NORTEK ANNOUNCES 1ST QUARTER RESULTS


NORTEK REPORTS INCREASES
IN 1ST-QUARTER SALES/EARNINGS

PROVIDENCE, RI, April 18, 2002—Nortek, Inc. (NYSE:NTK), achieving solid sales growth in all three principal operating groups, today announced first-quarter net sales of $429 million, an 8.6-percent increase over the $395 million reported for the first quarter of 2001.

Other financial highlights from continuing operations for the quarter included:

Goodwill amortization included in operating earnings in the first quarter of 2001 was approximately $4.2 million as determined under Generally Accepted Accounting Principles in effect in 2001. Operating earnings for the first quarter of 2002 did not include any amortization of goodwill. Pro forma earnings per share from continuing operations for the first quarter of 2001 would have been approxi-mately $.39 per share, excluding the after-tax effect of goodwill amortization, compared to $.84 per share in 2002.

Richard L. Bready, Chairman and Chief Executive Officer, said, “We are pleased with our first-quarter performance which exceeded our estimates in all of Nortek’s operating groups. The continued strength of the housing construction and remodeling markets and the light commercial segment drove the strong sales performance in this quarter. A favorable weather environment in the United States also contributed to Nortek’s sales increase. Operating margins improved during the quarter as Nortek benefited from the various cost improvement programs initiated in 2001.

“The 2001 second quarter was a record performance, and continued sluggishness in the commercial air conditioning and manufactured housing segments will make that performance difficult to equal.

“Looking forward, we remain optimistic that new home construction and remodeling conditions will remain strong during the remainder of 2002. We also see continued strength in our residential HVAC businesses. If these trends continue, it should result in overall sales and earnings performance for the year that is slightly improved over what was recorded in 2001.”

On April 2, 2002, Nortek’s Ply Gem Industries subsidiary sold the stock of its Hoover Treated Wood Products subsidiary for approximately $20 million, a portion of which will be used to repay indebtedness. The sales and related operating results of Hoover have been classified as discontinued operations for all periods presented.

On April 13th, Nortek announced that its Board of Directors had received a formal proposal from Kelso & Company, L.P., a private equity firm based in New York City, to acquire the Company in partnership with certain members of the Company’s current management team. Under this proposal, all stockholders of the Company, with the exception of certain members of management, would receive $40 in cash for each of their shares in a merger transaction. As previously announced, Nortek has formed a Special Committee of its Board of Directors which will review and consider the proposal on behalf of the Company. The Special Committee has made no determination as to whether the Company will or should be sold, whether on the terms of the Kelso proposal or otherwise.

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.



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

For the Three Months Ended
March 30, March 31,
2002
 2001
(Unaudited)
 
Net sales     $ 429,091   $ 395,233  
Cost of products sold    310,106    294,708  
Selling, general and administrative expenses    79,532    71,146  
Amortization of goodwill and intangible assets    1,505    5,649  
     391,143    371,503  
 
Operating earnings    37,948    23,730  
Interest expense    (24,167 )  (25,338 )
Investment income    1,719    2,208  
Earnings from continuing operations before      
  provision for income taxes    15,500    600  
Income tax provision    6,000    300  
Earnings from continuing operations    9,500    300  
Earnings (loss) from discontinued operations    1,100    (2,700 )
Net earnings (loss)   $ 10,600   $ (2,400 )
 
Earnings (loss) per share of common stock:  
Earnings from continuing operations:  
          Basic   $ .87   $ .03  
          Diluted   $ .84   $ .03  
Earnings (loss) from discontinued operations:  
          Basic   $ .10   $ (.25 )
          Diluted   $ .10   $ (.25 )
Net earnings (loss):  
          Basic   $ .97   $ (.22 )
          Diluted   $ .94   $ (.22 )
 
Weighted average number of shares:  
          Basic    10,979    10,916  
          Diluted    11,308    11,160  
 
EBITDA   $ 49,231   $ 38,155  
 
Capital Expenditures   $ 4,342   $ 13,730  

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 ("SFAS") 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 E and G. It is suggested that this unaudited condensed consolidated summary of operations be read in conjunction with the consolidated 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 ("SEC").


B.

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


C.

In the first quarter of 2001, the Company expensed approximately $700,000 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 first quarter of 2001, the Company expensed approximately $500,000 of third party fees and expenses associated with the Company's material procurement strategy. In the first quarter of 2002, the company did not expense any third party fees and expenses associated with this material procurement strategy. The Company estimates that it has realized benefits associated with this material procurement strategy of between $2,000,000 and $3,000,000 in the first quarter of 2002 as compared to the first quarter of 2001. In the first quarter 2001, the Company recorded in operating earnings a non-taxable gain of approximately $800,000 ($.07 per share) from net death benefit insurance proceeds relating to life insurance maintained on former managers.


D.

In the first quarter of 2001, the Company adopted 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. As a result, interest expense includes a non-cash reduction in interest expense of approximately $450,000 ($.02 per share, net of tax) and a non-cash charge to interest expense of approximately $800,000 ($.04 per share, net of tax) for the first quarter 2002 and 2001, respectively.


E.

SFAS No. 141, "Business Combinations" requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method.


 

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). 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 and intangible assets determined to have an indefinite useful life are no longer amortized, instead these assets are evaluated for impairment on an annual basis and whenever events or business conditions warrant. All other intangible assets will continue to be amortized over their remaining estimated useful lives and are evaluated for impairment in accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or Disposed of Long-Lived Assets" ("SFAS No. 144"). In addition, SFAS No. 142 requires additional disclosures with respect to each major intangible asset class relative to gross and net carrying amounts, accumulated amortization, amortization expense, weighted-average amortization periods and residual value assumptions, if any. SFAS No. 142 also requires that the estimated aggregate amortization expense for each of the five succeeding years be disclosed. The adoption of SFAS No. 142 did not result in any material changes to the Company's accounting for intangible assets and additional disclosures will be required in the Company's 2002 annual report on Form 10-K to be filed with the SEC.


 

The Company will have until December 31, 2002 to complete its initial evaluation of the carrying value of goodwill under SFAS No. 142 and determine whether any impairment exists. Impairment charges, if any, associated with the initial adoption will be retroactively recorded as a cumulative effect of a change in accounting principle in the first quarter of 2002. Thereafter, any additional goodwill impairment charges will be included in income from continuing operations unless they relate to a discontinued operation. SFAS No. 142 also requires additional disclosures with respect to goodwill by reportable segment for changes in goodwill balances, impairment losses, if any, including the methodology for determination, and the amount of goodwill included in the gain or loss on disposal of a reporting unit. The Company has preliminarily evaluated the carrying value of goodwill and determined that no impairment exists and therefore no impairment loss will be required to be recorded in the Company's Consolidated Financial Statements as a result of adopting SFAS No. 142 on January 1, 2002.


 

Goodwill amortization included in operating earnings in the first quarter 2001 was approximately $4,167,000 as determined under accounting principles generally accepted in the United States in effect in the year 2001. Pro forma earnings per share from continuing operations for the three months ended March 31, 2001 would have been approximately $.39 per share excluding the after tax effect of goodwill amortization.


 

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. The Company is currently evaluating the impact of adopting SFAS No. 143 on its consolidated financial statements.


 

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 SFAS 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 (loss) from accounting standards previously applied. Adoption of this standard did result in the accounting for the gain (loss) on the sale of certain businesses and their related operating results as discontinued operations (see Note G).


F.

Net sales from continuing operations for the Company's segments for the three months ended March 30, 2002 and March 31, 2001 were as follows:


Three Months Ended
March 30, 2002
 March 31, 2001
Unaudited
(Amounts in millions)
 
Residential Building Products     $ 180 .0 $ 163 .9
Air Conditioning and Heating Products    147 .8  137 .3
Windows, Doors and Siding Products    101 .3  94 .0
    Net sales from continuing operations   $ 429 .1 $ 395 .2

 

Operating earnings and depreciation and amortization expense from continuing operations for the Company's segments for the three months ended March 30, 2002 and March 31, 2001 were as follows:



Three Months Ended
March 30, 2002
 March 31, 2001
Unaudited
(Amounts in millions)
 
Operating Earnings (Loss):            
     Residential Building Products   $ 27 .9 $ 20 .8
     Air Conditioning and Heating Products    13 .6  9 .0
     Windows, Doors and Siding Products    7 .0  (0 .1)
     Other, net    (10 .6)  (6 .0)
         Consolidated Operating Earnings from      
             Continuing Operations    37 .9  23 .7
 
Unallocated:  
     Interest Expense    (24 .1)  (25 .3)
     Investment Income    1 .7  2 .2
         Earnings from Continuing Operations      
             before Provision for Income Taxes   $ 15 .5 $ .6
 
Depreciation and Amortization Expense:  
     Residential Building Products   $ 4 .2 $ 5 .7
     Air Conditioning and Heating Products    3 .3  3 .2
     Windows, Doors and Siding Products    3 .6  5 .3
     Other     .2   .2
         Consolidated Depreciation and Amortization      
              Expense from Continuing Operations   $ 11 .3 $ 14 .4
 
Amortization of Goodwill included in Depreciation  
   and Amortization Expense:  
     Residential Building Products   $ --   $ 1 .9
     Air Conditioning and Heating Products    --     .4
     Windows, Doors and Siding Products    --    1 .9
         Consolidated Goodwill Amortization Expense   $ --   $ 4 .2
 
Capital Expenditures:  
     Residential Building Products   $ 1 .5 $ 3 .1
     Air Conditioning and Heating Products     .7  3 .0
     Windows, Doors and Siding Products    2 .1  7 .6
         Consolidated Capital Expenditures   $ 4 .3 $ 13 .7

G.

On April 2, 2002, the Company's Ply Gem Industries, Inc. ("Ply Gem") subsidiary sold the capital stock of its subsidiary Hoover Treated Wood Products, Inc. ("Hoover"), for approximately $20,000,000 of net cash proceeds and will record a pre-tax gain of approximately $5,400,000 ($.37 per share, net of tax benefit from the utilization of a capital loss carry forward of $.15 per share) in the second quarter of 2002. The operating results of Hoover were previously included in the Other Segment. Approximately $8,600,000 of the cash proceeds will be used to pay down outstanding debt under the Company's Ply Gem credit facility.


 

On September 21, 2001, the Company sold the capital stock of Peachtree Doors and Windows, Inc. ("Peachtree") and SNE Enterprises, Inc. ("SNE"), subsidiaries of Ply Gem, 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) in the third quarter of 2001, 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 sale of these subsidiaries and their related operating results have been excluded from earnings from continuing operations and are classified as discontinued operations for all periods presented.


 

The following is a summary of the results of discontinued operations for three months ended March 30, 2002 and March 31, 2001:





Three Months Ended
March 30, 2002
 March 31, 2001
Unaudited
(Amounts in thousands)
 
Net Sales     $ 17,700   $ 72,000  
 
Earnings (loss) before income taxes   $ 1,800   $ (5,100 )
Income tax provision (benefit)    700    (2,400 )
Earnings (loss) from discontinued operations   $ 1,100   $ (2,700 )
 
Depreciation and Amortization Expense   $ 216   $ 1,254  

 

The table that follows summarizes certain unaudited quarterly financial data for the second, third and fourth quarters of 2001 restated to reflect the operating results of Hoover, SNE and Peachtree as discontinued operations:


For the Quarters Ended in 2001
July 1
 September 30
 December 31
 
Net Sales     $ 494,994   $ 468,674   $ 428,477  
Gross profit    133,552    126,235    121,214  
Selling, general and administrative expense    73,434    81,743    80,532  
Depreciation and amortization expense    14,492    14,394    15,797  
Goodwill amortization expense included  
  in depreciation and amortization expense    4,102    4,030    4,095  
Operating earnings    54,201    38,747    34,969  
Earnings from continuing operations       17,100     7,000     6,700  
 
Earnings (loss) from discontinued operations       2,600     (20,200 )   800  
Net earnings (loss)   $ 19,700   $ (16,800 ) $ 7,500  
Earnings (loss) per share:  
Earnings from continuing operations:  
     Basic   $ 1.56   $ .64   $ .61  
     Diluted   $ 1.53   $ .62   $ .61  
Earnings (loss) from discontinued operations:  
     Basic     $ .24   $ (1.85 ) $ .07  
     Diluted     $ .23   $ (1.80 ) $ .07  
Net earnings (loss):  
     Basic   $ 1.80   $ (1.54 ) $ .68  
     Diluted   $ 1.76   $ (1.50 ) $ .68  

 

The following is a summary of selected balance sheet amounts and ratios at March 30, 2002 and December 31, 2001:

Balance at
March 30, 2002
 December 31, 2001
Unaudited
(Dollar amounts in thousands)
 
Unrestricted cash, equivalents and            
   marketable securities     $ 219,141   $ 255,767  
 
Accounts receivable less  
   allowances    242,697    216,622  
 
Inventories    195,746    179,701  
 
Accounts payable       146,076     127,348  
 
Accrued expenses and taxes, net       149,978     163,513  
 
Short-term borrowings and current  
   maturities of indebtedness    64,352    64,450  
 
Long-term indebtedness    987,688    990,770  
 
Stockholders Investment       281,334     271,313  
 
Debt to equity ratio    3.7:1    3.9:1  

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