<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
---------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 1998
------------------
NORTEK, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-6112 05-0314991
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (401) 751-1600
-----------------------------
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned Registrant hereby amends Item 7 of its current report on
Form 8-K for an event occurring on July 31, 1998 and filed on August 12, 1998,
as follows:
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(a) Financial Statements of Business Acquired
The consolidated financial statements of
Nutone, Inc., and subsidiary as of
December 31, 1997 and April 4, 1998 and
for the year ended December 31, 1997 and
the three months ended March 29, 1997 and
April 4, 1998, together with the notes thereto.
(b) Pro Forma Information
Unaudited Pro Forma Consolidated Balance Sheet
as of April 4, 1998, together with Pro Forma
Condensed Consolidated Statement of Operations
for the year ended December 31, 1997 and the
three months ended April 4, 1998.
(c) Exhibits
23.1 Consent of Independent Accountants.
1
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Y&N Holdings, Inc.
Parent of NuTone Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of NuTone Inc.
and Subsidiary (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, shareholder's net investment and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 3 to the consolidated financial statements, the
Company has not "pushed down" certain purchase accounting adjustments related to
its acquisition by the parent company, Williams plc, in 1991. In our opinion,
generally accepted accounting principles, as established by the Securities and
Exchange Commission for public companies, require that such adjustments be
reflected in the financial statements.
In our opinion, except for the effects of not pushing down certain purchase
accounting adjustments as described in the preceding paragraph, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of NuTone Inc. and Subsidiary as of December 31,
1997 and the consolidated results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Cincinnati, Ohio
February 20, 1998
2
<PAGE> 4
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 4,
1997 1998
------------ -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 840 $ 1,393
Accounts receivable, less allowance for doubtful
accounts of $1,373 and $1,269......................... 30,304 35,065
Inventories............................................ 4,804 4,706
Deferred tax asset, current............................ 4,880 4,900
Prepaid expenses and other current assets.............. 4,688 5,183
--------- ---------
Total current assets.............................. 45,516 51,247
Property, plant and equipment, net.......................... 18,212 18,107
Deferred tax asset, noncurrent.............................. 14,123 14,398
Other noncurrent assets..................................... 289 --
--------- ---------
Total assets...................................... $ 78,140 $ 83,752
========= =========
LIABILITIES
Current liabilities:
Accounts payable....................................... $ 23,134 $ 15,619
Payable to Parent and related entities................. 11,508 24,211
Accrued expenses and other............................. 15,635 14,491
--------- ---------
Total current liabilities......................... 50,277 54,321
Pension liability........................................... 12,883 12,673
Post-retirement medical benefits liability.................. 27,820 28,068
Accrued warranty............................................ 4,990 5,209
Long-term debt to Parent and related entities............... 131,000 131,000
--------- ---------
Total liabilities................................. 226,970 231,271
--------- ---------
Contingencies
SHAREHOLDER'S NET INVESTMENT (DEFICIT)
Shareholder's net investment (deficit)...................... (148,830) (147,519)
--------- ---------
Total liabilities and shareholder's net investment
(deficit)....................................... $ 78,140 $ 83,752
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 29, APRIL 4,
1997 1997 1998
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $ 199,072 $ 46,561 $ 49,564
Cost of goods sold.......................................... (122,897) (28,874) (31,811)
--------- -------- --------
Gross profit...................................... 76,175 17,687 17,753
Selling, general and administrative expenses................ (51,387) (14,322) (13,561)
--------- -------- --------
Income from operations............................ 24,788 3,365 4,192
Other income (expense):
Interest expense....................................... (11,852) (3,020) (3,060)
Other income, net...................................... 42 10 18
--------- -------- --------
Income before income taxes........................ 12,978 355 1,150
Provision for income taxes.................................. (5,043) (142) (460)
--------- -------- --------
Net income................................... $ 7,935 $ 213 $ 690
========= ======== ========
Other comprehensive income, net of tax:
Pension liability adjustment........................... 503 251 --
Foreign currency translation adjustment................ (49) -- --
--------- -------- --------
Total other comprehensive income.................. 454 251 --
--------- -------- --------
Comprehensive Income.............................. $ 8,389 $ 464 $ 690
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 6
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDER'S NET INVESTMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED MARCH 29, 1997 AND APRIL 4, 1998
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INVESTMENT
(DEFICIT)
--------------
(IN THOUSANDS)
<S> <C>
Balance, December 31, 1996.................................. $(147,062)
Net Income (unaudited)...................................... 213
Pension liability adjustment (unaudited).................... 251
Capital contribution from Parent (unaudited)................ 304
---------
Balance, March 29, 1997 (unaudited)......................... $(146,294)
=========
Balance, December 31, 1996.................................. $(147,062)
Net income.................................................. 7,935
Foreign currency translation adjustment..................... (49)
Pension liability adjustment................................ 503
Capital contribution from Parent............................ 2,243
Dividend to Parent.......................................... (12,400)
---------
Balance, December 31, 1997.................................. $(148,830)
Net Income (unaudited)...................................... 690
Capital Contribution from Parent (unaudited)................ 621
---------
Balance, April 4, 1998 (unaudited).......................... $(147,519)
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 7
NUTONE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 29, APRIL 4,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 7,935 $ 213 $ 690
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense............................... 3,416 863 835
Deferred tax provision............................. (555) (439) (295)
Loss on sale of fixed assets....................... 16 (2) 6
(Increase) Decrease in accounts receivable......... 3,604 2,886 (4,761)
(Increase) Decrease in inventories................. (1,065) (1,035) 98
(Increase) Decrease in prepaid expenses and other
current assets................................... 339 103 (495)
Increase (Decrease) in accounts payable............ 3,784 (3,617) (7,515)
Increase in accrued expenses....................... 583 (579) (925)
Increase (Decrease) in pension liability........... (1,119) 158 79
Increase (Decrease) in post-retirement medical
benefit liability................................ 1,018 259 248
-------- -------- --------
Net cash provided by operating activities..... 17,956 (1,190) (12,035)
-------- -------- --------
Cash flows from investment activities:
Proceeds from sale of fixed assets................. 11 7 5
Capital expenditures............................... (3,663) (895) (741)
-------- -------- --------
Net cash used in investing activities......... (3,652) (888) (736)
-------- -------- --------
Cash flows from financing activities:
Dividends paid to Parent........................... (12,400) -- --
Contributions from Parent and related entities..... 2,243 304 621
Change in amount due to/from Parent and related
entities......................................... (4,250) 2,135 12,703
Foreign currency translation adjustment............ (49) -- --
-------- -------- --------
Net cash used in financing activities......... (14,456) 2,439 13,324
-------- -------- --------
Net increase (decrease) in cash......................... (152) 361 553
Cash at beginning of year............................... 992 992 840
-------- -------- --------
Cash at end of year..................................... $ 840 $ 1,353 $ 1,393
======== ======== ========
Supplemental cash flow information:
Cash paid for interest............................. $ 12,141 $ 323 $ 34
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 8
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PURPOSE OF FINANCIAL STATEMENTS:
The financial statements of NuTone Inc. and Subsidiary (the "Company") have
been prepared in connection with the proposed sale of the capital stock of the
Company by its ultimate parent company, Williams plc ("Williams" or the
"Parent"), a U.K. Company, to Nortek, Inc., pursuant to an agreement dated March
9, 1998.
The consolidated financial statements include the accounts of NuTone Inc.
(U.S.) and its wholly owned subsidiary, NuTone Canada Inc.
Certain properties, while historically part of the Company, have been
excluded from these financial statements, as the related assets, liabilities and
costs will not be a part of the proposed transaction. These properties, at
December 31, 1997, are non-operating and are not material to the Company's
financial position or 1997 results of operations.
2. NATURE OF BUSINESS:
The Company is principally engaged in the manufacturing and sale of
household fixtures, such as ventilation fans and heaters, range hoods, door
chimes, bathroom cabinets, and intercom systems. The Company's primary
manufacturing operations are located in Cincinnati, Ohio and the Company also
has a manufacturing facility in Coppell, Texas. Approximately 99% of its 1997
sales were to customers in the United States and Canada.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed
in the preparation of these consolidated financial statements.
a. Basis of Presentation: The Company's consolidated financial
statements, which have been prepared on the basis of U.S. generally accepted
accounting principles, reflect the actual results of operations, financial
position, changes in shareholder's net investment, and cash flows as if it were
a separate stand-alone entity for all periods presented. For all fiscal periods
presented, the Company was owned by Williams who acquired the Company in 1991
and utilized the purchase method of accounting. Pursuant to regulations
established by the Securities and Exchange Commission for public companies,
generally accepted accounting principles require that the new purchase
accounting basis in an acquired company's assets be "pushed down" to a
subsidiary's stand-alone financial statements. The Company's financial
statements do not reflect the effects of applying "push down accounting". Had
push down accounting been applied to the Company's financial statements, the
balance sheets and statements of operations of the Company would have been
adjusted to reflect the effects of push down accounting on inventory and
property, plant and equipment and to record a new asset and related amortization
for goodwill. (See Note 14.)
General corporate overhead expenses related to Williams' corporate
headquarters and common support functions have been allocated to the Company, to
the extent such amounts are applicable to the Company, based on the ratio of the
Company's budgeted sales to budgeted sales of all companies within the Williams
U.S. consolidated group. Management believes these allocations are reasonable.
However, the costs of these services charged to the Company are not necessarily
indicative of the costs that would have been incurred if the Company had
performed these functions as a stand-alone entity. As a result of the proposed
sale described in Note 1, the Company, or the acquirer, will be required to
perform certain of these functions using its own resources, or purchased
services, and will be responsible for the costs and expenses associated with the
management of the Company.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position and cash flows of the
Company which would have resulted had the Company been a separate, stand-alone
entity during the period presented.
7
<PAGE> 9
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. Basis of Consolidation: The consolidated financial statements include
the accounts of NuTone Inc. and its wholly-owned subsidiary, NuTone Canada Inc.
All significant intercompany transactions and accounts have been eliminated.
c. Foreign Currency Translation: For international operations, assets and
liabilities are translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average exchange rates prevailing during
the year. Translation adjustments, resulting from fluctuations in exchange
rates, are included in shareholder's net investment.
d. Use of Estimates: The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
e. Research and Development Expenses: Research and development expenses
are charged to operations as incurred. Research and development expense was
approximately $1,377,000 for the year ended December 31, 1997.
f. Inventories: Inventories are stated at the lower of cost or market,
with cost being determined on the last in, first out (LIFO) method.
g. Property, Plant and Equipment: Property, plant and equipment,
including the cost of certain tooling, is recorded at cost and depreciated on
the straight-line basis over the following useful lives:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Building improvements....................................... 10 years
Machinery and equipment..................................... 4 to 10 years
Furniture, fixtures and computer equipment.................. 5 to 10 years
Tools and dies.............................................. 5 years
</TABLE>
Repairs and maintenance expenditures are charged to income as incurred,
whereas replacements, betterments and improvements are capitalized. Upon sale or
retirement, the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in
operations.
h. Product Warranty Expense: The estimated amount of product warranty
costs is accrued in the period in which the related sale is made.
i. Advertising Costs: The Company expenses advertising costs the first
time the advertising takes place. Advertising expense was $4,942,000 for the
year ended December 31, 1997.
j. Income Taxes: The Company's operations have historically been included
in the income tax returns filed by a subsidiary of Williams. However, income tax
expense in the Company's consolidated financial statements has been calculated
as if the Company had filed separate tax returns for all periods presented.
The Company is a member of a consolidated U.S. tax group. Under a tax
sharing agreement with intermediate and ultimate parent companies, the Company
is not charged for taxes on its operations. The Company's current tax provision
has been accounted for as a capital contribution.
k. Statement of Cash Flows: The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
8
<PAGE> 10
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES:
At December 31, 1997, inventories were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Raw materials and work-in-process........................... $13,738
Finished goods.............................................. 14,665
-------
28,403
Less reserve for LIFO valuation............................. 23,599
-------
Total inventories................................. $ 4,804
=======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
At December 31, 1997, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Land, building and improvements............................. $13,828
Machinery and equipment..................................... 20,697
Furniture, fixtures and computer equipment.................. 5,997
Tools and dies.............................................. 13,999
Construction in progress.................................... 3,150
-------
57,671
Less accumulated depreciation............................... 39,459
-------
$18,212
=======
</TABLE>
6. LONG-TERM DEBT TO SUBSIDIARY OF PARENT COMPANY:
The Company has a promissory note payable to a wholly-owned subsidiary of
the Parent of $131,000,000, due on September 7, 2001. Interest is paid in
semi-annual installments in June and December at a rate of 8.5%.
7. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution plan covering predominantly
non-union employees of NuTone Inc. (U.S.). Under the Plan, participants can
elect to defer up to 10% of their eligible earnings on a pre-tax basis, with the
Company matching 50% of the first 5% of deferred earnings. During 1997, the
Company's contribution to the plan was $347,000.
The Company has six noncontributory defined benefit pension plans (the
"Plans") covering substantially all employees, with benefits for salaried
employees based on years of service and the employee's career compensation, and
benefits for hourly paid employees based on years of service. The Company
accrues expense for the Plans in accordance with generally accepted accounting
principles and makes contributions to the Plans in accordance with an agreed
funding policy, which are deductible for federal income tax purposes.
At December 31, 1997, substantially all of the assets of the defined
benefit plans were included with those of other Williams subsidiaries in the
United States and held as part of a master trust. Plan assets, as stated below,
represent the Company's proportionate share of the net assets of the master
trust.
9
<PAGE> 11
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the principal Plans' funded status and
amounts recognized in the Company's balance sheet, utilizing information from
the latest actuarial valuation date, December 31, 1997:
<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, primarily vested....... $42,851 $25,383
======= =======
Projected benefit obligation for services rendered to
date...................................................... $46,816 $25,383
Plan assets at fair value, primarily cash equivalents and
marketable securities..................................... 37,350 23,086
------- -------
Projected benefit obligation in excess of plan assets....... 9,466 2,297
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions... 3,920 723
Unrecognized prior service cost............................. -- (1,012)
Additional minimum liability................................ -- 289
------- -------
Accrued pension liability................................... $13,386 $ 2,297
======= =======
</TABLE>
The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.
Net pension expense, reflected in both cost of sales and general and
administrative expenses, for the year ended December 31, 1997, included the
following components:
<TABLE>
<CAPTION>
NUTONE NUTONE
(U.S.) (U.S.)
SALARIED HOURLY
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 910 $ 363
Interest cost............................................... 3,335 1,851
Actual return on plan assets................................ (4,424) (2,637)
Net amortization and deferral............................... 1,374 906
------- -------
Net pension expense......................................... $ 1,195 $ 483
======= =======
</TABLE>
For 1997, the discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 7.5% and 4.5%, respectively. The expected long-term rate of
return on assets was 9%.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain medical and life insurance benefits to
eligible retired employees. Hourly employees at the Cincinnati, Ohio location
covered by a collective bargaining agreement, hired before June 12, 1992, and
non-union employees, hired before January 1, 1994, generally become eligible for
retiree medical and life insurance benefits on retirement. Pre-age 65 retirees
are paid covered medical expenses, including drugs, less deductibles or
co-payments. Post-age 65 retiree medical expenses are offset by Medicare
benefits.
10
<PAGE> 12
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $17,234
Fully eligible active participants........................ 5,347
Other active participants................................. 5,084
-------
Total unfunded accumulated postretirement benefit
obligation...................................... 27,665
Unrecognized net gain....................................... 1,555
-------
Accrued postretirement benefit obligation................. $29,220
=======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1997, declining by 1% in 1998 and
declining by 0.5% thereafter through 2004 to an ultimate rate of 4.0%. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation, as of December 31, 1997, would have increased
by $3,570,000. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1997
would have been an increase of $381,000.
The deferred tax asset associated with employee pensions and other benefits
is disclosed in Note 9.
The components of net periodic postretirement benefit cost for the year
ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost................................................ $ 431
Interest cost on accumulated post retirement benefit
obligation................................................ 2,064
Net amortization............................................ (26)
------
Total expense..................................... $2,469
======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation and net periodic postretirement benefit cost was 7.5% as of
December 31, 1997.
9. INCOME TAXES:
The following table presents the principal components of the difference
between the U.S. federal statutory income tax rate and the effective tax rate
for the year ended December 31, 1997:
<TABLE>
<S> <C>
Federal income tax rate..................................... 35%
Tax effect of foreign losses................................ (1)%
Effect of state and local taxes, net of federal tax......... 5%
---
Effective tax rate.......................................... 39%
===
</TABLE>
The Company's tax provision includes a provision for income taxes in foreign tax
jurisdictions.
11
<PAGE> 13
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the U.S. and foreign components of income tax
expense for the year ended December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Income tax expense (benefit):
Current:
Federal........................................... $ 4,327
State and local................................... 1,256
Foreign........................................... 15
Deferred:
Federal........................................... (443)
State and local................................... (112)
-------
Total income tax expense..................... $ 5,043
=======
</TABLE>
Deferred income tax liabilities are taxes that the Company expects to pay
in future periods. Conversely, deferred income tax assets are tax benefits
recognized for expected reductions in future taxes payable. Deferred income
taxes arise because of differences in the financial reporting and tax bases of
certain assets and liabilities. Deferred income tax assets and liabilities
included in the balance sheet at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred income tax assets:
Employee pensions and other benefits................... $17,804
Accrued warranty....................................... 2,996
Balance sheet reserves and allowances..................... 3,258
-------
Total deferred income tax assets.................. 24,058
-------
Deferred income tax liabilities:
Property, plant, and equipment......................... 3,997
Accounts receivable.................................... 1,058
-------
Total deferred income tax liabilities............. 5,055
-------
Total net deferred income tax assets.............. $19,003
=======
</TABLE>
10. LEASES:
The Company leases manufacturing and warehouse facilities and other
equipment under various operating leases. Total rent expense for the year ended
December 31, 1997 was approximately $1,309,000.
Future minimum rental payments required under all leases that have
remaining noncancelable lease terms in excess of one year, as of December 31,
1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 995
1999........................................................ 1,053
2000........................................................ 616
2001........................................................ 424
Thereafter.................................................. --
-------
Total minimum payments required........................ $ 3,088
=======
</TABLE>
12
<PAGE> 14
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS:
Management fees charged to the Company by its Parent in 1997 were
$1,676,000.
The Company maintains a revolving loan with a fellow wholly-owned
subsidiary of the Parent. The loan has no stated due date and is due and payable
upon demand by this subsidiary. The Company is charged interest on outstanding
balances, based on the prime rate (8.5% at December 31, 1997), which is payable
monthly. In situations where the Company has advanced funds to this subsidiary,
it receives interest at the prime rate less 1%. Interest expense, net of
interest income, on this revolving loan and on the long-term debt discussed in
Note 6, was $11,852,000 in 1997.
12. MAJOR CUSTOMER:
The Company derived approximately 22% of its consolidated net sales from
one customer in 1997.
13. CONTINGENCIES:
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.
14. "PUSH-DOWN" ACCOUNTING INFORMATION
In March 1991, Williams acquired Yale & Valor plc (a U.K. holding company),
which owned several operating subsidiaries, including NuTone. Although a
separate purchase price was not established for NuTone, an allocation of the
total purchase price to the NuTone business, based on Williams' estimate of the
respective fair values of all of the acquired businesses, resulted in an
estimated purchase price of approximately $111,000,000 for NuTone.
At the acquisition date, Williams estimated that the fair value of NuTone's
liabilities exceeded the estimated fair value of its tangible assets by
approximately $227,000,000, on a U.S. GAAP basis, which would have resulted in
estimated goodwill to Williams of approximately $338,000,000, which was
determined to have an estimated life of 40 years. Had "push-down" accounting
been used in the NuTone financial statements, the goodwill resulting from
Williams' acquisition of NuTone would have resulted in amortization expense of
approximately $8,450,000 for the year ended December 31, 1997 and $2,112,500 for
each of the three month periods ended March 29, 1997 and April 4, 1998,
respectively.
15. INTERIM FINANCIAL STATEMENTS (UNAUDITED):
1. BASIS OF PRESENTATION
The financial statements of NuTone Inc. and Subsidiary ("the Company")
have been prepared in connection with the proposed sale of the capital
stock of the Company by its ultimate parent company, Williams plc
("Williams" or the "Parent"), a U.K. Company, to Nortek, Inc., pursuant to
an agreement dated March 9, 1998.
The consolidated financial statements include the accounts of NuTone
Inc. (U.S.) and its wholly owned subsidiary, NuTone Canada Inc. All
information in the accompanying footnotes is presented in thousands.
Certain properties, while historically part of the Company, have been
excluded from these financial statements, as the related assets,
liabilities and costs will not be a part of the proposed transaction. These
properties, at April 4, 1998 and December 31, 1997, are non-operating and
are not material to the Company's financial position or 1998 and 1997
results of operations.
The consolidated financial statements of NuTone Inc. and Subsidiary
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and, in the opinion of Management, include
all adjustments necessary for a fair presentation of the results of
operations, financial position and cash flows for each period shown except
for the effects of not utilizing push down accounting related to the
Company's acquisition by the parent company in 1991 (See Note 14).
Following the proposed acquisition of the Company by Nortek, Inc., a new
basis of accounting will be established for the Company and any such
pushdown adjustments with respect to goodwill, inventory and property,
plant and equipment will be eliminated. All adjustments are of a normal and
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
SEC rules and regulations. It is suggested that these financial statements
be read in conjunction with the consolidated year end
13
<PAGE> 15
NUTONE INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements and notes thereto included in the Company's Report on
Audit of Consolidated Financial Statements as of December 31, 1997 and for
the year then ended.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), in the first quarter
of 1998. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of financial
statements. The objective of SFAS 130 is to report a measure of all changes
in the equity of an enterprise that result from transactions and other
economic events of the period other than transactions with shareowners.
The Financial Accounting Standards Board issued Statements of
Financial Standards No. 131, "Disclosure about Segments of an Enterprise
and Related Information", and No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The Company has not yet
determined what effect, if any, these statements will have.
14
<PAGE> 16
Item 7(b) ProForma Information
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
OVERVIEW
The Unaudited Pro Forma Condensed Consolidated Financial Data for the year
ended December 31, 1997 and the three months ended April 4, 1998 presented
herein gives pro forma effect to certain transactions. Transactions for which
pro forma information is provided include the sale of $175,000,000 principal
amount of 9 1/4% Senior Notes, due March 15, 2007 by the Company (the "9 1/4%
Notes"), the sale of $310,000,000 principal amount of 9 1/8% Senior Notes, due
September 1, 2007 by the Company (the "9 1/8% Notes"), the acquisition of Ply
Gem Industries, Inc. ("Ply Gem") in a tender offer for a share price of $19.50
per outstanding share of common stock by the Company (the "Ply Gem
Acquisition"), the sale of 2,182,500 shares of Company common stock for net
proceeds of approximately $64,300,000 (the "Common Stock Offering"), the sale of
$210,000,000 principal amount of 8 7/8% Senior Notes, due August 1, 2008 by the
Company (the "8 7/8% Notes") and the purchase of all of the issued and
outstanding capital stock of NuTone, Inc. ("NuTone"), a wholly owned subsidiary
of Williams plc for an aggregate purchase price of $242,500,000 in cash plus
approximately $5,500,000 in fees and expenses (the "NuTone Acquisition").
The Ply Gem Acquisition and the NuTone Acquisition are accounted for under
the purchase method of accounting. With respect to these acquisitions, the
information contained herein has been prepared utilizing preliminary purchase
price allocations which are subject to refinement until all pertinent
information regarding the acquisitions has been obtained. This pertinent
information to be received includes, among other items, independent third party
estimates of the fair value and useful lives of certain tangible and intangible
assets acquired, independent third party estimates of pre-acquisition insurance
reserve requirements of Ply Gem and the Company's final integration plan for the
Acquisition. The Company does not expect that the final purchase price
allocations of the Ply Gem Acquisition and the Acquisition will have a material
effect on its consolidated results of operations or financial position.
The Company's plans for eliminating certain activities of the 1998 and 1999
acquisitions were not finalized as of April 3, 1999. The Company expects to
finalize its plans with respect to the 1998 and 1999 acquisitions within one
year of the respective acquisition dates and, accordingly, additional
liabilities will be recorded as adjustments to the purchase price allocation for
certain of the acquired businesses. The Company estimates additional liabilities
associated with plans for the 1998 and 1999 acquisitions are in the range of
$17,000,000 to $24,000,000 for acquisitions prior to April 3, 1999 and relate
principally to additional employee terminations and other exit costs related to
the elimination or consolidation of certain functions and operations at certain
of the acquired businesses.
The financial information entitled "Unaudited Pro Forma" is not necessarily
indicative of the actual results of operations that would have been reported if
the events described above had occurred during the applicable period, nor does
such information purport to be indicative of the results of future operations.
Furthermore, such information may not give effect to all cost savings or
incremental costs that may occur as a result of the integration and
consolidation of the acquisitions of Ply Gem and NuTone. In the opinion of
management, all adjustments necessary to present fairly, in all material
respects, such "Unaudited Pro Forma" financial information have been made.
During 1998, the Company sold several nonstrategic businesses. The
following Pro Forma Condensed Consolidated Financial Data does not give effect
to the dispositions of businesses that occurred in 1998 or acquisitions in 1998
and 1999.
It is suggested that the Unaudited Pro Forma Condensed Consolidated
Financial Data be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the audited Financial
Statements and the Notes included in the Company's latest Annual Report on Form
10-K and latest quarterly Financial Statements on Form 10-Q and the audited and
unaudited NuTone Consolidated Financial Statements and the Notes thereto
included elsewhere herein.
UNAUDITED AS ADJUSTED AND PRO FORMA ADJUSTED CONSOLIDATED BALANCE SHEET
The Unaudited As Adjusted Consolidated Balance Sheet as of April 4, 1998
has been prepared based upon the unaudited Consolidated Balance Sheet of Nortek
as of April 4, 1998 and gives effect to the Common Stock Offering, as if such
transaction had occurred on April 4, 1998.
The Unaudited Pro Forma Consolidated Balance Sheet as of April 4, 1998 has
been prepared based upon the unaudited Consolidated Balance Sheets of Nortek and
of NuTone as of April 4, 1998 and gives pro forma effect to the Common Stock
Offering, the 8 7/8% Notes and the NuTone Acquisition, in each case as if such
transactions had occurred on April 4, 1998.
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PLY
GEM ACQUISITION
The Unaudited Pro Forma (for Ply Gem) Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 has been prepared using Nortek's
Audited Consolidated Statement of Operations for the year ended December 31,
1997 (which includes the operations of Ply Gem since August 26, 1997) and Ply
Gem's results of operations for the period from January 1, 1997 through August
25, 1997.
The Unaudited Pro Forma (for Ply Gem) Condensed Consolidated Statement of
Operations for the year ended December 31, 1997 gives pro forma effect to: (i)
the 9 1/4% Notes; (ii) the 9 1/8% Notes; (iii) the Ply Gem Acquisition; and (iv)
the Common Stock Offering, in each case as if such events occurred on January 1,
1997 (collectively, the "Pro Forma Ply Gem Adjustments").
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE PLY GEM ACQUISITION AND THE
NUTONE ACQUISITION
The Unaudited Pro Forma (for Ply Gem and NuTone) Condensed Consolidated
Statements of Operations for the year ended December 31, 1997 and the three
months ended April 4, 1998 have been prepared using, as applicable: (i) Nortek's
Audited Consolidated Statement of Operations for the year ended December 31,
1997 (which includes the operations of Ply Gem from August 26, 1997 to December
31, 1997); (ii) Ply Gem's Unaudited Results of Operations for the period January
1, 1997 through August 25, 1997; (iii) NuTone's Audited Consolidated Statement
of Operations for the year ended December 31, 1997; (iv) Nortek's Unaudited
Condensed Consolidated Statements of Operations for the three months ended April
4, 1998; and (v) NuTone's Unaudited Condensed Consolidated Statements of
Operations for the three months ended April 4, 1998.
The information entitled "Pro Forma Company" gives effect to: (i) the Pro
Forma Ply Gem and NuTone Adjustments; (ii) the NuTone Acquisition; (iii) net
savings expected to be achieved from the elimination of fees and charges paid by
NuTone to Williams plc and related entities; and (iv) the 8 7/8% Notes. The
Company believes that the historical net sales and expenses of NuTone would not
have materially changed without the management services provided by Williams.
16
<PAGE> 18
UNAUDITED AS ADJUSTED AND
PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 4, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
NORTEK COMMON NORTEK NUTONE PRO FORMA PRO FORMA
HISTORICAL STOCK OFFERING AS ADJUSTED HISTORICAL ADJUSTMENTS COMPANY
---------- -------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 81,091 $64,290(a) $ 145,381 $ 1,393 ($ 45,258)(a) $ 101,516
Marketable securities available
for sale....................... 22,210 -- 22,210 -- -- 22,210
Restricted cash and marketable
securities..................... 6,368 -- 6,368 -- -- 6,368
Accounts receivable, net......... 204,487 -- 204,487 35,065 -- 239,552
Inventories, net................. 186,902 -- 186,902 4,706 23,627(b) 215,235
Prepaid expenses................. 11,705 -- 11,705 5,183 -- 16,888
Other current assets............. 10,854 -- 10,854 -- -- 10,854
Net assets of discontinued
operation...................... 27,065 -- 27,065 -- -- 27,065
Prepaid income taxes............. 46,800 -- 46,800 4,900 (8,905)(c) 42,795
---------- ------- ---------- ---------- --------- ----------
Total current assets..... 597,482 64,290 661,772 51,247 (30,536) 682,483
Property, plant and equipment,
net............................ 240,132 -- 240,132 18,107 3,978(d) 262,217
Goodwill......................... 375,639 -- 375,639 -- 202,064(e) 577,703
Intangible assets................ 8,477 -- 8,477 -- 37,500(f) 45,977
Notes receivable and other
investments.................... 9,848 -- 9,848 -- -- 9,848
Deferred income taxes............ 10,476 -- 10,476 14,398 (16,591)(g) 8,283
Deferred debt expense............ 20,556 -- 20,556 -- 6,504 (h) 27,060
Other assets..................... 19,896 -- 19,896 -- -- 19,896
---------- ------- ---------- ---------- --------- ----------
Total assets............. $1,282,506 $64,290 $1,346,796 $ 83,752 $ 202,919 $1,633,467
========== ======= ========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable and other short
term obligations............... $ 13,427 $ -- $ 13,427 $ -- $ -- $ 13,427
Intercompany borrowings.......... -- -- -- 24,211 (24,211)(i) --
Current maturities of long-term
debt and capital leases........ 5,898 -- 5,898 -- -- 5,898
Accounts payable................. 115,534 -- 115,534 15,619 -- 131,153
Accrued expenses and taxes,
net............................ 126,345 -- 126,345 14,491 1,365(j) 142,201
---------- ------- ---------- ---------- --------- ----------
Total current
liabilities............ 261,204 -- 261,204 54,321 (22,846) 292,679
Other long term liabilities...... 64,152 -- 64,152 45,950 -- 110,102
Notes, mortgages, capital leases
and obligations payable less
current maturities............. 833,459 -- 833,459 -- 209,246(k) 1,042,705
Long-term intercompany
borrowings..................... -- -- -- 131,000 (131,000)(l) --
Preferred stock.................. -- -- -- -- -- --
Common stock..................... 16,213 2,183(m) 18,396 -- -- 18,396
Special common stock............. 865 -- 865 -- -- 865
Additional paid in capital....... 136,736 62,107(n) 198,843 -- -- 198,843
Retained earnings (deficit)...... 60,266 -- 60,266 -- -- 60,266
Cumulative translation, pension
and other...................... (6,033) -- (6,033) -- -- (6,033)
Treasury stock-common............ (82,399) -- (82,399) -- -- (82,399)
Treasury stock-special common.... (1,957) -- (1,957) -- -- (1,957)
---------- ------- ---------- ---------- --------- ----------
Total stockholders'
investment............. 123,691 64,290 187,981 (147,519) 147,519(o) 187,981
---------- ------- ---------- ---------- --------- ----------
Total liabilities and
stockholders'
investment......... $1,282,506 $64,290 $1,346,796 $ 83,752 $ 202,919 $1,633,467
========== ======= ========== ========== ========= ==========
</TABLE>
See Notes to the Unaudited As Adjusted and Pro Forma
Consolidated Balance Sheet
17
<PAGE> 19
NOTES TO THE UNAUDITED AS ADJUSTED AND
PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 4, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
COMMON STOCK PRO FORMA
OFFERING ADJUSTMENTS
------------ -----------
<S> <C> <C>
(a) CASH AND CASH EQUIVALENTS
Net proceeds from the Common Stock Offering................. $64,290 $ --
=======
Cash payment related to the NuTone Acquisition.............. (242,500)
Fees, expenses and other costs related to the NuTone
Acquisition and the 8 7/8% Notes.......................... (12,004)
---------
(254,504)
---------
Less gross proceeds from the 8 7/8% Notes................... 209,246
---------
A portion of the cash proceeds from the Common Stock
Offering, used to partially fund the NuTone Acquisition... $ (45,258)
=========
(b) INVENTORIES, NET
Increase in inventories to estimated fair market value in
connection with the NuTone Acquisition.................... $ 23,627
=========
(c) PREPAID INCOME TAXES
Prepaid income taxes related to the NuTone Acquisition...... $ (8,905)
=========
(d) PROPERTY, PLANT AND EQUIPMENT, NET
Increase in property, plant and equipment to estimated
fair market value in connection with the NuTone
Acquisition............................................... $ 3,978
=========
(e) GOODWILL
Additional costs in excess of net assets acquired in
connection with the NuTone Acquisition.................... $ 202,064
=========
(f) INTANGIBLE ASSETS
Increase in intangible assets to estimated fair market
value in connection with the NuTone Acquisition........... $ 37,500
=========
(g) DEFERRED INCOME TAXES
Deferred income taxes related to the NuTone Acquisition..... $ (16,591)
=========
(h) DEFERRED DEBT EXPENSE
Financing costs related to the 8 7/8% Notes................. $ 6,504
=========
(i) INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the NuTone Acquisition............................... $ (24,211)
=========
(j) ACCRUED EXPENSES AND TAXES, NET
Increase in accrued expenses to estimated fair market
value in connection with the NuTone Acquisition........... $ 1,365
=========
(k) NOTES, MORTGAGES, CAPITAL LEASES AND OBLIGATIONS PAYABLE
LESS CURRENT MATURITIES
Issuance of the 8 7/8% Notes................................ $ 209,246
=========
(l) LONG-TERM INTERCOMPANY BORROWINGS
Eliminate intercompany borrowings not assumed in connection
with the NuTone Acquisition............................... $(131,000)
=========
(m) COMMON STOCK
Sale of 2,182,500 shares of Common Stock, $1.00 par value
per share................................................. $ 2,183
=======
(n) ADDITIONAL PAID-IN CAPITAL
Additional paid-in capital related to the Common Stock
Offering.................................................. $62,107
=======
(o) TOTAL STOCKHOLDERS' INVESTMENT
Eliminate NuTone's stockholders' deficit in connection with
the NuTone Acquisition.................................... $ 147,519
=========
</TABLE>
18
<PAGE> 20
UNAUDITED PRO FORMA (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK
AND NUTONE PRO FORMA PRO FORMA
PLY GEM HISTORICAL ADJUSTMENTS COMPANY
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales....................... $1,650,052 $199,072 $ -- $1,849,124
Cost and expenses:
Cost of products sold....... 1,248,101 122,897 (1,596)(b) 1,369,402
Amortization of goodwill
and intangible assets..... 10,925 -- 7,016(c) 17,941
Selling, general and
administrative expense.... 307,689 51,387 (1,746)(d) 357,330
---------- -------- ------- ----------
1,566,715 174,284 3,674 1,744,673
---------- -------- ------- ----------
Operating earnings (loss)....... 83,337 24,788 (3,674) 104,451
Interest expense................ (77,753) (11,852) (7,483)(e) (97,088)
Investment income............... 7,489 42 -- 7,531
---------- -------- ------- ----------
Earnings (loss) from continuing
operations before provision
(benefit) for income taxes.... 13,073 12,978 (11,157) 14,894
Provision (benefit) for income
taxes......................... 7,391 5,043 (2,551)(f) 9,883
---------- -------- ------- ----------
Earnings (loss) from continuing
operations.................... $ 5,682 $ 7,935 $(8,606) $ 5,011
========== ======== ======= ==========
EARNINGS PER SHARE AS
ADJUSTED FOR THE COMMON STOCK
OFFERING:
Earnings from continuing
operations:
Basic....................... $ .48 $ .43
Diluted..................... .47 .42
Weighted average number of
shares:
Basic....................... 11,788 11,788
Diluted..................... 12,038 12,038
</TABLE>
See Notes to the Unaudited Pro Forma (For Ply Gem and
Nutone) Condensed Consolidated Statement of Operations
19
<PAGE> 21
UNAUDITED PRO FORMA (FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NORTEK NUTONE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales....................... $ 392,468 $ 49,564 $ -- $ 442,032
Cost and expenses:
Cost of products sold....... 294,320 31,811 (380)(b) 325,751
Amortization of goodwill
and intangible assets..... 2,894 -- 1,754(c) 4,648
Selling, general and
administrative expense.... 75,561 13,561 (482)(d) 88,640
---------- -------- ------- ----------
372,775 45,372 892 419,039
---------- -------- ------- ----------
Operating earnings (loss)....... 19,693 4,192 (892) 22,993
Interest expense................ (19,458) (3,060) (1,774)(e) (24,292)
Investment income............... 2,265 18 -- 2,283
---------- -------- ------- ----------
Earnings (loss) from continuing
operations before provision
for income taxes.............. 2,500 1,150 (2,666) 984
Provision for income taxes...... 1,200 460 (1,199)(f) 461
---------- -------- ------- ----------
Earnings (loss) from continuing
operations.................... $ 1,300 $ 690 $(1,467) $ 523
========== ======== ======= ==========
HISTORICAL EARNINGS PER SHARE:
Earnings from continuing
operations:
Basic......................... $ .14
Diluted....................... .13
Weighted average number of
shares:
Basic......................... 9,540
Diluted....................... 9,710
EARNINGS (LOSS) PER SHARE AS
ADJUSTED FOR THE COMMON STOCK
OFFERING:
Earnings (loss) from continuing
operations:
Basic....................... $ .11 $ .04
Diluted..................... .11 .04
Weighted average number of
shares:
Basic....................... 11,723 11,723
Diluted..................... 11,893 11,893
</TABLE>
See Notes to the Unaudited Pro Forma (For Ply Gem and
NuTone) Condensed Consolidated Statement of Operations
20
<PAGE> 22
NOTES TO THE UNAUDITED PRO FORMA
(FOR PLY GEM AND NUTONE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 APRIL 4, 1998
----------------- -------------
<S> <C> <C>
(a) NUTONE HISTORICAL
The Company acquired NuTone on July 31, 1998. The Pro Forma
results for the year ended December 31, 1997 and
the three months ended April 4, 1998 include the
actual historical results of NuTone for such periods.
(b) COST OF PRODUCTS SOLD
The effect on depreciation expense of changing the estimated
future lives and increasing the estimated fair value of
property, plant and equipment:
Depreciation expense based on NuTone's historical estimated
lives of property, plant and equipment...................... $ (4,056) $ (1,014)
Depreciation expense based on revised estimated lives of
property, plant and equipment............................... 1,821 455
-------- --------
The net effect of changing estimated lives of property,
plant and equipment....................................... (2,235) (559)
The effect on depreciation expense of increasing the
estimated fair value of property, plant and equipment..... 639 179
-------- --------
$ (1,596) $ (380)
======== ========
(c) AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets related to the
NuTone Acquisition.......................................... $ 7,016 $ 1,754
======== ========
(d) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Elimination of management fees and other charges paid by
NuTone to Williams plc and related entities, net of
estimated incremental Nortek management costs including
approximately $150 of annual estimated general corporate
overhead expenses. The Company believes that net sales
and expenses of NuTone would not have materially changed
without William's management services....................... $ (1,746) $ (482)
======== ========
(e) INTEREST EXPENSE
Interest expense related to the 8 7/8% Notes.................. $(18,637) $ (4,659)
Amortization of debt issuance costs related to the
8 7/8% Notes................................................ (649) (162)
Amortization of debt discount related to the 8 7/8% Notes..... (49) (13)
Reduction of interest expense related to intercompany
borrowings not assumed in the NuTone Acquisition............ 11,852 3,060
-------- --------
$ (7,483) $ (1,774)
======== ========
(f) PROVISION (BENEFIT) FOR INCOME TAXES
Income tax benefit related to notes (b) through (e) above
excluding goodwill amortization............................. $ (2,551) $ (1,199)
======== ========
</TABLE>
21
<PAGE> 23
UNAUDITED PRO FORMA (FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NORTEK PLY GEM PRO FORMA NORTEK AND
HISTORICAL HISTORICAL(a) ADJUSTMENTS PLY GEM
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales................... $1,134,129 $515,923 $ -- $1,650,052
Cost and expenses:
Cost of products sold... 825,805 423,596 (1,300)(b) 1,248,101
Amortization of goodwill
and intangible assets. 5,967 976 3,982 (c) 10,925
Selling, general and
administrative
expense............... 219,376 91,263 (2,950)(d) 307,689
---------- -------- -------- ----------
1,051,148 515,835 (268) 1,566,715
---------- -------- -------- ----------
Operating earnings (loss)... 82,981 88 268 83,337
Interest expense............ (50,210) (5,696) (21,847)(e) (77,753)
Investment income........... 9,929 302 (2,742)(f) 7,489
---------- -------- -------- ----------
Earnings (loss) from
continuing operations
before provision (benefit)
for income taxes.......... 42,700 (5,306) (24,321) 13,073
Provision (benefit) for
income taxes.............. 16,300 (1,984) (6,925)(g) 7,391
---------- -------- -------- ----------
Earnings (loss) from
continuing operations..... $ 26,400 $ (3,322) $(17,396) $ 5,682
========== ======== ======== ==========
HISTORICAL EARNINGS PER SHARE:
Earnings from continuing
Operations:
Basic.................. $ 2.75
Diluted................ $ 2.68
Weighted average number of
shares:
Basic.................. 9,605
Diluted................ 9,855
EARNINGS (LOSS) PER SHARE AS
ADJUSTED FOR THE COMMON
STOCK OFFERING:
Earnings (loss) from
continuing operations:
Basic................... $ 2.24 $ .48
Diluted................. 2.19 .47
Weighted average number of
shares:
Basic................... 11,788 11,788
Diluted................. 12,038 12,038
</TABLE>
See Notes to the Unaudited Pro Forma (For Ply Gem)
Condensed Consolidated Statement of Operations
22
<PAGE> 24
NOTES TO THE UNAUDITED PRO FORMA
(FOR PLY GEM)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
(a) PLY GEM HISTORICAL
Amounts for the year ended December 31, 1997 include the
unaudited results of Ply Gem for the period from January
1, 1997 to August 25, 1997.
(b) COST OF PRODUCTS SOLD
The effect on depreciation expense of changing the estimated
future lives and increasing the estimated fair value
of property, plant and equipment:
Depreciation expense based on Ply Gem's historical estimated
lives of property, plant and equipment.................... $(13,600)
Depreciation expense based on revised estimated lives of
property, plant and equipment............................. 9,500
The net effect of changing estimated lives of property, --------
plant and equipment................................... (4,100)
The effect on depreciation expense of increasing the
estimated fair value of property, plant and equipment. 2,800
--------
$ (1,300)
========
(c) AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets related
to the Ply Gem Acquisition................................ $ 4,958
Reduction of Ply Gem's goodwill amortization.............. (976)
--------
3,982
========
(d) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Reduction of intangible amortization included in Ply Gem's
selling, general and administrative expense............... $ (920)
Decrease due to termination and repurchase of amounts
outstanding under Ply Gem's accounts receivable
securitization program.................................... (2,030)
--------
$ (2,950)
========
(e) INTEREST EXPENSE
Interest expense related to the 9 1/4% Notes................ $ (3,438)
Amortization of related debt issuance costs of the 9 1/4%
Notes..................................................... (66)
Reduction of interest expense related to debt refinanced
with a portion of the proceeds from the 9 1/4% Notes...... 1,143
Interest expense related to the 9 1/8% Notes................ (18,495)
Amortization of related debt discount and issuance costs of
the 9 1/8% Notes.......................................... (771)
Interest expense at an assumed average rate of 6.85% on
indebtedness outstanding under the Ply Gem Credit
Facility including approximately $2,201 of interest expense
related to incremental debt incurred to repurchase
accounts receivable under Ply Gem's accounts receivable
securitization program.................................... (4,971)
Reduction in interest expense related to the refinancing of
Ply Gem indebtedness at the date of the Ply Gem
Acquisition............................................... 4,751
--------
$(21,847)
========
(f) INVESTMENT INCOME
Reduction in interest income on marketable securities sold
to fund the Ply Gem Acquisition and related
transactions.............................................. $ (2,742)
========
(g) PROVISION (BENEFIT) FOR INCOME TAXES
Net benefit for income taxes related to notes (b), (d), (e)
and (f) above............................................. $ (6,925)
========
</TABLE>
23
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf of the
undersigned hereunto duly authorized.
NORTEK, INC.
Date: June 16, 1999 By: /s/ Almon C. Hall
---------------------------
Almon C. Hall
Vice President - Controller
24
<PAGE> 1
EXHIBIT 23.1
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 8-K/A Amendment No. 1, and to the
incorporation by reference in the registration statements of Nortek, Inc. on
Form S-8 (File No.'s 33-22527, 33-47897 and 333-39293), of our report, which
includes an explanatory paragraph disclosing the Company has not utilized "push
down" accounting in accordance with generally accepted accounting principles, as
established by the Securities and Exchange Commission for public companies,
dated February 20, 1998, on our audit of the consolidated financial statements
of NuTone Inc. and Subsidiary as of December 31, 1997, and for the year then
ended.
/s/ PricewaterhouseCoopers LLP
Cincinnnati, Ohio
June 16, 1999
