================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 18, 2004
Nortek, Inc.
-----------------------------------------
(Exact name of registrant as specified in charter)
Delaware 333-25505 05-0314991
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
50 Kennedy Plaza, Providence, Rhode Island 02903-2360
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 751-1600
================================================================================
ITEM 9. Regulation FD Disclosure
As previously announced, on July 15, 2004, THL Buildco Holdings, Inc. and THL
Buildco, Inc., newly formed Delaware corporations affiliated with Thomas H. Lee
Partners, L.P., entered into a stock purchase agreement with the stockholders of
Nortek Holdings, Inc. (referred to herein as the "current Nortek Holdings,
Inc."), including affiliates of Kelso & Company, L.P. and certain members of
Nortek Inc.'s ("Nortek") management, pursuant to which THL Buildco, Inc. agreed
to purchase all the outstanding capital stock of the current Nortek Holdings,
Inc. THL Buildco, Inc. is a wholly owned direct subsidiary of THL Buildco
Holdings, Inc. Throughout this filing, "the Acquisition" refers to this stock
purchase and the related mergers described below, and all references to "we,"
"us" and "our" refer to Nortek and its consolidated subsidiaries.
Following are portions of the summary historical and pro forma financial data,
pro forma condensed consolidated financial data and other information included
in the offering memorandum dated August 12, 2004, which was distributed on
August 18, 2004, in connection with a proposed offering to be made by THL
Buildco, Inc. in connection with the Acquisition under Rule 144A and Regulation
S of $625 million principal amount of 8 1/2% senior subordinated notes.
The current Nortek Holdings, Inc. is the parent company of Nortek and will be
merged into Nortek in connection with the Acquisition. Accordingly, the
historical amounts presented reflect historical financial information of the
current Nortek Holdings, Inc. and the pro forma amounts presented reflect pro
forma information of Nortek as it will be the surviving corporation in
connection with the Acquisition.
This report is neither an offer to sell nor a solicitation of an offer to buy
any securities. The information in this Form 8-K shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section. In addition, this
information shall not be deemed to be incorporated by reference into any of the
Nortek, Inc. filings with the Securities and Exchange Commission, except as
shall be expressly set forth by specific reference in any such filing.
Notwithstanding the foregoing, the information in this report shall be
incorporated into the offer to purchase circulated in connection with the
current Nortek Holdings, Inc.'s previously announced tender offer for its
outstanding 10% senior discount notes due 2011 and circulated in connection with
Nortek's previously announced tender offers for its outstanding senior floating
rate notes due 2010 and its outstanding 9 7/8% senior subordinated notes due
2011.
-2-
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
On November 20, 2002, Nortek engaged in a reorganization transaction pursuant to
which each outstanding share of capital stock of Nortek was converted into an
identical share of capital stock of the current Nortek Holdings, Inc., with
Nortek becoming a wholly owned subsidiary of the current Nortek Holdings, Inc.
On January 9, 2003, the current Nortek Holdings, Inc. completed a reorganization
transaction, which resulted in its acquisition by certain affiliates and
designees of Kelso & Company, L.P. and certain members of Nortek management (the
"recapitalization"). Beginning on January 9, 2003, Nortek and the current Nortek
Holdings, Inc. accounted for the recapitalization as a purchase in accordance
with Statement of Financial Accounting Standards No. 141, "Business
Combinations," which resulted in a new valuation for the assets and liabilities
of Nortek and the current Nortek Holdings, Inc. based upon their fair values as
of the date of the recapitalization (the "purchase accounting"). Accordingly,
the summary financial information presented below includes the results of
operations for the pre-recapitalization periods prior to January 10, 2003 and
the post-recapitalization periods subsequent to January 9, 2003. The purchase
accounting was finalized in the fourth quarter of 2003.
On February 12, 2004, Nortek sold the capital stock of its wholly owned
subsidiary Ply Gem Industries, Inc. ("Ply Gem") for net cash proceeds of
approximately $506.7 million after excluding approximately $21.4 million of
proceeds provided to fund liabilities of Ply Gem indemnified by Nortek and
recorded a net after-tax gain of approximately $72.3 million in the first
quarter of 2004. Nortek treated the sale of Ply Gem as a discontinued operation
and, accordingly, the current Nortek Holdings, Inc.'s consolidated financial
statements incorporated by reference herein exclude the results of Ply Gem from
continuing operations in the statements of operations and, where applicable,
reflect the assets and liabilities of Ply Gem as assets and liabilities from
discontinued operations in the consolidated balance sheets. Accordingly, the
selected historical consolidated financial data presented below reflects Ply Gem
as a discontinued operation for all periods presented.
In connection with the Acquisition, THL Buildco, Inc. will be merged with and
into the current Nortek Holdings, Inc., with the current Nortek Holdings, Inc.
continuing as the surviving corporation, and the current Nortek Holdings, Inc.
will then be merged with and into Nortek, with Nortek continuing as the
surviving corporation. Upon consummation of these mergers, Nortek, as the
surviving corporation, will have assumed all of the obligations of THL Buildco,
Inc., as the original issuer of the notes. Because Nortek will succeed to the
rights and obligations of the current Nortek Holdings, Inc. by virtue of these
mergers, and because the use of proceeds from the offering of the notes includes
the refinancing of the current Nortek Holdings, Inc.'s existing 10% senior
discount notes due 2011, the tables in the following sections labeled "Statement
of Operations Data" and "Balance Sheet Data" present historical consolidated
financial data of the current Nortek Holdings, Inc. and pro forma consolidated
financial data for Nortek, as surviving corporation of the mergers, in each case
for the periods indicated.
The summary consolidated historical financial data of the current Nortek
Holdings, Inc. for each of the two years in the period ended December 31, 2002,
the period from January 1, 2003 to January 9, 2003 and the period from January
10, 2003 to December 31, 2003 has been derived from the current Nortek Holdings,
Inc.'s consolidated financial statements, which were audited by Ernst & Young
LLP, independent registered public accounting firm. The summary consolidated
historical financial data for the period from January 10, 2003 to July 5, 2003
and the six months ended July 3, 2004 has been derived from the current Nortek
Holdings, Inc.'s unaudited condensed consolidated financial statements, which
reflect, in the opinion of the current Nortek Holdings, Inc. management, all
adjustments of a normal recurring nature necessary for a fair statement of the
interim periods presented. The amounts in the twelve months ended July 3, 2004
column have been derived from the historical amounts presented. The amounts in
the columns for the pro forma statement of operations data for the twelve months
ended July 3, 2004 and the pro forma balance sheet data as of July 3, 2004
columns were derived from the "Unaudited Pro Forma Condensed Consolidated
Financial Data"
-3-
included elsewhere herein. These amounts reflect the pro forma impact of the
2003 recapitalization and the Acquisition and the other related transactions,
including the offering of the notes and the repurchase of the existing notes.
The pro forma statement of operations data gives pro forma effect to these
transactions as if they had occurred as of January 1, 2003. The pro forma
balance sheet data gives effect to the transactions above as if they had
occurred on July 3, 2004.
This summary historical and pro forma financial data should be read in
conjunction with the audited and unaudited consolidated financial statements and
related notes and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in each case
included in the current Nortek Holdings, Inc.'s Form 10-K for the year ended
December 31, 2003 and Forms 10-Q for the fiscal quarters ended April 3, 2004 and
July 3, 2004, incorporated by reference herein, and the information contained in
"Unaudited Pro Forma Condensed Consolidated Financial Data" included elsewhere
herein.
<Table>
<Caption>
PRE-RECAPITALIZATION POST-RECAPITALIZATION
------------------------------------- -------------------------------
YEAR ENDED DEC. 31, PERIOD FROM PERIOD FROM PERIOD FROM
--------------------- JAN. 1, 2003- JAN. 10, 2003- JAN. 10, 2003-
2001 2002 JAN. 9, 2003 JULY 5, 2003 DEC. 31, 2003
- ---------------------------------------------------------------------------------------------------------
(dollars in millions except percentage data and ratios)
STATEMENT OF OPERATIONS
DATA(1)(2)
Net sales...................... $1,293.8 $1,384.1 $ 24.9 $ 726.1 $ 1,490.1
Cost of products sold.......... 945.6 992.3 18.6 520.4 1,060.0
Selling, general and
administrative expense........ 226.5 262.6 5.0 123.5 261.6
Amortization of goodwill and
intangible assets(3).......... 12.0 3.0 0.1 3.8 9.1
Expenses and charges arising
from the recapitalization(4)... -- 6.6 83.0 -- --
-------- -------- ------------- -------------- --------------
Operating earnings (loss)(6)(7) 109.7 119.6 (81.8) 78.4 159.4
Interest expense............... (51.8) (52.4) (1.0) (29.4) (57.6)
Loss from debt retirement(5)... (5.5) -- -- -- --
Investment income.............. 8.2 5.9 0.1 0.6 1.5
-------- -------- ------------- -------------- --------------
Earnings (loss) from continuing
operations before provision
(benefit) for income taxes.... 60.6 73.1 (82.7) 49.6 103.3
Provision (benefit) for income
taxes......................... 27.8 29.5 (21.8) 20.1 41.3
-------- -------- ------------- -------------- --------------
Earnings (loss) from continuing
operations.................... 32.8 43.6 (60.9) 29.5 62.0
Earnings (loss) from
discontinued operations....... (24.8) 18.9 (1.0) 1.9 12.2
-------- -------- ------------- -------------- --------------
Net earnings (loss)............ 8.0 62.5 (61.9) 31.4 74.2
======== ======== ============= ============== ==============
OTHER FINANCIAL DATA(1)(2):
Operating earnings
(loss)(6)(7).................. 109.7 119.6 (81.8) 78.4 159.4
Depreciation expense from
continuing operations......... 25.2 26.1 0.6 7.7 17.5
Amortization expense from
continuing operations......... 12.0 3.0 0.1 8.8 14.5
Capital expenditures........... 27.1 19.1 0.2 7.2 24.7
<Caption>
POST-RECAPITALIZATION
----------------------------- PRO FORMA
SIX MONTHS TWELVE TWELVE MONTHS
ENDED MONTHS ENDED ENDED
JULY 3, 2004 JULY 3, 2004 JULY 3, 2004(9)
- -------------------------------- ------------------------------------------------
(dollars in millions except perc (unaudited) (unaudited) (unaudited)
STATEMENT OF OPERATIONS
DATA(1)(2)
Net sales...................... $ 855.8 $ 1,619.8 $ 1,619.8
Cost of products sold.......... 605.1 1,144.7 1,146.1
Selling, general and
administrative expense........ 155.8 293.9 288.4
Amortization of goodwill and
intangible assets(3).......... 6.8 12.1 13.4
Expenses and charges arising
from the recapitalization(4)... -- -- --
------------- ------------- ----------------
Operating earnings (loss)...... 88.1 169.1 171.9
Interest expense............... (44.0) (72.2) (90.1)
Loss from debt retirement(5)... (12.0) (12.0) --
Investment income.............. 1.3 2.2 0.6
------------- ------------- ----------------
Earnings (loss) from continuing
operations before provision
(benefit) for income taxes.... 33.4 87.1 82.4
Provision (benefit) for income
taxes......................... 13.8 35.0 33.4
------------- ------------- ----------------
Earnings (loss) from continuing
operations.................... 19.6 52.1 49.0
================
Earnings (loss) from
discontinued operations....... 67.4 77.7
------------- -------------
Net earnings (loss)............ 87.0 129.8
============= =============
OTHER FINANCIAL DATA(1)(2):
Operating earnings
(loss)(6)(7).................. 88.1 169.1 171.9
Depreciation expense from
continuing operations......... 12.8 22.6 24.0
Amortization expense from
continuing operations......... 7.1 12.8 14.1
Capital expenditures........... 9.6 27.1 27.1
</Table>
<Table>
BALANCE SHEET DATA(9):
Cash and cash equivalents(8)................................ $ 15.5
Working capital............................................. 256.9
Total assets................................................ 2,265.2
Total debt.................................................. 1,359.2
Stockholder's investment.................................... 399.8
</Table>
- ---------------
(1) Acquisitions have been accounted for under the purchase method of
accounting. Dispositions have been accounted for as discontinued operations
and have been excluded from earnings from continuing operations for all
applicable periods presented. See notes 1, 2, 3, 10 and 11 of the notes to
the consolidated financial statements included in the current Nortek
-4-
Holdings, Inc.'s Form 10-K for the fiscal year ended December 31, 2003 and
notes A, B, E, H and I of the notes to the unaudited condensed consolidated
financial statements included in the current Nortek Holdings, Inc.'s Form
10-Q for the fiscal quarter ended July 3, 2004, each incorporated by
reference herein.
(2) For additional information related to certain debt offerings and
redemptions completed in late 2003 and early 2004 by Nortek, see notes 6
and 16 of the notes to the consolidated financial statements included in
the current Nortek Holdings, Inc.'s Form 10-K for the fiscal year ended
December 31, 2003 and note D of the notes to the unaudited condensed
consolidated financial statements included in the current Nortek Holdings,
Inc.'s Form 10-Q for the fiscal quarter ended July 3, 2004, each
incorporated by reference herein.
(3) In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," Nortek ceased amortizing goodwill
as of January 1, 2002. Goodwill amortization expense related to continuing
operations of approximately $8.7 million is included in amortization of
goodwill and intangible assets for the year ended December 31, 2001. See
note 1 of the notes to the consolidated financial statements included in
the current Nortek Holdings, Inc.'s Form 10-K for the fiscal year ended
December 31, 2003, incorporated by reference herein.
(4) Amounts represent expenses and charges arising from the recapitalization as
described in Notes 2 and 14 of the notes to the consolidated financial
statements included in the current Nortek Holdings, Inc.'s Form 10-K for
the fiscal year ended December 31, 2003 and notes B and F of the notes to
the unaudited condensed consolidated financial statements included in the
current Nortek Holdings, Inc.'s Form 10-Q for the fiscal quarter ended July
3, 2004, each incorporated by reference herein.
(5) Represents the pre-tax loss associated with the redemption of certain notes
in fiscal 2001 and the six months ended July 3, 2004. See notes 6 and 16 of
the notes to the consolidated financial statements included in the current
Nortek Holdings, Inc.'s Form 10-K for the fiscal year ended December 31,
2003 and Note D of the notes to the unaudited condensed consolidated
financial statements included in the current Nortek Holdings, Inc.'s Form
10-Q for the fiscal quarter ended July 3, 2004, each incorporated by
reference herein.
(6) Operating earnings (loss) includes the following items:
-5-
- ---------------
(a) Strategic sourcing expenses which primarily represent direct costs and
third party fees related to the development and implementation of
software and systems to execute our strategic sourcing initiative.
Strategic sourcing expenses were approximately $5.5 million, $3.7
million, $0.1 million, $1.7 million, $3.4 million, $1.7 million and
$1.7 million for the years ended December 31, 2001 and 2002, the period
from January 1, 2003 to January 9, 2003, the period from January 10,
2003 to July 5, 2003, the period from January 10, 2003 to December 31,
2003, the twelve months ended July 3, 2004 and the pro forma twelve
months ended July 3, 2004, respectively.
(b) Re-audit fees and expenses which relate to the re-audit of Nortek's
consolidated financial statements for each of the three years in the
period ended December 31, 2001. Under applicable rules and regulations
of the SEC, the proxy statement that was delivered to the current
Nortek Holdings, Inc.'s stockholders in connection with their approval
of the recapitalization had to include or incorporate by reference
audited annual financial statements reclassifying any business sold,
since the financial statements were originally published, as a
discontinued operation for all periods presented in such statements.
Although this subsidiary was not a significant subsidiary within the
meaning of the applicable rules and regulations of the SEC, the rule
requiring that the subsidiary be reclassified as a discontinued
operation in the audited annual financial statements still applied. If
Nortek had not sold this subsidiary no re-audit of its historical
audited annual financial statements would have been required in
connection with the preparation of the proxy statement. The re-audit
did not result from any inquiry made by the SEC or any other party and
would have been required of any similarly situated public company.
Except for the reclassification of the subsidiary as a discontinued
operation, the re-audit confirmed, without change, the operating
earnings, net earnings, balance sheet and cash flow amounts previously
reported. Re-audit fees and expenses of approximately $2.1 million were
recorded during the year ended December 31, 2003.
(c) Facilities rationalization and expansion costs in 2001 which relate to
the start-up of a new 450,000 sq. ft. residential HVAC facility in
Poplar Bluff, MO. In 2002, these costs represent the expenses
associated with merging certain operations within the residential
building products segment. In 2003 and beyond, these costs relate to
the closure of a 200,000 sq. ft. residential HVAC facility in St.
Louis, MO and the opening of a new 370,000 sq. ft. facility in
Dyersburg, TN and primarily represent direct costs such as severance
and relocation of equipment and identified costs related to a portion
of manufacturing inefficiencies incurred in the first half of 2004
during the ramp-up of production in the new facility. Facilities
rationalization and expansion costs were approximately $2.7 million,
$1.0 million, $2.0 million, $6.9 million, $7.8 million, $12.7 million
and $12.7 million for the years ended December 31, 2001 and 2002, the
period from January 10, 2003 to July 5, 2003, the period from January
10, 2003 to December 31, 2003, the six months ended July 3, 2004, the
twelve months ended July 3, 2004 and the pro forma twelve months ended
July 3, 2004, respectively.
(d) Stock option and other stock compensation expense which represent
non-cash compensation expense related to stock options and common stock
in accordance with SFAS No. 123. Stock option and other stock
compensation expense was approximately $0.7 million, $0.9 million, $2.1
million, $3.3 million, $4.5 million and $4.5 million for the year ended
December 31, 2002, the period from January 10, 2003 to July 5, 2003,
the period from January 10, 2003 to December 31, 2003, the six months
ended July 3, 2004, the twelve months ended July 3, 2004 and the pro
forma twelve months ended July 3, 2004, respectively.
(e) A long-term incentive earned in 2002 by certain members of management
under Nortek's 1999 equity performance plan was terminated in 2002 and
no new benefit plan was provided to these members of management.
Long-term incentive compensation costs of approximately $4.4 million
were recorded during the year ended December 31, 2002.
(f) Non-cash (income) expense related to changes in foreign exchange rates
on intercompany debt arises, primarily from intercompany debt between
Nortek and certain of its foreign subsidiaries. Income of approximately
$0.7 million, $1.5 million, $0.3 million and $0.3 million was recorded
during the period from January 10, 2003 to July 5, 2003, the period
from January 10, 2003 through December 31, 2003, the twelve months
ended July 3, 2004 and the pro forma twelve months ended July 3, 2004,
respectively. Expense of approximately $0.5 million was recorded during
the six months ended July 3, 2004.
(g) Non-recurring gains of approximately $0.5 million which were recorded
during the six months ended July 3, 2004 related to the sale of certain
assets.
(h) In connection with the Acquisition, we expect to implement a corporate
restructuring that will result in changes in certain members of
management's compensation and modifications of employee benefits. In
addition, corporate overhead expense was reduced subsequent to February
11, 2004 following the sale of our former subsidiary, Ply Gem
Industries, Inc. ("Ply Gem"). Included in corporate overhead charges in
operating earnings (loss) are management compensation and employee
benefit costs of approximately $2.5 million, $9.4 million, $5.4
million, $12.3 million and $6.3 million for the period from January 1,
2003 to January 9, 2003, the period from January 10, 2003 to July 5,
2003, the period from January 10, 2003 to December 31, 2003, the six
months ended July 3, 2004, the twelve months ended July 3, 2004 and the
pro forma twelve months ended July 3, 2004, respectively, that we
believe would not have been incurred had we instituted the proposed
corporate restructuring as of January 1, 2003 and sold Ply Gem on
January 1, 2003.
(7) Operating earnings (loss) excludes the following items:
(a) During 2003 and 2004, we acquired, at various times, Elan, SpeakerCraft
and OmniMount. See Note E of the notes to the unaudited condensed
consolidated financial statements included in the current Nortek
Holdings Inc. Form 10-Q for the fiscal quarter ended July 3, 2004,
incorporated by reference herein. On a pro forma basis, operating
earnings would have increased by approximately of $0.1 million, $6.0
million, $8.3 million, $0.3 million, $2.6 million and $2.6 million for
the period from January 1, 2003 to January 9, 2003, the period from
January 10, 2003 to July 5, 2003, the period from January 10, 2003 to
December 31, 2003, the six months ended July 3, 2004, the twelve months
ended July 3, 2004 and the pro forma twelve months ended July 3, 2004,
respectively, had such acquisitions occurred as of January 1, 2003. On
a pro forma basis, depreciation and amortization expense would have
increased by approximately $0.3 million, $0.4 million, $0.1 million,
$0.2 million and $0.2 million for the period from January 10, 2003 to
July 5, 2003, the period from January 10, 2003 to December 31, 2003,
the six months ended July 3, 2004, the twelve months ended July 3, 2004
and the pro forma twelve months ended July 3, 2004, respectively, had
such acquisitions occurred as of January 1, 2003. Separate pro forma
information was not required for these acquisitions as they were not
material to our consolidated results of operations for any of the 2003
and 2004 periods presented.
(b) In connection with the Acquisition, our equity sponsor fee is expected
to increase to $2.0 million annually from the $1.5 million annual fee
that has been paid to affiliates of Kelso & Company, L.P. since the
recapitalization on January 9, 2003. On a pro forma basis, the equity
sponsor fee included in operating earnings (loss) would have been
approximately $0.3 million, $0.5 million, $0.3 million and $0.5 million
higher for the period from January 10, 2003 to July 5, 2003, the period
from January 10, 2003 to December 31, 2003, the six months ended July
3, 2004 and the twelve months ended July 3, 2004, respectively, had the
Acquisition occurred as of January 1, 2003.
(8) Includes $8.5 million of restricted cash.
-7-
(9) The pro forma twelve months ended July 3, 2004 statement of operations data
amounts were derived from the unaudited pro forma condensed consolidated
statement of operations for the twelve months ended July 3, 2004 and the
pro forma July 3, 2004 balance sheet data amounts were derived from the
unaudited pro forma condensed consolidated balance sheet as of July 3, 2004
included in "Unaudited Pro Forma Condensed Consolidated Financial Data"
contained elsewhere herein.
-8-
- --------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Financial Data
In connection with the Acquisition, THL Buildco, Inc. will be merged with and
into the current Nortek Holdings, Inc., with the current Nortek Holdings, Inc.
continuing as the surviving corporation, and the current Nortek Holdings, Inc.
will then be merged with and into Nortek, with Nortek continuing as the
surviving corporation. Upon consummation of these mergers, Nortek, as the
surviving corporation, will succeed to all of the obligations of the issuer of
the notes.
Presented below is unaudited pro forma condensed consolidated financial data for
Nortek, Inc., as the surviving corporation of the mergers described above.
Because Nortek will succeed to the rights and obligations of the current Nortek
Holdings, Inc. as a result of these mergers, and because the use of proceeds
from the offering of the notes and the other financing transactions includes the
refinancing of the current Nortek Holdings, Inc.'s existing 10% senior discount
notes due 2011, the following unaudited pro forma condensed consolidated
financial data has been derived by the application of pro forma adjustments to
the current Nortek Holdings, Inc. historical consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet data presented
below gives effect to the Acquisition and the other related transactions,
including the offering of the notes and the other financing transactions, as if
they had all occurred on July 3, 2004. The unaudited pro forma condensed
consolidated statements of operations data for the periods presented gives
effect to these transactions and the 2003 recapitalization, as if they had all
occurred on January 1, 2003. Assumptions underlying the pro forma adjustments
are described in the accompanying notes which should be read in conjunction with
the following unaudited pro forma condensed consolidated financial statements.
The pro forma adjustments related to the purchase price allocation and financing
of the Acquisition are preliminary and based on information obtained to date,
and are subject to revision as additional information becomes available. The
actual purchase accounting adjustments described in the accompanying notes will
be made as of the closing date of the Acquisition and may differ from those
reflected in the following unaudited pro forma condensed consolidated financial
statements. Revisions to the preliminary purchase price allocation and financing
of the Acquisition may have a significant impact on the pro forma amounts of
total assets, total liabilities, stockholder's investment, cost of sales,
selling, general and administrative expenses, depreciation and amortization and
interest expense.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the current Nortek Holdings management believes are
reasonable under the circumstances. The unaudited pro forma condensed
consolidated financial data should not be considered indicative of actual
results that would have been achieved had the 2003 recapitalization and the
Acquisition and other related transactions been consummated on the dates
indicated and does not purport to indicate consolidated balance sheet data or
results of operations as of any future date or future period.
The following unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited and unaudited consolidated
financial statements and related notes and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in the current Nortek Holdings, Inc. Form 10-K for the
year ended December 31, 2003 and Forms 10-Q for the fiscal quarters ended April
3, 2004 and July 3, 2004, each incorporated by reference herein.
- --------------------------------------------------------------------------------
-9-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 3, 2004
<Table>
<Caption>
HISTORICAL
CURRENT ACQUISITION
NORTEK PRO FORMA PRO FORMA
HOLDINGS, INC. ADJUSTMENTS NORTEK, INC.
- ----------------------------------------------------------------------------------------------------
(dollars in millions)
ASSETS
CURRENT ASSETS:
Unrestricted:
Cash and cash equivalents.......................... $ 127.7 $ (120.7)(a) $ 7.0
Marketable securities available for sale........... 5.0 (5.0)(b) --
Restricted:
Cash and marketable securities..................... 8.5 -- 8.5
Accounts receivable (less allowances of $6.3)........ 263.2 -- 263.2
Inventories, net..................................... 202.0 7.8(c) 209.8
Prepaid expenses..................................... 11.5 (0.1)(d) 11.4
Other current assets................................. 16.7 (0.3)(e) 16.4
Prepaid income taxes................................. 20.7 64.2(f) 84.9
-------- -------- --------
Total current assets....................... 655.3 (54.1) 601.2
Property, plant and equipment, net................... 190.2 -- 190.2
Goodwill............................................. 686.9 651.3(g) 1,338.2
Intangible assets (less accumulated amortization of
$16.1)............................................. 89.1 -- 89.1
Deferred debt expense................................ 16.0 22.4(h) 38.4
Other assets......................................... 17.2 (9.1)(i) 8.1
-------- -------- --------
Total assets............................... $1,654.7 $ 610.5 $2,265.2
======== ======== ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
CURRENT LIABILITIES:
Notes payable and other short term obligations....... $ 6.2 $ -- $ 6.2
Current maturities of long-term debt................. 7.2 7.0(j) 14.2
Accounts payable..................................... 159.7 -- 159.7
Accrued expenses and taxes, net...................... 168.0 (3.8)(k) 164.2
-------- -------- --------
Total current liabilities.................. 341.1 3.2 344.3
Deferred income taxes................................ 32.6 -- 32.6
Other long-term liabilities.......................... 150.4 (0.7)(l) 149.7
Notes, mortgages, capital leases and obligations
payable less current maturities.................... 841.9 496.9(m) 1,338.8
Stockholder's investment............................. 288.7 111.1(n) 399.8
-------- -------- --------
Total liabilities and stockholder's
investment............................... $1,654.7 $ 610.5 $2,265.2
======== ======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
-10-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
JULY 3, 2004
PRO FORMA
ADJUSTMENTS
- --------------------------------------------------------------------------
(dollars in millions)
ADJUSTMENTS RELATED TO THE ACQUISITION
(a) Cash and cash equivalents
Current Nortek Holdings, Inc. cash used to consummate
transaction............................................... $(120.7)
=======
(b) Marketable securities available for sale
Current Nortek Holdings, Inc. marketable securities used to
consummate transaction.................................... $ (5.0)
=======
(c) Inventories, net
Inventory fair value adjustment............................. $ 7.8
=======
(d) Prepaid expenses
Elimination of certain contractual management compensation
arrangements.............................................. $ (0.1)
=======
(e) Other current assets
Elimination of certain contractual management compensation
arrangements.............................................. $ (0.3)
=======
(f) Prepaid income taxes
Deferred tax consequences of purchase accounting adjustments
related to current assets and liabilities................. $ 64.2
=======
(g) Goodwill
Excess of fair value over net assets acquired............... $ 651.3
=======
(h) Deferred debt expense
Elimination of prior deferred financing costs related to
debt redeemed and a senior secured credit facility to be
terminated................................................ $ (16.0)
Financing costs related to the sale of the notes and the new
senior secured credit facility............................ 38.4
-------
$ 22.4
=======
(i) Other assets
Elimination of certain contractual management compensation
arrangements.............................................. $ (9.1)
=======
(j) Current maturities of long term debt
Current portion of borrowings under the new senior secured
credit facility........................................... $ 7.0
=======
(k) Accrued expenses and taxes, net
Payment of accrued interest expense upon debt redemption.... $ (1.1)
Elimination of certain contractual management compensation
arrangements.............................................. (2.7)
=======
$ (3.8)
=======
(l) Other long-term liabilities
Elimination of certain contractual management compensation
arrangements.............................................. $ (0.7)
=======
(m) Notes, mortgages and obligations payable, less current
maturities
Sale of the notes........................................... $ 625.0
Borrowings under the new senior secured credit facility..... 693.0
Elimination of principal and debt premium related to debt
redemptions............................................... (821.1)
-------
$ 496.9
=======
</Table>
- --------------------------------------------------------------------------------
-11-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(CONTINUED)
<Table>
<Caption>
JULY 3, 2004
PRO FORMA
ADJUSTMENTS
- --------------------------------------------------------------------------
(dollars in millions)
ADJUSTMENTS RELATED TO THE ACQUISITION
(n) Stockholder's Investment
Purchase of Series B preference stock as part of
transaction............................................... $ (8.1)
Purchase of Class A common stock as part of transaction..... (0.4)
Purchase of non-rolled stock options, net................... (90.3)
Fees and expenses related to the Acquisition................ (30.5)
Redemption premiums and elimination of prior deferred
financing costs related to debt redemption, net........... (78.1)
Retention payments to certain executive officers............ (0.2)
Elimination of certain contractual management compensation
arrangements.............................................. (9.2)
Impact due to transaction being accounted for as a
purchase.................................................. 327.9
-------
$ 111.1
=======
</Table>
- --------------------------------------------------------------------------------
-12-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 3, 2004
<Table>
<Caption>
HISTORICAL
CURRENT ACQUISITION
NORTEK PRO FORMA PRO FORMA
HOLDINGS, INC. ADJUSTMENTS NORTEK, INC.
- ----------------------------------------------------------------------------------------------------
(dollars in millions)
Net sales............................................ $855.8 $ -- $855.8
Cost and expenses:
Cost of products sold.............................. 605.1 -- (a) 605.1
Selling, general and administrative expense........ 155.8 (2.5)(b) 153.3
Amortization of intangible assets.................. 6.8 -- (c) 6.8
------ ---- ------
767.7 (2.5) 765.2
------ ---- ------
Operating earnings................................... 88.1 2.5 90.6
Interest expense..................................... (44.0) (0.9)(d) (44.9)
Loss on debt redemption.............................. (12.0) 12.0 (e) --
Investment income.................................... 1.3 (0.8)(f) 0.5
------ ---- ------
Earnings from continuing operations before provision
for income taxes................................... 33.4 12.8 46.2
Provision for income taxes........................... 13.8 4.5(g) 18.3
------ ---- ------
Earnings from continuing operations.................. $ 19.6 $8.3 $ 27.9
====== ==== ======
Ratio of earnings to fixed charges(m)................ 1.7x 2.0x
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
-13-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
<Caption>
HISTORICAL HISTORICAL
CURRENT CURRENT
NORTEK NORTEK
HOLDINGS, INC. HOLDINGS, INC.
FOR THE FOR THE 2003
PERIOD FROM PERIOD FROM RECAPITALIZATION ACQUISITION PRO FORMA
JAN. 1, 2003 TO JAN. 10, 2003 TO PRO FORMA PRO FORMA NORTEK,
JAN. 9, 2003 DEC. 31, 2003 ADJUSTMENTS SUBTOTAL ADJUSTMENTS INC.
- --------------------------------------------------------------------------------------------------------------------------
(dollars in millions)
Net sales................... $ 24.9 $1,490.1 $ -- $1,515.0 $ -- $1,515.0
Cost and expenses:
Cost of products sold..... 18.6 1,060.0 (0.1)(h) 1,078.5 4.5(a) 1,083.0
Selling, general and
administrative expense.... 88.0 261.6 (82.7)(i) 266.9 (4.2)(b) 262.7
Amortization of intangible
assets.................... 0.1 9.1 0.2(j) 9.4 4.0(c) 13.4
------ -------- ------ -------- ------ --------
106.7 1,330.7 (82.6) 1,354.8 4.3 1,359.1
------ -------- ------ -------- ------ --------
Operating earnings (loss)... (81.8) 159.4 82.6 160.2 (4.3) 155.9
Interest expense............ (1.0) (57.6) 0.1(k) (58.5) (33.6)(d) (92.1)
Investment income........... 0.1 1.5 -- 1.6 (1.5)(f) 0.1
------ -------- ------ -------- ------ --------
Earnings (loss) from
continuing operations
before provision (benefit)
for income taxes.......... (82.7) 103.3 82.7 103.3 (39.4) 63.9
Provision (benefit) for
income taxes.............. (21.8) 41.3 22.2(l) 41.7 (13.8)(g) 27.9
------ -------- ------ -------- ------ --------
Earnings (loss) from
continuing operations..... $(60.9) $ 62.0 $ 60.5 $ 61.6 $(25.6) $ 36.0
====== ======== ====== ======== ====== ========
Ratio of earnings to fixed
charges(m)................ -- 2.7x 1.7x
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
-14-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JULY 3, 2004
<Table>
<Caption>
HISTORICAL
CURRENT
NORTEK
HOLDINGS, INC.
FOR THE
TWELVE
MONTHS ACQUISITION
ENDED PRO FORMA PRO FORMA
JULY 3, 2004 ADJUSTMENTS NORTEK, INC.
- ----------------------------------------------------------------------------------------------------
(dollars in millions)
Net sales.............................................. $ 1,619.8 $ -- $ 1,619.8
Cost and expenses:
Cost of products sold................................ 1,144.7 1.4(a) 1,146.1
Selling, general and administrative expense.......... 293.9 (5.5)(b) 288.4
Amortization of intangible assets.................... 12.1 1.3(c) 13.4
---------- ----- ----------
1,450.7 (2.8) 1,447.9
---------- ----- ----------
Operating earnings..................................... 169.1 2.8 171.9
Interest expense....................................... (72.2) (17.9)(d) (90.1)
Loss on debt redemption................................ (12.0) 12.0(e) --
Investment income...................................... 2.2 (1.6)(f) 0.6
---------- ----- ----------
Earnings from continuing operations before provision
for income taxes..................................... 87.1 (4.7) 82.4
Provision for income taxes............................. 35.0 (1.6)(g) 33.4
---------- ----- ----------
Earnings from continuing operations.................... $ 52.1 $(3.1) $ 49.0
========== ===== ==========
Ratio of earnings to fixed charges(m).................. 2.1x 1.9x
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
-15-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
TWELVE
SIX MONTHS YEAR MONTHS
ENDED ENDED ENDED
JULY 3, 2004 DEC. 31, 2003 JULY 3, 2004
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
- -----------------------------------------------------------------------------------------------------
(dollars in millions)
ADJUSTMENTS RELATED TO THE ACQUISITION:
(a) Cost of products sold
Amortization of inventory fair value adjustment........ $ -- $ 0.7 $ --
Change in depreciation expense related to property,
plant and equipment fair value adjustment and changes
in lives............................................. -- 3.8 1.4
------ ------ ------
$ -- $ 4.5 $ 1.4
====== ====== ======
(b) Selling, general and administrative expense
Elimination of certain contractual management
compensation arrangements............................ $ (2.8) $ (4.7) $ (6.0)
Additional contractual management fees................. 0.3 0.5 0.5
------ ------ ------
$ (2.5) $ (4.2) $ (5.5)
====== ====== ======
(c) Amortization of intangible assets
Change in amortization expense related to intangible
asset fair value adjustment and changes in lives..... $ -- $ 4.0 $ 1.3
====== ====== ======
(d) Interest expense
Interest expense of notes issued in this offering...... $ 27.4 $ 54.9 $ 54.9
Interest expense of new senior secured credit
facility............................................. 16.3 32.9 32.8
Deferred financing costs of a bridge facility.......... -- 2.2 --
Reduction in interest expense for debt redemptions..... (42.8) (56.4) (69.8)
------ ------ ------
$ 0.9 $ 33.6 $ 17.9
====== ====== ======
(e) Loss on debt redemption
Elimination of loss on prior debt redemption........... $ 12.0 $ -- $ 12.0
====== ====== ======
(f) Investment income
Reduction in investment income related to a reduction
in cash, cash equivalents and marketable securities
to fund the Acquisition and related transactions..... $ (0.8) $ (1.5) $ (1.6)
====== ====== ======
(g) Provision (benefit) for income taxes
Amortization of inventory fair value adjustment........ $ -- $ (0.3) $ --
Change in depreciation expense......................... -- (1.4) (0.6)
Elimination of certain contractual management
compensation arrangements............................ 1.0 1.8 2.3
Additional contractual management fees................. (0.1) (0.2) (0.2)
Change in intangible amortization expense.............. -- (1.5) (0.5)
Changes in interest expense............................ (0.3) (11.7) (6.3)
Elimination of loss on prior debt redemption........... 4.2 -- 4.2
Reduction in investment income......................... (0.3) (0.5) (0.5)
------ ------ ------
$ 4.5 $(13.8) $ (1.6)
====== ====== ======
</Table>
- --------------------------------------------------------------------------------
-16-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<Table>
<Caption>
SIX MONTHS TWELVE MONTHS
ENDED YEAR ENDED ENDED
JULY 3, 2004 DECEMBER 31, 2003 JULY 3, 2004
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
ADJUSTMENTS RELATED TO THE 2003
RECAPITALIZATION:
(h) Cost of products sold
Amortization of inventory fair value
adjustment.................................... $ -- $ (0.1) $ --
==== ====== =====
(i) Selling, general and administrative expense
Elimination of expenses of a supplemental
executive retirement plan ("SERP")............ $ -- $ (0.4) $ --
Elimination of a life insurance policy to
partially fund expenses related to a SERP..... -- 0.2 --
Curtailment loss related to the termination of a
SERP.......................................... -- (70.1) --
Management retention payments................... -- (0.4) --
Insurance costs of recapitalization............. -- (1.2) --
Expenses of Nortek related to the consummation
of the recapitalization....................... -- (10.8) --
---- ------ -----
$ -- $(82.7) $ --
==== ====== =====
(j) Amortization of intangible assets
Change in amortization of intangible assets
related to intangible asset fair value
adjustment and changes in lives............... $ -- $ 0.2 $ --
==== ====== =====
(k) Interest expense
Change in interest expense related to fair value
adjustments to debt........................... $ -- $ (0.1) $ --
==== ====== =====
(l) Provision (benefit) for income taxes
Elimination of expenses of a SERP............... $ -- $ 0.1 $ --
Change in interest expense...................... -- 0.1 --
Curtailment loss related to the termination of a
SERP.......................................... -- 21.3 --
Management retention payments................... -- 0.1 --
Insurance costs of recapitalization............. -- 0.4 --
Expenses of Nortek related to the consummation
of the recapitalization....................... -- 0.2 --
---- ------ -----
$ -- $ 22.2 $ --
==== ====== =====
</Table>
RATIO OF EARNINGS TO FIXED CHARGES:
(m) Ratio of Earnings to Fixed Charges
For purposes of calculating this ratio, "earnings" consist of earnings from
continuing operations before provision for income taxes and fixed charges.
"Fixed charges" consist of interest expense and the estimated interest portion
of rental payments on operating leases. Such earnings were insufficient to cover
fixed charges by approximately $81.6 million for the historical results for the
period from January 1, 2003 to January 9, 2003.
- --------------------------------------------------------------------------------
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTEK, INC.
By: /s/ Almon C. Hall
-----------------------------------
Name: Almon C. Hall
Title: Vice President and Chief
Financial Officer
Date: August 18, 2004
-18-