-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O/QWCxpay0JCJE1gqmsHUdHJuHUy8pnmO8nbkaIpdADzKClXB0AHwbzOz70QU4eH 0+TpQ28sUwONUHA0l/kK8A== /in/edgar/work/20000811/0000072423-00-000025/0000072423-00-000025.txt : 20000921 0000072423-00-000025.hdr.sgml : 20000921 ACCESSION NUMBER: 0000072423-00-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTEK INC CENTRAL INDEX KEY: 0000072423 STANDARD INDUSTRIAL CLASSIFICATION: [3585 ] IRS NUMBER: 050314991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06112 FILM NUMBER: 694146 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLZ CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4017511600 MAIL ADDRESS: STREET 1: 50 KENNEDY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _____________________ Commission File No. 1-6112 - ----------------------------------------------------------------------------- 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 August 4, 2000 was 10,371,147. The number of shares of Special Common Stock outstanding as of August 4, 2000 was 541,145. 1 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar amounts in thousands) July 1, Dec. 31, 2000 1999 ---------- ---------- (Unaudited) Assets Current Assets: Unrestricted Cash and cash equivalents $ 84,743 $ 80,893 Marketable securities available for sale --- 34,219 Restricted Investments and marketable securities at cost, which approximates market 22,095 11,240 Accounts receivable, less allowances of $11,866,000 and $13,019,000 311,248 243,763 Inventories: Raw materials 99,013 89,581 Work in process 21,980 20,844 Finished goods 128,466 102,253 ---------- ---------- 249,459 212,678 ---------- ---------- Prepaid expenses 17,171 11,864 Other current assets 11,762 16,787 Prepaid income taxes 67,300 66,824 ---------- ---------- Total current assets 763,778 678,268 ---------- ---------- Property and Equipment, at Cost: Land 17,049 16,270 Buildings and improvements 126,278 127,736 Machinery and equipment 360,312 348,445 ---------- ---------- 503,639 492,451 Less accumulated depreciation 181,080 163,834 ---------- ---------- Total property and equipment, net 322,559 328,617 ---------- ---------- Other Assets: Goodwill, less accumulated amortization of $65,059,000 and $56,942,000 582,591 589,532 Intangible assets, less accumulated amortization of $18,959,000 and $15,956,000 128,476 133,040 Deferred debt expense 20,422 22,068 Restricted investments and marketable securities 20,053 15,677 Other 43,638 42,482 ---------- ---------- 795,180 802,799 ---------- ---------- $1,881,517 $1,809,684 ========== ========== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Dollar amounts in thousands) (Continued) July 1, Dec. 31, 2000 1999 ---------- ---------- (Unaudited) Liabilities and Stockholders' Investment Current Liabilities: Notes payable and other short-term obligations $ 8,286 $ 8,476 Current maturities of long-term debt 5,515 5,564 Accounts payable 190,090 149,772 Accrued expenses and taxes, net 207,239 189,964 ---------- ---------- Total current liabilities 411,130 353,776 ---------- ---------- Other Liabilities Deferred income taxes 73,755 73,499 Other 101,201 98,976 ---------- ---------- 174,956 172,475 ---------- ---------- Notes, Mortgage Notes and Obligations Payable, Less Current Maturities 1,017,657 1,023,616 Stockholders' Investment: Preference stock, $1 par value; authorized 7,000,000 shares, none issued --- --- Common stock, $1 par value; authorized 40,000,000 shares; 18,744,638 and 18,738,292 shares issued 18,744 18,738 Special common stock, $1 par value; authorized 5,000,000 shares; 835,590 and 840,436 shares issued 836 841 Additional paid-in capital 208,808 208,755 Retained earnings 166,366 143,266 Accumulated other comprehensive loss (14,277) (11,822) Less --treasury common stock at cost, 7,929,630 and 7,793,217 shares (100,635) (97,894) --treasury special common stock at cost, 290,106 and 290,054 shares (2,068) (2,067) ---------- ---------- Total stockholders' investment 277,774 259,817 ---------- ---------- $1,881,517 $1,809,684 ========== ========== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except per share amounts) For The Three Months Ended ------------------------ July 1, July 3, 2000 1999 ---- ---- (Unaudited) Net Sales $603,943 $544,088 -------- -------- Costs and Expenses: Cost of products sold 437,921 384,971 Selling, general and administrative expense 103,052 95,842 Amortization of goodwill and intangible assets 5,653 5,055 -------- -------- 546,626 485,868 -------- -------- Operating earnings 57,317 58,220 Interest expense (24,284) (24,373) Investment income 1,467 1,653 -------- -------- Earnings before provision for income taxes 34,500 35,500 Provision for income taxes 15,400 15,700 -------- -------- Net Earnings $ 19,100 $ 19,800 ======== ======== Net Earnings per share of common stock: Basic $1.68 $1.67 ===== ===== Diluted $1.67 $1.64 ===== ===== Weighted Average Number of Shares: Basic 11,388 11,850 ====== ====== Diluted 11,428 12,051 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except per share amounts) For The Six Months Ended -------------------------- July 1, July 3, 2000 1999 ---- ---- (Unaudited) Net Sales $1,095,450 $950,788 ---------- -------- Costs and Expenses: Cost of products sold 796,139 681,887 Selling, general and administrative expense 200,789 173,225 Amortization of goodwill and intangible assets 11,405 9,839 ---------- -------- 1,008,333 864,951 ---------- --------- Operating earnings 87,117 85,837 Interest expense (48,594) (48,339) Investment income 3,377 4,502 ---------- -------- Earnings before provision for income taxes 41,900 42,000 Provision for income taxes 18,800 18,700 ---------- -------- Net Earnings $ 23,100 $ 23,300 ========== ======== Net Earnings per share of common stock: Basic $2.02 $1.97 ===== ===== Diluted $2.01 $1.94 ===== ===== Weighted Average Number of Shares: Basic 11,436 11,798 ====== ====== Diluted 11,488 11,988 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in thousands) For the Six Months Ended ---------------------- July 1, July 3, 2000 1999 ---- ---- (Unaudited) Cash Flows from operating activities: Net earnings $ 23,100 $ 23,300 -------- -------- Adjustments to reconcile net earnings to cash: Depreciation and amortization expense 30,953 26,812 Non-cash interest expense 1,986 1,832 Gain on sale of land (1,712) --- Changes in certain assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable, net (69,101) (63,527) Prepaids and other current assets (1,781) 2,973 Inventories (36,454) (29,060) Accounts payable 41,517 43,503 Accrued expenses and taxes 16,545 9,118 Long-term assets, liabilities and other, net (1,033) (1,659) --------- -------- Total adjustments to net earnings (19,080) (10,008) --------- -------- Net cash provided by operating activities $ 4,020 $ 13,292 -------- -------- The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in thousands) (Continued) For the Six Months Ended ----------------------- July 1, July 3, 2000 1999 ---- ---- (Unaudited) Cash Flows from investing activities: Capital expenditures $(14,300) $(25,349) Net cash paid for businesses acquired --- (86,571) Purchase of investments and marketable securities (4,004) (54,310) Proceeds from the sale of investments and marketable securities 38,439 145,538 Proceeds from the sale of fixed assets 5,361 380 Acquisition deposit held in escrow (10,628) --- Change in restricted cash and (4,061) 3,798 investments Other, net (2,643) (5,953) -------- -------- Net cash provided by (used in) investing activities 8,164 (22,467) -------- -------- Cash Flows from financing activities: Payment of borrowings, net (5,669) (2,734) Purchase of Nortek Common and Special Common Stock (2,671) (3,770) Other, net 6 (54) -------- -------- Net cash used in financing activities (8,334) (6,558) -------- -------- Net increase (decrease) in unrestricted cash and cash equivalents 3,850 (15,733) Unrestricted cash and cash equivalents at the beginning of the period 80,893 87,876 -------- -------- Unrestricted cash and cash equivalents at the end of the period $ 84,743 $ 72,143 ======== ======== Interest paid $ 46,509 $ 45,992 ======== ======== Income taxes paid, net $ 3,292 $ 7,736 ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT FOR THE THREE MONTHS ENDED JULY 3, 1999
Addi- Accumulated Special tional Other Common Common Paid in Retained Treasury Comprehensive Comprehensive Stock Stock Capital Earnings Stock Income(Loss) Income(Loss) ------------------------------------------------------------------------------- (Dollar amounts in thousands) (Unaudited) Balance, April 3, 1999 $18,680 $849 $207,796 $97,466 $(88,059) $(12,592) $ --- Net earnings --- --- --- 19,800 --- --- 19,800 Other comprehensive income(loss): Currency translation adjustment --- --- --- --- --- (941) (941) Unrealized increase in the value of market- able securities --- --- --- --- --- 25 25 ------- Comprehensive income $18,884 ======= 2,893 shares of special common stock converted into 2,893 shares of common stock 3 (3) --- --- --- --- 9,750 shares of common stock issued upon exercise of stock options 9 --- 61 --- --- --- 50,742 shares of treasury stock acquired --- --- --- --- (1,380) --- ------- ---- -------- -------- -------- -------- Balance, July 3, 1999 $18,692 $846 $207,857 $117,266 $(89,439) $(13,508) ======= ==== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT FOR THE THREE MONTHS ENDED JULY 1, 2000
Addi- Accumulated Special tional Other Common Common Paid in Retained Treasury Comprehensive Comprehensive Stock Stock Capital Earnings Stock Loss Income(Loss) - ------------------------------------------------------------------------------------------------------- (Dollar amounts in thousands) (Unaudited) Balance, April 1, 2000 $18,740 $840 $208,808 $147,266 $(100,998) $(13,027) $ --- Net earnings --- --- --- 19,100 --- --- 19,100 Other comprehensive income(loss): Currency translation adjustment --- --- --- --- --- (1,150) (1,150) Unrealized decrease in the value of market- able securities --- --- --- --- --- (100) (100) ------- Comprehensive income $17,850 ======= 4,121 shares of special common stock converted into 4,121 Shares of common stock 4 (4) --- --- --- --- 85,452 shares of treasury stock acquired --- --- --- --- (1,705) --- ------- ---- -------- -------- -------- -------- Balance, July 1, 2000 $18,744 $836 $208,808 $166,366 $(102,703) $(14,277) ======= ==== ======== ======== ========= ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 9 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT FOR THE SIX MONTHS ENDED JULY 3, 1999
Addi- Accumulated Special tional Other Common Common Paid in Retained Treasury Comprehensive Comprehensive Stock Stock Capital Earnings Stock Income(Loss) Income(Loss) - --------------------------------------------------------------------------------------------------- (Dollar amounts in thousands) (Unaudited) Balance, December 31, 1998 $18,428 $855 $201,626 $93,966 $(85,669) $(11,596) $ --- Net earnings --- --- --- 23,300 --- --- 23,300 Other comprehensive income(loss): Currency translation adjustment --- --- --- --- --- (2,149) (2,149) Unrealized increase in the value of market- able securities --- --- --- --- --- 237 237 ------- Comprehensive income $21,388 ======= 9,175 shares of special common stock converted into 9,175 Shares of common stock 9 (9) --- --- --- --- 20,615 shares of common Stock issued upon exercise of stock options 20 --- 151 --- --- --- 140,250 shares of treasury stock acquired --- --- --- --- (3,770) --- 235,000 shares of common stock issued as partial consideration for an acquisition 235 --- 6,080 --- --- --- ------- ---- -------- -------- -------- -------- Balance, July 3, 1999 $18,692 $846 $207,857 $117,266 $(89,439) $(13,508) ======= ==== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 10 NORTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT FOR THE SIX MONTHS ENDED JULY 1, 2000
Addi- Accumulated Special tional Other Common Common Paid in Retained Treasury Comprehensive Comprehensive Stock Stock Capital Earnings Stock Loss Income(Loss) - ------------------------------------------------------------------------------------------------------ (Dollar amounts in thousands) (Unaudited) Balance, December 31, 1999 $18,738 $841 $208,755 $143,266 $(99,961) $(11,822) $ --- Net earnings --- --- --- 23,100 --- --- 23,100 Other comprehensive income(loss): Currency translation adjustment --- --- --- --- --- (2,310) (2,310) Unrealized decrease in the value of market- able securities --- --- --- --- --- (145) (145) ------- Comprehensive income $20,645 ======= 4,846 shares of special common stock converted into 4,846 shares of common stock 5 (5) --- --- --- --- 1,500 shares of common stock issued upon exercise of stock options 1 --- 53 --- --- --- 136,465 shares of treasury stock acquired --- --- --- --- (2,742) --- ------- ---- -------- -------- -------- -------- Balance, July 1, 2000 $18,744 $836 $208,808 $166,366 $(102,703) $(14,277) ======= ==== ======== ======== ========= ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 11 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 AND JULY 3, 1999 (A) The unaudited condensed consolidated financial statements (the "Unaudited Financial Statements") presented have been prepared by Nortek, Inc. and include the accounts of Nortek, Inc., and all of its significant 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. Although certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted, the Company believes that the disclosures included are adequate to make the information presented not misleading. 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 as filed with the Securities and Exchange Commission. (B) Acquisitions are accounted for as purchases and, accordingly, have been included in the Company's consolidated results of operations since the acquisition date. Purchase price allocations are subject to refinement until all pertinent information regarding the acquisitions is obtained. (C) On July 3, 2000, the Company acquired Eaton-Williams Holdings Limited ("Eaton-Williams"), of Edenbridge, England. Eaton-Williams designs, manufactures, installs and services a leading range of custom-made and standard air conditioning and humidification equipment. For its fiscal year ended April 2, 2000, Eaton-Williams reported sales of approximately (pound)27,000,000 ($41,000,000). At July 1, 2000, approximately $10,600,000 was included in restricted investments and marketable securities, in the Company's accompanying Unaudited Condensed Consolidated Balance Sheet, and was held in escrow until July 3, 2000 when it was used to fund the acquisition of Eaton-Williams. (D) The Company's Board of Directors has authorized a number of programs to purchase shares of the Company's Common and Special Common Stock. The most recent of these programs was announced on May 4, 2000, and allows the Company to purchase up to 1,000,000 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 August 4, 2000, the Company has purchased approximately 460,700 shares of its Common and Special Common Stock under this program for approximately $9,200,000 and accounted for such share purchases as Treasury Stock. 12 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 AND JULY 3, 1999 (Continued) At August 4, 2000 approximately $90,700,000 was available for the payment of cash dividends, stock purchases or other restricted payments as defined under the terms of the Company's most restrictive Indenture. (E) Basic earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each period. Special Common Stock is treated as the equivalent of Common Stock in determining earnings per share results. Diluted earnings per share amounts have been computed using the weighted average number of common and common equivalent shares and the dilutive potential common and special common shares outstanding during each period. A reconciliation between basic and diluted earnings per share from continuing operations is as follows:
Three Six Months Ended Months Ended July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands except per share amounts) Net earnings $19,100 $19,800 $23,100 $23,300 Basic EPS: Basic common shares 11,388 11,850 11,436 11,798 ======= ======= ======= ======= Basic EPS $1.68 $1.67 $2.02 $1.97 ===== ===== ===== ===== Diluted EPS: Basic common shares 11,388 11,850 11,436 11,798 Plus: Impact of stock options 40 201 52 190 ------- ------- ------- ------- Diluted common shares 11,428 12,051 11,488 11,988 ======= ======= ======= ======= Diluted EPS $1.67 $1.64 $2.01 $1.94 ===== ===== ===== =====
(F) In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133 - Amendment of SFAS No. 133" (combined "SFAS 133"). SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting 13 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 AND JULY 3, 1999 (Continued) criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 2000. A company may also implement SFAS 133 as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1999 and thereafter). SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company is in the process of quantifying the impacts of adopting SFAS 133 on its financial statements and has not determined the timing of or method of adoption of SFAS 133. (G) The Securities and Exchange Commission released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), on December 3, 1999. This SAB provides additional guidance on the accounting for revenue recognition including both broad conceptual discussions as well as certain industry-specific guidance. The Company is reviewing with its subsidiaries the potential impact of this new guidance, if any. (H) The Company has three reportable segments: the Residential Building Products Segment; the Air Conditioning and Heating Products Segment; and the Windows, Doors and Siding Products Segment. In the tables below, Other includes corporate related items, results of insignificant operations, intersegment eliminations and certain income and expense items not allocated to reportable segments. The Company evaluates segment performance based on operating earnings before allocations of corporate overhead costs. The income statement impact of all purchase accounting adjustments, including goodwill and intangible assets amortization, is included in the operating earnings of the applicable segment. Intersegment net sales and eliminations were not material for any of the periods presented. Summarized financial information for the Company's reportable segments is presented in the tables that follow for the three months and six months ended July 1, 2000 and July 3, 1999. 14 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 AND JULY 3, 1999 (Continued)
Three Six Months Ended Months Ended July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ---- ---- ---- ---- (Amounts in thousands) Net Sales: Residential building products $166,199 $161,074 $ 338,161 $315,368 Air conditioning and heating products 179,641 157,312 307,287 273,746 Windows, doors and siding products 239,466 205,540 412,014 322,971 Other 18,637 20,162 37,988 38,703 -------- -------- ---------- -------- $603,943 $544,088 $1,095,450 $950,788 ======== ======== ========== ======== Operating Earnings (Loss): Residential building products $23,308 $23,434 $ 48,374 $42,581 Air conditioning and heating products 24,212 19,540 36,866 31,255 Windows, doors and siding products 15,787 21,370 11,234 21,151 Other, net (5,990) (6,124) (9,357) (9,150) ------- ------- ------- ------- $57,317 $58,220 $ 87,117 $85,837 Unallocated: Interest expense (24,284) (24,373) (48,594) (48,339) Investment income 1,467 1,653 3,377 4,502 ------- ------- ---------- ------- Earnings before provision for income taxes $34,500 $35,500 $ 41,900 $42,000 ======= ======= ========== =======
Three Six Months Ended Months Ended July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ---- ---- ---- ---- (Amounts in thousands) Depreciation and Amortization: Residential building products $ 5,284 $ 5,038 $ 10,843 $10,060 Air conditioning and heating Products 3,017 2,627 6,014 5,212 Windows, doors and siding Products 6,731 5,609 13,345 10,558 Other 366 497 751 982 ------- ------- ---------- ------- $15,398 $13,771 $ 30,953 $26,812 ======= ======= ========== =======
15 NORTEK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 AND JULY 3, 1999 (Continued) (I) The Company has recorded liabilities in connection with acquisitions related to employee terminations and other exit costs associated with management's plans to eliminate certain activities of acquired entities. The Company recorded no liabilities in the three months and approximately $2,200,000 in the six months ended July 1, 2000, which principally relate to the termination of certain employees. As of July 1, 2000, plans for eliminating certain activities of all acquisitions entered into through July 1, 2000 have been finalized for all significant acquisitions. Charges to these liabilities for employee termination costs include payroll, payroll taxes and insurance benefits related to severance arrangements and were approximately $450,000 and $900,000 for the three months and six months ended July 1, 2000, respectively. Charges to the liabilities for other exit costs relate principally to lease costs and other costs of closing facilities and legal and consulting fees that were incurred due to the implementation of the Company's exit strategies. Charges to the liabilities for other exit costs were approximately $500,000 and $560,000 for the three months and six months ended July 1, 2000, respectively. At July 1, 2000, liabilities in connection with acquisitions related to employee terminations and other exit costs totaled approximately $3,600,000. (J) In the second quarter of 2000, the Company sold a parcel of land resulting in a pre-tax gain of approximately $1,700,000 ($.10 net after tax per share) which is included in operating earnings. 16 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 The Company is a diversified manufacturer of residential and commercial building products, operating within three principal segments: the Residential Building Products Segment, the Air Conditioning and Heating Products Segment, and the Windows, Doors and Siding Products Segment. In the results of operations presented below, Other includes corporate related items, results of insignificant operations and certain income and expenses not allocable to reportable segments. Through its principal segments, 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, the do-it-yourself ("DIY") and professional remodeling and renovation markets. (As used in this report, the terms "Company" and "Nortek" refer to Nortek, Inc., together with its subsidiaries, unless the context indicates otherwise. Such terms as "Company" and "Nortek" are used for convenience only and are not intended as a precise description of any of the separate corporations, each of which manages its own affairs.) The Residential Building Products Segment manufactures and distributes built-in products primarily for the residential new construction, DIY and professional remodeling and renovation markets. The principal products sold by the Segment include, kitchen range hoods, bath fans and combination units (fan, heater and light combinations). The Air Conditioning and Heating Products Segment manufactures and sells heating, ventilating, and air conditioning systems ("HVAC") for custom-designed commercial applications and for manufactured and site-built residential housing. The Windows, Doors and Siding Products Segment principally manufactures and distributes vinyl, wood and composite windows; vinyl, wood, steel and composite patio and entry doors; vinyl siding, skirting, soffit and accessories; aluminum trim coil, siding, soffit and accessories; blocks, vents, shutters, sunrooms, fencing, railing and decking for use in the residential construction, DIY and professional renovation markets. The Company acquired Webco, Inc. ("Webco") on March 8, 1999. On April 23, 1999, the Company acquired three businesses from Caradon plc of the United Kingdom: Peachtree Windows and Doors, Thermal-Gard and CWD Windows and Doors (the "Caradon Acquired Companies"). Other 1999 acquisitions included Multiplex Technologies, Inc. ("Multiplex") on May 28, 1999, Kroy Building Products, Inc. ("Kroy") on September 9, 1999 and Xantech Corporation ("Xantech") on December 3, 1999. These acquisitions have been accounted for under the purchase method of accounting. Accordingly, the results of Webco, the Caradon Acquired Companies, Multiplex, Kroy and Xantech are included in the Company's consolidated results since the date of their acquisition. 17 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Results of Operations - --------------------- The tables that follow present the unaudited net sales and operating earnings for the Company's principal segments for the second quarter and six months ended July 1, 2000 and July 3, 1999, and the dollar amount and percentage change of such results as compared to the prior comparable period.
Change in Second Quarter Ended Second Quarter 2000 July 1, July 3, as Compared to 1999 2000 1999 $ % ---- ---- ----- ----- (Dollar amounts in thousands) Net Sales: Residential building products $166,199 $161,074 $ 5,125 3.2% Air conditioning and heating products 179,641 157,312 22,329 14.2 Windows, doors and siding products 239,466 205,540 33,926 16.5 Other 18,637 20,162 (1,525) (7.6) -------- -------- ------- $603,943 $544,088 $59,855 11.0% ======== ======== ======= Operating Earnings: - ------------------- Residential building products $23,308 $23,434 $ (126) (.5)% Air conditioning and heating products 24,212 19,540 4,672 23.9 Windows, doors and siding products 15,787 21,370 (5,583) (26.1) Other (5,990) (6,124) 134 2.2 ------- ------ ------- $57,317 $58,220 $ (903) (1.6)% ======= ======= =======
18 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued)
Change in Six Months Ended First Six Months 2000 July 1, July 3, as Compared to 1999 2000 1999 $ % ---- ---- ---- ---- (Dollar amounts in thousands) Net Sales: - ----------- Residential building products $ 338,161 $315,368 $ 22,793 7.2% Air conditioning and heating products 307,287 273,746 33,541 12.3 Windows, doors and siding products 412,014 322,971 89,043 27.6 Other 37,988 38,703 (715) (1.8) ---------- -------- ------- $1,095,450 $950,788 $144,662 15.2% ========== ======== ======== Operating Earnings: - ------------------- Residential building products $ 48,374 $ 42,581 $ 5,793 13.6% Air conditioning and heating products 36,866 31,255 5,611 18.0 Windows, doors and siding products 11,234 21,151 (9,917) (46.9) Other (9,357) (9,150) (207) (2.3) ---------- -------- -------- $ 87,117 $ 85,837 $ 1,280 1.5% ========== ======== ========
19 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) The tables that follow, set forth, for the periods presented, (a) certain unaudited 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 bear 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 and six months ended July 1, 2000 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 2000 July 1, July 3, as Compared to 1999 2000 1999 $ % ---- ---- ----- ----- (Dollar amounts in millions) Net sales $603.9 $544.1 $59.8 11.0% Cost of products sold 437.9 385.0 (52.9) (13.7) Selling, general and administrative expense 103.1 95.8 (7.3) (7.6) Amortization of goodwill and intangible assets 5.6 5.1 (.5) (9.8) ------ ------ ---- Operating earnings 57.3 58.2 (.9) (1.5) Interest expense (24.3) (24.4) .1 .4 Investment income 1.5 1.7 (.2) (11.8) ------ ------ ---- Earnings before provision for income taxes 34.5 35.5 (1.0) (2.8) Provision for income taxes 15.4 15.7 .3 1.9 ------ ------ ---- Net earnings $ 19.1 $ 19.8 (.7) (3.5)% ====== ====== ==== 20 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Change in Percentage of Net Sales Percentage Second Quarter Ended for the Second July 1, July 3, Quarter 2000 2000 1999 as Compared to 1999 -------- -------- -------- Net sales 100.0% 100.0% ---% Cost of products sold 72.5 70.8 (1.7) Selling, general and administrative expense 17.1 17.6 .5 Amortization of goodwill and intangible assets .9 .9 --- ----- ----- ---- Operating earnings 9.5 10.7 (1.2) Interest expense (4.0) (4.5) .5 Investment income .2 .3 (.1) ----- ----- ---- Earnings before provision for income taxes 5.7 6.5 (.8) Provision for income taxes 2.5 2.9 .4 ----- ----- ---- Net earnings 3.2% 3.6% (.4)% ===== ===== ==== Change in Six Months Ended First Six Months 2000 July 1, July 3, as Compared to 1999 2000 1999 $ % ---- ---- ----- ----- (Dollar amounts in millions) Net sales $1,095.4 $950.8 $144.6 15.2% Cost of products sold 796.1 681.9 (114.2) (16.7) Selling, general and administrative expense 200.8 173.3 (27.5) (15.9) Amortization of goodwill and intangible assets 11.4 9.8 (1.6) (16.3) -------- ------ ----- Operating earnings 87.1 85.8 1.3 1.5 Interest expense (48.6) (48.3) (.3) (.6) Investment income 3.4 4.5 (1.1) (24.4) -------- ------ ----- Earnings before provision for income taxes 41.9 42.0 (.1) (.2) Provision for income taxes 18.8 18.7 (.1) (.5) -------- ------ ----- Net earnings $ 23.1 $ 23.3 $ (.2) (.9)% ======== ====== ===== 21 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Change in Percentage of Net Sales Percentage Six Months Ended for the Six July 1, July 3, Months 2000 2000 1999 as Compared to 1999 -------- --------- ------------------ Net sales 100.0% 100.0% ---% Cost of products sold 72.7 71.7 (1.0) Selling, general and administrative expense 18.3 18.3 --- Amortization of goodwill and intangible assets 1.1 1.0 (.1) ----- ----- ---- Operating earnings 7.9 9.0 (1.1) Interest expense (4.4) (5.1) .7 Investment income .3 .5 (.2) ----- ----- ---- Earnings before provision for income taxes 3.8 4.4 (.6) Provision for income taxes 1.7 1.9 .2 ----- ----- ---- Net earnings 2.1% 2.5% (.4)% ===== ===== ==== Net sales increased approximately $59,800,000 or approximately 11.0% for the second quarter of 2000, as compared to 1999 (or increased approximately $61,800,000 or approximately 11.4% excluding the effect of changes in foreign exchange rates) and increased approximately $144,600,000 or approximately 15.2% for the first six months of 2000, as compared to 1999 (or increased approximately $148,500,000 or approximately 15.6% excluding the effect of changes in foreign exchange rates). Net sales increased for the second quarter and six months ended July 1, 2000 as compared to the second quarter and six months ended July 3, 1999 as a result of acquisitions, price increases and higher sales volume. Acquisitions contributed approximately $35,800,000 and $93,400,000 of the total increase in net sales for the second quarter and six months ended July 1, 2000, respectively. In the Residential Building Products Segment, net sales increased approximately $5,100,000 or approximately 3.2% (or approximately $7,100,000 excluding the effect of changes in foreign exchange rates) in the second quarter of 2000 as compared to 1999 and increased approximately $22,800,000 or approximately 7.2% (or approximately $26,700,000 excluding the effect of foreign exchange rates) in the first six months of 2000 as compared to 1999, principally as a result of approximately $5,400,000 and $14,800,000 of sales from acquisitions in the second quarter and first six months of 2000, respectively, and higher sales volume of kitchen range hoods and bath fans. In the Air Conditioning and Heating Products Segment, net sales 22 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) increased approximately $22,300,000 or 14.2% and $33,500,000 or 12.3% for the second quarter and first six months of 2000, respectively, as compared to 1999. The increase in net sales in this segment is principally as a result of higher sales volume of products sold to customers serving the residential site-built and commercial markets, partially offset by lower sales of products to customers serving the manufactured housing market, in line with the overall softness in business being experienced in the manufactured housing industry. Also, the 1999 acquisition of Webco contributed approximately $4,000,000 to the increase in net sales in the first six months of 2000 in this Segment. It is anticipated that the weakness in the manufactured housing industry will continue throughout the balance of the year and is expected to continue to have an adverse effect on this Segment's sales as compared to 1999. In the Windows, Doors and Siding Segment, net sales increased approximately $33,900,000 or 16.5% and $89,000,000 or 27.6% in the second quarter and first six months of 2000, respectively, principally as a result of 1999 acquisitions which contributed approximately $30,400,000 and $74,600,000 in the second quarter and first six months of 2000, respectively. The increase in net sales in this Segment in the second quarter and first six months of 2000 also resulted from increased sales prices and sales volume of vinyl siding and related products and accessories. Cost of products sold as a percentage of net sales increased from approximately 70.8% in the second quarter of 1999 to approximately 72.5% in the second quarter of 2000 and increased from approximately 71.7% in the first six months of 1999 to 72.7% in the first six months of 2000. These increases in the percentages principally resulted from the effect of higher vinyl resin cost, without a proportionate increase in sales prices and acquisitions in the Windows, Doors and Siding Products Segment (which have a higher cost of products sold as a percentage of net sales then the overall group of businesses owned prior to the acquisition). The rising cost of vinyl resin, as a result of rising petroleum prices, is expected to continue to adversely impact cost of sales percentages over the next several quarters. This situation, however, may be mitigated as cost reduction measures and price stabilization for this Segment's vinyl products are implemented. Also higher than anticipated costs during the second quarter and first six months of 2000 as a result of delays in the rationalization and relocation of some of NuTone's manufacturing operations into the Residential Building Products Segment was a factor in the increase in the percentages. These factors were partially offset by the effect of higher sales levels in the Residential Building Products (in the first six months) and the Air Conditioning and Heating Products Segments without a proportionate increase in costs, and reflects the effect of acquisitions in both segments which have a lower cost of products sold as a percentage of net sales than the overall group 23 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) of businesses owned prior to the acquisitions. 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, material costs and changes in productivity levels. Selling, general and administrative expense as a percentage of net sales decreased from approximately 17.6% in the second quarter of 1999 to approximately 17.1% and was unchanged at 18.3% for the first six months of 1999 and 2000. Selling, general and administrative expense was reduced by approximately $1,700,000 from the gain on the sale of land in the second quarter of 2000. Selling, general and administrative expense as a percentage of net sales, excluding the effect of the gain on the sale of land in the second quarter of 2000, decreased from approximately 17.6% in the second quarter of 1999 to approximately 17.4% in the second quarter of 2000 and increased from approximately 18.3% for the first six months of 1999 to approximately 18.5% in the first six months of 2000. The percentage decrease in the second quarter of 2000 is primarily due to an increase in sales without a proportionate increase in expense in the Residential Building Products and Air Conditioning and Heating Products segments. Overall, changes in the percentages for both periods were primarily effected by increased sales volume and sales prices without a proportionate increase in expense and, to a lesser extent, reflect the results of expense reduction measures implemented, including lower expense from the integration of certain acquisitions. Increases in the percentages, in both periods, occurred as a result of the 1999 acquisitions, which have a higher expense level as a percentage of net sales than the overall group of businesses owned prior to the acquisitions. Amortization of goodwill and intangible assets, as a percentage of net sales, remained unchanged at approximately .9% of net sales in the second quarter of 1999 and 2000 and increased slightly from 1.0% of net sales in the first six months of 1999 to 1.1% in the first six months of 2000 principally as a result of increased amortization in relation to 1999 acquisitions partially offset by increased sales volume. Consolidated operating earnings decreased approximately $900,000 from approximately $58,200,000 in the second quarter of 1999 to approximately $57,300,000 in the second quarter of 2000, and increased approximately $1,300,000 from approximately $85,800,000 in the fist six months of 1999 to approximately $87,100,000 in the first six months of 2000. Included in consolidated operating earnings for the second quarter and first six months of 2000 was a gain on the sale of land of approximately $1,700,000. Acquisitions 24 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) contributed approximately $3,500,000 in operating earnings in the second quarter of 2000 which consisted of an increase of approximately $700,000 in the Residential Building Products Segment and an increase of approximately $2,800,000 in the Windows, Doors and Siding Products Segment. Acquisitions contributed approximately $2,900,000 in operating earnings in the first six months of 2000, which consisted of an increase of approximately $1,100,000 in the Residential Building Products Segment, an increase of approximately $500,000 in the Air Conditioning and Heating Products Segment and an increase of approximately $1,300,000 in the Windows, Doors and Siding Products Segment. Higher than anticipated costs have occurred during the second quarter and the first six months of 2000 as a result of delays in the rationalization and relocation of some of NuTone's manufacturing operations into the Residential Building Products Segment. Consolidated operating earnings have been reduced by depreciation and amortization expense (other than amortization of deferred debt expense and debt discount) of approximately $15,400,000 and approximately $13,800,000 for the second quarter ended July 1, 2000 and July 3, 1999, respectively, and approximately $31,000,000 and approximately $26,800,000 for the first six months ended July 1, 2000 and July 3, 1999, respectively. Businesses acquired contributed approximately $1,100,000 and approximately $2,900,000 of the increase in depreciation and amortization expense in the second quarter and first six months of 2000, respectively, of which approximately $300,000 was in the Residential Building Products Segment and approximately $800,000 was in the Windows, Doors and Siding Products Segment in the second quarter of 2000 and approximately $700,000 was in the Residential Building Products Segment, approximately $100,000 was in the Air Conditioning and Heating Products Segment and approximately $2,100,000 was in the Windows, Doors and Siding Products Segment in the first six months of 2000. Consolidated operating earnings, excluding earnings from acquisitions and the $1,700,000 gain on the sale of land, decreased approximately $6,100,000 from approximately $58,200,000 in the second quarter of 1999 to approximately $52,100,000 in the second quarter of 2000 and decreased approximately $3,300,000 in the first six months of 1999 to approximately $82,500,000 in the first six months of 2000 from approximately $85,800,000 in the first six months of 1999. These changes in operating earnings were due, in part, to an approximate $800,000 decrease in the second quarter of 2000 and an approximate $4,700,000 increase in the first six months of 2000 in operating earnings excluding 25 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) acquisitions in the Residential Building Products Segment. The increase in the first six months of 2000 within the Residential Building Products Segment was due primarily to increased sales volume without a proportionate increase in cost and expenses while the decrease in the second quarter of 2000 was primarily due to increased manufacturing costs noted above related to the NuTone integration. Operating earnings increased approximately $4,700,000 and approximately $5,100,000 in the second quarter and first six months of 2000, respectively, excluding the effect of acquisitions in the Air Conditioning and Heating Products Segment. The increase in operating earnings, in both periods, in the Air Conditioning and Heating Products Segment arose from higher sales levels of commercial and site-built residential products, partially offset by a decline in operating earnings from lower sales volume of air conditioning and heating products sold to the manufactured housing market as compared to the six months ended July 3, 1999 due to a slowdown in the manufactured housing industry. The softness in the manufactured housing industry is expected to adversely effect this Segment's operating earnings during the next several quarters as compared to 1999. It is expected, that over the next several quarters, the effect of this softness will continue to be somewhat offset by increased earnings from higher sales levels of site-built residential air conditioning products. Operating earnings decreased approximately $8,400,000 in the second quarter of 2000 and approximately $11,200,000 in the first six months of 2000, excluding acquisitions, in the Windows, Doors and Siding Products Segment. These decreases in operating earnings were primarily as a result of rising petroleum prices which have caused significantly higher PVC resin cost and have substantially raised manufacturing costs of vinyl products in this segment. These decreases were partially offset by the effect of increased sales volume of vinyl siding and increased sales prices of vinyl siding and windows and lower costs and expenses of certain window products. The Company expects future operating earnings in this segment to be adversely affected by higher vinyl resin costs until cost reduction measures and price stabilization for this Segment's vinyl products occur. Operating earnings of foreign operations, consisting primarily of the results of operations of the Company's Canadian and European subsidiaries which manufacture built-in ventilation products and windows and doors, were approximately 5.3% and 4.8% of operating earnings (before corporate overhead) in the second quarter of 2000 and 1999, respectively, and were approximately 5.6% and 4.5% of operating earnings (before corporate overhead) in the first six months of 2000 and 1999, respectively. The increase in foreign operating earnings as a percentage of net sales is principally as a result of the increased foreign sales and operating earnings from acquisitions. Sales and earnings derived from the international market are subject to the risks of currency fluctuations. 26 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Interest expense in the second quarter of 2000 decreased approximately $100,000 or approximately .4% as compared to 1999 and increased approximately $300,000 or approximately .6% in the first six months of 2000 as compared to 1999. The decrease in the second quarter of 2000 as compared to 1999 is primarily the result of debt payments in the quarter. The increase in the first six months of 2000 as compared to 1999 is primarily as a result of increased debt acquired and issued in connection with 1999 acquisitions, net of payments. Investment income in the second quarter and first six months of 2000 decreased approximately $200,000 or approximately 11.8%, and approximately $1,100,000 or approximately 24.4%, respectively, as compared to 1999, primarily due to lower average invested balances as a result of funds used for acquisitions in 1999, partially offset by slightly higher yields. The provision for income taxes was approximately $15,400,000 for the second quarter of 2000, as compared to approximately $15,700,000 for the second quarter of 1999 and approximately $18,800,000 for the first half of 2000, as compared to $18,700,000 for the first half of 1999. The income tax rates differed from the United States Federal statutory rate of 35% principally as a result of state income tax provisions, nondeductible amortization expense (for tax purposes) and the effect of foreign income tax on foreign source income. Liquidity and Capital Resources - ------------------------------- The Company is highly leveraged, expects to continue to reduce its leverage but expects to continue to remain highly leveraged for the foreseeable future. At July 1, 2000, the Company had consolidated debt of approximately $1,031,458,000 consisting of (i) $13,801,000 of short-term borrowings and current maturities of long-term debt, (ii) $122,059,000 of notes, mortgage notes and other indebtedness, (iii) $209,344,000 of the 8 7/8% Senior Notes due 2008 ("8 7/8% Notes"), (iv) $174,225,000 of the 9 1/4% Senior Notes due 2007 ("9 1/4% Notes"), (v) $204,033,000 of the 9 7/8% Senior Subordinated Notes due 2004 ("9 7/8% Notes") and (vi) $307,996,000 of the 9 1/8% Senior Notes due 2007 ("9 1/8% Notes"). At July 1, 2000, the Company had consolidated unrestricted cash, cash equivalents and marketable securities of approximately $84,743,000 as compared to approximately $115,112,000 at December 31, 1999 and the Company's debt to equity ratio was approximately 3.7:1 at July 1, 2000 as compared to 4.0:1 at December 31, 1999. 27 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) The Company's ability to pay interest on or to refinance its indebtedness depends, among other items, on the successful integration of the operations of recent acquisitions and the Company's future performance, which, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. There can be no assurance that the Company will generate sufficient cash flow from the operation of its subsidiaries or that future financings will be available on acceptable terms or in amounts sufficient to enable the Company to service or refinance its indebtedness, or to make necessary capital expenditures. The Company has evaluated and expects to evaluate possible acquisition transactions and possible dispositions of certain of its businesses on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible acquisitions or dispositions. The indentures and other agreements governing the Company and its subsidiaries' indebtedness (including the indentures for the 8 7/8% Notes, the 9 1/4% Notes, the 9 7/8% Notes and the 9 1/8% Notes and a credit facility agreement for the Company's wholly owned subsidiary Ply Gem Industries, Inc. ("Ply Gem")) contain restrictive financial and operating covenants including covenants that restrict the ability of the Company and its subsidiaries to complete acquisitions, pay dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The Company expects to meet its cash flow requirements through fiscal 2000 from cash generated from operations, existing cash, cash equivalents and marketable securities, and financings, which may include securitization of accounts receivable and mortgage or capital lease financings. On July 3, 2000, the Company acquired Eaton-Williams Holdings Limited ("Eaton-Williams"), of Edenbridge, England. Eaton-Williams designs, manufactures, installs and services a leading range of custom-made and standard humidification and air conditioning equipment. For its fiscal year ended April 2, 2000, Eaton-Williams reported sales of approximately $41,000,000. (See Note C of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) 28 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) The Company is in the process of integrating the recent acquisitions into its businesses, and it has and expects to achieve incremental synergies, cost savings and reductions during 2000, partially offset by certain costs and expenses. Plans for eliminating certain activities have been finalized for all significant acquisitions acquired through July 1, 2000. The total future expenditures associated with exit costs related to the integration effort are expected to be funded from the Company's operating cash flow. The integration of the NuTone acquisition and the acquisitions within the Windows, Doors and Siding Products Segment is taking longer than originally planned. If significant difficulty is encountered with the integration of acquisitions within the Windows, Doors and Siding Products Segment or acquisitions within other Segments, or if such synergies and cost savings are not realized, the results of operations, cash flow and financial condition of the Company likely will be adversely affected. There can be no assurance that the Company will be able to successfully manage and integrate recent acquisitions. (See Note I of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) Unrestricted cash and cash equivalents increased from approximately $80,893,000 at December 31, 1999 to approximately $84,743,000 at July 1, 2000. Marketable securities available for sale of approximately $34,219,000 at December 31, 1999 were sold during the first six months of 2000. At July 1, 2000, approximately $22,100,000 of the Company's cash and investments was classified as restricted in current assets in the Company's accompanying Unaudited Condensed Consolidated Balance Sheet. Approximately $10,600,000 of this amount was held in escrow until July 3, 2000 when it was used to fund the acquisition of Eaton-Williams and the balance of approximately $11,500,000 was pledged as collateral for insurance, employee benefits and other requirements. Capital expenditures were approximately $14,300,000 for the first six months of 2000 and approximately $25,300,000 in the first six months of 1999. Capital expenditures were approximately $42,000,000 for the year ended December 31, 1999 and are expected to be approximately $45,000,000 for all of 2000. The Company's Board of Directors has authorized a number of programs to purchase shares of the Company's Common and Special Common Stock. The most recent of these programs was announced on May 4, 2000, and allows the Company to purchase up to 1,000,000 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 August 4, 2000, the Company has purchased approximately 460,700 shares of its Common and Special Common Stock under this program for approximately $9,200,000 and accounted for such share purchases as Treasury Stock. 29 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) At August 4, 2000, approximately $90,700,000 was available for the payment of cash dividends, stock payments or other restricted payments as defined under the terms of the Company's most restrictive indenture. (See Note D of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) The Company's working capital increased from approximately $324,492,000 at December 31, 1999 to approximately $352,648,000 at July 1, 2000 and its current ratio remained unchanged at 1.9:1 between December 31, 1999 and July 1, 2000. Accounts receivable increased approximately $67,485,000 or approximately 27.7%, between December 31, 1999 and July 1, 2000, while net sales increased approximately $115,404,000 or approximately 23.6% in the second quarter of 2000 as compared to the fourth quarter of 1999. 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 July 1, 2000 as compared to December 31, 1999. The Company has not experienced any significant overall changes in credit terms, collection efforts, credit utilization or delinquency in accounts receivable in 2000. Inventories increased approximately $36,781,000 or approximately 17.3%, between December 31, 1999 and July 1, 2000. The increase in inventories is primarily a result of expanded distribution of HVAC residential site-built products by the Company's Air Conditioning and Heating Products Segment and planned increases within the Windows, Doors and Siding Products Segment to meet anticipated higher demand within the third quarter of 2000. Accounts payable increased approximately $40,318,000 or approximately 26.9%, between December 31, 1999 and July 1, 2000. The increase in accounts payable is primarily the result of increased inventory levels as discussed above. 30 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Unrestricted cash and cash equivalents increased approximately $3,850,000 from December 31, 1999 to July 1, 2000, principally as a result of the following: Condensed Consolidated Cash Flows* ----------------- Operating Activities-- Cash flow from operations, net $ 54,327,000 Increase in accounts receivable, net (69,101,000) Increase in inventories (36,454,000) Increase in prepaids and other current assets (1,781,000) Increase in accounts payable 41,517,000 Increase in accrued expenses and taxes 16,545,000 Investing Activities--- Acquisition deposit held in escrow (10,628,000) Proceeds from the sale of marketable securities, net 34,435,000 Proceeds from the sale of fixed assets 5,361,000 Capital expenditures (14,300,000) Increase in restricted cash and investments (4,061,000) Financing Activities--- Payment of borrowings, net (5,669,000) Purchase of Nortek Common and Special Common Stock (2,671,000) Other, net (3,670,000) ------------ $ 3,850,000 ============ (*)Prepared from the Company's Consolidated Statement of Cash Flows for the six months ended July 1, 2000. (See Nortek, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements included elsewhere herein.) The impact of changes in foreign currency exchange rates on cash was not material and has been included in other, net. The Company's debt-to-equity ratio decreased from approximately 4.0:1 at December 31, 1999 to 3.7:1 at July 1, 2000, primarily as a result of an increase in equity due to net earnings for the first six months of 2000 and the net payment of borrowings, partially offset by the effect of the purchase of Nortek Common and Special Common Stock and changes in currency translation. (See the Consolidated Statement of Stockholders' Investment included elsewhere herein.) At December 31, 1999, the Company's wholly-owned subsidiary, Ply Gem, had a net operating loss carry forward of approximately $21,300,000 that expires in 2011 and is subject to certain limitations imposed by the Internal Revenue Code. The Company expects to utilize approximately $17,500,000 of this net operating loss in its 2000 federal tax return, which will result in lower federal tax payments of approximately $6,125,000 for 2000. 31 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) Inflation, Trends and General Considerations - -------------------------------------------- The Company has evaluated and expects to continue to evaluate possible acquisition transactions and the possible dispositions of certain of its businesses on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible acquisitions or dispositions. The Company's performance is dependent to a significant extent upon the levels of new residential construction, residential replacement and remodeling and non-residential construction, all of which are affected by such factors as interest rates, inflation and unemployment. In the near term, the Company expects to operate in an environment of relatively stable levels of construction and remodeling activity. However, increases in interest rates could have a significant negative impact on the level of housing construction and remodeling activity. The demand for the Company's products is seasonal, particularly in the Northeast and Midwest regions of the United States where inclement weather during the winter months usually reduces the level of building and remodeling activity in both the home improvement and new construction markets. The Company's lower sales levels usually occur during the first and fourth quarters. Since a high percentage of the Company's manufacturing overhead and operating expenses are relatively fixed throughout the year, operating income and net earnings tend to be lower in quarters with lower sales levels. As a result of the recent acquisitions in the Windows, Doors and Siding Products Segment, the performance of this Segment will be more seasonal than in prior years due to the number of businesses that are affected by winter weather conditions. In addition, the demand for cash to fund the working capital of the Company's subsidiaries is greater from late in the first quarter until early in the fourth quarter. Market Risk - ----------- As discussed more specifically below, the Company is exposed to market risks related to changes in interest rates, foreign currencies and commodity pricing. The Company uses derivative financial instruments on a limited basis to hedge economic exposures. The Company typically does not enter into derivative financial instruments or other financial instruments for trading purposes. There have been no significant changes in market risk from the December 31, 1999 disclosures included in the Company's Annual Report on Form 10-K. 32 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) A. Interest Rate Risk - ----------------------- The Company is exposed to market risk from changes in interest rates primarily through its investing and borrowing activities. In addition, the Company's ability to finance future acquisition transactions may be impacted if the Company is unable to obtain appropriate financing at acceptable interest rates. The Company's strategy for managing interest rate exposure is to invest in short-term, highly liquid investments and marketable securities. Short-term investments primarily consist of money market accounts, certificates of deposit and, corporate commercial paper with original maturities of 90 days or less. The Company manages its borrowing exposure to changes in interest rates by optimizing the use of fixed rate debt with extended maturities. In addition, the Company has hedged its exposure on a substantial portion of its variable rate debt by entering into interest rate swap agreements to lock in a fixed rate within a range of fluctuation. B. Foreign Currency Risk The Company's results of operations are affected by fluctuations in the value of the U.S. dollar as compared to the value of currencies in foreign markets primarily related to changes in the Italian Lira and the Canadian Dollar. For the first six months of 2000, the net impact of foreign currency changes was not material to the Company's financial condition or results of operations. The Company manages its exposure to foreign currency exchange risk principally by trying to minimize the Company's net investment in foreign assets through the use of strategic short and long-term borrowings at the foreign subsidiary level. The Company generally does not enter into derivative financial instruments to manage foreign currency exposure. At July 1, 2000 the Company did not have any outstanding foreign currency hedging contracts. C. Commodity Pricing Risk The Company is subject to significant market risk with respect to the pricing of its principal raw materials, which include, among others, steel, copper, packaging material, plastics, resins, glass, wood and aluminum. If prices of these raw materials were to increase dramatically, the Company may not be able to pass such increases on to its customers and, as a result, gross margins could decline significantly. The Company manages its exposure to commodity pricing risk by continuing to diversify its product mix, strategic buying programs and vendor partnering. 33 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) The Company generally does not enter into derivative financial instruments to manage commodity-pricing exposure. At July 1, 2000, the Company did not have any outstanding commodity forward contracts. Year 2000 Disclosure - -------------------- The following Year 2000 statements constitute a Year 2000 Readiness Disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998. As of August 4, 2000, none of the Company's subsidiaries had experienced any significant Year 2000 related problems. There have been no instances where mission-critical and non-mission-critical systems have failed to perform correctly. However, the Year 2000 issue still poses several potential risks to the Company and its subsidiaries. A number of the Company's customers and suppliers (third parties) utilize computers and computer software to varying degrees in conjunction with the operation of their businesses. The customers and suppliers of those businesses may utilize computers as well. Should the Company's customers and suppliers, or the businesses on which they depend experience any Year 2000 related computer problems, such third parties' cash flow could be disrupted, adversely affecting their ability to pay the Company, if a customer, or, if a supplier, their ability to pay their suppliers for goods needed to supply the Company. Such disruptions could have adverse effects on the Company and its subsidiaries. The Company assessed its Year 2000 third party exposure through the use of questionnaires and personal interviews during 1999. As of August 4, 2000, the Company was not aware of any supply or credit problems related to the Year 2000 issue. Should Year 2000 related problems occur which cause any of the systems of certain third parties upon which the Company and its subsidiaries depends to become inoperative, increased personnel costs could be incurred if additional staff is required to perform functions that the inoperative systems would have otherwise performed. As of August 4, 2000, the Company had not experienced any disruptions of third party services related to the Year 2000 issue. 34 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) The Company's expenditures for remediation directly related to correcting Year 2000 issues were approximately $6,000,000, including businesses acquired in 1999. The total expenditures of approximately $6,000,000 substantially all of which were incurred prior to December 31, 1999, consisted of approximately $2,000,000 of IT computer hardware equipment costs, approximately $3,000,000 of IT software and non-IT computer hardware expenditures and approximately $1,000,000 of other non-IT expenditures. All of the Company's Year 2000 compliance expenditures have been funded from the Company's operating cash flow. The Company's Year 2000 compliance budget did not include significant amounts for hardware replacement because the Company has historically employed a strategy to continually upgrade its computer systems. Consequently, the Company's Year 2000 compliance budget did not require the diversion of funds from or the postponement of the implementation of other planned IT projects. The Company believes it is not possible to estimate the potential lost revenue due to the remaining potential Year 2000 problems discussed above as the occurrence, extent and longevity of such potential problems cannot be predicted. As of August 4, 2000 the Company believes that it has not experienced any lost revenue related to the Year 2000 issue. Forward-Looking Statements - -------------------------- This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this discussion and throughout this document, words, such as "intends," "plans," "estimates," "believes," "anticipates" and "expects" or similar expressions are intended to identify forward-looking statements. These statements are based on the Company's current plans and expectations and involve risks and uncertainties, over which the Company has no control, that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual future activities and operating results to differ include the availability and cost of certain raw materials, (including, among others, steel, copper, packaging materials, plastics resins, glass, wood and aluminum) and purchased components, the level of domestic and foreign construction and remodeling activity affecting residential and commercial markets, interest rates, employment, inflation, Y2K readiness, currency translation, consumer spending levels, operating in international economies, the rate of sales growth, price, and product and warranty 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 update publicly any forward-looking 35 NORTEK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 1, 2000 AND FOR THE SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 (Continued) statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Readers are also urged to carefully review and consider the various disclosures made by the Company, in this document, as well as the Company's periodic reports on Forms 10-K, 10-Q and 8-K, filed with the Securities and Exchange Commission. 36 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders held on May 4, 2000 the following actions were taken by the following votes: Proposal 1: Election of Director Director elected by the holders of Common Stock voting separately as a class -- Withheld Broker Name For Against Authority Non-Votes ---------- ---------- ---------- ---------- Class II (for a term expiring at the 2003 Annual Meeting) Richard J. Harris 9,462,529 -- 217,426 -- Proposal 2: Approval of the 2000 Equity and Cash Incentive Plan Broker For Against Abstain Non-Votes ----------- ----------- --------- ---------- 10,864,001 3,374,007 36,287 --- Proposal 3: Approval of the 2000 Stock Option Plan for Directors Broker For Against Abstain Non-Votes ----------- ----------- --------- ---------- 12,181,778 2,054,533 37,984 --- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Performance Award to Richard L. Bready dated as of May 12, 2000 under the Company's 2000 Equity and Cash Incentive Plan (filed herewith). 10.2 Split Dollar Agreement dated as of December 20, 1996 between the Company and Douglass N. Ellis, Jr., as trustee of The Richard L. Bready 1996 Irrevocable Trust, together with appendix prepared by the Company (filed herewith). 37 10.3 Confirmatory Split Dollar Agreement No. 1 dated as of December 31, 1996 between the Company and Richard L. Bready, together with appendix prepared by the Company (filed herewith). 10.4 Assignment dated as of September 15, 1997 relating to interest of Richard L. Bready in Confirmatory Split Dollar Agreement No. 1 dated as of December 31, 1996 between the Company and Richard L.Bready (filed herewith). 10.5 Confirmatory Split Dollar Agreement No. 2 dated as of December 31, 1996 between the Company and Richard L. Bready, together with appendix prepared by the Company (filed herewith). 10.6 First Amendment dated as of September 15, 1997 to Confirmatory Split Dollar Agreement No. 2 dated as of December 31, 1996 between the Company and Richard L. Bready (filed herewith). 10.7 Split Dollar Agreement dated as of June 29, 1999 between the Company and Douglass N. Ellis, Jr. as trustee of The Richard L. Bready and Cheryl A. Bready 1998 Irrevocable Trust, together with appendix prepared by the Company (filed herewith). 10.8 Split Dollar Agreement dated as of June 29, 1999 between the Company and Almon C. Hall, together with appendix prepared by the Company (filed herewith). 10.9 Split Dollar Agreement dated as of June 29, 1999 between the Company and Mark Richard Harris and Pamela Jean Harris as trustees of the Richard J. and Carole M. Harris 1999 Irrevocable Trust, together with appendix prepared by the Company (filed herewith). 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K. No reports on Form 8-K were filed during period. 38 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 Accounting Officer August 11, 2000 - ----------------- (Date) 39 EX-27 2 0002.txt
5 1000 6-MOS DEC-31-2000 JUL-01-2000 84,743 22,095 323,114 11,866 249,459 763,778 503,639 181,080 1,881,517 411,130 1,017,657 0 0 19,580 258,194 1,881,517 1,095,450 1,095,450 1,008,333 1,008,333 0 0 48,594 41,900 18,800 23,100 0 0 0 23,100 2.02 2.01
EX-10.1 3 0003.txt EXHIBIT 10.1 Summary of Performance Award under the Nortek, Inc. 2000 Equity and Cash Incentive Plan On May 12, 2000, the Compensation Committee of the Nortek, Inc. Board of Directors approved a performance award to Richard L. Bready under the Nortek, Inc. 2000 Equity and Cash Incentive Plan. Mr. Bready will receive a cash payment if the Company's consolidated earnings before interest expense, taxes, depreciation and amortization ("EBITDA") during the year 2000 equals or exceeds certain targets. The award, if any, ranges from $900,000 in the event that EBITDA for 2000 equals or exceeds $180,000,000 to $4,000,000 in the event that EBITDA for 2000 equals or exceeds $266,666,667. EX-10.2 4 0004.txt EXHIBIT 10.2 SPLIT DOLLAR AGREEMENT This Split Dollar Agreement (the "Agreement") is made and entered into as of December 20, 1996 by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Douglass N. Ellis, Jr., of Brookline, Massachusetts (the "Trustee"), for himself and his successors in office as trustee of The Richard L. Bready 1996 Irrevocable Trust established as of December 20, 1996 by Richard L. Bready, of said Providence (the Corporation and the Trustee are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, Richard L. Bready ("the Employee") is employed by the Corporation as its chief executive officer; and WHEREAS, the Corporation desires to assist the Trustee in funding insurance on the Employee's life, the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Trustee is the owner of policies numbered [policy numbers redacted] (the "Policies") issued by New York Life Insurance Company ("the Insurer") on the Employee's life; and NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation shall pay each premium on the Policies due on or after the date of this Agreement, on or before the due date or within the applicable grace period. Immediately thereafter, the Corporation may require payment from the Trustee of the Trustee's share (as defined below). If payment from the Trustee is not so required, the Corporation shall treat its payment of the Trustee's share (as so defined) as additional compensation to the Employee. The Trustee's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Trustee shall be the owner the Policies and, except to the extent of the Corporation's Interest in each of the Policies as provided herein, shall have and may exercise all the rights of a policy owner. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Trustee. 3. The Trustee hereby assigns to the Corporation the following limited ownership rights in the Policies: (a) The right to obtain one or more loans or advances on each of the Policies to the extent of the Corporation's Interest in the particular policy. (b) The right upon termination of this Agreement to realize against the cash value of each of the Policies or the death proceeds payable under the terms of each of the Policies, as the case may be, the Corporation's Interest in the particular policy. For purposes of this subparagraph, the sale, surrender, or transfer of ownership of one of the Policies by the Trustee shall be deemed a termination of the Agreement with respect to that policy unless consented to by the Corporation. If this Agreement terminates during the Employee's lifetime with respect to a particular policy, the Corporation shall have no right of recovery against the Trustee in excess of the then cash value of such policy. The Trustee shall upon execution of this Agreement execute collateral assignments evidencing and securing the Corporation's Interest in the Policies. 4. The Corporation's "Interest" in each of the Policies as of any given date shall equal the greater of (a) the cash value of such policy as of such date and (b) the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the policy, in either case reduced by the amount of any outstanding indebtedness on the particular policy. The term "cash value" means the gross cash value of the particular policy, including accumulated dividends and the value of any paid up additions. 5. This Agreement may be terminated by either party, with or without the consent of the other party, by giving notice to the other party. If not sooner terminated, this Agreement shall terminate upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) Termination of the Employee's employment with the Corporation (employment shall include any period during which Employee serves as a consultant to the Corporation); (c) The bankruptcy, insolvency or dissolution of the Corporation; or (d) The death of the Employee. Upon termination, the rights of the Parties shall be as provided herein. 6. The Parties agree to execute any and all documents necessary or proper to carry out the purpose and intent of this Agreement. 7. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy need not be filed with the Insurer. The Insurer shall be fully protected from all liability under each policy covered by this Agreement in dealing exclusively with the owner of the Policies and in paying the proceeds of the Policies in accordance with any collateral assignment and beneficiary designation provided to the Insurer. 8. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 9. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 10. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Trustee, and his successors and assigns. 11. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the date first above written. NORTEK, INC. By: /s/Richard J. Harris Its:Vice President and Treasurer, duly authorized /s/ Douglass N. Ellis, Jr. Douglass N. Ellis, Jr., for himself and his successors in office as trustee of The Richard L. Bready 1996 Irrevocable Trust, and not individually Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.2 -- Split Dollar Agreement dated as of December 20, 1996 between the Company and Douglass N. Ellis, Jr., as trustee of The Richard L. Bready 1996 Irrevocable Trust The life insurance policies covered by this Split Dollar Agreement (the "Agreement") currently provide for death benefits in the following amounts to be divided between the beneficiary of the policy and the Company pursuant to the Agreement: First Policy $8,778,907 Second Policy $17,806,847 EX-10.3 5 0005.txt EXHIBIT 10.3 CONFIRMATORY SPLIT DOLLAR AGREEMENT NO. 1 This Confirmatory Split Dollar Agreement No. 1 (the "Agreement") is made and entered into by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Richard L. Bready, of said Providence (the "Employee") (the Corporation and the Employee are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, the Employee is employed by the Corporation as its chief executive officer; and WHEREAS, the Corporation is the owner of policies numbered [policy numbers redacted] (the "Policies") issued by New York Life Insurance Company (the "Insurer") on the life of the Employee; and WHEREAS, on January 12, 1996 the Corporation executed new beneficiary designations with respect to the Policies, it being the Corporation's desire to make a portion of the death benefit available to the Employee's family as an employment benefit to the Employee; and WHEREAS, the Corporation continues to desire to assist the Employee by providing insurance on the Employee's life, the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Parties now wish to clarify and confirm the arrangements in place between them with respect to the Policies; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation shall pay each premium on the Policies due after the date of this Agreement, on or before the due date or within the applicable grace period. Immediately thereafter, the Corporation may require payment from the Employee of the Employee's share (as defined below). If payment from the Employee is not so required, the Corporation shall treat its payment of the Employee's share (as so defined) as additional compensation to the Employee. The Employee's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Corporation shall continue to be the sole owner of the Policies, and to the extent of its Interest in the Policies (as defined in Section 6 below) shall have and may exercise all the rights of policy owner, including but not limited to the right to designate the beneficiaries, select settlement options, apply dividends, borrow on the security of the policy and surrender the policy. 3. Upon termination of this Agreement during the Employee's lifetime, all rights to the Policies shall vest in the Corporation, the Corporation shall have no further right of recovery against the Employee or his assignee, and the Employee or his assignee shall have no further rights with respect to any of the Policies. Upon termination of this Agreement as a result of the Employee's death, the Corporation shall be the direct beneficiary of an amount equal to its Interest in each policy (as defined in Section 6 below) as of the Employee's date of death. 4. With respect to each of the Policies, the Employee or his assignee shall have the right to designate and change direct and contingent beneficiaries of any proceeds payable as a result of the Employee's death in excess of the Corporation's Interest in the particular policy. 5. The Parties shall upon execution of this Agreement simultaneously execute a policy endorsement with respect to each of the Policies to put into effect the provisions of this Agreement. 6. The Corporation's "Interest" in each of the Policies as of any given date shall equal the greater of (a) the cash value of such policy as of such date and (b) the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the policy (whether paid before or after the date of this Agreement), in either case reduced by the amount of any outstanding indebtedness on the particular policy. The term "cash value" means the gross cash value of the particular policy, including accumulated dividends and the value of any paid up additions. 7. This Agreement may be terminated by either party or its or his assignee, with or without the consent of the other party, by giving written notice to the other party. If not sooner terminated, the Agreement shall terminate automatically upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) Termination of the Employee's employment with the Corporation (employment shall include any period during which Employee serves as a consultant to the Corporation); (c) The bankruptcy, insolvency or dissolution of the Corporation; or (d) The death of the Employee. Upon termination, the rights of the Parties shall be as provided herein. 8. The Parties intend for this Agreement to confirm the terms of all split dollar insurance arrangements between them with respect to the Policies. To that end, as between the Parties this Agreement supersedes any inconsistent split dollar documentation concerning any of the Policies that predates this Agreement, whether or not such documentation has been filed with the Insurer. 9. The Parties agree to execute any and all documents necessary or proper to carry out the purpose and intent of this Agreement. 10. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy need not be filed with the Insurer. The Insurer shall be fully protected from all liability under the Policies in dealing exclusively with the owner of the particular policy and in paying the proceeds of the policy in accordance with any policy endorsement and beneficiary designation provided to the Insurer. 11. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 12. The Employee shall have the right to assign any part or all of the Employee's interest in this Agreement and any of the Policies to any person, entity or trust by execution of a written assignment delivered to the Corporation and a new designation of beneficiary to the Insurer. 13. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 14. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Employee, and his successors and assigns. 15. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the 31st day of December, 1996. NORTEK, INC. By: /s/ Richard J. Harris Its:Vice President and Treasurer, duly authorized /s/ Richard L. Bready Richard L. Bready Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.3 -- Confirmatory Split Dollar Agreement No. 1 dated as of December 31, 1996 between the Company and Richard L. Bready The life insurance policies covered by this Split Dollar Agreement (the "Agreement") currently provide for death benefits in the following amounts to be divided between the beneficiary of the policy and the Company pursuant to the Agreement: First Policy $183,122 Second Policy $123,352 Third Policy $2,970,773 EX-10.4 6 0006.txt EXHIBIT 10.4 ASSIGNMENT WHEREAS, Richard L. Bready ("Bready") and Nortek, Inc. ("Nortek") entered into Confirmatory Split Dollar Agreement No. 1 as of December 31, 1996 (the "Agreement"), which relates to New York Life Insurance Policies No. [Policy Numbers Redacted] (the "Policies"); and WHEREAS, the Agreement provides that Nortek will continue to own the Policies, but the death benefit payable upon Bready's death in excess of Nortek's Interest in the Policies (as defined in the Agreement) (hereinafter the "Net Death Benefit") shall be paid to the one or more beneficiaries designated by Bready or his assignee; and WHEREAS, paragraph 12 of the Agreement provides that Bready "shall have the right to assign any part or all of [his] interest in this Agreement and any of the Policies to any person, entity or trust by execution of a written assignment delivered to Nortek and a new designation of beneficiary to [New York Life Insurance Company]."; and WHEREAS, Bready wishes to assign all of his interest in the Agreement; NOW THEREFORE, Bready hereby irrevocably assigns all of his interest in and rights under the Agreement and all of his interest in and rights to the Policies to Douglass N. Ellis, Jr., or his successor (the "Trustee"), as trustee of The Richard L. Bready 1996 Irrevocable Trust dated December 20, 1996. Bready intends by this Assignment to make an irrevocable transfer to the Trustee of all of his interest in the Agreement, including all incidents of ownership he has over the Policies. Bready is executing simultaneously herewith a new designation of beneficiary confirming that the Net Death Benefit shall be payable to the beneficiary named by the Trustee or his successor. SIGNED in two original counterparts this 15th day of September, 1997. /s/Donna Z. Laflamme /s/Richard L. Bready Witness Richard L. Bready The undersigned hereby acknowledges receipt of the foregoing Assignment and agrees to be bound by the terms of the Agreement, all as of the date last above written. /s/ Douglass N. Ellis, Jr. Douglass N. Ellis, Jr., as trustee of The Richard L. Bready 1996 Irrevocable Trust, and not individually The undersigned hereby acknowledges receipt of the foregoing Assignment. NORTEK, INC. By: /s/ Kevin W. Donnelly Its: Vice President, duly authorized EX-10.5 7 0007.txt EXHIBIT 10.5 CONFIRMATORY SPLIT DOLLAR AGREEMENT NO. 2 This Confirmatory Split Dollar Agreement No. 2 (the "Agreement") is made and entered into by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Richard L. Bready, of said Providence (the "Employee") (the Corporation and the Employee are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, the Employee is employed by the Corporation as its chief executive officer; and WHEREAS, the Employee is the owner of policy number [policy number redacted] (the "Policy") issued by New York Life Insurance Company ("the Insurer") on his life; and WHEREAS, in 1988 the Parties agreed that the premiums on the Policy would be funded through a split dollar arrangement, it being the intention of the Corporation to provide assistance to the Employee by paying the premiums due on the Policy, with the Corporation ultimately being entitled to receive an interest in the Policy; and WHEREAS, in 1988 the Insured executed a collateral assignment in favor of the Corporation to secure its interest in the Policy; and WHEREAS, the Corporation continues to desire to assist the Employee in funding insurance on the Employee's life, the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Parties now wish to confirm their respective obligations with respect to the Policy; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation shall pay each premium on the Policy due after the date of this Agreement, on or before the due date or within the applicable grace period. Immediately thereafter, the Corporation may require payment from the Employee of the Employee's share (as defined below). If payment from the Employee is not so required, the Corporation shall treat its payment of the Employee's share (as so defined) as additional compensation to the Employee. The Employee's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Employee shall continue to be the owner the Policy and, except to the extent of the Corporation's Interest in the Policy as provided herein, shall have and may exercise all the rights of a policy owner, including but not limited to the right to designate the beneficiaries, select settlement options, borrow on the security of the Policy and surrender the Policy. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Employee. 3. The Employee hereby affirms his assignment to the Corporation of the following limited ownership rights in the Policy: (a) The right to obtain one or more loans or advances on the Policy to the extent of the Corporation's Interest in the Policy. (b) The right upon termination of this Agreement to realize against the cash value of the Policy or the death proceeds payable under the terms of the Policy, as the case may be, the Corporation's Interest in the Policy. For purposes of this subparagraph, the sale, surrender, or transfer of ownership of the Policy by the Employee or his assignee shall be deemed a termination of the Agreement unless consented to by the Corporation. If this Agreement terminates during the Employee's lifetime, the Corporation shall have no right of recovery against the Employee or his assignee in excess of the then cash value of the Policy. The Employee shall upon execution of this Agreement simultaneously execute a confirmatory collateral assignment evidencing the Corporation's Interest in the Policy. 4. Subject to the provisions of Section 6 below, the Corporation's "Interest" in the Policy shall equal the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the Policy, including any additional amounts invested in the Policy by the Corporation (such as for the purpose of repaying indebtedness on the Policy arising before the Policy was being treated as subject to a split dollar agreement), since the time that the Parties first treated the Policy as being subject to a split dollar agreement. The Corporation's Interest shall be reduced by the amount of outstanding indebtedness on the Policy incurred for the benefit of the Corporation since the time that the Parties first treated the Policy as being subject to a split dollar agreement. For purposes of this Section, the Policy shall be deemed to have been treated as being subject to a split dollar agreement from the date the Corporation first paid a premium on the Policy unless at some later time the Corporation relinquished all its rights in the Policy to the Employee and the Employee became the sole owner of the Policy, without any obligation to the Corporation for payment of prior premiums. 5. This Agreement may be terminated by either party or its or his assignee, with or without the consent of the other party, by giving notice to the other party. If not sooner terminated, this Agreement shall terminate upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) Termination of the Employee's employment with the Corporation (employment shall include any period during which Employee serves as a consultant to the Corporation); (c) The bankruptcy, insolvency or dissolution of the Corporation; or (d) The death of the Employee. Upon termination, the rights of the Parties shall be as provided herein. 6. The Parties intend for this Agreement to confirm the terms of all split dollar insurance arrangements between them with respect to the Policy. To that end, as between the Parties this Agreement supersedes any inconsistent split dollar documentation concerning the Policy that predates this Agreement, whether or not such documentation has been filed with the Insurer. Notwithstanding the foregoing, the Parties do not intend that this Agreement in any way reduce the interest the Corporation had in the Policy immediately prior to the Agreement's execution, and therefore any prior documentation that establishes that the Corporation's interest in the Policy is greater than the Interest given it under the provisions of Section 4 above is not hereby superseded, and the Corporation's Interest in the Policy for purposes of this Agreement shall be such greater interest. 7. The Parties agree to execute any and all documents necessary or proper to carry out the purpose and intent of this Agreement. 8. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy need not be filed with the Insurer. The Insurer shall be fully protected from all liability under each policy covered by this Agreement in dealing exclusively with the owner of the Policy and in paying the proceeds of the Policy in accordance with any collateral assignment and beneficiary designation provided to the Insurer. 9. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 10. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 11. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Employee, and his successors and assigns. 12. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the 31st day of December, 1996. NORTEK, INC. By: /s/ Richard J. Harris Its:Vice President and Treasurer, duly authorized /s/ Richard L. Bready Richard L. Bready Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.5 -- Confirmatory Split Dollar Agreement No. 2 dated as of December 31, 1996 between the Company and Richard L. Bready The life insurance policy covered by this Split Dollar Agreement (the "Agreement") currently provides for a death benefit of $1,542,280 to be divided between the beneficiary of the policy and the Company pursuant to the Agreement. EX-10.6 8 0008.txt EXHIBIT 10.6 CONFIRMATORY SPLIT DOLLAR AGREEMENT NO. 2 First Amendment Pursuant to the provisions of Section 10 of Confirmatory Split Dollar Agreement No. 2 entered into as of December 31, 1996 by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Richard L. Bready, of said Providence (the "Employee"), the Corporation and the Employee hereby amend the Agreement by changing Sections 2 and 3 to read as follows: "2. The Employee shall continue to be the owner of the Policy and, except to the extent of (a) the Corporation's Interest in the Policy as provided herein or, if greater, (b) the Corporation's actual borrowings against the Policy as permitted under paragraph (a) of Section 3 below, shall have and may exercise all the rights of a policy owner, including but not limited to the right to designate the beneficiaries, select settlement options, borrow on the security of the Policy and surrender the Policy. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Employee. 3. The Employee hereby affirms his assignment to the Corporation of the following limited ownership rights in the Policy: (a) The right to obtain one or more loans or advances on the Policy to the full extent that loans are permitted under the terms of the Policy, even if the amount of such loans or advances exceeds the Corporation's Interest in the Policy (determined without reduction for outstanding indebtedness). (b) The right upon termination of this Agreement to realize against the cash value of the Policy or the death proceeds payable under the terms of the Policy, as the case may be, the Corporation's Interest in the Policy. For purposes of this subparagraph, the sale, surrender, or transfer of ownership of the Policy by the Employee or his assignee shall be deemed a termination of the Agreement unless consented to by the Corporation. If this Agreement terminates during the Employee's lifetime, the Corporation shall have no right of recovery against the Employee or his assignee in excess of the then cash value of the Policy. Whenever the Agreement terminates, the Employee or his assignee shall have no right of recovery against the Corporation with respect to the excess of the then outstanding loans or advances on the Policy over the Corporation's Interest in the Policy (determined without reduction for outstanding indebtedness). The Employee shall upon execution of this Agreement simultaneously execute a confirmatory collateral assignment securing the Corporation's rights under the terms of this Agreement." SIGNED and SEALED in two original counterparts this 15th day of September, 1997. NORTEK, INC. By: /s/Kevin W. Donnelly Its: Vice President, duly authorized /s/ Richard L. Bready Richard L. Bready EX-10.7 9 0009.txt EXHIBIT 10.7 SPLIT DOLLAR AGREEMENT This Split Dollar Agreement (the "Agreement") is made and entered into this 29th day of June, 1999 by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Douglass N. Ellis, Jr., of Nantucket, Massachusetts (the "Trustee"), for himself and his successors in office as trustee of The Richard L. and Cheryl A. Bready 1998 Irrevocable Trust established December 21, 1998 by Richard L. Bready and Cheryl A. Bready, both of said Providence (the Corporation and the Trustee are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, Richard L. Bready (the "Employee") is employed by the Corporation as its chief executive officer; and WHEREAS, the Corporation desires to assist the Trustee in funding insurance on the joint lives of the Employee and his wife, Cheryl A. Bready (the "Insureds"), the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Trustee is the owner of policy [policy number redacted] (the "Policy") issued by New York Life Insurance Company (the "Insurer") on the joint lives of the Insureds; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation shall pay each premium on the Policy due on or after the date of this Agreement, on or before the due date or within the applicable grace period. Immediately thereafter, the Corporation may require payment from the Trustee of the Trustee's share (as defined below). If payment from the Trustee is not so required, the Corporation shall treat its payment of the Trustee's share (as so defined) as additional compensation to the Employee. The Trustee's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Trustee shall be the owner of the Policy and, except to the extent of the Corporation's Interest in the Policy as provided herein, shall have and may exercise all the rights of a policy owner. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Trustee. 3. The Trustee hereby assigns to the Corporation the following limited ownership rights in the Policy: (a) The right to obtain one or more loans or advances on the Policy to the extent of the Corporation's Interest in the Policy, in each case only with the prior consent of the Trustee. (b) The right upon termination of this Agreement to realize against the cash value of the Policy or the death proceeds payable under the terms of the Policy, as the case may be, the Corporation's Interest in the Policy. For purposes of this subparagraph, the sale, surrender or transfer of ownership of the Policy by the Trustee shall be deemed a termination of the Agreement unless consented to by the Corporation. If this Agreement terminates during the lifetime of either of the Insureds, the Corporation shall have no right of recovery against the Trustee in excess of the then cash surrender value of such policy. 4. The Corporation's "Interest" in the Policy as of any given date shall equal the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the Policy (whether paid before or after the date of this agreement), reduced by the amount of any outstanding indebtedness on the Policy incurred for the benefit of the Corporation. 5. This Agreement may be terminated by either party, with or without the consent of the other party, by giving notice to the other party. If not sooner terminated, this Agreement shall terminate upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) The bankruptcy, insolvency or dissolution of the Corporation; or (c) The death of the survivor of the Insureds. Upon termination, the rights of the Parties shall be as provided herein. Notwithstanding the foregoing, the Corporation agrees that this Agreement shall be subject to the terms of Section 10 (relating to split dollar insurance) of the employment agreement entered into as of February 26, 1997, as from time to time amended, between the Corporation and the Employee as if this Agreement were listed on Schedule 1 of said employment agreement, and the terms of said Section 10 are hereby incorporated into this Agreement. 6. To secure the repayment to the Corporation of the amounts due to it under the terms of this Agreement, the Trustee hereby assigns the Policy to the Corporation as collateral to the full extent of the Corporation's Interest in the Policy. This collateral assignment of the Policy to the Corporation shall not be terminated, altered, amended, adversely affected or reduced in any way by the Trustee, without the express written consent of the Corporation. The Parties hereto agree to execute any additional collateral assignment forms or documents required by the Insurer, or which may otherwise be necessary to implement this Agreement. 7. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy of the Agreement need not be filed with the Insurer. The Insurer shall be fully protected from all liability under the Policy in dealing exclusively with the owner of the Policy and in paying the proceeds of the Policy in accordance with the collateral assignment and beneficiary designation provided to the Insurer. 8. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 9. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 10. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Trustee, and his successors and assigns. 11. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the date first above written. NORTEK, INC. By: /s/ Richard J. Harris Its: Vice President and Treasurer, duly authorized /s/ Douglass N. Ellis, Jr. Douglass N. Ellis, Jr., for himself and his successors in office as trustee of The Richard L. and Cheryl A. Bready 1998 Irrevocable Trust, and not individually Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.7 -- Split Dollar Agreement dated as of June 29, 1999 between the Company and Douglass N. Ellis, Jr. as trustee of The Richard L. Bready and Cheryl A. Bready 1998 Irrevocable Trust The life insurance policy covered by this Split Dollar Agreement (the "Agreement") currently provides for a death benefit of $15,000,000 to be divided between the beneficiary of the policy and the Company pursuant to the Agreement. EX-10.8 10 0010.txt EXHIBIT 10.8 SPLIT DOLLAR AGREEMENT This Split Dollar Agreement (the "Agreement") is made and entered into this 29th day of June, 1999 by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Almon C. Hall (the "Employee") (the Corporation and the Employee are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, the Employee is employed by the Corporation as its Vice President, Controller and Chief Accounting Officer; and WHEREAS, the Corporation desires to assist the Employee in funding insurance on the joint lives of the Employee and his wife, Suzanne M. Hall (the "Insureds"), the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Employee is the owner of policy [policy number redacted] (the "Policy") issued by New York Life Insurance Company (the "Insurer") on the joint lives of the Insureds; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation intends from time to time to pay premiums due on the Policy. Immediately thereafter, the Corporation may require payment from the Employee of the Employee's share (as defined below). If payment from the Employee is not so required, the Corporation shall treat its payment of the Employee's share (as so defined) as additional compensation to the Employee. The Employee's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Employee shall be the owner of the Policy and, except to the extent of the Corporation's Interest in the Policy as provided herein, shall have and may exercise all the rights of a policy owner. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Employee. 3. The Employee hereby assigns to the Corporation the following limited ownership rights in the Policy: (a) The right to obtain one or more loans or advances on the Policy to the extent of the Corporation's Interest in the Policy, in each case only with the prior consent of the Employee. (b) The right upon termination of this Agreement to realize against the cash value of the Policy or the death proceeds payable under the terms of the Policy, as the case may be, the Corporation's Interest in the Policy. For purposes of this subparagraph, the sale, surrender or transfer of ownership of the Policy by the Employee shall be deemed a termination of the Agreement unless consented to by the Corporation. If this Agreement terminates during the lifetime of either of the Insureds, the Corporation shall have no right of recovery against the Employee in excess of the then cash surrender value of the Policy. 4. The Corporation's "Interest" in the Policy as of any given date shall equal the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the Policy (whether paid before or after the date of this agreement), reduced by the amount of any outstanding indebtedness on the Policy incurred for the benefit of the Corporation. 5. If not sooner terminated by the mutual agreement of the Parties, this Agreement shall terminate upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) The bankruptcy, insolvency or dissolution of the Corporation; or (c) The death of the survivor of the Insureds. Upon termination, the rights of the Parties shall be as provided herein. 6. To secure the repayment to the Corporation of the amounts due to it under the terms of this Agreement, the Employee hereby assigns the Policy to the Corporation as collateral to the full extent of the Corporation's Interest in the Policy. This collateral assignment of the Policy to the Corporation shall not be terminated, altered, amended, adversely affected or reduced in any way by the Employee, without the express written consent of the Corporation. The Parties hereto agree to execute any additional collateral assignment forms or documents required by the Insurer, or which may otherwise be necessary to implement this Agreement. 7. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy of the Agreement need not be filed with the Insurer. The Insurer shall be fully protected from all liability under the Policy in dealing exclusively with the owner of the Policy and in paying the proceeds of the Policy in accordance with the collateral assignment and beneficiary designation provided to the Insurer. 8. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 9. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 10. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Employee, and his successors and assigns. 11. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the date first above written. NORTEK, INC. By: /s/ Richard J. Harris Its:Vice President and Treasurer, duly authorized /s/ Almon C. Hall Almon C. Hall Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.8--Split Dollar Agreement dated as of June 29, 1999 between the Company and Almon C. Hall The life insurance policy covered by this Split Dollar Agreement (the "Agreement") currently provides for a death benefit of $5,000,000 to be divided between the beneficiary of the policy and the Company pursuant to the Agreement. EX-10.9 11 0011.txt EXHIBIT 10.9 SPLIT DOLLAR AGREEMENT This Split Dollar Agreement (the "Agreement") is made and entered into this 29th day of June, 1999 by and between Nortek, Inc., a Delaware corporation having a principal place of business in Providence, Rhode Island (the "Corporation"), and Mark Richard Harris and Pamela Jean Harris (the "Trustees"), for themselves and their successors in office as trustees of the Richard J. and Carole M. Harris 1999 Irrevocable Trust established June 29, 1999 by Richard J. and Carole M. Harris (the Corporation and the Trustees are hereinafter referred to together as the "Parties"). WITNESSETH: WHEREAS, Richard J. Harris (the "Employee") is employed by the Corporation as its Vice President and Treasurer; and WHEREAS, the Corporation desires to assist the Trustees in funding insurance on the lives of the Employee and his wife, Carole M. Harris ("Insureds"), the Corporation believing that providing such assistance is in its best interests; and WHEREAS, the Trustees are the owner of policy [policy number redacted] (the "Policy") issued by New York Life Insurance Company (the "Insurer") on the life of the said Carole M. Harris, with supplemental coverage on the life of the Employee; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the Parties, the Parties agree as follows: 1. The Corporation intends from time to time to pay premiums due on the Policy. Immediately thereafter, the Corporation may require payment from the Trustees of the Trustees' share (as defined below). If payment from the Trustees is not so required, the Corporation shall treat its payment of the Trustees's share (as so defined) as additional compensation to the Employee. The Trustees's share of each premium shall be that portion of the premium that is equal to the economic benefit which the Employee would be deemed to have received and which would be taxable to him for federal income tax purposes under Revenue Rulings 64-328, 66-110 and any subsequent rulings or regulations if the entire premium were paid by the Corporation. 2. The Trustees shall be the owner of the Policy and, except to the extent of the Corporation's Interest in the Policy as provided herein, shall have and may exercise all the rights of a policy owner. Dividends shall not be applied to the payment of premiums unless otherwise agreed by the Corporation and the Trustees. 3. The Trustees hereby assign to the Corporation the following limited ownership rights in the Policy: (a) The right to obtain one or more loans or advances on the Policy to the extent of the Corporation's Interest in the Policy, in each case only with the prior consent of the Trustees. (b) The right upon termination of this Agreement to realize against the cash value of the Policy or the death proceeds payable under the terms of the Policy, as the case may be, the Corporation's Interest in the Policy. For purposes of this subparagraph, the sale, surrender or transfer of ownership of the Policy by the Trustees shall be deemed a termination of the Agreement unless consented to by the Corporation. If this Agreement terminates during the lifetime of either of the Insureds, the Corporation shall have no right of recovery against the Trustees in excess of the then cash surrender value of the Policy. 4. The Corporation's "Interest" in the Policy as of any given date shall equal the sum of the Corporation's cumulative premiums paid to the Insurer with respect to the Policy (whether paid before or after the date of this agreement), reduced by the amount of any outstanding indebtedness on the Policy incurred for the benefit of the Corporation. 5. If not sooner terminated by mutual agreement of the Parties, this Agreement shall terminate upon the first to occur of any one of the following events: (a) The total cessation of the business of the Corporation; (b) The bankruptcy, insolvency or dissolution of the Corporation; or (c) The death of the survivor of the Insureds. Upon termination, the rights of the Parties shall be as provided herein. 6. To secure the repayment to the Corporation of the amounts due to it under the terms of this Agreement, the Trustees hereby assign the Policy to the Corporation as collateral to the full extent of the Corporation's Interest in the Policy. This collateral assignment of the Policy to the Corporation shall not be terminated, altered, amended, adversely affected or reduced in any way by the Trustees, without the express written consent of the Corporation. The Parties hereto agree to execute any additional collateral assignment forms or documents required by the Insurer, or which may otherwise be necessary to implement this Agreement. 7. The Parties agree that this is a private agreement to which the Insurer is not a party and for which it can assume no responsibility and, therefore, a copy of the Agreement need not be filed with the Insurer. The Insurer shall be fully protected from all liability under the Policy in dealing exclusively with the owner of the Policy and in paying the proceeds of the Policy in accordance with the collateral assignment and beneficiary designation provided to the Insurer. 8. If this Agreement is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), it shall constitute an employee welfare benefit plan. If required, the Vice President and Treasurer of the Corporation is hereby designated as the named fiduciary under this Agreement for ERISA purposes. The Vice President and Treasurer shall have discretionary authority to control and manage the operation, interpretation and administration of this Agreement and to establish any claims procedures required by ERISA. 9. Any of the provisions of this Agreement may be amended or altered, and such changes shall become effective when reduced to writing and signed by both of the Parties. 10. This Agreement shall be binding upon and inure to the benefit of the Corporation, and its successors and assigns, and the Trustees, and their successors and assigns. 11. Except to the extent that federal law applies, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Rhode Island. However, if and to the extent that ERISA applies, ERISA shall pre-empt any state laws (including the laws of the State of Rhode Island) relating to this Agreement. SIGNED and SEALED in two original counterparts as of the date first above written. NORTEK, INC. By:/s/ Richard L. Bready Its:Chairman, duly authorized /s/ Mark R. Harris Mark Richard Harris, for himself and his successors in office as trustee of the Richard J. and Carole M. Harris Irrevocable Trust, and not individually /s/ Pamela J. Harris Pamela Jean Harris, for herself and his successors in office as trustee of the Richard J. and Carole M. Harris Irrevocable Trust, and not individually Appendix (prepared by the Company for SEC filing purposes) to Exhibit 10.9--Split Dollar Agreement dated as of June 29, 1999 between the Company and Mark Richard Harris and Pamela Jean Harris as trustees of the Richard J. and Carole M. Harris 1999 Irrevocable Trust The life insurance policy covered by this Split Dollar Agreement (the "Agreement") currently provides for a death benefit of $1,000,000 to be divided between the beneficiary of the policy and the Company pursuant to the Agreement. -----END PRIVACY-ENHANCED MESSAGE-----