FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-6112
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NORTEK, INC.
- ------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0314991
- ------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- ------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(401) 751-1600
- ------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- ------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last year)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---------- -----------
The number of shares of Common Stock outstanding as of July
25, 1997 was 9,091,731. The number of shares of Special
Common Stock outstanding as of July 25, 1997 was 487,941.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
June 28, Dec. 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current Assets:
Unrestricted--
Cash and cash equivalents $ 56,769 $ 41,042
Marketable securities available for
sale 168,630 51,051
Restricted--
Cash and marketable securities
at cost which approximates market 5,688 5,681
Accounts receivable, less allowances
of $4,825 and $4,356 137,833 122,176
Inventories:
Raw materials 35,945 36,765
Work in process 12,346 12,717
Finished goods 59,422 48,176
------- -------
107,713 97,658
------- -------
Prepaid expenses 4,284 5,031
Other current assets 13,830 9,909
Prepaid income taxes 20,000 20,000
------- -------
Total Current Assets 514,747 352,548
------- -------
Property and Equipment, at cost:
Land 6,867 7,046
Buildings and improvements 71,566 72,954
Machinery and equipment 175,807 174,064
254,240 254,064
------- -------
Less--Accumulated depreciation 116,202 112,645
------- -------
Total Property and Equipment,
net 138,038 141,419
------- -------
Other Assets:
Goodwill, less accumulated amortiza-
tion of $28,357 and $26,948 88,857 91,578
Deferred debt expense 10,959 6,647
Other 20,362 16,924
------- -------
120,178 115,149
------- -------
$772,963 $609,116
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
(Dollar Amounts in Thousands)
June 28, Dec. 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Notes payable and other short-
term obligations $ 12,929 $ 25,334
Current maturities of long-term debt 5,125 11,230
Accounts payable 86,293 74,945
Accrued expenses and taxes, net 100,913 97,565
------- -------
Total Current Liabilities 205,260 209,074
------- -------
Other Liabilities:
Deferred income taxes 18,300 17,637
Other 19,535 19,649
------- -------
37,835 37,286
------- -------
Notes, Mortgage Notes and
Obligations Payable, less current
maturities 408,771 243,961
------- -------
Stockholders' Investment:
Preference stock, $1 par value;
authorized 7,000,000 shares,
none issued --- ---
Common Stock, $1 par value;
authorized 40,000,000 shares,
16,025,542 shares and 15,965,585
shares issued 16,026 15,966
Special Common Stock, $1 par value;
authorized 5,000,000 shares,
774,339 shares and 784,169
shares issued 774 784
Additional paid-in capital 135,311 135,028
Retained earnings 48,166 37,766
Cumulative translation, pension and
other adjustments (3,948) (3,212)
Less - treasury common stock at
cost, 6,929,227 shares and
6,599,645 shares (73,299) (65,805)
- treasury special common stock
at cost, 285,233 shares and
276,910 shares (1,933) (1,732)
------- -------
Total Stockholders' Investment 121,097 118,795
------- -------
$772,963 $609,116
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Three Months Ended
------------------
June 28, June 29,
1997 1996
---- ----
(Unaudited)
Net Sales $249,591 $260,235
------- -------
Costs and Expenses:
Cost of products sold 182,374 191,623
Selling, general and
administrative expense 49,612 52,833
------- -------
231,986 244,456
------- -------
Operating earnings 17,605 15,779
Interest expense (10,723) (7,677)
Interest income 3,118 898
------- -------
Earnings before provision for
income taxes 10,000 9,000
Provision for income taxes 3,300 3,200
------- -------
Net Earnings $ 6,700 $ 5,800
======= =======
Net Earnings Per Share:
Primary $ .68 $ .55
======= =======
Fully diluted $ .68 $ .55
======= =======
Weighted Average Number of Shares:
Primary 9,832 10,531
======= =======
Fully diluted 9,867 10,531
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
For The
Six Months Ended
----------------
June 28, June 29,
1997 1996
---- ----
(Unaudited)
Net Sales $469,218 $481,220
------- -------
Costs and Expenses:
Cost of products sold 342,444 357,210
Selling, general and
administrative expense 96,830 98,243
------- -------
439,274 455,453
------- -------
Operating earnings 29,944 25,767
Interest expense (18,523) (15,486)
Interest income 4,404 2,819
Net gain on investments and
marketable securities 175 ---
------- -------
Earnings before provision for
income taxes 16,000 13,100
Provision for income taxes 5,600 4,900
------- -------
Net Earnings $ 10,400 $ 8,200
======= =======
Net Earnings Per Share:
Primary $ 1.05 $ .73
======= =======
Fully diluted $ 1.05 $ .73
======= =======
Weighted Average Number of Shares:
Primary 9,898 11,186
======= ======
Fully diluted 9,923 11,199
======= ======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the
Six Months Ended
-----------------
June 28, June 29,
1997 1996
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $10,400 $ 8,200
------ ------
Adjustments to reconcile net earnings
to cash:
Depreciation and amortization 11,769 11,138
Non-cash interest expense, net 583 682
Net gain on investments and
marketable securities (175) ---
Deferred federal income tax provision 200 450
Changes in certain assets and liabilities,
net of effects from acquisitions
and dispositions:
Accounts receivable, net (16,450) (26,712)
Prepaids and other current assets (2,385) 577
Inventories (11,322) 3,528
Accounts payable 12,510 16,919
Accrued expenses and taxes 4,358 1,149
Long-term assets, liabilities and
other, net (1,041) (1,215)
-------- ------
Total adjustments to net earnings (1,953) 6,516
-------- ------
Net Cash Provided by
Operating Activities 8,447 14,716
-------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,883) (7,611)
Purchase of investments and marketable
securities (157,037) (20,140)
Proceeds from sale of investments and
marketable securities 37,220 22,677
Other, net (204) (66)
-------- ------
Net Cash Used in Investing
Activities (128,904) (5,140)
-------- ------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Continued)
For the
Six Months Ended
-----------------
June 28, June 29,
1997 1996
---- ----
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of notes $169,395 $ ---
Increase (Decrease) in borrowings,
net of payments (26,264) 1,278
Purchase of Nortek Common
and Special Common Stock (7,626) (31,738)
Other, net 679 74
------- -------
Net Cash Provided by (Used in)
Financing Activities 136,184 (30,386)
------- -------
Net increase(decrease) in
unrestricted cash and investments 15,727 (20,810)
Unrestricted cash and investments at
the beginning of the period 41,042 60,079
------- -------
Unrestricted cash and investments at the
end of the period $ 56,769 $ 39,269
======= =======
Interest paid $ 13,092 $ 15,217
======= =======
Income taxes paid, net $ 5,289 $ 5,650
======= =======
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Three Months Ended June 28, 1997 and June 29, 1996
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Pension
Special tional and Other
Common Common Paid-in Retained Adjust- Treasury
Stock Stock CapitalEarnings ments Stock
----- ----- ------- -------- -------- -----
(Unaudited)
Balance, March 30,
1996 $15,897 $763 $134,694 $18,166 $(3,070) $(41,126)
4,667 shares of
special common stock
converted into
4,667 shares of
common stock 5 (5) --- --- --- ---
13,843 shares of
common stock issued
upon exercise of
stock options 14 --- 52 --- --- ---
1,400,483 shares of
treasury stock acquired --- --- --- --- --- (23,328)
Translation adjust-
ment --- --- --- --- (14) ---
Unrealized decline in
the value of market-
able securities --- --- --- --- (109) ---
Net earnings --- --- --- 5,800 --- ---
------ --- ------- ------ ------ -------
Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454)
====== === ======= ====== ====== =======
Balance, March 29,
1997 $16,021 $779 $135,311 $41,466 $(4,536) $(74,071)
4,972 shares of
special common stock
converted into
4,972 shares of
common stock 5 (5) --- --- --- ---
57,005 shares of
treasury stock
acquired --- --- --- --- --- (1,161)
Translation adjust-
ment --- --- --- --- 281 ---
Unrealized increase
in the value of mar-
ketable securities --- --- --- --- 307 ---
Net earnings --- --- --- 6,700 --- ---
------ --- ------- ------ ------ -------
Balance, June 28, 1997 $16,026 $774 $135,311 $48,166 $(3,948) $(75,232)
====== === ======= ====== ====== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Nortek, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Investment
For the Six Months Ended June 28, 1997 and June 29, 1996
(Dollar Amounts in Thousands)
Cumulative
Translation,
Addi- Pension
Special tional and Other
Common Common Paid-in Retained Adjust-
Treasury
Stock Stock Capital Earnings ments
Stock
----- ----- ------- -------- -------- -----
(Unaudited)
Balance, December 31,
1995 $15,883 $774 $134,690 $15,766 $(2,742) $(33,080)
15,706 shares of
special common stock
converted into
15,706 shares of
common stock 16 (16) --- --- --- ---
16,843 shares of
common stock issued
upon exercise of
stock options 17 --- 56 --- --- ---
2,117,314 shares of
treasury stock
acquired --- --- --- --- --- (31,374)
Translation adjust-
ment --- --- --- --- 61 ---
Unrealized decline in
the value of market-
able securities --- --- --- --- (512) ---
Net earnings --- --- --- 8,200 --- ---
------ --- ------- ------ ------ -------
Balance, June 29, 1996 $15,916 $758 $134,746 $23,966 $(3,193) $(64,454)
====== ==== ====== ====== ======= ========
Balance, December 31,
1996 $15,966 $784 $135,028 $37,766 $(3,212) $(67,537)
15,638 shares of
special common stock
converted into
15,638 shares of
common stock 16 (16) --- --- --- ---
44,319 shares of
common stock and
5,808 shares of
special common stock
issued upon exercise
of stock options 44 6 283 --- --- ---
337,905 shares of
treasury stock acquired --- --- --- (7,695)
Translation adjust-
ment --- --- --- --- (1,105) ---
Unrealized increase in
the value of market-
able securities --- --- --- --- 369 ---
Net earnings --- --- --- 10,400 --- ---
------ --- ------- ------ ------ -------
Balance, June 28, 1997 $16,026 $774 $135,311 $48,166 $(3,948) $(75,232)
====== === ======= ====== ====== =======
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997 AND JUNE 29, 1996
(A) The unaudited condensed consolidated financial statements presented
("Unaudited Financial Statements") have been prepared by Nortek,
Inc. and include all of its wholly-owned subsidiaries (the
"Company") after elimination of intercompany accounts and
transactions, without audit and, in the opinion of management,
reflect all adjustments of a normal recurring nature necessary for
a fair statement of the interim periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted, although, the Company
believes that the disclosures included are adequate to make the
information presented not misleading. Certain amounts in the
Unaudited Financial Statements for the prior periods have been
reclassified to conform to the presentation at June 28, 1997. It
is suggested that these Unaudited Financial Statements be read in
conjunction with the financial statements and the notes included in
the Company's latest Annual Report on Form 10-K.
(B) In March 1997, the Company sold $175,000,000 principal amount of
9.25% Senior Notes due March 2007 ("9.25% Notes") at a slight
discount. The net proceeds will be used to refinance certain
outstanding indebtedness of the Company's subsidiaries and for
acquisitions and other general corporate purposes, including
investment in plant and equipment.
The Company's Board of Directors has authorized a number of
programs to purchase shares of the Company's Common and Special
Common Stock since November 16, 1995. The most recent of these
programs was announced on April 30, 1997, to purchase up to 500,000
shares of the Company's Common and Special Common Stock in open
market or negotiated transactions, subject to market conditions,
cash availability and provisions of the Company's outstanding debt
instruments. As of July 25, 1997, the Company has purchased
approximately 14,179 shares of its Common and Special Common Stock
for approximately $336,700 under this latest program. For the
period from November 16, 1995 to July 25, 1997, the Company
purchased approximately 2,800,000 shares of its Common and Special
Common Stock for approximately $44,160,000 and accounted for such
share purchases as Treasury Stock.
At July 25, 1997, approximately $4,800,000 was available for the
payment of cash dividends or stock purchases under the terms of the
Company's most restrictive Indenture.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997 AND JUNE 29, 1996
(Continued)
The following presents the approximate unaudited pro forma net
earnings and fully diluted earnings per share of the Company, as
adjusted for the pro forma effect of the Treasury Stock purchases,
the debt offering and the debt refinancing, assuming these
transactions occurred at January 1, 1996:
Year
Three Months Ended Six Months Ended Ended
June 28, June 29, June 28, June 29, Dec. 31,
1997 1996 1997 1996 1996
(Amounts in Thousands except per share amounts)
------- ------- ------- ------- -------
Net earnings $6,700 $4,700 $9,500 $5,800 $17,500
===== ===== ====== ====== ======
Fully diluted
net earnings per
share $ .68 $ .49 $ .96 $ .60 $ 1.79
===== ===== ====== ====== ======
In computing the pro forma net earnings, interest expense on the
indebtedness refinanced with funds from the debt offering was
excluded at an average interest rate of approximately 9.6% for all
periods presented, net of the tax effect. Interest expense was
included on the 9.25% Notes at a rate of approximately 9.25%, plus
amortization of deferred debt expense and debt discount for all
periods presented, net of the tax effect. Interest income on the
excess cash from the offering was included at a rate of 5.5%.
(C) At June 28, 1997 and December 31, 1996, the reduction in the
Company's stockholders' investment for gross unrealized losses on
marketable securities was approximately $522,000 and $891,000,
respectively.
(D) The tax effect of temporary differences which gave rise to
significant portions of deferred income tax assets and liabilities
as of June 28, 1997 and December 31, 1996 is as follows:
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997 AND JUNE 29, 1996
(Continued)
June 28, Dec. 31,
1997 1996
---- ----
(Amounts in Thousands)
U. S. Federal Prepaid (Deferred)
Income Tax Assets Arising From:
Accounts receivable $ 1,442 $ 1,246
Inventory (376) (610)
Insurance reserves 5,366 4,985
Other reserves, liabilities
and assets, net 13,568 14,379
------ ------
$20,000 $20,000
====== ======
Deferred (Prepaid) Income Tax
Liabilities Arising From:
Property and equipment, net $15,558 $15,400
Prepaid pension assets 586 841
Other reserves, liabilities and
assets, net 147 (608)
Capital loss carryforward (6,400) (6,462)
Other, net (1,828) (1,772)
Valuation allowances 10,237 10,238
------ ------
$18,300 $17,637
====== ======
At June 28, 1997, the Company has a capital loss carryforward of
approximately $18,300,000, of which approximately $16,400,000 expires
in 1997. The Company has provided a valuation allowance equal to the
tax effect of capital loss carryforwards and certain other tax assets,
since realization of these tax assets cannot be reasonably assured.
The following reconciles the federal statutory income tax rate to the
effective tax rate from continuing operations of approximately 33.0%
and 35.6% in the second quarter of 1997 and 1996, respectively, and
35.0% and 37.4% in the first six months of 1997 and 1996,
respectively.
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- ------- ------- ------
(Amounts in Thousands)
Income tax provision at the
Federal statutory rate $3,500 $3,150 $5,600 $4,585
Net Change from Statutory Rate:
Change in valuation reserve, net (701) (577) (827) (748)
State taxes, net of federal
tax effect 391 325 455 487
Amortization not deductible
for tax purposes 267 277 535 523
Other nondeductible items 48 50 183 118
Product development tax credit
from foreign operations (125) (109) (207) (224)
Tax effect on foreign income (80) 84 (139) 159
===== ===== ===== =====
$3,300 $3,200 $5,600 $4,900
===== ===== ===== =====
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997 AND JUNE 29, 1996
(Continued)
(E) Net earnings per share ("EPS") amounts have been computed using the
weighted average number of common and common equivalent shares
outstanding during each year. Special common stock is treated as the
equivalent of common stock in determining earnings per share.
In March 1997, the FASB released SFAS No. 128, "Earnings Per Share,"
which will become effective December 31, 1997. As a result, the
Company's reported earnings per share for 1996 and 1997 will be
restated in the Company's annual report on Form 10-K for the year
ending December 31, 1997. The unaudited pro forma effect of this
accounting change on reported earnings per share is as follows:
Three Year
Months Ended Six Months Ended Ended
June 28, June 29, June 28, June 29, Dec. 31,
1997 1996 1997 1996 1996
------- ------- ------- ------- -------
Per Share Amounts
Primary EPS as reported $.68 $.55 $1.05 $.73 $2.07
Effect of SFAS No. 128 .02 .01 .03 .02 .03
--- --- ---- --- ----
Basic EPS as restated $.70 $.56 $1.08 $.75 $2.10
=== === ==== === ====
Fully diluted EPS as
reported $.68 $.55 $1.05 $.73 $2.05
Effect of SFAS No. 128 --- --- --- --- .02
--- --- ---- --- ----
Diluted EPS as restated $.68 $.55 $1.05 $.73 $2.07
=== === ==== === ====
(F) On July 24, 1997, the Company entered into an agreement to acquire Ply
Gem Industries, Inc. ("Ply Gem"), at a cash price of $19.50 per
outstanding share of common stock. Ply Gem is a manufacturer and
distributor of building and home improvements products used primarily
in residential remodeling and construction. Principal products
include vinyl and wood windows and doors, vinyl siding and
accessories, skylights, specialty wood products and other home decor
and improvement products. Ply Gem's operations are located throughout
the United States and Canada. The Company will pay approximately
$310,000,000 to purchase Ply Gem common stock and settle common stock
options and will assume or refinance Ply Gem's indebtedness which at
June 20, 1997 was approximately $171,700,000 (including $50,000,000
under Ply Gem's accounts receivable securitization program). The
Company's and Ply Gem's Board of Directors have approved
the agreement and Ply Gem's Board of Directors has recommended that
shareholders tender their shares. On July 29, 1997, the Company
commenced a cash tender offer and expects to complete the acquisition
of Ply Gem in the third quarter of 1997.
NORTEK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997 AND JUNE 29, 1996
(Continued)
Ply Gem's consolidated net sales, operating earnings and net earnings for
the six months ended June 30, 1997 and 1996, and the year ended December
31, 1996 are as follows:
Year
Six Months Ended Ended
June 30, June 30, Dec. 31,
1997 1996 1996
---- ---- ----
(Unaudited)
(Amounts in thousands except per
share amounts)
Net sales $381,728 $354,097 $774,928
======= ======= =======
Operating earnings (1) $ 8,849 $ 7,220 $ 29,010
======= ======= =======
Net earnings $ 1,980 $ 1,519 $ 10,454
======= ======= =======
(1)Ply Gem's results for the six months ended June 30, 1997 include
approximately $2,900,000 of non-recurring merger expenses.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
The Company is a diversified manufacturer of residential and commercial
building products, operating within three principal product groups: the
Residential Building Products Group; the Air Conditioning and Heating
Products Group; and the Plumbing Products Group. Through these product
groups, the Company manufactures and sells, primarily in the United States,
Canada and Europe, a wide variety of products for the residential and
commercial construction, manufactured housing, and the do-it-yourself and
professional remodeling and renovation markets.
Results of Operations
The tables below and on the next page set forth, for the periods presented,
(a) certain consolidated operating results, (b) the change in the amount
and the percentage change of such results as compared to the prior
comparable period, (c) the percentage which such results bears to net sales
and (d) the change of such percentages as compared to the prior comparable
period. The results of operations for the second quarter ended June 28,
1997 are not necessarily indicative of the results of operations to be
expected for any other interim period or the full year.
Change in
Second Quarter Ended Second Quarter 1997
June 28, June 29, as Compared to 1996
------------------
1997 1996 $ %
---- ---- ------ ------
(Dollar amounts in millions)
Net sales $249.6 $260.2 (10.6) (4.1)
Cost of products sold 182.4 191.6 9.2 4.8
Selling, general and
administrative expense 49.6 52.8 3.2 6.1
Operating earnings 17.6 15.8 1.8 11.4
Interest expense (10.7) (7.7) (3.0) (39.0)
Interest income 3.1 .9 2.2 244.4
Earnings before provision
for income taxes 10.0 9.0 1.0 11.1
Provision for income taxes 3.3 3.2 (.1) (3.1)
----- ----- ---- -----
Net earnings $ 6.7 $ 5.8 .9 15.5
===== ===== ==== =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
Change in
Percentage of Net Sales Percentage
Second Quarter Ended for the Second
June 28, June 29, Quarter 1997
1997 1996 as compared to 1996
---- ---- -------------------
Net sales 100.0% 100.0% ---
Cost of products sold 73.0 73.6 .6
Selling, general and
administrative expense 19.9 20.3 .4
Operating earnings 7.1 6.1 1.0
Interest expense (4.3) (3.0) (1.3)
Interest income 1.2 .3 .9
Earnings before provision
for income taxes 4.0 3.4 .6
Provision for income taxes 1.3 1.2 (.1)
---- ---- ----
Net earnings 2.7 2.2 .5
==== ==== ====
The tables below and on the next page set forth, for the periods presented,
(a) certain consolidated operating results, (b) the change in the amount
and the percentage change of such results as compared to the prior
comparable period, (c) the percentage which such results bears to net sales
and (d) the change of such percentages as compared to the prior comparable
period. The results of operations for the six months ended June 28, 1997
are not necessarily indicative of the results of operations to be expected
for any other interim period or the full year.
Change in
Six Months Ended Six Months 1997
June 28, June 29, as Compared to 1996
1997 1996 $ %
---- ---- ----- -----
(Dollar amounts in millions)
Net sales $469.2 $481.2 (12.0) (2.5)
Cost of products sold 342.5 357.2 14.7 4.1
Selling, general and
administrative expense 96.8 98.2 1.4 1.4
Operating earnings 29.9 25.8 4.1 15.9
Interest expense (18.5) (15.5) (3.0) (19.4)
Interest income 4.4 2.8 1.6 57.1
Net gain on investments and
marketable securities .2 --- .2 ---
Earnings before provision
for income taxes 16.0 13.1 2.9 22.1
Provision for income taxes 5.6 4.9 (.7) (14.3)
---- ----- ---- -----
Net earnings $10.4 $ 8.2 2.2 26.8
==== ===== ==== =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
Change in
Percentage of Net Sales Percentage
Six Months Ended for the Six
June 28, June 29, Months 1997 as
1997 1996 Compared to 1996
---- ---- ----------------
Net sales 100.0% 100.0% ---
Cost of products sold 73.0 74.2 1.2
Selling, general and
administrative expense 20.6 20.4 (.2)
Operating earnings 6.4 5.4 1.0
Interest expense (3.9) (3.2) (.7)
Interest income .9 .5 .4
Net gain on investments and
marketable securities --- --- ---
Earnings before provision
for income taxes 3.4 2.7 .7
Provision for income taxes 1.2 1.0 (.2)
---- ----- ---
Net earnings 2.2% 1.7% .5
==== ===== ===
The following table presents the net sales for the Company's principal
product groups for the second quarter and six months ended June 28, 1997 as
compared to the second quarter and six months ended June 29, 1996 and the
amount and the percentage change of such results as compared to the prior
comparable period. Certain amounts in the table for the prior periods have
been reclassified to conform to the classifications for 1997.
Second Quarter Ended
---------------------------------------
June 28, June 29, Increase (Decrease)
-------------------
1997 1996 $ %
---- ---- ----- ------
(000's omitted)
Net Sales:
Residential Building
Products $105,264 $104,407 $ 857 .8%
Air Conditioning and
Heating Products 115,519 119,427 (3,908) (3.3)
Plumbing Products 28,808 36,401 (7,593) (20.9)
------- ------- ------- -----
Total $249,591 $260,235 $(10,644) (4.1)%
======= ======= ======= =====
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
Six Months Ended
---------------------------------------
June 28, June 29, Increase (Decrease)
-------------------
1997 1996 $ %
---- ---- ----- -----
(000's omitted)
Net Sales:
Residential Building
Products $205,650 $203,050 $ 2,600 1.3%
Air Conditioning and
Heating Products 206,598 207,781 (1,183) (.6)
Plumbing Products 56,970 70,389 (13,419) (19.1)
------- ------- ------ -----
Total $469,218 $481,220 $(12,002) (2.5)%
======= ======= ======= =====
Operating Results
Net sales decreased approximately $10,600,000, or approximately 4.1% (or
decreased approximately $8,800,000 or approximately 3.4% excluding the
effect of foreign exchange), and decreased approximately $12,000,000, or
approximately 2.5%, (or decreased approximately $9,800,000 or approximately
2.0% excluding the effect of foreign exchange) for the second quarter and
the first six months of 1997, respectively, as compared to 1996. These
decreases in both periods are principally as a result of lower sales
volume, including the reduction of certain product line offerings
(approximately $2,300,000 and $3,900,000 of the decrease for the second
quarter and first six months, respectively), within the Plumbing Products
Group and a decrease in sales volume by the Residential Building Products
Group's European subsidiary primarily due to weakness in the German and
French markets. These decreases were partially offset by increased sales
volume in residential building products in the United States and Canada and
residential air conditioning and heating ("HVAC") products in the United
States in the first half.
Cost of products sold as a percentage of net sales decreased from
approximately 73.6% in the second quarter of 1996 to approximately 73.0% in
the second quarter of 1997, and decreased from approximately 74.2% in the
first six months of 1996 to approximately 73.0% in the first six months of
1997. These decreases in the percentages principally resulted from a
reduction in cost in the second quarter and first six months of 1997 of
certain raw materials and components compared to the second quarter and
first six months of 1996 and decreased labor as a percentage of net sales
in the Residential Building Products and Air Conditioning and Heating
Products Groups due to the increased volume of higher margin products and
improved manufacturing efficiency. These decreases were partially offset
by increased overhead costs in the Plumbing Products Group and the
Company's European subsidiaries, in part, reflecting lower sales levels of
lower margin products. Overall, changes in the cost of products sold as a
percentage of net sales for one period as compared to another period may
reflect a number of factors, including changes in the relative mix of
products sold, the effect of changes in sales prices, the unit cost of
products sold and changes in productivity levels.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
Selling, general and administrative expense as a percentage of net sales
decreased from approximately 20.3% in the second quarter of 1996 to
approximately 19.9% in the second quarter of 1997 and increased slightly
from approximately 20.4% in the first six months of 1996 to approximately
20.6% in the first six months of 1997. The decrease in the percentage for
the second quarter was primarily the result of higher sales levels of
residential building products without a proportionate increase in expense
and lower expense in residential HVAC products resulting from new sales
initiatives. The increase in the percentage in the first six months was
primarily due to a one-week shorter shipping period in the first quarter.
Lower sales in the Company's Plumbing Products Group, without a
proportionate decrease in expense in both periods, was also a factor.
Segment earnings were approximately $21,100,000 for the second quarter of
1997, as compared to approximately $20,500,000 for the second quarter of
1996, and approximately $36,600,000 for the first six months of 1997 as
compared to approximately $32,900,000 for the first six months of 1996. The
increase in segment earnings was due principally to the factors noted
above.
Foreign segment earnings, consisting primarily of the results of operations
of the Company's Canadian and European subsidiaries, which manufacture
built-in ventilating products, decreased to approximately 9.3% of segment
earnings in the second quarter of 1997 from approximately 15.4% of such
earnings in the second quarter of 1996 and to approximately 9.8% of segment
earnings in the first six months of 1997 from approximately 13.9% of such
earnings in the first six months of 1996. Sales and earnings derived from
the international market are subject to the risks of currency fluctuations.
Operating earnings in the second quarter of 1997 increased approximately
$1,800,000, or approximately 11.4%, as compared to the second quarter of
1996 and increased approximately $4,100,000, or approximately 15.9%, for
the first six months of 1997 as compared to 1996, primarily due to the
factors previously discussed.
Interest expense in the second quarter of 1997 increased approximately
$3,000,000, or approximately 39.0%, as compared to the second quarter of
1996, and increased approximately $3,000,000, or approximately 19.4% for
the first six months of 1997, as compared to the first six months of 1996,
primarily as a result of the sale of $175,000,000 principal amount of 9.25%
Notes in March 1997. This increase was partially offset by the refinancing
of certain outstanding indebtedness of the Company's subsidiaries primarily
in the second quarter of 1997. (See Note B of the Notes to the Unaudited
Financial Statements included elsewhere herein.)
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
Interest income in the second quarter of 1997 increased approximately
$2,200,000, or approximately 244.4%, as compared to the second quarter of
1996, and increased approximately $1,600,000 or approximately 57.1% for the
first six months of 1997, as compared to the first six months of 1996,
principally due to higher average invested balances of short-term
investments and marketable securities, principally as a result of the
investment of the proceeds from the sale in March 1997 of the 9.25% Notes.
The provision for income taxes was approximately $3,300,000 for the second
quarter of 1997, as compared to approximately $3,200,000 for the second
quarter of 1996 and was approximately $5,600,000 for the first six months
of 1997, as compared to approximately $4,900,000 for the first six months
of 1996. The income tax rates principally differed from the United States
Federal statutory rate of 35%, as a result of state income tax provisions,
nondeductible amortization expense (for tax purposes), the change in tax
valuation reserves, the effect of foreign income tax on foreign source
income and the effect of product development tax credits from foreign
operations in both periods. (See Note D of the Notes to the Unaudited
Financial Statements included elsewhere herein.)
Liquidity and Capital Resources
- -------------------------------
In March 1997, the Company sold $175,000,000 principal amount of 9.25%
Notes due 2007 for approximately $169,395,000, net of a discount of
approximately $1,011,000 and approximately $4,594,000 of expenses incurred
in connection with the sale. The net proceeds of this offering will be
used to refinance certain outstanding indebtedness of the Company's
subsidiaries and for acquisitions and other general corporate purposes,
including investment in plant and equipment (see Note B of the Notes to the
Unaudited Condensed Consolidated Financial Statements included elsewhere
herein).
Unrestricted cash, investments and marketable securities were approximately
$225,399,000 at June 28, 1997 as compared to $92,093,000 at December 31,
1996, primarily as the result of the investment of the proceeds from the
sale of the 9.25% Notes.
On July 24, 1997, the Company entered into an agreement to acquire Ply Gem
Industries, Inc. ("Ply Gem"), at a cash price of $19.50 per outstanding
share of common stock. Ply Gem is a manufacturer and distributor of
building and home improvements products used primarily in residential
remodeling and construction. Principal products include vinyl and wood
windows and doors, vinyl siding and accessories, skylights, specialty wood
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
products and other home decor and improvement products. Ply Gem's
operations are located throughout the United States and Canada. The
Company will pay approximately $310,000,000 to purchase Ply Gem common
stock and settle common stock options and will assume or refinance Ply
Gem's indebtedness which at June 20, 1997 was approximately $171,700,000
(including $50,000,000 under Ply Gem's accounts receivable securitization
program). The Company's and Ply Gem's Board of Directors have approved
the agreement and Ply Gem's Board of Directors has recommended that
shareholders tender their shares. On July 29, 1997, the Company commenced
a cash tender offer and expects to complete the acquisition of Ply Gem in
the third quarter of 1997, which will substantially use all of the
Company's existing cash and marketable securities and increase the amount
of the Company's outstanding indebtedness.
The Company will also require approximately $36,500,000 to pay fees,
expenses and other costs expected to be incurred in connection with the
successful completion of the tender offer (excluding fees and expenses that
may be incurred in connection with the debt financing required to complete
the tender offer). It is also anticipated that approximately $158,000,000
will be needed to repay existing indebtedness of Ply Gem that may be
required to be repaid as a result of the tender offer. However, the exact
amounts and timing of such repayments of existing indebtedness are subject
to various factors currently under review and are not, at this time,
determinable.
The Company has plans to obtain all funds needed for the tender offer from
(i) approximately $204,500,000 of the cash and marketable securities of the
Company on hand and (ii) the proceeds of borrowings incurred by the Company
and/or Ply Gem. The Company has obtained a financing commitment from a
financial institution whereby various financial lenders have agreed,
subject to the satisfaction of certain conditions, to purchase an aggregate
amount of $300,000,000 of senior bridge notes (the "Bridge Notes") issued
by the Company.
No final decisions have been made by the Company concerning the sources of
debt financing required to complete the tender offer and related
transactions. However, the Company currently contemplates, in lieu of
issuing and selling the Bridge Notes, (i) arranging for a bank credit
facility under which the Company would borrow approximately $50,000,000
from the lenders participating in such facility and (ii) selling
$250,000,000 of senior notes in a transaction exempt from registration
under the Securities Act of 1933, as amended, pursuant to Rule 144A
thereunder.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
The sources and uses of the financing are expected to be as follows:
(Amounts in Millions)
Sources of Funds:
Company cash and marketable securities $204.5
Bank loans and/or issuance of debt securities 300.0
-----
Total sources of funds $504.5
=====
Use of Funds:
Payment for Ply Gem Company shares and
cancellation of stock options $310.0
Refinancing of existing indebtedness of
Ply Gem 158.0
Fees, expenses and other costs 36.5
-----
Total use of funds $504.5
=====
As no final decision has been made concerning the sources of debt
financing, the table above does not include fees and expenses that may be
incurred in connection therewith, other than the commitment fee paid for
the financing commitment for the Bridge Notes.
The Company's Board of Directors has authorized a number of programs to
purchase shares of the Company's Common and Special Common Stock since
November 16, 1995. The most recent of these programs was announced on April
30, 1997, to purchase up to 500,000 shares of the Company's Common and
Special Common Stock in open-market or negotiated transactions subject to
market conditions, cash availability and provisions of the Company's
outstanding debt instruments. As of July 25, 1997, the Company has
purchased approximately 14,179 shares of the Company's Common Stock and
Special Common Stock for approximately $336,700 under this latest program.
From November 16, 1995 to July 25, 1997, the Company purchased
approximately 2,800,000 shares of its Common and Special Common Stock for
approximately $44,160,000 and accounted for such share purchases as
Treasury Stock. (See below and Note B of the Notes to the Unaudited
Condensed Consolidated Financial Statements included elsewhere herein.)
At July 25, 1997, approximately $4,800,000 was available for the payment of
cash dividends or stock payments under the terms of the Company's most
restrictive Indenture.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
The Company's working capital and current ratio increased from
approximately $143,474,000 and 1.7:1, respectively, to approximately
$309,487,000 and 2.5:1, respectively, between December 31, 1996 and June
28, 1997, principally as a result of the investment of the proceeds
received from the sale of the 9.25% Notes and the factors described below.
Working capital included approximately $92,093,000 at December 31, 1996 and
approximately $225,399,000 at June 28, 1997 of unrestricted cash,
investments and marketable securities.
Accounts receivable increased approximately $15,657,000, or approximately
12.8%, between December 31, 1996 and June 28, 1997, while net sales
increased approximately 3.8% in the second quarter of 1997 as compared to
the fourth quarter of 1996. The rate of change in accounts receivable in
certain periods may be different than the rate of change in sales in such
periods principally due to the timing of net sales. Increases or decreases
in net sales near the end of any period generally result in significant
changes in the amount of accounts receivable on the date of the balance
sheet at the end of such period, as was the situation on June 28, 1997 as
compared to December 31, 1996. The Company has not experienced any changes
in credit terms, collection efforts, credit utilization or delinquency in
accounts receivable in 1996 or 1997.
Inventories increased approximately $10,055,000 or approximately 10.3%,
between December 31, 1996 and June 28, 1997.
Accounts payable increased approximately $11,348,000 or approximately 15.1%
between December 31, 1996 and June 28, 1997.
Unrestricted cash and cash equivalents increased approximately $15,727,000
from December 31, 1996 to June 28, 1997, principally as a result of the
following:
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
Condensed
Consolidated
Cash Flows
----------
Operating Activities--
Cash flow from operations, net $22,777,000
Increase in accounts receivable, net (16,450,000)
Increase in inventories (11,322,000)
Increase in prepaids and other current assets (2,385,000)
Increase in trade accounts payable 12,510,000
Increase in accrued expenses and taxes 4,358,000
Investing Activities--
Purchase of marketable securities (157,037,000)
Proceeds from the sale of marketable securities 37,220,000
Capital expenditures (8,883,000)
Financing Activities--
Sale of notes 169,395,000
Payment of borrowings, net of increases (26,264,000)
Purchase of Nortek Common and Special
Common Stock (7,626,000)
Other, net __(566,000)
----------
$15,727,000
==========
The net non-cash impact of changes in foreign currency exchange rates was
not material and has been included in other, net.
The Company's debt-to-equity ratio increased from approximately 2.4:1 at
December 31, 1996 to 3.5:1 at June 28, 1997, primarily as a result of the
sale of the 9.25% Notes and the effect of the purchase of the Company's
Common and Special Common Stock (see Note B of the Notes to Unaudited
Condensed Consolidated Financial Statements), partially offset by the
payment of certain subsidiary indebtedness and by net earnings for the
first half of 1997. (See the Company's Unaudited Condensed Consolidated
Statement of Stockholders' Investment included elsewhere herein.)
The Company believes that its growth will be generated largely by internal
growth in each of its product groups, augmented by strategic acquisitions.
The Company regularly evaluates potential acquisitions which would increase
or expand the market penetration of, or otherwise complement, its current
product lines.
NORTEK, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 28, 1997
AND THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 29, 1996
(Continued)
When used in this discussion, the words "believes," "anticipates," and
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and
uncertainties, over which the Company has no control, which could cause
actual results to differ materially from those presented. These risks and
uncertainties include increases in raw material costs (including, among
others, steel, copper, packaging material, plastics, resins and aluminum)
and purchased component costs, the level of domestic and foreign
construction and remodeling activity affecting residential and commercial
markets, interest rates, inflation, consumer spending levels, operating in
international economies, the rate of sales growth, price and product
competition, new product introduction, material shortages and product
liability claims. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof.
The Company undertakes no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date thereof or to
reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company,
in this report, as well as the Company's periodic reports on Forms 10-K, 10-
Q and 8-K filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Change in Control Severance Benefit Plan for Key
Employees as Amended and Restated June 12, 1997,
and form of agreement with employees (filed
herewith).
10.2 Amendment No. 1 dated June 13, 1997 to Employment
Agreement between Richard L. Bready and the
Company dated as of February 26, 1997 (filed
herewith).
10.3 Nortek, Inc. Supplemental Executive Retirement
Plan dated July 1, 1997 (filed herewith).
10.4 First Amendment dated July 1, 1997 to Nortek, Inc.
Supplemental Executive Retirement Plan dated July
1, 1997 (filed herewith).
11.1 Calculation of shares used in determining earnings
per share (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) The following reports on Form 8-K were filed by the
Registrant during the period:
April 29, 1997, Item 5, Other Events.
SIGNATURE
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 thereunto duly authorized.
NORTEK, INC.
(Registrant)
/s/Almon C. Hall
---------------------------------
Almon C. Hall, Vice President and
Controller and Chief AccountingOfficer
August 8, 1997
- -------------------------
(Date)
EXHIBIT 10.1
NORTEK, INC.
Change in Control Severance Benefit
Plan for Key Employees
As Amended and Restated June 12, 1997
Nortek, Inc. (the "Company") desires to assure that it and its
subsidiaries (the "Employer") will have the benefit of the continued service
and experience of certain of their key employees designated as hereinafter
provided ("Employees," or individually, the "Employee") and to assure
Employer and the Employee of the continuity of management of the Company and
Employer in the event of any actual or threatened change in control of the
Company and adopts this plan (the "Plan") to provide such assurances.
1. Designated Employees. Employees entitled to participate in the Plan
shall be those designated from time to time by the Board of Directors of the
Company or its designees.
2. Agreement of Employees. Designated Employees in order to
participate in the Plan must enter into written agreements with Employer
with respect to participation in the Plan in a form prescribed by Employer,
which need not be the same for all such Employees and which may provide for
reduced benefits or less favorable terms than are provided for in this Plan
generally and which shall contain, among other things, the agreement of such
Employees that in the event any person ("Person"), as that term is defined or
used in Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934
("Exchange Act"), begins a tender or exchange offer, solicitation of proxies
from the Company's security holders or takes other actions to effect a Change
in Control (as hereinafter defined), such Employee will not voluntarily
terminate his employment with Employer until such Person has abandoned or
terminated such efforts to effect a Change in Control or until a Change in
Control has occurred.
3. Change in Control. For purposes of this Plan, a "Change in Control"
shall be deemed to have occurred if and when
(a) The Company ceases to be a publicly owned
corporation having at least 500 stockholders; or
(b) There occurs any event or series of events
that would be required to be reported as a change in
control in response to Item 1(a) on a Form 8-K filed by
the Company under the Exchange Act or in any other
filing by the Company with the Securities and Exchange
Commission unless the Person acquiring control is or is
an affiliate of such Employee; or
(c) The Company executes an agreement of
acquisition, merger or consolidation which contemplates
that after the effective date provided for in the
agreement, all or substantially all of the business
and/or assets of the Company shall be controlled by
another corporation or other entity; provided, however,
for purposes of this paragraph (c) that (i) if such an
agreement requires as a condition precedent approval by
the Company's shareholders of the agreement or
transaction, a Change in Control shall not be deemed to
have taken place unless and until such approval is
secured and (ii) if the voting shareholders of such
other corporation or entity shall, substantially after
such effective date, be substantially the same as the
voting shareholders of the Company immediately prior to
such effective date, the execution of such agreement
shall not, by itself, constitute a "Change in Control";
or
(d) Any Person which does not include Employee or
any affiliate of the Company as of the date of
restatement of this Plan in 1997 becomes the beneficial
owner, directly or indirectly (either as a result of
the acquisition of securities or as the result of an
arrangement or understanding, including the holding of
proxies, with or among security holders), of securities
of the Company representing 25% or more of the votes
that could then be cast in an election for members of
the Company's Board of Directors unless within 15 days
of being advised that such ownership level has been
reached, a majority of the Continuing Directors then in
office adopts a resolution approving the acquisition of
that level of securities ownership by such Person; or
(e) During any period of 24 consecutive months,
commencing after the effective date of this Plan,
individuals who at the beginning of such 24-month
period were directors of the Company shall cease to
constitute at least a majority of the Company's Board
of Directors, unless the election of each director who
was not a director at the beginning of such period has
been approved in advance by directors representing at
least two thirds of (i) the directors then in office
who were directors at the beginning of the 24-month
period or (ii) the directors specified in clause (i)
plus directors whose election has been so approved by
directors specified in clause (i).
For purposes of this Plan, directors of the Company shall be "Continuing
Directors" if they were directors at the beginning of any such 24-month
period or were approved in the manner provided in paragraph (e) of this
Section 3.
4. Benefit Upon a Change in Control. Within 30 days following a Change
in Control, regardless of whether an Employee's employment has been
terminated, the Company shall pay to the Employee an amount equal to 20% of
the annual rate of his basic salary immediately prior to the Change in
Control.
5. Severance Benefit. If during a period of 24 months following a
Change in Control, either (i) the employment of Employee is terminated by
Employer or (ii) there is a material adverse change in the terms of the
employment of Employee which entitles Employee to treat any such change as
such a termination as hereinafter provided, Employee shall be entitled to
receive severance pay at an annual rate equal to (i) his basic salary at the
annual rate in effect immediately prior to any such Change in Control (or, if
higher, immediately prior to such termination), plus (ii) the highest amount
of bonus or incentive compensation paid or payable in cash to Employee
(irrespective of any decision to defer any payment with respect thereto) for
any one of the three calendar years prior to such Change in Control (or, if
higher, immediately prior to such termination), such severance pay to be paid
for the 24-month period following such termination in the same manner as
Employee's basic salary was paid immediately prior to such termination and to
be subject to appropriate tax withholding. [For example, if Employee's basic
salary was $100,000 immediately prior to a Change in Control, his highest
bonus in the prior three years was $20,000 and he is paid monthly, his
severance pay for each of the 24 months following termination would be
$10,000.] Payment of such amount shall be considered severance pay in
consideration of past services, services subsequent to Employee's designation
under this Plan and continued services during a period while any such Change
in Control is pending and thereafter and is not to be reduced by compensation
or income received by Employee from any other employment or other source.
In the event of such a termination, Employee shall continue for a period
of 24 months after termination to be covered at the expense of Employer by
the same or equivalent hospital, medical, accident, disability and life
insurance coverages as he was covered immediately prior to such termination;
provided, however, that in lieu of such coverage, Employee may elect to be
paid in cash, within 15 days after such termination, an amount equal to
Employer's cost of providing such coverages during such period.
Notwithstanding the foregoing, all payments to which Employee would be
entitled under this Plan shall be reduced to the extent necessary so that he
shall not be liable for the federal excise tax levied on certain "excess
parachute payments" under Section 4999 of the Internal Revenue Code.
Following a Change in Control, a material adverse change in the terms of
employment of Employee by Employer which Employee is entitled to treat as a
termination by Employer for purposes of this Plan includes:
(a) Without Employee's express written consent,
assignment of Employee to any duties inconsistent with
his position, duties and responsibilities and status
with Employer immediately prior to a Change in Control;
or
(b) A reduction by the Employer in Employee's
base salary as in effect immediately prior to a Change
in Control;
(c) A failure by Employer to continue any cash
bonus or incentive plans in which Employee is entitled
to participate immediately prior to a Change in Control
or a modification of any such plans with the result
that the cash bonus or incentive compensation ("Bonus")
paid to Employee for any calendar year in which such
Change in Control occurs or in the subsequent 24-month
period is less than the average Bonus awarded Employee
for the three years prior to the Change in Control (or
such shorter period as he has been employed by
Employer); or
(d) Without Employee's express written consent,
the Employer's requiring Employee to be based anywhere
other than within 25 miles of his office location
immediately prior to a Change in Control, except for
required travel on the Employer's business to an extent
substantially consistent with his business travel
obligations immediately prior to a Change in Control;
or
(e) The failure by the Employer to continue in
effect any benefit or compensation plan, stock
ownership plan, stock purchase plan, stock option plan,
life insurance plan, health-and-accident plan or
disability plan in which Employee is participating at
the time of a Change in Control (or plans providing
Employee with substantially similar benefits), or the
taking of any action by the Employer which would
adversely affect Employee's participation or materially
reduce his benefits under any of such plans; or
(f) The taking of any action by the Employer
which would deprive Employee of any material fringe
benefit enjoyed by him immediately prior to a Change in
Control or the failure by the Employer to provide him
with the number of paid vacation days to which he is
then entitled in accordance with the Employer's normal
vacation policy in effect immediately prior to a Change
in Control; or
(g) The failure by the Employer or the Company to
obtain the written agreement to perform the Company's
obligations under this Plan by any successor of the
Company; or
(h) Any breach by the Company or Employer of any
provision of this Plan.
6. Limited Effect. This Plan, any agreement entered into pursuant
hereto and payment of severance benefits hereunder shall not give Employee
any right of continued employment, and no right to any compensation or
benefits from the Company or Employer except the right specifically stated
herein for certain severance pay benefits in the event of a Change in Control
at a time when Employee is still employed by Employer and is a designated
Employee under this Plan, shall not limit Employer's right to terminate
Employee's employment at any time prior to a Change in Control, with or
without cause, or to terminate Employee's designation as an Employee under
this Plan, except as may be otherwise provided in a written employment
agreement between Employee and Employer, and shall not confer on Employee any
right to severance pay except in the event as specifically provided for herein.
7. Termination. This Plan and the employee benefits described herein
may be terminated as to all Employees or as to any specific Employee at any
time by the Company acting by a majority of the Continuing Directors then in
office; provided that no such termination occurring after or 180 days prior
to a Change in Control shall have occurred shall terminate or effect the
rights of any Employee hereunder.
8. Indemnification. Employer agrees to pay all costs and expenses
incurred by Employee in connection with the enforcement of his rights under
this Plan and will indemnify and hold harmless Employee from and against any
damages, liabilities and expenses (including without limitation fees and
expenses of counsel) incurred by Employee in connection with any litigation
or threatened litigation, including any regulatory proceedings, arising out
of the making, performance or enforcement of this Plan.
9. Governing Law. This Plan and agreements made with Employees hereunder
shall be governed by the laws of the State of Rhode Island and Providence
Plantations.
AGREEMENT
This Agreement is entered into between Nortek, Inc. (the "Employer") and
___________, an employee of Employer (the "Employee") who has been designated
by the Board of Directors of Employer as being entitled to participate in
the Nortek, Inc. Change in Control Severance Benefit Plan for Key Employees as
amended and restated June 12, 1997 (the "Plan").
In consideration of his designation as being entitled to participate in the
Plan, Employee accepts the terms and conditions of the Plan and agrees not to
voluntarily terminate his employment with Employer as required by, and under
the circumstances stated in, Section 2 of the Plan, and Employer confirms that
Employee is a participant in the Plan, subject to the terms and conditions
thereof.
NORTEK, INC.
_________________________ By:______________________
Date
___________________________
EXHIBIT 10.2
CONFORMED
NORTEK, INC. and RICHARD L. BREADY
EMPLOYMENT AGREEMENT
Amendment No. 1
The Employment Agreement between Nortek, Inc. and Richard L. Bready
dated as of February 26, 1997 is hereby amended by restating subpart (ii) of
Section 6(a) in its entirety as follows:
"(ii) There occurs a change of control of
Employer of a nature that would be required to be
reported in response to Item 1(a) of the Current Report
on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act or in any other filing under the Exchange
Act; provided, however, that a transaction shall not be
deemed to be a Change of Control as to Employee if the
Person acquiring control is or is an affiliate of
Employee."
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of June 13, 1997.
ATTEST NORTEK, INC.
/s/ Kevin W. Donnelly /s/ Richard J. Harris
Secretary Richard J. Harris
Vice President and Treasurer
WITNESS:
/s/ Donna Z. Laflamme /s/ Richard L. Bready
Employee Richard L. Bready,
Exhibit 10.3
CONFORMED COPY
NORTEK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
Page
ARTICLE I - Introduction 1
ARTICLE II - Definitions 2
ARTICLE III - Participation and Vesting 5
ARTICLE IV - Source of Benefit Payment 7
ARTICLE V - Retirement Benefits 9
ARTICLE VI - Qualified Termination 12
ARTICLE VII -Administration 15
ARTICLE VIII - Amendment and Termination 17
ARTICLE IX - Miscellaneous 18
Schedule A 22
Schedule B 24
Schedule C 25
Schedule D 26
ARTICLE I. INTRODUCTION
1.1 Purpose of Plan. The purpose of this Plan is to promote loyalty,
to attract new employees and to encourage employees to make and continue
careers with the Company and its subsidiaries by supplementing their
retirement benefits, thereby giving them assurance of retirement security
and promoting their continued loyalty to the Company.
1.2 Status. The Plan is intended to be a plan that is unfunded
and is maintained by the Employer primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees within the meaning of sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA),
and shall be interpreted and administered accordingly.
1.3 Authorization. The Plan was approved by the Board of Directors
on November 16,1995 to be effective January 1,1996.
ARTICLE II. DEFINITIONS
Unless otherwise defined, any capitalized word, phrase or term used
in this Plan has the meaning given to it in the Basic Plan. However, the
following terms have the following meanings unless a different meaning
is clearly required by the context:
2.1 "Administrator" means the person designated by the Board
to administer the Plan pursuant to Article VII.
2.2 "Average Compensation" means a Participant's average annual total
compensation from all Employers during his five consecutive calendar years
as an Employee in which such compensation was greatest. For this purpose,
"Compensation" shall mean the Participant's taxable compensation as reported
on Form W2.
2.3 "Basic Plan" means the Nortek, Inc. Retirement Plan, or any
other defined benefit pension plan of the Company or a Participating Employer
in which the Employee is a Participant, as amended and in effect from time
to time. Reference to any provision of the Basic Plan includes reference
to any comparable or successor provisions of the Basic Plan, as amended
from time to time.
2.4 "Basic Plan Benefit" means the Participant's monthly benefit
under the Basic Plan, as a benefit commencing at Normal Retirement Date,
and which is in the form of a joint and 50% survivor annuity in the case of a
married Employee or a single life annuity in the case of an unmarried
Employee.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Change of Control" is defined in Schedule A.
2.7 "Company" means Nortek, Inc.
2.8 "Disability" has the meaning given it in the Company's long-term
disability plan in effect at the time of such determination. A Participant's
employment shall be deemed terminated for Disability when the Participant
is entitled to receive long-term disability compensation under such plan.
If no long-term disability plan is in effect at the time of determination,
an Employee will be disabled if the employee is limited from performing the
material and substantial duties of the Employee's regular occupation due
to sickness or injury and as a result of which the Employee suffers a loss
of 20% or more of his or her monthly salary from the Employer.
2.9 "Effective Date" means January 1,1996.
2.10 "Employee" means an individual employed by an Employer.
2.11 "Employer" means the Company and all Participating Employers.
2.12 "Normal Retirement Age" means age 65.
2.13 "Normal Retirement Benefit" means the benefit referred to in
Section 5.1 hereof.
2.14 "Normal Retirement Date" means the first day of the month
coinciding with or next following the Employee's sixtyfifth birthday.
2.15 "Participating Employer" means a Subsidiary other than the
Company that employs one or more Employees designated by the Board to
participate in the Plan.
2.16 "Participant" means any Employee selected to participate in the
Plan in accordance with Section 3.1.
2.17 "Plan" means this Nortek, Inc. Supplemental Executive Retirement
Plan as set forth herein and in all subsequent amendments hereto.
2.18 "Spouse" means an individual who is the legally married husband
or wife of the Participant.
2.19 "Subsidiary" means any corporation, partnership, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or, in the case of any
entity which is not a corporation, the members of the appropriate governing
board or other group is at the time owned or controlled, directly or
indirectly, by the Company or one or more of the other Subsidiaries of the
Company or a combination thereof.
2.20 "Years of Service" means Years of Service for purposes of
benefit accrual as defined in the Nortek, Inc. Retirement Plan (as in effect
on December 31, 1995).
ARTICLE Ill. PARTICIPATION AND VESTING
3.1 Selection of Participants. The Board will select from time to
time those Employees who will be Participants in the Plan and the Applicable
Percentage of participation. The employees set forth in the attached
Schedules B and C will become participants on the Effective Date. If and when
additional Participants are named by the Board, they will be added to the
appropriate Schedule and will become Participants at that time.
3.2 Vesting.
(a)Except as provided in paragraph (b) and in Section 6, a Participant
will be vested and entitled to receive benefits under this Plan only if he is
(i) an Employee listed on Schedule B, or (ii) an Employee listed on Schedule C
who either has accumulated 10 Years of Service or continues to be an Employee
until November 16, 2000 in the case of Employee who becomes a Participant on
the Effective Date; or in the case of any other Employee, continues to be an
Employee for five full years following the date he became a Participant. A
Participant who ceases to be an Employee without becoming vested will forfeit
all rights under the Plan.
(b) A Participant who ceases to be an Employee because of death or
Disability before satisfying the requirements of paragraph (a) shall become
vested immediately and entitled to receive benefits subject to the other
provisions of the Plan.
(c) If an Employee listed on Schedule C is designated as a Participant
under Schedule B after he has become vested under Schedule C, but before he
would be vested under Schedule B, and the Employee ceases to be an Employee
without becoming vested in his benefit under Schedule B, the Employee shall
not forfeit his rights to his benefit under Schedule C.
ARTICLE IV. SOURCE OF BENEFIT PAYMENTS
4.1 Obligations of Employers. The Company and Participating
Employers will establish on their books liabilities for obligations to pay
benefits under the Plan. With respect to all benefits payable under the Plan,
each Participant (or other person entitled to receive benefits with respect
to a Participant) will be an unsecured general creditor of the Company and
of any Participating Employer by which the Participant has been employed.
Payments with respect to a Participant who has been an Employee of both the
Company and a Participating Employer will be allocated between the Company and
such Participating Employer in proportion to service with each.
4.2 Guarantees. Because the services rendered by Employees of the
Company benefit all the Subsidiaries, each Subsidiary shall jointly and
severally guarantee the payment of the benefits under the Plan to such
Employees.
4.3 No Funding Required. The Company shall establish a trust of
which it is treated as the owner under Subpart E of Subchapter J, Chapter 1
of the Internal Revenue Code of 1986, as amended (a "rabbi trust"). The
Company and Participating Employers shall from time to time deposit funds
with the trustee to provide a sound long-term funding program. In the event
of a Change of Control, the Company shall immediately deposit funds with the
trustee of the trust equal to the difference between the then present value
of all accrued benefits provided under the Plan (computed on the basis of the
actuarial assumptions stated in Schedule D hereto and taking into account the
benefits that become vested or payable in the event of a Change of Control) and
the then fair market value of the assets of the Trust and shall thereafter
make annual additional deposits with the trustee to reflect increases in the
accrued benefits.
4.4 No Claim to Specific Assets. Nothing in the Plan will be
construed to give any individual rights to any specific assets of the
Company, or any other Employer, person or entity.
ARTICLE V. RETIREMENT BENEFITS
5.1 Normal Retirement Benefit.
(a) Subject to Section 5.2, the Normal Retirement Benefit payable
under the Plan to a Participant will be a monthly benefit equal to onetwelfth
of (i) the Applicable Percentage of the Participant's Average Compensation
minus (ii) the participant's Basic Plan Benefit, both determined as of the
Participant's Normal Retirement Date. For this purpose, the Applicable
Percentage for a Participant listed on Schedule B or Schedule C as the case
may be.
(b) Subject to Section 5.2, the Participant's Normal Retirement
Benefit will commence at his Normal Retirement Date (or such later date on
which the Participant actually retires) and continue for his lifetime.
5.2 Early Commencement of Benefits. A vested Participant who ceases
to be an Employee before Normal Retirement Age because of retirement may
thereafter, with the consent of the Board (which shall not be unreasonably
withheld), elect to have his retirement benefit under the Plan commence any
time after the attainment of age 55 (but not later than the Participant's Normal
Retirement Date). If a Participant elects to have his retirement benefit
commence before his Normal Retirement Date, the retirement benefit payable to
him will be reduced using the factors set forth in Schedule D. The reduction
factors shall be applied to the net benefit that would be payable at Normal
Retirement Date after the offset for the Basic Plan Benefit.
5.3 Death Benefits. Except as otherwise provided in this paragraph,
no death benefits will be payable to anyone following the death of the
Participant.
a) Post Retirement. If a Participant for whom retirement
benefits have commenced under this Plan dies leaving a surviving Spouse who
was married to the Participant at the time benefits commenced, the surviving
Spouse will thereafter be paid for the lifetime of the surviving Spouse a
monthly retirement benefit equal to 50% of the benefit being received by the
Participant at the date of his death.
b) Pre-Retirement. If a vested Participant, former Employee with a
vested benefit or a disabled Employee receiving a disability benefit under
Section 5.4 for whom retirement benefits have not commenced dies leaving a
surviving Spouse, the surviving Spouse shall be entitled to a monthly
retirement benefit equal to 50% of the retirement benefit that would have
been payable to the Participant under Section 5.1 as reduced below. The
surviving Spouse may elect to have her benefit commence at any time after
what would have been the Participant's 55th birthday (but not later than the
Participant's Normal Retirement Date). If an election is made to have the
benefit commence prior to the Participant's Normal Retirement Date, such
benefit shall be reduced using factors set forth in Schedule D. The reduction
factors shall be applied to 50% of the benefit that would have been payable
to the Participant at his Normal Retirement Date prior to the offset for the
Basic Plan Benefit. The resulting reduced benefit is then offset by the
surviving spouse benefit payable on the same date under the Basic Plan.
5.4 Disability Benefit. A vested Participant who ceases to be an
Employee before Normal Retirement Age because of Disability shall receive a
monthly disability benefit equal to the excess of (a) the monthly benefit
under Section 5.1 over (b) the monthly benefit being paid to the Participant
under the Company's long-term disability plan. The monthly disability benefit
under this Plan shall commence with the commencement of benefit under the
long term disability plan (or on the first day of the month which is six
months after the date of disability if there is no long term disability plan
in effect on the date of disability) and shall cease upon the earlier of (i)
the date the Participant returns to work, (ii) the date benefits commence
under Section 5.2 above, (iii) the Participant's Normal Retirement Date, or
(iv) the Participant's death. The payment of a Disability benefit under this
Plan shall not make the Participant or the Participant's surviving Spouse
ineligible for or otherwise reduce any other benefit payable to either under
this Plan.
5.5 Other Benefits. The benefit with respect to a vested Participant
who ceases to be an Employee for any reason other than retirement with
consent of the Company, Disability or death may not commence prior to his
Normal Retirement Date.
ARTICLE VI. QUALIFIED TERMINATIONS
6.1 Vesting and Commencement of Benefits. In the event of a "Change
of Control", a Participant shall, notwithstanding any other provision of the
Plan,immediately become fully vested in his retirement benefits as described
in Section 5.1, and in the event of a "Qualified Termination", payment of such
benefits shall commence immediately without reduction under Section 5.2.
6.2 "Qualified Termination." Qualified Termination means termination of
the Participant's status as an Employee within 24 months following a Change of
Control (a) by the Company, or (b) by the Participant for any of the
following reasons:
(i) without Participant's express written consent, assignment of
Participant to any duties inconsistent with his position, duties and
responsibilities and status with Company immediately prior to a Change
in Control; or
(ii) a reduction by the Company in Participant's base salary as in effect
immediately prior to a Change in Control;
(iii) failure by the Company to continue any bonus in which a Participant
participated immediately prior to a Change in Control in an amount at
least equal to: (a) the amount of the average bonus paid to the
Participant for the three calendar years prior to the Change of
Control, multiplied by (b) a fraction which is the Company's pre-tax
earnings for any calendar year after the Change of Control over
the Company's average pre-tax earnings for the three calendar years
immediately prior to the Change in Control; or
(iv) without Participant's express written consent, the Company's requiring
Participant to be based anywhere other than within 25 miles of his
office location immediately prior to a Change in Control, except for
required travel on the Company's business to an extent substantially
consistent with his business travel obligations immediately prior to a
Change in Control; or
(v) the failure by the Company to continue in effect any benefit or
compensation plan, stock ownership plan, stock purchase plan, stock
option plan, life insurance plan, health-and-accident plan or
disability plan in which Participant is participating at the time of
a Change in Control (or plans providing Participant with substantially
similar benefits), or the taking of any action by the Company which
would adversely affect Participant's participation or materially reduce
his benefits under any such plans; or
(vi) the taking of any action by the Company which would deprive Participant
of any material fringe benefit enjoyed by him at the time of the Change
in Control, or the failure by the Company to provide him with the
number of paid vacation days to which he is then entitled in accordance
with the Company's normal vacation policy in effect immediately prior
to a Change in Control; or
(vii) the failure by the Company to obtain the written agreement to perform
the Company's obligations under this Plan by any successor of the Company.
6.3 Reduced Payment in the Event of Excise Tax. Notwithstanding the
foregoing, all payments to which Employee would be entitled under this Section
6 shall be reduced to the extent necessary so that he shall not be liable for
the federal excise tax levied on certain "excess parachute payments" under
Section 4999 of the Internal Revenue Code.
6.4 Reduced Payment in the Event of Increases in Basic Plan Benefit. In
the event a Participant's Basic Plan Benefit increases after retirement as a
result of an increase in the maximum permissible benefit under Section 415 of
the Code, the Participant's benefit shall be recalculated prospectively to
reflect the increase.
ARTICLE VII. ADMINISTRATION
The Plan will be administered by the person designated by the Board to
administer the Plan (the "Administrator"), but the Board will have full
discretionary authority to interpret the provisions of the Plan and decide
all questions and settle all disputes that may arise in connection with the
Plan. The Board may establish its own operative and administrative rules and
procedures in connection with the Plan, provided such procedures are
consistent with the requirements of Section 503 of ERISA and the regulations
thereunder. All interpretations, decisions and determinations made by the
Board will be binding on all persons concerned.
The Board in its sole discretion may delegate certain of its duties
and responsibilities to the Administrator or to an appropriate Employee or
Employees. For purposes of the Plan, any action taken by the Administrator or a
delegee Employee pursuant to such delegation will be considered to have been
taken by the Board. The Company agrees to indemnify and to defend to the
fullest possible extent permitted by law any delegee of the Board (including
any person who formerly served as a delegee) against all liabilities,
damages, costs and expenses (including attorneys' fees and amounts paid in
settlement of any claims approved by the Company) occasioned by any act or
omission to act in connection with the Plan, if such act or omission is in
good faith.
All expenses incurred in the creation or administration of this Plan
shall be paid by the Company.
ARTICLE VIII. AMENDMENT OR TERMINATION OF PLAN
The Company hopes and expects to continue the Plan in effect, but the Board
necessarily reserves the right to amend the Plan at any time, and from time
to time, or to terminate the Plan, provided that such amendment or
termination shall not reduce the accrued benefit of any Participant (whether
vested or non- vested). Any amendment or termination shall be stated in an
instrument in writing and signed by a duly authorized representative of the
Board.
ARTICLE IX. MISCELLANEOUS
9.1 No Assignment or Alienation. None of the benefits, payments,
proceeds or claims of any person under this Plan shall be subject to any
claim of any creditor, spouse or former spouse of the person or to attachment
or garnishment or other legal process by any such creditor, spouse or former
spouse; nor shall any person have any right to alienate, anticipate, commute,
pledge, encumber or assign any of the benefits, payments or proceeds which he or
she may expect to receive, contingently or otherwise, under the Plan.
9.2 Limitation of Rights. Neither the establishment of the Plan, nor
any amendment thereof, nor the payment of any benefits will be construed as
giving any individual any legal or equitable right against the Company,
except for those rights explicitly provided for in the Plan.
9.3 Forfeiture of Benefits. A Participant shall forfeit all rights
or benefits remaining to him under the Plan if his employment is terminated
on account of, or he is convicted of, or confesses to, or permits a plea of
nolo contendere to be entered with respect to, a criminal act of fraud,
misappropriation, embezzlement, or the like, which is a felony and involves
property of the Company or a Subsidiary.
9.4 Governing Law. The Plan will be construed, administered, and
governed under the laws of the State of Delaware, to the extent not preempted
by federal law.
9.5 Severability. If any provision of this Plan is held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
provisions shall continue to be fully effective.
IN WITNESS WHEREOF, the Company and the undersigned subsidiaries have
caused this Plan to be executed by their duly authorized officers this 1st
day of July, 1997.
NORTEK, INC.
By: /s/ Richard L.Bready
Chairman and Chief Executive Officer
The following subsidiaries of Nortek, Inc. hereby jointly and severally
guarantee the prompt performance of all obligations of the Company under this
Plan and the prompt payment of all benefits payable under this Plan.
BROAN MFG. CO., INC. AUBREY MANUFACTURING,INC.
By: /s/ Richard J. Harris By: /s/ Richard J.Harris
Vice President and Treasurer Vice President and Treasurer
JENSEN INDUSTRIES, INC. RANGAIRE, INC.
By: /s/ Richard J. Harris By: /s/ Richard J. Harris
Vice President and Treasurer Vice President and Treasurer
M&S SYSTEMS, INC. LINEAR CORPORATION
By: /s/ Richard J. Harris By: /s/ Richard J. Harris
Vice President and Treasurer Vice President and Treasurer
MOORE-O-MATIC, INC. NORDYNE INC.
By: /s/ Richard J. Harris By: /s/ Richard J. Harris
Vice President and Treasurer Vice President and Treasurer
MAMMOTH, INC. GOVERNAIR CORPORATION
By: /s/ Richard J. Harris By: /s/ Richard J. Harris
Vice President and Treasurer Vice President and Treasurer
TEMTROL, INC. UNIVERSAL-RUNDLE
CORPORATION
By: /s/ Richard J. Harris By: /s/ Richard J. Harris
Vice President and Treasurer Vice President and Treasurer
SCHEDULE A
For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred if and when:
(a) The Company ceases to be a publicly-owned corporation having at
least 500 stockholders; or
(b) there occurs any event or series of events that would be
required to be reported in response to Item 1(a) of a Form 8-K filed under
the Securities Exchange Act of 1934 (the "Exchange Act"); or
(c) the Company executes an agreement of acquisition, merger, or
consolidation which contemplates that after the effective date provided for
in the agreement, all or substantially all of the business and/or assets of
the Company will be controlled by another corporation or other entity; provided,
however, that for purposes of this paragraph (c), (i) if such an agreement
requires as a condition precedent approval by the Company's shareholders of
the agreement or transaction, a Change in Control shall not be deemed to have
taken place unless and until such approval is secured and, (ii) if the
voting shareholders of such other corporation or entity shall, immediately
after such effective date, be substantially the same as the voting shareholders
of the Company immediately prior to such effective date, the execution of
such agreement shall not, by itself, constitute a "Change in Control"; or
(d) any Person (excluding a Participant) becomes the beneficial owner
(as defined in Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
the Common Stock (excluding Special Common Stock) of the Company; or
(e) during any period of 24 consecutive months, commencing after
the effective date of this Plan, individuals who at the beginning of such
24-month period were directors of the Company shall cease to constitute at
least a majority of the Company's Board of Directors, unless the election of
each irector who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of (i) the
directors then in office who were directors at the beginning of the 24-month
period, or (ii) the directors specified in clause (i) plus directors whose
election has been so approved by directors specified in clause (i).
For the purposes of this Plan, "Person" shall have the same meaning used
in Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934.
SCHEDULE B
Participants: Applicable Percentage Effective Date of Participant
Richard L. Bready 50% 1/1/96
Almon C. Hall 50% 1/1/96
Richard J. Harris 50% 1/1/96
SCHEDULE C
Participants: Applicable Percentage Effective Date of Participant
Kevin W. Donnelly 30% 1/1/96
Siegfried Molnar 30% 1/1/96
Dennis R. Olson 30% 1/1/96
Kenneth J. Ortman 30% 1/1/96
SCHEDULE D
Actuarial Assumptions:
Mortality: Blended GAM-1983
Interest: 30-year treasury rate for the month of October of the calendar
year prior to the calendar year in which the calculation is
being made
Early Retirement Reduction Factors:
Early Retirement Factors (1)
Nortek Inc. Retirement Plan Applicable to all subsidiaries
Employee Age:
Years
55 56 57 58 59 60 61 62 63 64
Months
0 0.5000 0.5333 0.5667 0.6000 0.6333 0.6667 0.7333 0.8000 0.8667 0.9333
1 0.5028 0.5361 0.5694 0.6028 0.6361 0.6722 0.7389 0.8056 0.8722 0.9389
2 0.5056 0.5389 0.5722 0.6056 0.6389 0.6778 0.7444 0.8111 0.8778 0.9444
3 0.5083 0.5417 0.5750 0.6083 0.6417 0.6833 0.7500 0.8167 0.8833 0.9500
4 0.5111 0.5444 0.5778 0.6111 0.6444 0.6889 0.7556 0.8222 0.8889 0.9556
5 0.5139 0.5472 0.5806 0.6139 0.6472 0.6944 0.7611 0.8278 0.8944 0.9611
6 0.5167 0.5500 0.5833 0.6167 0.6500 0.7000 0.7667 0.8333 0.9000 0.9667
7 0.5194 0.5528 0.5861 0.6194 0.6528 0.7056 0.7722 0.8389 0.9056 0.9722
8 0.5222 0.5556 0.5889 0.6222 0.6556 0.7111 0.7778 0.8444 0.9111 0.9778
9 0.5250 0.5583 0.5917 0.6250 0.6583 0.7167 0.7833 0.8500 0.9167 0.9833
10 0.5278 0.5611 0.5944 0.6278 0.6611 0.7222 0.7889 0.8556 0.9222 0.9889
11 0.5306 0.5639 0.5972 0.6306 0.6639 0.7278 0.7944 0.8611 0.9278 0.9944
(1) Based on current plan provisions applied to life annuity payable at age 65.
Exhibit 10.4
CONFORMED COPY
FIRST AMENDMENT TO THE
NORTEK, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Nortek, Inc. (the "Company") adopted the Nortek, Inc. Supplemental
Executive Retirement Plan (the "Plan") effective January 1, 1996 (the "Plan").
WHEREAS, the Plan provides that the Board may from time to time designate
additional executives to participate in the Plan and to establish the benefit
level for each executive.
WHEREAS, the Compensation Committee of the Board of Directors was authorized
to establish the compensation of the Chief Executive Officer at a meeting of
the Board of Directors held on May 8, 1996 and the Compensation Committee
subsequently voted to include Richard L. Bready as Participant, effective
January 1, 1997 at a benefit percentage of 60%.
NOW, THEREFORE, effective January 1, 1997 Schedule B of the Plan is revised to
read as follows:
"SCHEDULE B
Participants Applicable Percentage Effective Date of Participant
Richard L. Bready 60% 1/1/97
Almon C. Hall 50% 1/1/96
Richard J. Harris 50% 1/1/96"
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed
this 1st day of July 1997.
NORTEK, INC.
By:/s/ Richard L. Bready
Chairman and Chief Executive Officer
EXHIBIT 11.1
(Page 1 of 2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Three Months Ended
--------------------------
June 28, June 29,
1997 1996
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,813,127 17,023,815
Less average common and special common shares
held in the Treasury (7,210,443) (6,700,804)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 9,602,684 10,323,011
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 229,221 208,074
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 9,831,905 10,531,085
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 9,602,684 10,323,011
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the greater of
the price at the end of the period or the
average price during the period 264,245 208,074
---------- ----------
9,866,929 10,531,085
========== ==========
EXHIBIT 11.1
(Page 2 of 2)
NORTEK, INC. AND SUBSIDIARIES
CALCULATION OF SHARES USED IN DETERMINING EARNINGS PER SHARE
For the Six Months Ended
-------------------------
June 28, June 29,
1997 1996
---- ----
Calculation of the number of shares to be
used in computing primary earnings per share:
Weighted average common and special common
shares issued during the period 16,788,468 17,705,992
Less average common and special common shares
held in the Treasury (7,125,716) (6,700,804)
---------- ----------
Weighted average number of common and special
common shares outstanding during the period 9,662,752 11,005,188
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the average
price during the period 235,283 180,728
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the
period 9,898,035 11,185,916
========== ==========
Calculation of the number of shares to be used
in computing fully diluted earnings per share:
Weighted average number of common and special
common shares outstanding during the period 9,662,752 11,005,188
Dilutive effect of stock options considered
common stock equivalents computed under the
treasury stock method using the greater of
the price at the end of the period or the
average price during the period 260,697 193,870
---------- ----------
9,923,449 11,199,058
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 56,769
<SECURITIES> 174,318
<RECEIVABLES> 142,658
<ALLOWANCES> 4,825
<INVENTORY> 107,713
<CURRENT-ASSETS> 514,747
<PP&E> 254,240
<DEPRECIATION> 116,202
<TOTAL-ASSETS> 772,963
<CURRENT-LIABILITIES> 205,260
<BONDS> 408,771
0
0
<COMMON> 16,800
<OTHER-SE> 104,297
<TOTAL-LIABILITY-AND-EQUITY> 772,963
<SALES> 469,218
<TOTAL-REVENUES> 469,218
<CGS> 342,444
<TOTAL-COSTS> 342,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,523
<INCOME-PRETAX> 16,000
<INCOME-TAX> 5,600
<INCOME-CONTINUING> 10,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,400
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
