Nortek Inc. News Release

Richard L. Bready, Chairman and CEO
Edward J. Cooney, Vice President and Treasurer
(401) 751-1600

IMMEDIATE

NORTEK REPORTS MAJOR INCREASES
FOR 2ND-QUARTER SALES/OPERATING EARNINGS


PROVIDENCE, RI, July 28, 2005—Nortek, Inc. (“Nortek”), a leading international designer, manufacturer and marketer of high-quality branded building products, today announced that second-quarter sales and operating earnings from continuing operations increased 12 percent and 26 percent, respectively.

Building on a 7-percent increase in sales in the first quarter, Nortek sales for the first half were $933 million led by the continued strength of the Company’s core residential housing and home-improvement markets.

Key financial highlights from continuing operations for the second quarter included:

·  
Net sales of $499 million, an increase of 12 percent compared to the $446 million recorded in the 2004 second quarter.
 
·  
Operating earnings of $59.1 million, an increase of 26 percent over last year’s second quarter of $46.9 million.

·  
Depreciation and amortization expense of $11.1 million compared to $10.6 million in last year’s second quarter.
 
·  
Net earnings from continuing operations of $21.3 million compared to $17.1 million in last year’s comparable period.
 
Nortek had increases in sales and operating earnings in both its Residential Building Products and Air Conditioning and Heating Products Segments. The Company continues to experience material cost increases related primarily to purchases of steel, copper and aluminum. These cost increases were offset by price increases, continued strategic sourcing initiatives and improvement in manufacturing efficiency.

Richard L. Bready, Chairman and Chief Executive Officer, said, “Our major businesses delivered a solid performance in the second quarter, particularly our growing group of home technology companies. Their continued growth led to the strong results achieved in our Residential Building Products Segment.”

So far this year, there have been two expansions of the home-technology group. In April, Nortek, through its Linear LLC subsidiary, acquired Panamax of Petaluma, California, a designer and distributor of innovative power conditioning and surge protection products for the home; and on July 15, Linear acquired the business of Niles Audio Corporation of Miami, Florida, a supplier of audio and video distribution products and speakers to the custom home installation market.

The results from continuing operations exclude Nortek’s formerly owned subsidiaries, Ply Gem Industries, Inc. and LaCornue SAS, which were sold in 2004 and accordingly treated as discontinued operations in 2004.

Key financial highlights from continuing operations for the first half of 2005 included:

·  
Net sales of $933 million, an increase of 9.6 percent compared to the $851 million recorded for the comparable period in 2004.

·  
Operating earnings of $100 million, an increase of 12.9 percent over the $88.6 million recorded in the first half of 2004.

Mr. Bready added, “Housing activity maintained its solid pace in the first half of 2005, and it is expected that overall residential housing markets will remain strong for the remainder of the year. For the first six months of 2005, building permits were up 1.8 percent and housing starts were up 5.2 percent compared to the same period in 2004. However, through June, HVAC industry air conditioning and heat pump shipments were down slightly over 2004 due to cool weather in April and May. In addition, we believe the custom-designed commercial HVAC and the manufactured housing markets will not see a meaningful recovery in 2005.”

Mr. Bready added, “We expect, if the strength in housing continues, that 2005 will be a year of improvement in the sales and operating earnings for both our Residential Building Products and Air Conditioning and Heating Products Segments.”

Acquisitions contributed approximately $11.2 million and $1.2 million to net sales and operating earnings, respectively, for the second quarter of 2005 and contributed approximately $23.4 million and $1.7 million to net sales and operating earnings for the six months ended July 2, 2005.

Nortek* (a wholly owned subsidiary of Nortek Holdings, which is a wholly owned subsidiary of NTK 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 include: range hoods, bath fans, indoor air quality systems and other spot ventilation products; heating and air conditioning systems; and home technology offerings, including audio, video, entry and security and other 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 CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS


   
For the Three Months Ended
  
For the Six Months Ended
  
   
Post-
 
Pre-
 
Post-
 
Pre-
 
 
 
Acquisition
 
Acquisition
 
Acquisition
 
Acquisition
 
 
 
July 2, 2005
 
July 3, 2004
 
July 2, 2005
 
July 3, 2004
  
   
(Amounts in thousands)
  
                   
Net Sales 
  
$
498,860
  
$
446,012
  
$
932,978
  
$
851,024
  
                           
Costs and Expenses:
                          
Cost of products sold
   
350,406
   
314,804
   
659,865
   
601,686
 
Selling, general and administrative expense
   
84,987
   
80,781
   
164,428
   
153,929
 
Amortization of intangible assets
   
4,385
   
3,540
   
8,718
   
6,849
 
     
439,778
   
399,125
   
833,011
   
762,464
 
Operating earnings
    
59,082
   
46,887
   
99,967
   
88,560
 
Interest expense
   
(25,144
)
  
(18,422
)
  
(49,429
)
  
(43,981
)
Loss from debt retirement
    
---
   
---
   
---
   
(11,958
)
Investment income
   
362
   
335
   
762
   
1,279
 
Earnings from continuing operations
                          
before provision for income taxes
   
34,300
   
28,800
   
51,300
   
33,900
 
Provision for income taxes
   
13,000
   
11,700
   
19,300
   
13,800
 
Earnings from continuing operations 
    
21,300
   
17,100
   
32,000
   
20,100
 
(Loss) earnings from discontinued operations 
    
---
   
(1,200
)
  
---
   
66,900
 
Net earnings
  
$
21,300
  
$
15,900
  
$
32,000
  
$
87,000
  
 
The accompanying notes are an integral part of this unaudited condensed consolidated summary of operations.

 
(A)        The unaudited condensed consolidated summary of operations presented herein for periods prior to August 28, 2004 reflect the results of operations of the former Nortek Holdings, Inc. and all of its wholly-owned subsidiaries (the predecessor company) and subsequent to August 27, 2004, reflect the results of operations of Nortek, Inc. (the successor company and survivor from the mergers in connection with the acquisition on August 27, 2004 by Thomas H. Lee Partners, L.P. and affiliates and certain members of the Company’s management). The unaudited condensed consolidated summary of operations include the accounts of the former Nortek Holdings, Inc. and Nortek, Inc., as appropriate and all of their wholly-owned subsidiaries (individually and collectively, the “Company” or “Nortek”), after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. Certain 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 these unaudited condensed consolidated summary of operations be read in conjunction with the consolidated financial statements and the notes included in the Company's latest quarterly report on Form 10-Q, its latest annual report on Form 10-K and its Current Reports on Form 8-K as filed with the Securities and Exchange Commission (“SEC”).

(B)           On June 13, 2005, the Company, through its wholly-owned subsidiary Nordyne, Inc. (“Nordyne”), acquired International Marketing Supply, Inc. (“IMS”) for approximately $5,000,000, utilizing approximately $4,500,000 of cash on hand and issuing an unsecured promissory note in the amount of approximately $500,000. IMS is located in Miami, FL and sells heating, ventilation and air-conditioning equipment to Latin America.

On April 26, 2005, the Company, through its indirect wholly-owned subsidiary, Linear LLC (“Linear”), acquired Panamax for approximately $11,750,000 (utilizing approximately $9,500,000 of cash on hand and issuing an unsecured promissory note in the amount of approximately $2,250,000) plus an earn-out based upon the earnings of Panamax for 2005 which is capped at approximately $4,250,000. Panamax is located in Petaluma, CA and manufactures and designs innovative power conditioning and surge protection products that prevent loss or damage of home and small business equipment due to power disturbances.

On December 17, 2004, the Company, through Linear, acquired M&S Systems, LP (“M&S”), located in Dallas, Texas, for approximately $16,400,000. M&S is a manufacturer and designer of distributed audio and communication equipment, speakers and central vacuum systems.

On March 9, 2004, the Company, through Linear, acquired OmniMount Systems, Inc. (“OmniMount”) for approximately $16,500,000 in cash and contingent consideration. The contingent consideration is payable 90 days after fiscal 2006 if certain fiscal 2006 financial results, as defined by the stock purchase agreement, are met. OmniMount is a manufacturer and designer of speaker and video mountings and other products to maximize the home theater experience.
 
Acquisitions contributed approximately $11,200,000, $1,200,000 and $100,000 to net sales, operating earnings and depreciation and amortization expense, respectively, for the second quarter ended July 2, 2005 and contributed approximately $23,400,000, $1,700,000 and $200,000 to net sales, operating earnings and depreciation and amortization expense, respectively, for the first six months ended July 2, 2005. Panamax, M&S and OmniMount are included in the Residential Building Products Segment in the Company’s segment reporting, while IMS is included in the Air Conditioning and Heating Products Segment in the Company’s segment reporting. Pro forma results related to these acquisitions have not been presented, as the effect is not significant to the Company’s consolidated operating results.

Acquisitions are accounted for as purchases and, accordingly, have been included in the Company’s consolidated results of operations since the acquisition date. Purchase price allocations are subject to refinement until all pertinent information regarding the acquisition is obtained.

On July 15, 2005, the Company acquired the assets and certain liabilities of Niles Audio Corporation (“Niles”) for an initial purchase price of approximately $75,400,000. In connection with the acquisition of Niles, the Company utilized approximately $40,400,000 of cash on hand, borrowed approximately $25,000,000 against the U.S. portion of its revolving credit facility (which effectively reduced its borrowing availability by such amount) and issued an unsecured promissory note in the amount of approximately $10,000,000. Subsequent to the acquisition, the Company repaid approximately $15,000,000 of the outstanding balance of the U.S. portion of its revolving credit facility and at July 27, 2005, had approximately $10,000,000 of remaining outstanding borrowings and approximately $61,700,000 of borrowing availability under the U.S. portion of its revolving credit facility. As this transaction occurred on July 15, 2005, amounts prior to July 15, 2005 do not include the effect of the Niles acquisition. Niles is located in Miami, FL and manufactures and designs products that provide customers with innovative solutions for whole-house distribution and integration of audio and video systems, including speakers, receivers, amplifiers, automation devices, controls and accessories. For the year ended December 31, 2004, Niles had net sales, operating earnings and depreciation and amortization expense of approximately $50,000,000, $8,500,000 and $500,000, respectively.

(C)
On July 31, 2004, the Company sold the capital stock of its wholly-owned subsidiary, La Cornue SAS (“La Cornue”) for net cash proceeds of approximately $5,800,000 and recorded a net after tax gain of approximately $900,000. La Cornue, situated outside of Paris, France manufactures and sells high-end custom made cooking ranges.

On February 12, 2004, the Company sold the capital stock of its wholly-owned subsidiary Ply Gem Industries, Inc. (“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 $74,100,000. 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, which were previously included in Unallocated in the Company’s segment reporting (see Note D).

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 for debt which is settled with proceeds received from the disposition. 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 first six months ended July 3, 2004.

The sale of La Cornue and Ply Gem and the related operating results have been excluded from earnings 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 second quarter and first six months ended July 3, 2004:


   
Pre-Acquisition
  
   
For the Three
 
For the Six
 
 
 
Months Ended
 
Months Ended
 
 
 
July 3, 2004
 
July 3, 2004
  
   
(Amounts in thousands)
  
           
Net sales
  
$
2,400
  
$
45,400
  
               
Operating loss of discontinued operations *
  
$
(1,495
)
$
(3,737
)
Interest expense, net
    
(5
)
  
(4,563
)
Loss before income tax benefit
    
(1,500
)
  
(8,300
)
Income tax benefit
    
(300
)
  
(2,900
)
Loss from discontinued operations
    
(1,200
)
  
(5,400
)
               
Gain on sale of discontinued operations
    
---
   
122,700
 
Income tax provision on sale of discontinued operations
    
---
   
50,400
 
 
    
---
    
72,300
 
               
(Loss) earnings from discontinued operations
  
$
(1,200
)
$
66,900
  
               
Depreciation and amortization expense
  
$
26
  
$
1,405
  

*   Operating loss of discontinued operations are net of Ply Gem corporate expenses, which were previously included within Unallocated in the Company’s segment reporting.

(D)
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.

Unaudited net sales, operating earnings and pre-tax earnings from continuing operations for the Company’s segments for the three months ended July 2, 2005 and July 3, 2004 were as follows:


   
For the Three Months Ended
  
   
Post-
  
Pre-
  
   
Acquisition
  
Acquisition