NORTEK REPORTS RECORD THIRD-QUARTER SALES AND OPERATING EARNINGS

 

PROVIDENCE, RI, October 24, 2005—Nortek, Inc. (“Nortek”), a leading international designer, manufacturer and marketer of high-quality branded building products, today announced that third-quarter sales and operating earnings from continuing operations of $523 million and $67.6 million, respectively, were the strongest in company history.

Building on a 10-percent increase in sales in the first half, Nortek sales for the third quarter increased 22 percent led by the continued strength of the Company’s core residential housing and home-improvement markets. Nortek sales for the first nine months were approximately $1.5 billion.

Key financial highlights from continuing operations for the third quarter of 2005 included:

·	Net sales of $523 million, an increase of 22.2 percent compared to the

$428 million reported in the combined periods in 2004.

·	Operating earnings of $67.6 million compared to a loss of $40.5 million for the combined periods in 2004. The operating loss for the combined periods in 2004 includes expenses and charges arising from the THL transaction of approximately $83.7 million.

·	Depreciation and amortization expense of $11.6 million compared to

$12.3 million in last year’s third quarter.

Nortek had increases in sales and operating earnings in both its Residential Building Products and Air Conditioning and Heating Products Segments. Although the Company continued to experience material-cost increases related primarily to purchases of steel, copper and aluminum, and increased transportation and energy costs, these cost increases were offset by price increases, continued strategic sourcing initiatives and improvement in manufacturing efficiency. Cost of sales as a percent of sales declined from

71.8 percent in last year’s combined third quarter to 69.1 percent in the third quarter of 2005.

Richard L. Bready, Chairman and Chief Executive Officer, said, “Both of our segments delivered a solid performance in the third quarter, particularly our residential HVAC products and our growing collection of home-technology product categories. Their strong results led to the record quarter achieved by Nortek.”

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 nine months of 2005 included:

·	Net sales of $1,456 million, an increase of 13.8 percent compared to the $1,279 million recorded for the comparable combined periods in 2004.

·	Operating earnings of $167.5 million, compared to the $48.1 million recorded in the combined periods of 2004. Operating earnings for the combined periods in 2004 are net of expenses and charges arising from the THL transaction of approximately $83.7 million.

Mr. Bready added, “The housing market has shown resilience through the first nine months of 2005. While the growth in residential housing markets may be slowing, we believe the housing market fundamentals remain solid. For the first nine months of 2005, building permits were up 3 percent and housing starts were up 5.7 percent compared to the same period in 2004. Additionally, through August 2005, HVAC industry air conditioning and heat pump shipments were up 3.7 percent over 2004 primarily due to the favorable weather in July and August. However, the custom-designed commercial HVAC market continues to be sluggish through September.”

As of October 1, 2005, Nortek had approximately $47 million in unrestricted cash and cash equivalents and has no borrowings outstanding under its $100-million revolving credit facility.

So far this year, there have been four acquisitions in the home-technology group. In April, Nortek, through its Linear LLC (“Linear”) subsidiary, acquired Panamax of Petaluma, California, a designer and distributor of innovative power conditioning and surge protection products for the home; 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; on August 8, Linear acquired the business of Imerge Ltd. of Cambridge, U.K., a manufacturer of hard disk media servers; and on August 26, Linear acquired the business of Sunfire Corporation of Snohomish, Washington, a supplier of home theatre electronics and subwoofers.

 

Acquisitions contributed approximately $30.3 million and $4.1 million to net sales and operating earnings, respectively, for the third quarter of 2005 and contributed approximately $53.7 million and $5.8 million to net sales and operating earnings for the nine months ended October 1, 2005.

On August 27, 2004, corporations affiliated with Thomas H. Lee Partners L.P., in partnership with certain members of Nortek’s management purchased all of the outstanding capital stock of Nortek’s parent company, the former Nortek Holdings, Inc., in a transaction valued at approximately $1.74 billion before fees and expenses (the “THL transaction”) from affiliates of Kelso and Company L.P. and certain other parties.

Net sales for the period from July 4, 2004 to August 27, 2004 and the period from August 28, 2004 to October 2, 2004 were $267 million and $161 million, respectively.

Nortek* (a wholly owned subsidiary of Nortek Holdings, Inc., 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.

 

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NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

		For the Periods Ended
		Post-Acquisition						Pre-Acquisition
		July 3, 2005 -			Aug. 28, 2004 -			July 4, 2004 -
		Oct. 1, 2005			Oct. 2, 2004			Aug. 27, 2004
		(Amounts in thousands)
Net Sales		$	522,866		$	161,028		$	266,836
Costs and Expenses:
Cost of products sold			361,268			115,892			191,073
Selling, general and administrative expense			89,627			28,267			46,014
Amortization of intangible assets			4,391			1,404			2,020
Expenses and charges arising from the Acquisition			---			---			83,700
			455,286			145,563			322,807
Operating earnings (loss)			67,580			15,465			(55,971	)
Interest expense			(26,544	)		(16,197	)		(12,092	)
Loss from debt retirement			---			---			(118,778	)
Investment income			264			32			241
Earnings (loss) from continuing operations
before provision (benefit) for income taxes			41,300			(700	)		(186,600	)
Provision (benefit) for income taxes			16,300			(300	)		(55,200	)
Earnings (loss) from continuing operations			25,000			(400	)		(131,400	)
Earnings from discontinued operations			---			---			500
Net earnings (loss)		$	25,000		$	(400	)	$	(130,900	)

The accompanying notes are an integral part of this unaudited condensed consolidated summary of operations.

 

		For the Periods Ended
		Post - Acquisition						Pre-Acquisition
		Jan. 1, 2005 -			Aug. 28, 2004 -			Jan. 1, 2004 -
		Oct. 1, 2005			Oct. 2, 2004			Aug. 27, 2004
		(Amounts in thousands)
Net Sales		$	1,455,844		$	161,028		$	1,117,860
Costs and Expenses:
Cost of products sold			1,021,133			115,892			792,759
Selling, general and administrative expense			254,055			28,267			199,943
Amortization of intangible assets			13,109			1,404			8,869
Expenses and charges arising from the Acquisition			---			---			83,700
			1,288,297			145,563			1,085,271
Operating earnings			167,547			15,465			32,589
Interest expense			(75,973	)		(16,197	)		(56,073	)
Loss from debt retirement			---			---			(130,736	)
Investment income			1,026			32			1,520
Earnings (loss) from continuing operations
before provision (benefit) for income taxes			92,600			(700	)		(152,700	)
Provision (benefit) for income taxes			35,600			(300	)		(41,400	)
Earnings (loss) from continuing operations			57,000			(400	)		(111,300	)
Earnings from discontinued operations			---			---			67,400
Net earnings (loss)		$	57,000		$	(400	)	$	(43,900	)

The accompanying notes are an integral part of this unaudited condensed consolidated summary of operations.

 

 

NORTEK, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
SUMMARY OF OPERATIONS

(A)

The unaudited condensed consolidated summary of operations presented herein for periods prior to August 28, 2004 (“Pre-Acquisition”) 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 (“Post-Acquisition”), 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 August 26, 2005, the Company acquired the assets of Sunfire Corporation (“Sunfire”) for approximately $4,000,000 (utilizing approximately $3,500,000 of cash on hand and issuing an unsecured subordinated promissory note in the amount of approximately $500,000) plus contingent consideration. Sunfire is located in Snohomish, WA and manufactures and designs powerful home audio and home cinema amplifiers, receivers and subwoofers.

On August 8, 2005, the Company acquired the stock of Imerge Limited (“Imerge”) for approximately $6,000,000 in cash plus contingent consideration. Imerge is located in Cambridge, United Kingdom and manufactures and designs hard disk media players and multi-room audio servers.

On July 15, 2005, the Company acquired the assets and certain liabilities of Niles Audio Corporation (“Niles”) for approximately $76,500,000. In connection with the acquisition of Niles, the Company utilized approximately $40,000,000 of cash on hand, borrowed approximately $25,000,000 against the U.S. portion of its revolving credit facility (which was subsequently paid by October 1, 2005) and issued an unsecured promissory note in the amount of approximately $11,500,000. 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 unaudited net sales, operating earnings and depreciation and amortization expense of approximately $50,000,000, $8,500,000 and $500,000, respectively.

On June 13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc. (“Nordyne”), acquired International Marketing Supply, Inc. (“IMS”) for approximately $4,600,000, utilizing approximately $4,100,000 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 customers in 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 contingent consideration. 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, TX, for approximately $16,400,000 in cash. 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 plus contingent consideration. OmniMount is a manufacturer and designer of speaker and video mountings and other products to maximize the home theater experience.

Acquisitions contributed approximately $30,300,000, $4,100,000 and $200,000 to net sales, operating earnings and depreciation and amortization expense, respectively, for the third quarter ended October 1, 2005 and contributed approximately $53,700,000, $5,800,000 and $400,000 to net sales, operating earnings and depreciation and amortization expense, respectively, for the nine months ended October 1, 2005. Sunfire, Imerge, Niles, 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.

The estimated total potential amount of contingent consideration that may be paid in the future for these acquisitions is approximately $7,250,000.

Acquisitions are accounted for as purchases and accordingly have been included in the Company’s consolidated results of operations since the acquisition date. For recent acquisitions, the Company has made preliminary estimates of the fair value of the assets and liabilities of the acquired companies, including intangible assets and property and equipment, as of the date of acquisition, utilizing information available at the time that the Company’s Unaudited Financial Statements were prepared and these estimates are subject to refinement until all pertinent information has been obtained. The Company is in the process of obtaining appraisals of intangible assets and property and equipment and finalizing the integration of the acquired companies, which are expected to be completed by the end of the first half of 2006.

(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 income (expense), net, in the table below, was approximately $2,800,000 (net of taxes of approximately $1,600,000) for the period from January 1, 2004 to August 27, 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 applicable periods presented.

The table that follows presents a summary of the results of discontinued operations for the periods presented:

		Pre-Acquisition
		For the Periods Ended