,000 and $1,400,000, respectively, of costs associated with the closure of certain manufacturing facilities. The operating results of the Air Conditioning and Heating Products Segment for the three months ended July 3, 2004 and July 5, 2003 also include approximately $1,800,000 and $550,000, respectively, of estimated inefficient production costs and expenses associated with the start-up of a new manufacturing facility. The operating results of the Residential Building Products Segment for the three months ended July 3, 2004 and July 5, 2003 include approximately $600,000 and $100,000, respectively, and operating results of the Air Conditioning and Heating Products Segment include for the three months ended July 3, 2004 approximately $400,000 of compensation expense related to stock options issued to employees of such segments in accordance with SFAS No. 123.
Net sales, operating earnings (loss) and pre-tax earnings (loss) from continuing operations for the Company’s segments for the periods presented below were as follows:
