PROVIDENCE, R.I., Aug. 12 RI-Nortek-Q2-earns
PROVIDENCE, R.I., Aug. 12 /PRNewswire-FirstCall/ -- Nortek, Inc.
("Nortek"), a leading diversified global manufacturer of innovative, branded
residential and commercial ventilation, HVAC and home technology convenience
and security products, today announced it achieved second-quarter sales of
$647 million and operating earnings of $46.9 million in continuingly difficult
markets.
Key financial highlights from continuing operations for the second quarter
of 2008 included:
-- Net sales of $647 million compared to the $644 million recorded in
2007.
-- Operating earnings of $46.9 million compared to $64.7 million in the
second quarter of 2007.
-- Depreciation and amortization expense of $18.6 million compared to
$16.5 million in last year's second quarter.
-- Acquisitions contributed approximately $8.4 million in net sales and
reduced operating earnings by $1.3 million for the quarter ended June 28,
2008.
As of June 28, 2008, Nortek had approximately $79 million in unrestricted
cash, cash equivalents and marketable securities and had $35 million of
borrowings outstanding under its revolving credit facility.
Key financial highlights from continuing operations for the first half of
2008 included:
-- Net sales of $1,187 million compared to the $1,197 million recorded in
the first six months of 2007.
-- Operating earnings of $70.3 million compared to $109.6 million in the
first half of 2007.
-- Depreciation and amortization expense of $36.0 million compared to
$31.1 million in the first six months of 2007.
-- Acquisitions contributed approximately $19.6 million in net sales and
reduced operating earnings by $2.6 million for the six months ended June 28,
2008.
Richard L. Bready, Chairman and Chief Executive Officer, said, "We are
pleased with Nortek second-quarter performance, as business conditions
remained difficult in the Company's core markets. Nortek continues to focus
on cost-reduction initiatives, manufacturing efficiency improvements and
strategic sourcing initiatives, which, together with some price increases,
have partially offset cost increases from commodities, particularly steel and
copper, and transportation costs."
Mr. Bready added, "The mortgage crisis has driven housing starts down to a
level of less than 1 million starts. This action has been amplified by high
oil and gas prices and consumer confidence is at unprecedented lows. While we
expect the difficult housing market will continue throughout 2008, Nortek
plans to maintain its leadership position in these difficult markets while
remaining poised for participation long-term in improving home improvement and
residential building markets."
Nortek* (a wholly owned subsidiary of Nortek Holdings, Inc., which is a
wholly owned subsidiary of NTK Holdings, Inc.) is a leading diversified global
manufacturer of innovative, branded residential and commercial ventilation,
HVAC and home technology convenience and security products. Nortek offers a
broad array of products including: range hoods, bath fans, indoor air quality
systems, medicine cabinets and central vacuums, heating and air conditioning
systems, and home technology offerings, including audio, video, access
control, 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 second For the first
quarter ended six months ended
6/28/086/30/07 6/28/086/30/07
(Dollar amounts in millions)
Net Sales 647.1 644.3 1,187.31,196.8
Costs and Expenses:
Cost of products sold
(see Note B)473.3 452.1864.9 836.7
Selling, general
and administrative
expense, net (see
Note B)118.5 121.1237.0 238.1
Amortization of
intangible assets8.46.4 15.1 12.4
600.2 579.6 1,117.01,087.2
Operating earnings 46.9 64.7 70.3 109.6
Interest expense (31.3) (30.8) (58.7) (60.0)
Loss from debt
retirement(9.9) --- (9.9) ---
Investment income 0.20.5 0.40.9
Earnings before
provision for income
taxes 5.9 34.4 2.1 50.5
Provision for income
taxes 2.2 15.7 2.5 22.6
Net earnings (loss) 3.7 18.7 (0.4) 27.9
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 includes
the accounts of Nortek, Inc. and all of its 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, reflects all adjustments of a
normal recurring nature necessary for a fair statement of the interim
periods presented. 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 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) During the second quarter ended June 28, 2008 and June 30, 2007, the
Company's results of operations include the following (income) and
expense items recorded in cost of products sold and selling, general
and administrative expense, net in the accompanying unaudited
condensed consolidated summary of operations:
For the second quarter ended*
June 28, 2008June 30, 2007
(Amounts in millions)
Charges related to the closure of the
Company's NuTone, Inc.Cincinnati, OH
facility within the RVP segment --- 0.8
Gain from the sale of a manufacturing
facility within the RVP segment (2.5) ---
Net charges related to the closure of
certain RVP segment facilities(1)0.2 ---
Costs and expenses incurred within the
RVP segment in connection with the
start up of a range hood facility in
Mexico(2)1.4 ---
Charges related to the closure of the
Company's Mammoth, Inc. Chaska, MN
facility within the HVAC segment --- 0.3
Legal and other professional fees
and expenses incurred in connection with
matters related to certain subsidiaries
based in Italy and Poland within the RVP segment --- 0.3
Fees, expenses and a reserve recorded within
the HTP segment in connection with a
contemplated settlement of a dispute with one
of its former suppliers 4.5 ---
Reserve for amounts due from customers
within the HTP segment--- 0.5
Product safety upgrade reserves within the
HTP segment(2)--- (0.2)
Foreign exchange (gains) losses related to
transactions, including intercompany debt not
indefinitely invested in the Company's
subsidiaries (1.5) 1.7
* Unless otherwise indicated, all items noted in the table have been
recorded in selling, general and administrative expense, net in the
accompanying unaudited condensed consolidated summary of operations.
(1) Approximately $0.3 million of these charges were recorded in cost of
products sold, offset by a reduction in reserves in selling, general
and administrative expense, net of approximately $0.1 million related
to the closure of these RVP segment facilities.
(2) The RVP and HTP segments recorded these charges in cost of products
sold.
During the first six months ended June 28, 2008 and June 30, 2007, the
Company's results of operations include the following (income) and expense
items recorded in cost of products sold and selling, general and
administrative expense, net in the accompanying unaudited condensed
consolidated summary of operations:
For the first six months ended*
June 28, 2008June 30, 2007
(Amounts in millions)
Charges related to the closure of the
Company's NuTone, Inc. Cincinnati, OH facility
within the RVP segment ---1.4
Gain from the sale of a manufacturing facility
within the RVP segment (2.5) ---
Net charges related to the closure of certain
RVP segment facilities(1)0.2---
Costs and expenses incurred within the RVP
segment in connection with the start up of a
range hood facility in Mexico(2) 1.4---
Charges related to the closure of the
Company's Mammoth, Inc. Chaska, MN facility
within the HVAC segment ---0.3
Legal and other professional fees and
expenses incurred in connection with matters
related to certain subsidiaries based in
Italy and Poland within the RVP segment ---1.3
Fees, expenses and a reserve recorded within
the HTP segment in connection with a
contemplated settlement of a dispute with one
of its former suppliers 4.7---
Reserve for amounts due from customers
within the HTP and HVAC segments ---2.3
Product safety upgrade reserves within the
HTP segment(2) --- (0.2)
Foreign exchange (gains) losses related
to transactions, including intercompany
debt not indefinitely invested in the Company's
subsidiaries(1.4) 2.0
* Unless otherwise indicated, all items noted in the table have been
recorded in selling, general and administrative expense, net in the
accompanying unaudited condensed consolidated summary of operations.
(1) Approximately $0.3 million of these charges were recorded in cost of
products sold, offset by a reduction in reserves in selling, general
and administrative expense, net of approximately $0.1 million related
to the closure of these RVP segment facilities.
(2) The RVP and HTP segments recorded these charges in cost of products
sold.
( C ) The Company uses EBITDA as both an operating performance and
liquidity measure. Operating performance measure disclosures with
respect to EBITDA are provided below. Refer to Note D for liquidity
measure disclosures with respect to EBITDA and a reconciliation from
net cash flows from operating activities to EBITDA.
EBITDA is defined as net earnings (loss) before interest, taxes,
depreciation and amortization expense. EBITDA is not a measure of
operating performance under U.S. generally accepted accounting
principles ("GAAP") and should not be considered as an alternative or
substitute for GAAP profitability measures such as operating earnings
(loss) from continuing operations, discontinued operations,
extraordinary items and net earnings (loss). EBITDA as an operating
performance measure has material limitations since it excludes, among
other things, the statement of operations impact of depreciation and
amortization expense, interest expense and the provision (benefit) for
income taxes and therefore does not necessarily represent an accurate
measure of profitability, particularly in situations where a company
is highly leveraged or has a disadvantageous tax structure. The
Company uses a significant amount of capital assets and depreciation
and amortization expense is a necessary element of the Company's costs
and ability to generate revenue and therefore its exclusion from
EBITDA is a material limitation. The Company has a significant amount
of debt and interest expense is a necessary element of the Company's
costs and ability to generate revenue and therefore its exclusion from
EBITDA is a material limitation. The Company generally incurs
significant U.S. federal, state and foreign income taxes each year and
the provision (benefit) for income taxes is a necessary element of the
Company's costs and therefore its exclusion from EBITDA is a material
limitation. As a result, EBITDA should be evaluated in conjunction
with net earnings (loss) for a more complete analysis of the Company's
profitability, as net earnings (loss) includes the financial statement
impact of these items and is the most directly comparable GAAP
operating performance measure to EBITDA. As EBITDA is not defined by
GAAP, the Company's definition of EBITDA may differ from and therefore
may not be comparable to similarly titled measures used by other
companies, thereby limiting its usefulness as a comparative measure.
Because of the limitations that EBITDA has as an analytical tool,
investors should not consider it in isolation, or as a substitute for
analysis of the Company's operating results as reported under GAAP.
Company management uses EBITDA as a supplementary non-GAAP operating
performance measure to assist with its overall evaluation of Company
and subsidiary operating performance (including the performance of
subsidiary management) relative to outside peer group companies. In
addition, the Company uses EBITDA as an operating performance measure
in financial presentations to the Company's Board of Directors,
shareholders, various banks participating in Nortek's ABL Facility,
note holders and Bond Rating agencies, among others, as a supplemental
non-GAAP operating measure to assist them in their evaluation of the
Company's performance. The Company is also active in mergers,
acquisitions and divestitures and uses EBITDA as an additional
operating performance measure to assess Company, subsidiary and
potential acquisition target enterprise value and to assist in the
overall evaluation of Company, subsidiary and potential acquisition
target performance on an internal basis and relative to peer group
companies. The Company uses EBITDA in conjunction with traditional
GAAP operating performance measures as part of its overall assessment
of potential valuation and relative performance and therefore does not
place undue reliance on EBITDA as its only measure of operating
performance.
The Company believes EBITDA is useful for both the Company and
investors as it is a commonly used analytical measurement for
comparing company profitability, which eliminates the effects of
financing, differing valuations of fixed and intangible assets and tax
structure decisions. The Company believes that EBITDA is specifically
relevant to the Company, due to the different degrees of leverage
among its competitors, the impact of purchase accounting associated
with acquisitions, which impacts comparability with its competitors
who may or may not have recently revalued their fixed and intangible
assets, and the differing tax structures and tax jurisdictions of
certain of the Company's competitors. The Company has included EBITDA
as a supplemental operating performance measure, which should be
evaluated by investors in conjunction with the traditional GAAP
performance measures discussed earlier in this summary of operations
for a complete evaluation of the Company's operating performance.
The following table presents a reconciliation from net earnings, which is
the most directly comparable GAAP operating performance measure, to EBITDA for
the second quarter ended June 28, 2008 and June 30, 2007:
For the second quarter ended
June 28, 2008June 30, 2007
(Dollar amounts in millions)
Net earnings(1),(2) $ 3.7 $ 18.7
Provision for income taxes 2.2 15.7
Interest expense(3)31.3 30.8
Investment income (0.2) (0.5)
Depreciation expense 10.2 10.1
Amortization expense8.4 6.4
EBITDA(1),(2)55.6 81.2
(1) Net earnings and EBITDA for the second quarter ended June 28, 2008
includes the following other income and expense items:
-- a pre-tax loss from debt retirement of approximately $9.9 million,
primarily as a result of writing off unamortized deferred debt expense related
to the Company's senior secured credit facility,
-- approximately $4.5 million of fees, expenses and a reserve recorded in
connection with a contemplated settlement of a dispute with one of its former
suppliers within the HTP segment,
-- costs and expenses incurred in connection with the start up of a range
hood facility in Mexico of approximately $1.4 million within the RVP segment,
-- a gain of approximately $2.5 million from the sale of a manufacturing
facility within the RVP segment,
-- net foreign exchange gains of approximately $1.5 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries, and
-- approximately $0.2 million in net charges related to the closure of
certain RVP segment facilities.
(2) Net earnings and EBITDA for the second quarter ended June 30, 2007
includes the following other income and expense items:
-- net foreign exchange losses of approximately $1.7 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries,
-- a charge of approximately $0.8 million related to the closure of the
Company's NuTone, Inc. Cincinnati, Ohio facility within the RVP segment,
-- a charge of approximately $0.5 million related to a reserve for amounts
due from customers within the HTP segment,
-- legal and other professional fees and expenses incurred in connection
with matters related to certain subsidiaries based in Italy and Poland within
the RVP segment of approximately $0.3 million,
-- a charge of approximately $0.3 million related to the planned closure
of the Company's Mammoth, Inc. Chaska, Minnesota manufacturing facility within
the HVAC segment, and
-- a decrease in warranty expense of approximately $0.2 million related to
a product safety upgrade within the HTP segment.
(3) Interest expense for the second quarter ended June 28, 2008 includes
cash interest of approximately $29.4 million and non-cash interest of
approximately $1.9 million. Interest expense for the second quarter ended
June 30, 2007 includes cash interest of approximately $29.4 million and
non-cash interest of approximately $1.4 million.
The following table presents a reconciliation from net (loss) earnings,
which is the most directly comparable GAAP operating performance measure, to
EBITDA for the first six months ended June 28, 2008 and June 30, 2007:
For the first six months ended
June 28, 2008June 30, 2007
(Dollar amounts in millions)
Net (loss) earnings(1),(2) (0.4) 27.9
Provision for income taxes 2.5 22.6
Interest expense(3)58.7 60.0
Investment income (0.4) (0.9)
Depreciation expense 20.9 18.7
Amortization expense 15.1 12.4
EBITDA(1),(2)96.4 140.7
(1) Net loss and EBITDA for the first six months ended June 28, 2008
includes the following other income and expense items:
-- a pre-tax loss from debt retirement of approximately $9.9 million,
primarily as a result of writing off unamortized deferred debt expense related
to the Company's senior secured credit facility,
-- approximately $4.7 million of fees, expenses and a reserve recorded in
connection with a contemplated settlement of a dispute with one of its former
suppliers within the HTP segment,
-- costs and expenses incurred in connection with the start up of a range
hood facility in Mexico of approximately $1.4 million within the RVP segment,
-- a gain of approximately $2.5 million from the sale of a manufacturing
facility within the RVP segment,
-- net foreign exchange gains of approximately $1.4 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries, and
-- approximately $0.2 million in net charges related to the closure of
certain RVP segment facilities.
(2) Net earnings and EBITDA for the first six months ended June 30, 2007
includes the following other income and expense items:
-- charges of approximately $2.3 million related to reserves for amounts
due from customers within the HTP and HVAC segments,
-- net foreign exchange losses of approximately $2.0 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries,
-- a charge of approximately $1.4 million related to the closure of the
Company's NuTone, Inc. Cincinnati, Ohio facility within the RVP segment,
-- legal and other professional fees and expenses incurred in connection
with matters related to certain subsidiaries based in Italy and Poland within
the RVP segment of approximately $1.3 million,
-- a charge of approximately $0.3 million related to the planned closure
of the Company's Mammoth, Inc. Chaska, Minnesota manufacturing facility within
the HVAC segment, and
-- a decrease in warranty expense of approximately $0.2 million related to
a product safety upgrade within the HTP segment.
(3) Interest expense for the first six months ended June 28, 2008 includes
cash interest of approximately $55.4 million and non-cash interest of
approximately $3.3 million. Interest expense for the first six months ended
June 30, 2007 includes cash interest of approximately $57.2 million and
non-cash interest of approximately $2.8 million.
(D) The Company uses EBITDA as both a liquidity and operating performance
measure. Liquidity measure disclosures with respect to EBITDA are
provided below. Refer to Note C for operating performance measure
disclosures with respect to EBITDA and a reconciliation from net
earnings (loss) to EBITDA.
EBITDA is defined as net earnings (loss) before interest, taxes,
depreciation and amortization expense. EBITDA is not a measure of
cash flow under U.S. generally accepted accounting principles ("GAAP")
and should not be considered as an alternative or substitute for GAAP
cash flow measures such as cash flows from operating, investing and
financing activities. EBITDA does not necessarily represent an
accurate measure of cash flow performance because it excludes, among
other things, capital expenditures, working capital requirements,
significant debt service for principal and interest payments, income
tax payments and other contractual obligations, which may have a
significant adverse impact on a company's cash flow performance
thereby limiting its usefulness when evaluating the Company's cash
flow performance. The Company uses a significant amount of capital
assets and capital expenditures are a significant component of the
Company's annual cash expenditures and therefore their exclusion from
EBITDA is a material limitation. The Company has significant working
capital requirements during the year due to the seasonality of its
business, which require significant cash expenditures and therefore
its exclusion from EBITDA is a material limitation. The Company has a
significant amount of debt and the Company has significant cash
expenditures during the year related to principal and interest
payments and therefore their exclusion from EBITDA is a material
limitation. The Company generally pays significant U.S. federal,
state and foreign income taxes each year and therefore its exclusion
from EBITDA is a material limitation. As a result, EBITDA should be
evaluated in conjunction with net cash from operating, investing and
financing activities for a more complete analysis of the Company's
cash flow performance, as they include the financial statement impact
of these items. Although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized will often have to
be replaced in the future and EBITDA does not reflect any cash
requirements for replacements. As EBITDA is not defined by GAAP, the
Company's definition of EBITDA may differ from and therefore may not
be comparable to similarly titled measures used by other companies
thereby limiting its usefulness as a comparative measure. Because of
the limitations that EBITDA has as an analytical tool, investors
should not consider it in isolation, or as a substitute for analysis
of the Company's cash flows as reported under GAAP.
Company management uses EBITDA as a supplementary non-GAAP liquidity
measure to allow the Company to evaluate its operating units
cash-generating ability to fund income tax payments, corporate
overhead, capital expenditures and increases in working capital.
EBITDA is also used by management to allocate resources for growth
among its businesses, to identify possible impairment charges, to
evaluate the Company's ability to service its debt and to raise
capital for growth opportunities, including acquisitions. In
addition, the Company uses EBITDA as a liquidity measure in financial
presentations to the Company's Board of Directors, shareholders,
various banks participating in Nortek's ABL Facility, note holders and
Bond Rating agencies, among others, as a supplemental non-GAAP
liquidity measure to assist them in their evaluation of the Company's
cash flow performance. The Company uses EBITDA in conjunction with
traditional GAAP liquidity measures as part of its overall assessment
of cash flow ability and therefore does not place undue reliance on
EBITDA as its only measure of cash flow performance.
The Company believes EBITDA is useful for both the Company and
investors as it is a commonly used analytical measurement for
assessing a company's cash flow ability to service and/or incur
additional indebtedness, which eliminates the impact of certain
non-cash items such as depreciation and amortization. The Company
believes that EBITDA is specifically relevant to the Company due to
the Company's leveraged position as well as the common use of EBITDA
as a liquidity measure within the Company's industries by lenders,
investors, others in the financial community and peer group companies.
The Company has included EBITDA as a supplemental liquidity measure,
which should be evaluated by investors in conjunction with the
traditional GAAP liquidity measures discussed earlier in this summary
of operations for a complete evaluation of the Company's cash flow
performance.
The following table presents a reconciliation from net cash provided by
operating activities, which is the most directly comparable GAAP liquidity
measure, to EBITDA for the first six months ended June 28, 2008 and June 30,
2007:
For the first six months ended
June 28, 2008June 30, 2007
(Dollar amounts in millions)
Net cash provided by operating activities 44.6 46.1
Cash used by working capital and other
long-term asset and liability changes (2.9) 20.2
Deferred federal income tax benefit (provision) 4.7 (4.1)
Gain (loss) on property and equipment 2.5 (0.2)
Loss from debt retirement(9.9) ---
Non-cash interest expense, net (3.3) (2.8)
Non-cash stock-based compensation expense(0.1) (0.2)
Provision for income taxes2.5 22.6
Interest expense(3) 58.7 60.0
Investment income(0.4) (0.9)
EBITDA(1),(2) 96.4 140.7
(1) EBITDA for the first six months ended June 28, 2008 includes the
following other income and expense items:
-- a pre-tax loss from debt retirement of approximately $9.9 million,
primarily as a result of writing off unamortized deferred debt expense related
to the Company's senior secured credit facility,
-- approximately $4.7 million of fees, expenses and a reserve recorded in
connection with a contemplated settlement of a dispute with one of its former
suppliers within the HTP segment,
-- costs and expenses incurred in connection with the start up of a range
hood facility in Mexico of approximately $1.4 million within the RVP segment,
-- a gain of approximately $2.5 million from the sale of a manufacturing
facility within the RVP segment,
-- net foreign exchange gains of approximately $1.4 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries, and
-- approximately $0.2 million in net charges related to the closure of
certain RVP segment facilities.
(2) EBITDA for the first six months ended June 30, 2007 includes the
following other income and expense items:
-- charges of approximately $2.3 million related to reserves for amounts
due from customers within the HTP and HVAC segments,
-- net foreign exchange losses of approximately $2.0 million related to
transactions, including intercompany debt not indefinitely invested in the
Company's subsidiaries,
-- a charge of approximately $1.4 million related to the closure of the
Company's NuTone, Inc. Cincinnati, Ohio facility within the RVP segment,
-- legal and other professional fees and expenses incurred in connection
with matters related to certain subsidiaries based in Italy and Poland within
the RVP segment of approximately $1.3 million,
-- a charge of approximately $0.3 million related to the planned closure
of the Company's Mammoth, Inc. Chaska, Minnesota manufacturing facility within
the HVAC segment, and
-- a decrease in warranty expense of approximately $0.2 million related to
a product safety upgrade within the HTP segment.
(3) Interest expense for the first six months ended June 28, 2008 includes
cash interest of approximately $55.4 million and non-cash interest of
approximately $3.3 million. Interest expense for the first six months ended
June 30, 2007 includes cash interest of approximately $57.2 million and
non-cash interest of approximately $2.8 million.
CONTACT: Richard L. Bready, Chairman and CEO or Edward J. Cooney, Vice
President and Treasurer, of Nortek, Inc., 401-751-1600
SOURCE Nortek, Inc.
