NORTEK ANNOUNCES FINANCIAL RESULTS
FOR 2001 AND FOURTH QUARTER
Company Remains Well Positioned in
Strong Housing Market

PROVIDENCE, RI, February 20, 2002—Nortek, Inc. (NYSE:NTK), a leading international designer, manufacturer and marketer of high-quality, brand-name building products, today announced results for the year and fourth quarter 2001.

Financial highlights for the full-year 2001 included:

Richard L. Bready, Chairman and Chief Executive Officer, said, “We are pleased to report that 2001 was another successful year for Nortek. All three of Nortek’s operating groups continued to experience strong demand for their high-quality brand-name products and achieved sales close to or exceeding the previous year. Our results are even more impressive considering the general slowdown in the U.S. economy and continued softness in the manufactured housing segment. Nortek’s results were also impacted by cooler than normal spring and summer weather in North America and a slowdown in worldwide expenditures for telecommunications infrastructure equipment.”

Mr. Bready added, “Nortek took an important step toward improving its overall profitability during 2001 when it sold two Ply Gem subsidiaries, Peachtree Doors and Windows, Inc. and SNE Enterprises, Inc., to focus its financial and management resources in other key core areas. This sale generated $45 million in net cash proceeds of which $20.5 million was used to pay down debt. Throughout the year, Nortek continued its programs to improve its overall operating efficiencies and reduce costs wherever possible. We expect these programs will continue to benefit us during the new year.

“While many segments of the U.S. economy are still feeling the effects of the recession, the housing construction and remodeling markets and the light commercial construction segment remain strong. These factors, coupled with favorable interest rates, have positioned Nortek to take full advantage of this favorable climate. If the recent improvement in sales in December and January continues, we believe the 2002 first quarter earnings should be equal to or up slightly to the prior year on a comparable basis. If these conditions continue during the remainder of 2002, we believe the potential exists for incremental business. In that scenario, we also expect overall sales and earnings for the full year 2002 to be comparable or slightly improved over those recorded in 2001. However, if economic conditions fail to improve or deteriorate, these results may not be achieved.”

For the fourth quarter, Nortek reported net sales of approximately $444 million, an increase of approximately 3 percent from a year earlier. Operating earnings for the quarter were approximately $36 million compared to last year’s $28 million. EBITDA for the quarter was approximately $52 million compared to approximately $42 million in 2000. Earnings from continuing operations for the 2001 fourth quarter were approximately $7.5 million compared to $4.4 million reported a year earlier. Diluted earnings per share from continuing operations were $0.68 compared to $0.40 for the previous year.

Nortek* 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. The Company offers a broad array of products for improving the environments where people live and work. Its products include range hoods and other spot ventilation products; heating and air conditioning systems; vinyl products, including windows and doors, siding, decking, fencing and accessories; 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 the Company’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. The Company 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 Company’s reports and filings with the Securities and Exchange Commission.


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NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
(In thousands except per share amounts)

Fourth Quarter Ended Year Ended
December 31,
 December 31,
2001
 2000
 2001
 2000
(Unaudited)
 
Net sales     $ 444,430   $ 432,812   $ 1,855,543   $ 1,853,076  
 
Cost of products sold    321,044    327,766    1,364,426    1,381,098  
Selling, general and administrative expenses    81,404    71,207    311,146    283,854  
Amortization of goodwill and intangible assets    5,713    5,713    22,724    22,529  
     408,161    404,686    1,698,296    1,687,481  
 
Operating earnings    36,269    28,126    157,247    165,595  
Interest expense    (24,461 )  (24,401 )  (101,898 )  (97,395 )
Investment income    2,392    2,475    10,651    7,600  
Earnings from continuing operations before  
  provision for income taxes    14,200    6,200    66,000    75,800  
Provision for income taxes    6,700    1,800    31,500    34,100  
Earnings from continuing operations    7,500    4,400    34,500    41,700  
Loss from discontinued operations       --     (1,600 )   (22,900 )   (100 )
Extraordinary loss from debt retirement       --     --     (3,600 )   --  
Net earnings   $ 7,500   $ 2,800   $ 8,000   $ 41,600  
 
Earnings (loss) per share of common stock:  
Earnings from continuing operations:  
          Basic   $ .68   $ .40   $ 3.15   $ 3.72  
          Diluted   $ .68   $ .40   $ 3.09   $ 3.71  
Loss from discontinued operations:  
          Basic     $ --   $ (.14 ) $ (2.09 ) $ (.01 )
          Diluted     $--   $ (.14 ) $ (2.05 ) $ (.01 )
Extraordinary loss from debt retirement:  
          Basic     $ --   $ --   $ (.33 ) $ --  
          Diluted     $ --   $ --   $ (.32 ) $ --  
Net earnings:  
          Basic   $ .68   $ .26   $ .73   $ 3.71  
          Diluted   $ .68   $ .26   $ .72   $ 3.70  
 
Weighted average number of shares:  
          Basic    10,967    10,912    10,937    11,202  
          Diluted    11,020    10,952    11,151    11,246  
 
EBITDA   $ 52,216   $ 41,580   $ 217,130   $ 220,285  
 
Capital Expenditures   $ 8,702   $ 19,515   $ 42,066   $ 38,072  

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


NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS

A.  

The unaudited condensed consolidated summary of operations for Nortek, Inc. and its subsidiaries (“the Company”), in the opinion of management, reflects all adjustments necessary for a fair statement of the periods presented. Effective in the third quarter of 2001, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and accordingly the presentation for all periods has been reclassified to conform with the new standard. See Notes F and I. It is suggested that this unaudited condensed consolidated summary of operations be read in conjunction with the financial statements and the notes included in the Company’s latest Annual Report on Form 10-K, and its latest Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission.


B.  

The Financial Accounting Standards Board’s Emerging Issues Task Force reached final consensus in 2000 with respect to the accounting for shipping and handling fees and costs and the accounting for certain sales incentives. As a result, the Company has reclassified certain amounts among net sales, cost of products sold and selling, general and administrative expenses, net in accordance with these pronouncements for all periods presented in the accompanying unaudited condensed consolidated summary of operations. These reclassifications did not have any effect on operating earnings, earnings before interest, income taxes and depreciation and amortization (“EBITDA”), net earnings or diluted net earnings per share for any period presented.


C.  

EBITDA from operations is operating earnings from continuing operations plus depreciation and amortization expense (other than amortization of deferred debt expense and debt discount).


D.  

In the fourth quarter and year 2001, the Company expensed approximately $200,000 and approximately $3,000,000, respectively, of manufacturing costs incurred in connection with the start up of a residential air conditioning facility and a vinyl fence and decking facility. Also, in the year 2001 the Company expensed as a charge to continuing operations approximately $6,300,000 of fees and expenses associated with the Company’s material procurement strategy and estimates that it has realized between approximately $4,000,000 and $6,000,000 of benefits to date. In addition, the Company has also realized reductions in the cost of certain purchased materials, particularly PVC resin and steel, in part, due to declining prices. Approximately $2,700,000 of the fees and expenses associated with the material procurement strategy was charged to the Residential Building Products Segment, $2,800,000 to the Air Conditioning and Heating Products Segment, $600,000 to the Windows, Doors and Siding Products Segment and $200,000 to the Other Segment, in 2001, respectively. In the first half of 2001, the Company recorded, in operating earnings, a non-taxable gain of approximately $3,200,000 ($.29 per share) from net death benefit insurance proceeds relating to life insurance maintained on former managers. In the third quarter and year 2001, the Company also incurred certain duplicative net interest expense as discussed in Note H below. In the third quarter of 2001, the Company recorded approximately $1,700,000 (included in investment income) of interest income resulting from the favorable abatement of state income taxes. The abatement of state income taxes did not have a significant effect on the overall annual effective income tax rate. In the second quarter of 2000, the Company sold a parcel of land resulting in a pre-tax gain of approximately $1,700,000 ($.10 per share, net of tax) which is included in operating earnings.


E.  

In the first quarter of 2001, the Company adopted Statement of Financial Accounting Standards SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS No. 133”) by recording an approximate $800,000 liability in its balance sheet at March 31, 2001, representing the fair value of the Company’s interest rate collar agreement. The cumulative affect of adopting this accounting method as of December 31, 2000 was not material. As a result, interest expense includes an approximate non-cash credit of $200,000 ($.01 per share, net of tax) and a non-cash charge of $1,200,000 ($.07 per share, net of tax), respectively, for the fourth quarter and year 2001.


F.  

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations”. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. This statement is effective for all business combinations initiated after June 30, 2001.


 

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement goodwill, as well as certain other intangible assets, determined to have an infinite life, will no longer be amortized, instead these assets will be reviewed for impairment on a periodic basis. This statement is effective for the Company beginning January 1, 2002. Management is currently evaluating the impact that this statement will have on the Company’s consolidated financial statements. Goodwill amortization included in operating earnings was approximately $4,100,000 and $16,400,000 in the fourth quarter and year 2001, respectively, and was approximately $4,200,000 and $16,500,000 in the fourth quarter and year 2000, respectively.


 

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 with early adoption permitted. Management is currently evaluating the impact of SFAS No. 143 on the Company’s consolidated financial statements.


 

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and does not apply to goodwill or intangible assets that are not being amortized and certain other long-lived assets. This Statement supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and the accounting and reporting provisions of APB Opinion No. 30 “Reporting the Results of Operations –Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, “Consolidated Financial Statements”, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 with early adoption encouraged. The Company adopted SFAS No. 144 in the third quarter of 2001 and applied this accounting standard as of the beginning of the year. Adoption of this accounting standard did not result in any material changes in net earnings from accounting standards previously applied. Adoption of this standard did result in the accounting for the loss on the sale of certain businesses and their related operating results as discontinued operations (see Note I).


G.  

Net sales from continuing operations for the Company’s principal segments for the fourth quarter and year ended December 31, 2001 and December 31, 2000 were as follows:


Fourth Quarter Ended Year Ended
December 31,
 December 31,
2001
 2000
 2001
 2000
Unaudited
(In millions)
 
Residential Building Products     $ 171 .3 $ 164 .5 $ 660 .0 $ 667 .4
Air Conditioning and Heating Products       140 .4   146 .2   633 .8   630 .1
Windows, Doors and Siding Products    116 .7  106 .8  493 .5  484 .6
Other    16 .0  15 .3  68 .2  71 .0
    Net sales from continuing operations     $ 444 .4 $ 432 .8 $ 1,855 .5 $ 1,853 .1

 

In the year 2001, acquisitions contributed approximately $24.1 million to net sales in the Air Conditioning and Heating Products Segment.


 

Operating earnings and depreciation and amortization expense from continuing operations for the Company’s principal segments for the fourth quarter and year 2001 and 2000 were as follows:


Fourth Quarter Ended Year Ended
December 31,
 December 31,
2001
 2000
 2001
 2000
Unaudited
(In millions)
 
Operating Earnings:                    
         Residential Building Products   $ 26 .2 $ 20 .4 $ 91 .0 $ 90 .9
         Air Conditioning and Heating Products    8 .9  15 .6  51 .0  74 .8
         Windows, Doors and Siding Products    9 .8   .2  41 .9  23 .9
         Other, net    (8 .6)  (8 .1)  (26 .7)  (24 .0)
Consolidated Operating Earnings from      
         Continuing Operations    36 .3  28 .1  157 .2  165 .6
 
Unallocated:  
         Interest Expense    (24 .5)  (24 .4)  (101 .9)  (97 .4)
         Investment Income    2 .4  2 .5  10 .7  7 .6
     Earnings from Continuing Operations      
         before Provision for Income Taxes   $ 14 .2 $ 6 .2 $ 66 .0 $ 75 .8
 
Depreciation and Amortization Expense:  
         Residential Building Products   $ 5 .8 $ 4 .6 $ 22 .9 $ 20 .3
         Air Conditioning and Heating Products     4 .2   3 .2   13 .8   12 .2
         Windows, Doors and Siding Products    5 .7  5 .4  21 .8  20 .8
         Other     .3   .3  1 .4  1 .4
         Consolidated Depreciation and      
         Amortization Expense from      
         Continuing Operations   $ 16 .0 $ 13 .5 $ 59 .9 $ 54 .7

H.  

In June 2001, the Company sold $250,000,000 principal amount of its 9 7/8% Senior Subordinated Notes due 2011 (“9 7/8% Notes”) at a slight discount. Net proceeds from the sale of the 9 7/8% Notes, after deducting underwriting commissions and expenses amounted to approximately $241,800,000 and a portion of such proceeds was used to redeem, on July 11, 2001, $204,822,000 principal amount of the Company’s 9 7/8% Senior Subordinated Notes due 2004 (which notes were called for redemption on June 13, 2001), plus an approximate $2,900,000 redemption premium thereon and approximately $7,400,000 of accrued interest thereon. As a result of this redemption, the Company recorded an extraordinary loss of approximately $5,500,000 ($.32 per share, net of tax) in the third quarter of 2001. In the year 2001, the Company incurred approximately $1,250,000 ($.07 per share, net of tax) of duplicative interest expense, net of interest income, since the redemption of the 9 7/8% Senior Subordinated Notes due 2004 did not occur on the same day as the financing.


I.  

On September 21, 2001, the Company sold the capital stock of Peachtree Doors and Windows, Inc. (“Peachtree”) and SNE Enterprises, Inc. (“SNE”), subsidiaries of its Ply Gem Industries, Inc. (“Ply Gem”) subsidiary for approximately $45,000,000, and recorded a pre-tax loss on the sale of approximately $34,000,000 ($1.79 per share, net of tax), including the write off of approximately $11,700,000 of unamortized intangible assets. Peachtree and SNE were previously part of the Windows, Doors and Siding Products segment.


 

A portion of the cash proceeds was used to pay down approximately $20,500,000 of outstanding debt under the Company’s Ply Gem credit facility.


 

The following is a summary of the results of discontinued operations for the fourth quarter of 2000 and year 2001 and 2000:


Fourth Quarter Ended Year Ended
December 31,
 December 31,
2000
 2001
 2000
Unaudited
(Amounts in thousands)
 
Net Sales     $ 79,700   $ 225,600   $ 341,800  
 
Loss before income taxes    (2,500 )  (4,400 )  (200 )
Income tax benefit    (900 )  (1,500 )  (100 )
Loss from discontinued operations    (1,600 )  (2,900 )  (100 )
Loss on sale of discontinued operations, net  
   of tax benefits of $14,000,000    --    (20,000 )  --  
Loss from discontinued operations   $ (1,600 ) $ (22,900 ) $ (100 )
 
Depreciation and amortization expense     $ 1,100   $ 3,529   $ 5,086  

J.  

The following is a summary of selected balance sheet amounts and ratios at December 31, 2001 and December 31, 2000:


Balance at December 31,
2001
 2000
Unaudited
(000's omitted)
 
Unrestricted cash, equivalents and          
   marketable securities   $255,836   $   138,971  
 
Accounts receivable less 
   allowances  218,188   225,794  
 
Inventories   187,516   196,293  
 
Accounts payable   129,501   133,963