EX-99 3 fpsc62002.txt EXHIBIT (C)(2) Exhibit (c)(2) SLIDE 1 PROJECT PATRIOT ========================================================= Presentation to the Special Committee 20 June 2002 ========================================================= Morgan Stanley SLIDE 2 _________________ Project Patriot ========================================================= Table of Contents --------------------------------------------------------- Section 1 Transaction Overview --------------------------------------------------------- Section 2 Process Overview --------------------------------------------------------- Section 3 Overview of Nevada --------------------------------------------------------- Section 4 Valuation Analysis --------------------------------------------------------- Appendix A Comparable Companies Analysis --------------------------------------------------------- Appendix B Precedent Transaction Analysis --------------------------------------------------------- Appendix C Discounted Cash Flow Analysis --------------------------------------------------------- Morgan Stanley SLIDE 3 _________________ Project Patriot ========================================================= Section 1 --------------------------------------------------------- TRANSACTION OVERVIEW ========================================================= Morgan Stanley
SLIDE 4 ________________ =================================================================================== Project Patriot Transaction Overview ----------------------------------------------------------------------------------- OVERVIEW OF KELSO PROPOSAL =================================================================================== =================================================================================== Summary Description and Key Terms and Conditions ----------------------------------------------------------------------------------- Description: o Recapitalization of Nevada by Kelso & Company, L.P. ---------------------------------------------------------------------------------------------- Consideration / o $46.00 per share cash Acquisition Premia: - 11.2% premium to current stock price of $41.35 (6/18/02) - 23.0% premium to unaffected stock price (4/5/02) of $37.41 - 29.7% premium to unaffected 30-day average stock price of $35.48 - 21.4% premium to unaffected LTM high of $37.88 - 130.0% premium to unaffected LTM low of $20.00 ----------------------------------------------------------------------------------------------- Equity Value: o $553 million ----------------------------------------------------------------------------------------------- Aggregate Value: o $1,386 million ----------------------------------------------------------------------------------------------- Transaction Revenue EBITDA Net Income ---------------- ---------------- ---------------- Multiples(1): LTM CYE02 LTM CYE02 LTM CYE02 ----- ----- ----- ----- ----- ----- 0.8x 0.8x 6.0x 6.1x 12.1x 10.0x ----------------------------------------------------------------------------------------------- Financing: o Kelso will fund the transaction through a combination of equity to be provided by Kelso, Nevada balance sheet cash and senior secured credit facilities o Prior to consummation of the transaction, Kelso will seek the confirmation of the holders of Nevada's publicly traded debt securities that Nevada will not be required to purchase the securities due to a change of control o In the event Nevada is unsuccessful in obtaining the necessary confirmations, Kelso has received a bridge commitment from UBS Warburg LLC to refinance the securities ---------------------------------------------------------------------------------------------- Note 1. Based on Nevada management's projections from continuing operations Morgan Stanley
SLIDE 5 ________________ ============================================================================================= Project Patriot Transaction Overview --------------------------------------------------------------------------------------------- OVERVIEW OF KELSO PROPOSAL (cont.) ============================================================================================= --------------------------------------------------------------------------------------------- Summary Description and Key Terms and Conditions (cont.) --------------------------------------------------------------------------------------------- Tax Treatment: o Taxable to Nevada shareholders --------------------------------------------------------------------------------------------- Conditions to Close: o No material adverse change or disruption in financial, banking or capital market conditions o Execution of stockholders agreement with certain members of Nevada management o No Material Adverse Effect on Nevada o Approval by Nevada common stock shareholders and special common stock shareholders, excluding management shareholders, voting separately and together as a class o HSR and other customary conditions --------------------------------------------------------------------------------------------- Other: o Non-solicitation provision with fiduciary out o Termination fee of $16.5 million plus expenses capped at $7.5 million ($24 million total), or 4.3% (1.7%) of Nevada's equity (aggregate) value o Recapitalization would be affected through a redemption --------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 6 _________________ Project Patriot ========================================================= Section 2 --------------------------------------------------------- PROCESS OVERVIEW ========================================================= Morgan Stanley
SLIDE 7 ________________ ======================================================================================== Project Patriot Process Overview ---------------------------------------------------------------------------------------- PROCESS SUMMARY ======================================================================================== o Since mid-May: ---------------------------------------------------------------------------------------- - 19 parties have been Process Summary contacted, including 9 financial sponsors Parties Contacted CA Signed/IM Sent Proposals Submitted and 10 strategic parties ---------------------------------------------------------------------------------------- - 9 parties have executed Confidentiality Agreements and received the Information Materials - 4 parties have submitted R E D A C T E D preliminary, non-binding indications of interest Morgan Stanley
SLIDE 8 ________________ ============================================================================================================== Project Patriot Process Overview -------------------------------------------------------------------------------------------------------------- INDICATIONS OF INTEREST COMPARISON ============================================================================================================== ------------------------------------------------------------------------------------------------------------------------- [First Bidder (Private Equity Firm)] [Second Bidder (Private Equity Firm)] ------------------------------------------------------------------------------------------------------------------------- Indicative Value: ------------------------------------------------------------------------------------------------------------------------- Price Per Share $45.00-$48.00 $42.00-$46.00 ------------------------------------------------------------------------------------------------------------------------- Equity Value ($MM) $540-$579 $500-$553 ------------------------------------------------------------------------------------------------------------------------- Aggregate Value ($MM) $1,372-$1,412 $1,333-$1,386 ------------------------------------------------------------------------------------------------------------------------- CYE02 EBITDA Multiple (x) 6.0x-6.2x 5.8x-6.1x ------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) to: ------------------------------------------------------------------------------------------------------------------------- Current Proposal (2.2%)-4.3% (8.7%)-0.0% ------------------------------------------------------------------------------------------------------------------------- 1-Day Prior (Unaffected) 20.3%-28.3% 12.3%-23.0% ------------------------------------------------------------------------------------------------------------------------- 30-Day Avg. (Unaffected) 26.8%-35.3% 18.4%-29.7% ------------------------------------------------------------------------------------------------------------------------- Financing: o In discussions with [a named financial o In discussions with [a named financial institution] to provide financing institution] to provide financing o Anticipate capitalizing with o Anticipate keeping existing capital approximately 25% pro forma equity structure in place o Prepared to fund any change in control puts ------------------------------------------------------------------------------------------------------------------------- Conditions: o Successful completion of due diligence o Successful completion of due diligence o Completion of financing arrangements o Completion of financing arrangements o Negotiation of definitive documentation o Negotiation of definitive documentation o Final approval of [investment committee] ------------------------------------------------------------------------------------------------------------------------- Timing: o Not specified, assume willingness o Complete diligence and negotiate to move quickly transaction within 30 days ------------------------------------------------------------------------------------------------------------------------- Other: o Indicate willingness to work with o [Second Bidder] to act as lead with existing members of senior management [2 strategic buyers] potentially co-investing o Existing management role unclear ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 9 ________________ ============================================================================================================ Project Patriot Process Overview ------------------------------------------------------------------------------------------------------------ INDICATIONS OF INTEREST COMPARISON ============================================================================================================= --------------------------------------------------------------------------------------------------------------------------------- [Third Bidder (Industrial Company)] [Fourth Bidder (Group)] --------------------------------------------------------------------------------------------------------------------------------- Indicative Value: --------------------------------------------------------------------------------------------------------------------------------- Price Per Share $42.00-$46.00 $46.00 --------------------------------------------------------------------------------------------------------------------------------- Equity Value ($MM) $500-$553 $553 --------------------------------------------------------------------------------------------------------------------------------- Aggregate Value ($MM) $1,333-$1,386 $1,386 --------------------------------------------------------------------------------------------------------------------------------- CYE02 EBITDA Multiple (x) 5.8x-6.1x 6.1x --------------------------------------------------------------------------------------------------------------------------------- Premium/(Discount) to: --------------------------------------------------------------------------------------------------------------------------------- Current Proposal (8.7%)-0.0% 0% --------------------------------------------------------------------------------------------------------------------------------- 1-Day Prior (Unaffected) 12.3%-23.0% 23.0% --------------------------------------------------------------------------------------------------------------------------------- 30-Day Avg. (Unaffected) 18.4%-29.7% 29.7% --------------------------------------------------------------------------------------------------------------------------------- Financing: o Will likely fund transaction through o In discussions with [a named financial existing bank capacity institution] to provide financing o Anticipate that final bid will not be subject to financing --------------------------------------------------------------------------------------------------------------------------------- Conditions: o Successful completion of due diligence o Successful completion of due diligence o Negotiation of definitive documentation o Negotiation of definitive documentation o Approval of Board of Directors; have o Completion of financing arrangements reviewed transaction on preliminary basis --------------------------------------------------------------------------------------------------------------------------------- Timing: o Due diligence team available immediately o Not specified, assume willingness to move for management presentation and data quickly room visit --------------------------------------------------------------------------------------------------------------------------------- Other: o Strong strategic fit with [named portfolio companies] o Existing management role unclear --------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley
SLIDE 10 _________________ Project Patriot ========================================================= Section 3 --------------------------------------------------------- OVERVIEW OF NEVADA ========================================================= Morgan Stanley SLIDE 11
_________________ ==================================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------------------------- OVERVIEW OF NEVADA ==================================================================================================== ------------------------------------------ ========================================================================== Description Other ------------------------------------------ -------------------------------------------------------------------------- Nevada is a diversified manufacturer of o NYSE Symbol: NTK residential and commercial building o Corporate Headquarters: Providence, RI products operating within three o CEO: Richard L. Bready principal segments (below). The Company o Employees: approximately 10,000 manufactures and sells, primarily in the o Manufacturing Location: 15 U.S. states, Canada, U.S. Canada and Europe, a wide variety People's Republic of China, England, France and Italy of products for the residential and o Corporate Credit Ratings: commercial construction, manufactured - Standard & Poors: B+ housing/structures, and do-it-yourself, - Moody's: B1 professional remodeling and renovation -------------------------------------------------------------------------- markets ========================================================================== o Residential Building Products Market Leadership Positions Product Market Position - manufactures and distributes -------------------------------------------------------------------------- built-in products primarily for o Kitchen Range Hoods #1 in the World the residential new construction, -------------------------------------------------------------------------- do-it-yourself and professional o Bath Fans #1 in the World remodeling and renovation markets -------------------------------------------------------------------------- with leading market positions o Residential Indoor-Air-Quality #1 in North America (over 80%) in range hoods and -------------------------------------------------------------------------- bath fans o Custom Designed Commercial HVAC #1 in North America -------------------------------------------------------------------------- o Air Conditioning & Heating Products o HVAC for Manufactured Housing #1 in North America -------------------------------------------------------------------------- - manufactures and distributes HVAC o Vinyl Siding Top 4 in North America systems and products for -------------------------------------------------------------------------- residential, light commercial and manufactured housing/structures ========================================================================== and for custom-designed commercial Historical Financial Information (From Continuing Operations) applications $MM YTD YTD 3/02 3/01 LTM 2001 2000 1999 o Windows, Doors and Siding -------------------------------------------------------------------------- Net Sales 429.1 395.2 1,821.3 1,787.4 1,782.1 1,595.5 - principally manufactures and -------------------------------------------------------------------------- distributes, for use in the Operating Earnings (1) 37.9 27.9 178.0 168.0 176.5 193.9 residential construction, -------------------------------------------------------------------------- do-it-yourself and professional Net Earnings from 9.5 4.4 52.3 47.2 54.5 64.7 renovation markets: (i) vinyl Continuing siding, skirting, soffit and Operations (1) accessories, (ii) vinyl and -------------------------------------------------------------------------- composite windows, (iii) vinyl EPS (Diluted) (1) 0.84 0.39 4.67 4.23 4.85 5.40 patio and steel entry doors, (iv) -------------------------------------------------------------------------- vinyl blocks, vents shutters and EBITDA 49.2 38.2 221.7 210.7 231.9 228.8 sunrooms, (v) fencing, railing and -------------------------------------------------------------------------- decking and (vi) aluminum trim Capital Expenditures 4.3 13.7 32.0 41.4 37.0 38.0 coil, soffit and accessories __________________________________________ __________________________________________________________________________ Note 1. Goodwill is not amortized (all periods) Morgan Stanley
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_________________ ============================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------------------- NEVADA'S PRICE PERFORMANCE Last Twelve Months ============================================================================================== _________________________________ ============================================================================================== Nevada Price History Price Volume _________________________________ $ (000) ---------------------------------------------------------------------------------------------- Current (6/18/02) $41.35 60.00 ---------------- ----------------- ----------------- ------------- 600 -------------------------------- | 18-Jun-01 | | 9-Jan-02 | | 2-Feb-02 | | 8-Apr-02 | LTM High (Unaffected) 37.88 | Announces | | Nevada announces| | Announces | | Announcement| -------------------------------- | acquisition of | | appintment of | | earnings results| | of Kelso | LTM Low (Unaffected) 20.00 | Senior Air | | R. Ratcliffe to | | for 4Q01 and | | proposal | -------------------------------- | Systems, UK- | | Executive VP and| | FY2001, net | | to acquire | 550 Average Unaffected Price: | based manu- | | COO position | | income of | | Nevada | -------------------------------- | facturer of air| -----------------| | $3.09/ share vs.| ----------------- 30 Day (Unaffected) 35.48 | conditioning | | | $3.71/share | | -------------------------------- | equipment | | | in 2000 | -------------- | 90 Day (Unaffected) 29.08 | ---------------- | ------------|---- | 3-Apr-02 | | -------------------------------- 50.00|-------------------------------------|---------------|------| Nevada sells |------- 500 180 Day (Unaffected) 27.17 | ----------------------- | | | subsidiary, | | -------------------------------- | | 31-Oct-01 | | | | Hoover | | 1 Year (Unaffected) 27.62 | | Nevada announces | | | | Treated Wood | | _________________________________ | | 3Q earnings of $2.41/ | | | | Products, | | | | share compred to | | | | Inc. | | 450 | | $3.29/share a year | | | -------------- | | | ago. Decline based on | | | | | | | general slowdown of | | | | | | | manufactured housing | | | | | | | market and cooler than| | | | X------------- 40.00|---------| normal weather plat- |---|---------------|---------|-----------------X 400 | | form | | | | | | -----------------------| | | | | | | | | X | | | | | | 350 | | | | | | | | | | | | | | | 30.00|---------------------------------|---|---------------|---------------------------| 300 X | -----X X | | | | | | | 250 | -------------- | | | 14-June-02 |--- ------------------------X | | Press | | 21-Sept-01 | | | speculation | 20.00 | Nevada sells |---------------X----------------------------| of |--- 200 | two of its | | additional | | fiberglass and | | parties | | steel door | | interest in | | manufacturing | | Nevada | | units to TPC | -------------- | acquisition | 150 ---------------- 10.00 --------------------------------------------------------------------------------- 100 50 0.00 --------------------------------------------------------------------------------- 0 17-Jun 30-Jul 17-Sept 29-Oct 11-Dec 25-Jan 11-Mar 23-Apr 17-Jun -01 -01 -01 -01 -01 -02 -02 -02 -02 __________________________________________________________________________________________ Morgan Stanley
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_________________ ================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------- RELATIVE PRICE PERFORMANCE ================================================================================== ---------------------------------------------------------------------------------- Indexed Price Performance Last Twelve Months ---------------------------------------------------------------------------------- [GRAPH OMITTED] Nevada Peer Index S&P 500 42.83% C 22.55% (14.18%) ---------------------------------------------------------------------------------- ____ Nevada _______S&P 500 ____ Peer Index(1) ================================================================================== Source: FactSet Note 1. Peer Group includes Mohawk, Masco, Stanley Works, Black & Decker, Aaon, Lennox, Masonite, Simpson, American Standard, York and NCI Building
Morgan Stanley SLIDE 14
_________________ ================================================================================== Project Patriot Overview of Nevada ---------------------------------------------------------------------------------- HISTORICAL FORWARD P/E RATIOS Last 4 Years ================================================================================== o Nortek's P/E is near its 4 year ---------------------------------------------------------------------------------- average and continues to trade at Forward (Next Twelve Months) P/E a discount to its peers ---------------------------------------------------------------------------------- - Average 38% discount over the last 4 years [GRAPH OMITTED] ---------------------------------------------------------------------------------- ____ Nortek _______S&P 500 ____ Peer Index(1) ================================================================================== Source: Factset Note 1. Peer Group includes Mohawk, Masco, Stanley Works, Black & Decker, Aaon, Lennox, Masonite, Simpson, American Standard, York and NCI Building Morgan Stanley
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_________________ ============================================================================================================ Project Patriot Overview of Nevada ----------------------------------------------------------------------------------------------------------- OVERVIEW OF NEVADA MANAGEMENT PROJECTIONS =========================================================================================================== ------------------------------------------------ ------------------------------------------------ Revenue EBITDA $MM $MM [BAR GRAPH OMITTED] [BAR GRAPH OMITTED] ------------------------------------------------ ------------------------------------------------ 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1,787 1,824 1,943 1,891 1,958 2,033 2,106 221 229 226 203 206 225 234 % 2.0% 6.6% (2.7)% 3.6% 3.8% 3.6% % 12.4% 12.5% 11.6% 10.7% 10.5% 11.1% 11.1% Growth Margin ________________________________________________ ________________________________________________ ------------------------------------------------ ------------------------------------------------ EBIT Net Income $MM $MM [BAR GRAPH OMITTED] [BAR GRAPH OMITTED] ------------------------------------------------ ------------------------------------------------ 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 162 184 181 156 159 177 185 37 55 57 45 49 62 73 % 9.1% 10.1% 9.3% 8.3% 8.1% 8.7% 8.8% % 51.3% 17.3% (22.1)% 8.6% 26.9% 18.5% Margin Growth ________________________________________________ ________________________________________________ Note 1. 2002-2007 based on Nevada management projections Morgan Stanley
SLIDE 16 _________________ Project Patriot ========================================================= Section 4 --------------------------------------------------------- VALUATION ANALYSIS ========================================================= Morgan Stanley SLIDE 17
_________________ =========================================================================================================== Project Patriot Valuation Analysis ----------------------------------------------------------------------------------------------------------- NEVADA VALUATION MATRIX =========================================================================================================== ------------------------------------------------------------------------------------------------------------------------- Nevada Valuation Matrix P/E (Equity Value/Net Income)(3) AV/EBITDA(3) Price Equity Aggregate -------------------------------- ---------------------------- Premium to Per Share Value(1) Value(2) LTM 2002 LTM 2002 Initial Bid ($) ($MM) ($MM) (x) (x) (x) (x) ------------------------------------------------------------------------------------------------------------------------- Statistic: $ 46 $ 55 $ 232 $ 229 ------------------------------------------------------------------------------------------------------------------------- (6.5%) 37.41 440 1,273 9.6 8.0 5.5 5.6 ------------------------------------------------------------------------------------------------------------------------- (5.0%) 38.00 448 1,281 9.8 8.1 5.5 5.6 ------------------------------------------------------------------------------------------------------------------------- (2.5%) 39.00 461 1,294 10.1 8.4 5.6 5.7 ------------------------------------------------------------------------------------------------------------------------- 0.0% 40.00 474 1,307 10.4 8.6 5.6 5.7 ------------------------------------------------------------------------------------------------------------------------- 2.5% 41.00 487 1,320 10.7 8.8 5.7 5.8 ------------------------------------------------------------------------------------------------------------------------- 5.0% 42.00 500 1,333 11.0 9.1 5.7 5.8 ------------------------------------------------------------------------------------------------------------------------- 7.5% 43.00 513 1,346 11.2 9.3 5.8 5.9 ------------------------------------------------------------------------------------------------------------------------- 10.0% 44.00 526 1,359 11.5 9.5 5.9 5.9 ------------------------------------------------------------------------------------------------------------------------- 12.5% 45.00 540 1,372 11.8 9.8 5.9 6.0 ------------------------------------------------------------------------------------------------------------------------- 15.0% 46.00 553 1,386 12.1 10.0 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 16.3% 46.50 559 1,392 12.2 10.1 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 17.5% 47.00 566 1,399 12.4 10.3 6.0 6.1 ------------------------------------------------------------------------------------------------------------------------- 20.0% 48.00 579 1,412 12.7 10.5 6.1 6.2 ------------------------------------------------------------------------------------------------------------------------- 22.5% 49.00 592 1,425 13.0 10.7 6.1 6.2 ------------------------------------------------------------------------------------------------------------------------- 25.0% 50.00 605 1,438 13.3 11.0 6.2 6.3 ------------------------------------------------------------------------------------------------------------------------- Notes 1. Assumes fully diluted shares outstanding using treasury method 2. Assumes $1,052MM of debt and $219MM of unrestricted cash outstanding based on 3/31/02 10Q 3. Nevada management projections for 2002 as of 5/10/02; all numbers from continuing operations Morgan Stanley
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_________________ ================================================================================== Project Patriot Valuation Analysis ---------------------------------------------------------------------------------- PRELIMINARY NEVADA VALUATION SUMMARY ================================================================================== ---------------------------------------------------------------------------------- Equity Value Per Share (1) $ ---------------------------------------------------------------------------------- [CHART OMITTED] 52-Week Trading Range (Unaffected) Selected Comparable Companies Analysis(1)(2) CY 2002 EBITDA Multiple 5.0x-6.0x CY 2002 P/E Multiple 6.4x-9.8x Selected Precedent Transaction Analysis(1) LTM EBITDA Multiple 5.5x-6.5x Break-up Analysis Discounted Cash Flow Analysis(1)(3) ================================================================================== Notes 1. Region with dotted line represents impact of unfunded severance obligation in the event of a change of control with the termination of senior Nevada management 2. Adjusted for Nevada's historical trading and relationship to its peers 3. Based on a terminal multiple of 5.5x to 6.5x LTM EBITDA and a discount rate of 10% Morgan Stanley
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_________________ ================================================================================== Project Patriot Valuation Analysis ---------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS Sensitivity Analysis ================================================================================== ---------------------------------------------------------------------------------- Value Per Nevada Share (1) 2003-2007 Net Sales Growth Rate -------------------------------------------------------------------------- 2.0% 3.0% 4.0% 5.0% -------------------------------------------------------------------------- 10.00% $19.94 $23.95 $28.13 $32.50 -------------------------------------------------------------------------- 2003-2007 10.50% 24.57 28.81 33.24 37.86 -------------------------------------------------------------------------- EBITDA 11.00% 29.20 33.68 38.34 43.22 -------------------------------------------------------------------------- Margin 11.50% 33.84 38.54 43.45 48.58 -------------------------------------------------------------------------- 12.00% 38.47 43.40 48.56 53.94 -------------------------------------------------------------------------- 12.50% 43.10 48.27 53.66 59.30 ========================================================================== Note 1. Assumes a 6.0x exit LTM EBITDA multiple on 12/31/07 Morgan Stanley
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_________________ =================================================================================== Project Patriot Valuation Analysis ----------------------------------------------------------------------------------- BREAK-UP ANALYSIS =================================================================================== ---------------------------------------------------------------------------------------------------- Break-up Analysis Multiple Range Pre-Tax Value After-Tax Value(4) ----------------- 2002 ---------------- ----------------- Low - High EBITDA Low - High Low - High ----------------------------------------------------------------------------------------------------- Residential Building Products 5.5x - 6.0x 120 661 - 721 561 - 597 ----------------------------------------------------------------------------------------------------- Windows, Doors and Siding 6.0x - 6.5x 74 444 - 481 422 - 444 ----------------------------------------------------------------------------------------------------- Heating, Ventilation 6.0x - 6.5x 75 450 - 488 354 - 377 and Air Conditioning ----------------------------------------------------------------------------------------------------- Total After-Tax Proceeds 1,555 - 1,689 1,337 - 1,419 ---------------------------------------------------------------------------------------------------- Net Debt(1) (783) (783) ---------------------------------------------------------------------------------------------------- Corpoate Overhead (50) - (25) ---------------------------------------------------------------------------------------------------- Net Change of Control (52) - (35) Severance(2) ---------------------------------------------------------------------------------------------------- Costs to Tender (102) - (99) Outstanding Bonds ---------------------------------------------------------------------------------------------------- Tax on Sale of WD&S (118) - (147) and HVAC(3) ---------------------------------------------------------------------------------------------------- Equity Value 450 - 600 ---------------------------------------------------------------------------------------------------- Total Fully Diluted 13.1 - 13.1 Shares Outstanding ---------------------------------------------------------------------------------------------------- Value Per Share $34.38 - $45.82 ==================================================================================================== Notes 1. Assumes $1,052MM of debt and $219MM of unrestricted cash based on 3/31/02 10Q. Includes option proceeds of $50MM 2. Assumes change of control with termination of employment 3. Assumes stock tax basis of $404MM for Residential Building Products segment, $388MM for Windows, Doors and Siding segment, $205MM for Heating, Ventilation and Air Conditioning segment, and tax rate of 39% Morgan Stanley
SLIDE 21 _________________ Project Patriot ========================================================= Appendix A --------------------------------------------------------- COMPARABLE COMPANIES ANALYSIS ========================================================= Morgan Stanley SLIDE 22
_________________ Project Patriot ================================================================================================================ Comparable Companies Analysis ---------------------------------------------------------------------------------------------------------------- COMPARABLE COMPANY ANALYSIS (1) 2002 Multiples ================================================================================================================ ================================================================================================================ Price/Earnings ---------------------------------------------------------------------------------------------------------------- [BAR GRAPH OMITTED] HVAC Median 20.0 17.8 17.2 16.8 16.6 15.2 15.2 14.7 14.0 11.8 11.7 8.0 16.0x Lennox Masco Aaon Simpson Black & Stanley Mohawk American Masonite NCI York Nortek Decker Works Standard RBP & WDS Median 15.2X ================================================================================================================ ================================================================================================================ Aggregate Value/EBITDA --------------------------------------------------------------------------------------------------------------- [BAR GRAPH OMITTED] RBP & WDS Median 10.3 9.0 8.9 8.9 8.6 8.3 8.1 7.4 6.7 5.6 NA NA 8.9x Masco Mohawk Black& Stanley American Masonite Lennox York NCI Nortek Aaon Simmpson Decker Works Standard HVAC Median 8.1x ================================================================================================================ Note 1. Based on June 18, 2002 closing prices & I/B/E/S estimates; Nortek multiples calculated using unaffected price of $37.41 (4/5/02) Morgan Stanley
SLIDE 23 _________________ Project Patriot ========================================================= Appendix B --------------------------------------------------------- PRECEDENT TRANSACTION ANALYSIS ========================================================= Morgan Stanley SLIDE 24
_________________ ============================================================================================================= Project Patriot Precedent Transaction Analysis ------------------------------------------------------------------------------------------------------------- PRECEDENT TRANSACTIONS ANALYSIS Heating, Ventilation and Air Conditioning / Windows, Doors and Siding ============================================================================================================= ============================================================================================================= Heating, Premiums Paid in Selected Precedent Transacitons Ventilation Heating, Ventilation and Air Conditioning and Air Conditioning Equity Value/ Aggregate Value/LTM Equity Agg. LTM ----------------------- Value Value Net Revenue EBITDA EBIT Date Paid Paid Income ----------------------- Announced Acquiror Name Target Name ($MM) ($MM) (x) (x) (x) (x) ------------------------------------------------------------------------------------------------------------- 03/12/2001 SPX Corp United Dominion 954 1,830 10.1 0.8 6.0 8.1 Industries Ltd ------------------------------------------------------------------------------------------------------------- 10/27/1999 Lennox Service 157 258 10.6 0.5 5.8 7.7 International Experts Inc. Inc ------------------------------------------------------------------------------------------------------------- 06/24/1999 Carrier Corp International 495 732 15.6 1.0 10.1 13.2 (United Tech Corp) Comfort Products ------------------------------------------------------------------------------------------------------------- 03/23/1999 ServiceMaster Co American 91 248 8.2 0.5 7.5 11.5 Residential Services ------------------------------------------------------------------------------------------------------------- Mean 11.1 0.7 7.3 10.1 ------------------------------------------------------------------------------------------------------------- Median 10.3 0.6 6.7 9.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ============================================================================================================= Windows, Doors Premiums Paid in Selected Precedent Transacitons and Siding Windows, Doors and Siding ------------------------------------------------------------------------------------------------------------- Agg. Aggregate Value/ Value Sales EBITDA Date Target/Acquiror Target Business Description (US$MM) (x) (x) ------------------------------------------------------------------------------------------------------------- 3/17/02 Associated Materials/ Manufactures exterior residential 407.3 0.7 6.6 Harvest Partners building products; specializes in vinyl siding and vinyl windows ------------------------------------------------------------------------------------------------------------- 3/12/01 Anglian Group plc/ Manufactures, sells and installs 236.6 0.6 4.7 Naiglan Investments building products including double glazed windows, doors, conservatories and related products for domestic, public and commercial installation ------------------------------------------------------------------------------------------------------------- 10/2/00 Masonite/Premdor(1)(2) Leading manufacturer of molded door 523.0 1.7 7.0 facings and wood composite materials including siding and exterior trims ------------------------------------------------------------------------------------------------------------- Mean 1.0 6.1 ------------------------------------------------------------------------------------------------------------- Median 0.7 6.6 ------------------------------------------------------------------------------------------------------------- Notes 1. Masonite LTM figures derived from 6 month 2000 and half a year of full year 1999 2. Masonite aggregate value assumed to be transaction value Morgan Stanley
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_________________ ================================================================================== Project Patriot Precedent Transaction Analysis ---------------------------------------------------------------------------------- PRECEDENT TRANSACTIONS ANALYSIS Residential Building Products ================================================================================== ================================================================================== Residential Premiums Paid in Selected Precedent Transacitons Building Residential Building Products Products ------------------------------------------------------------------------------------------------------------- Agg. Aggregate Value/ Value Sales EBITDA Date Target/Acquiror Target Business Description (US$MM) (x) (x) ------------------------------------------------------------------------------------------------------------- 11/20/2001 Dal-Tile International/ Manufactures ceramic tiles; 1,441.4 1.5 8.3 Mohawk Industries also sells installation materials and tools ------------------------------------------------------------------------------------------------------------- 12/19/2000 Johns Manville / Manufactures fiber glass products, 2,104.1 1.0 4.6 Berkshire Hathaway lumber, plywood, paper and paper products, light fixtures and roofing materals ------------------------------------------------------------------------------------------------------------- 11/29/2000 BSI Holdings and One of the Northeast's leading 719.0 1.0 5.7 Davenport Insulation/ providers of insulation installation Masco(1) services. Services include thermal performance calculations, air filtration and radon mitigation, fireplace design and insulation installation ------------------------------------------------------------------------------------------------------------- 9/6/2000 Shaw Industries/ World's largest residential and 3,338.3 0.8 6.4 Berkshire Hathaway commercial carpet maker ------------------------------------------------------------------------------------------------------------- 2/11/2000 Cameron Ashley/ Wholesale a broad line of building Guardian products, including millwork, 330.3 0.3 6.4 roofing, pool and patio enclosure materials, insulation, siding, steel products, and industrial metals that are used principally in home improvement, remodeling, repair work and new resident ------------------------------------------------------------------------------------------------------------- Mean 0.9 6.3 ------------------------------------------------------------------------------------------------------------- Median 1.0 6.4 ------------------------------------------------------------------------------------------------------------- Note 1. Assumes BSI and Davenport depreciation and amortization is 3% of sales Morgan Stanley
SLIDE 26 _________________ Project Patriot ========================================================= Appendix C --------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS ========================================================= Morgan Stanley Slide 27
_________________ ======================================================================================================== Project Patriot Discounted Cash Flow Analysis -------------------------------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS Based on Nevada Management Projections ======================================================================================================== ================================================================================================================================ Discounted Cash Flow Analysis LTM EBITDA 5.5 6.0 6.5 Multiple(x) ----------------------------------- ------------------------------ --------------------------------- ($MM) Discount Rate 9.0% 10.0% 11.0% 9.0% 10.0% 11.0% 9.0% 10.0% 11.0% ================================================================================================================================ Present Value _________________________________ __________________________________ _______________________________ Cash Flows - 2H 2002 | 48 48 47 | 48 48 47 | 48 48 47 | Cash Flows - 2003-2007 | 353 344 335 | 353 344 335 | 353 344 335 | Terminus | 800 760 723 | 872 829 789 | 945 899 855 | | -------------------------------|----------------------------------|------------------------------| Aggregate Value | 1,200 1,151 1,106 | 1,273 1,221 1,171 | 1,345 1,290 1,237 | | -------------------------------|----------------------------------|------------------------------| Total Debt (6/30/02) | (1,052) (1,052) (1,052) | (1,052) (1,052) (1,052) | (1,052) (1,052) (1,052)| Cash (6/30/02) | 219 219 219 | 219 219 219 | 219 219 219 | Cash From Option Holders | 50 50 50 | 50 50 50 | 50 50 50 | | -------------------------------|----------------------------------|------------------------------| Equity Value | 416 368 322 | 489 437 388 | 562 506 454 | Total Shares Outstanding | 13.1 13.1 13.1 | 13.1 13.1 13.1 | 13.1 13.1 13.1 | Price Per Share | 31.82 28.12 24.62 | 37.37 33.40 29.65 | 42.92 38.68 34.67 | | -------------------------------|----------------------------------|------------------------------| Terminal Value Analysis | | | | | | | | % Value in Terminus | 66.6% 66.0% 65.4% | 68.5% 68.0% 67.4% | 70.2% 69.7% 69.1%| % Value in Cash Flows | 33.4% 34.0% 34.6% | 31.5% 32.0% 32.6% | 29.8% 30.3% 30.9%| | | | | ____________________________|_________________________________|__________________________________|_______________________________ Morgan Stanley