NORTEK INC PROVIDENCE, R.I., May 4, 2015 /PRNewswire/ -- Nortek, Inc. (Nasdaq: NTK), a global diversified industrial company with leading brands and innovative air management and technology-driven solutions for residential and commercial applications, today announced financial results for the three-month period ended March 28, 2015.
First Quarter 2015 Consolidated Highlights
-- Net sales increased 4.5% to $572.7 million, from $547.8 million in the
first quarter of 2014. Acquisitions contributed $53.1 million to net
sales for the first quarter of 2015. Excluding acquisitions and the
impact of foreign exchange translation, net sales decreased 3.4%.
-- GAAP operating earnings declined to $7.7 million, from $12.5 million in
the first quarter of 2014. Acquisitions contributed $2.9 million to GAAP
operating earnings, including the impact of accounting for the fair
value of assets acquired and liabilities assumed.
-- Adjusted operating earnings* decreased 15.8% to $15.4 million, from
$18.3 million in the first quarter of 2014. Adjusted operating margin
was 2.7%, compared with 3.3% in the prior year period. Acquisitions
contributed $3.5 million to adjusted operating earnings, including the
impact of accounting for the fair value of assets acquired and
liabilities assumed.
-- Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA)* rose to $46.0 million, from $43.5 million in the first quarter
of 2014. Adjusted EBITDA margin increased to 8.0% from 7.9% in the prior
year period. Acquisitions contributed $9.1 million to the increase in
adjusted EBITDA.
-- GAAP net loss was $13.9 million, or $0.87 loss per diluted share,
compared to GAAP net loss of $8.6 million, or $0.55 loss per diluted
share, in the first quarter of 2014.
-- Net cash used in operating activities was $55.3 million, compared with
$52.6 million in the first quarter of 2014. Capital expenditures were
$10.1 million, compared with $7.9 million in last year's first quarter.
Free cash flow, which is defined as net cash used in operating
activities minus capital expenditures, was negative $65.4 million,
compared with negative $60.5 million in the first quarter of 2014.
-- As of March 28, 2015, Nortek had $43.7 million of unrestricted cash and
cash equivalents on its balance sheet, compared with $58.4 million on
December 31, 2014.
-- As of March 28, 2015, Nortek had $105.0 million of borrowings
outstanding under its ABL facility, including approximately $50.0
million used for the acquisition of Anthro Corporation, and on April 30,
2015 had $165.0 million outstanding. Nortek had no borrowings
outstanding on December 31, 2014.
* See appendix for reconciliation to most comparable GAAP equivalent.
Management Comments on the First Quarter
"Nortek's results were in line with our expectations for the first quarter," said President and Chief Executive Officer Michael J. Clarke. "While the first quarter is typically our seasonal low point, our Reznor acquisition, along with organic growth in our Air Quality, Security and Ergonomics businesses, helped deliver a 4.5% year-over-year net sales increase. This was partially offset by anticipated declines in our Custom Air and HVAC segments, reflecting lower sales to a major customer in Custom Air and demand shifts that caused a tough year-over-year comparison in HVAC. For our AV businesses, although sales were down in the quarter, our operating loss was reduced year-over-year, reflecting, in part, the restructuring and repositioning actions taken in the second half of 2014. Our results also reflected organic improvements in operating earnings and margins across our Air Quality, Security and Ergonomics businesses, highlighting our ability to leverage net sales growth in these segments."
First Quarter 2015 Segment Highlights
-- Net sales in the Air Quality & Home Solutions (AQH) segment were down
1.8% (up 1.6% on a constant currency basis) compared to the first
quarter of 2014. The increase on a constant currency basis was primarily
driven by higher U.S. sales into the retail and appliance channels.
-- In the Security & Control Solutions (SCS) segment, net sales increased
13.1% from last year's first quarter. The increase was driven by higher
sales of security products to certain OEM customers.
-- Net sales in the Ergonomic & Productivity Solutions (ERG) segment were
up 14.9% (up 5.0% excluding the Anthro acquisition) from the first
quarter last year. The organic increase in net sales was driven by
higher Ergotron branded sales, partially offset by lower sales to OEM
and retail customers.
-- In the Residential & Commercial HVAC (RCH) segment, net sales increased
22.9% (decreased 23.7% excluding acquisitions) compared with the first
quarter of 2014. Excluding acquisitions, as anticipated, net sales
decreased approximately $23.9 million, reflecting both the comparative
effect of a strong first quarter last year and reduced demand from
certain customers related to the increase in minimum energy efficiency
standards in 2015. These standard changes benefited net sales in the RCH
segment in the fourth quarter of 2014.
-- Net sales in the Custom & Commercial Air Solutions (CAS) segment were
down 10.3% (down 6.8% on a constant currency basis) compared with the
first quarter of 2014. The decrease reflected the anticipated decline in
sales to a major U.S. semiconductor capital equipment customer whose
demand for our products is cyclical. Excluding business with this
customer and the impact of foreign exchange translation, net sales
increased more than 10% in the first quarter of 2015. In addition,
challenging market conditions in Europe and operational inefficiencies
impacted performance during the quarter. Nortek is implementing a series
of actions to address these issues including discontinuing certain
non-strategic and unprofitable product lines and consolidating certain
production activities in North America and Europe.
-- In the Audio, Video & Control Solutions (AVC) segments, net sales
decreased 9.5% compared to last year's first quarter. The decrease
primarily reflected lower sales of professional video signal management
products.
Management Comments on the Outlook
"We expect 2015 to be a year of continued improvement in residential and nonresidential construction, and our Air Quality and Custom Air segments should benefit from this improvement," Clarke said. "We also anticipate increased demand in the markets served by our Security and Ergonomics segments. In our HVAC segment, we expect continued strong performance from the Reznor acquisition. We also expect, however, that the pre-buy related to the regulatory change will be a continued headwind in the second quarter. While we anticipate the Custom Air segment will face another difficult comparison in the second quarter, due mainly to the impact of our major customer, we do expect to see improved year-over-year sales for the remainder of 2015 based on our strong order input and increased backlog with other customers. With favorable conditions in our end markets, and product development and operational improvement programs underway, Nortek is well-positioned to deliver profitable growth and maximize long-term value for our shareholders as 2015 unfolds."
Conference Call Details
Nortek has scheduled a conference call to review its first-quarter 2015 results tomorrow, May 5, 2015, at 9:00 a.m. ET. Those who wish to listen to the conference call webcast should visit the Investor Relations section of the Company's website at www.nortek.com. The live call also can be accessed by dialing (877) 709-8155 or (201) 689-8881 prior to the start of the call. For those who are unable to listen to the live call, the webcast will be archived on the Company's website. An accompanying slide presentation also will be available on the website.
About Nortek
Nortek is a global, diversified industrial company whose many market-leading brands deliver broad capabilities and a wide array of innovative, technology-driven products and solutions for lifestyle improvement at home and at work. The Company's broad array of offerings includes ventilation products such as range hoods and bathroom fans, security and audio/video solutions, heating and cooling products, air management systems, and ergonomic and productivity solutions.
As used herein, the term "Nortek" refers to Nortek, Inc., together with its subsidiaries, unless the context indicates otherwise. This term is used for convenience only and is not intended as a precise description of any of the separate corporations, each of which manages its own affairs.
Safe Harbor Statement
In this press release, we discuss and analyze the results of operations and financial condition of Nortek, Inc. and its wholly owned subsidiaries. In addition to historical information, we also make statements relating to the future, called "forward-looking" statements, which are provided under the "safe harbor" protection of the U.S. Private Securities Litigation Reform Act of 1995. When used in this press release, words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "intend," "may," "plan," "potential," "project," "seek," "should," "will," or "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on Nortek's current plans and expectations and involve risks and uncertainties, over which we have 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: global economic conditions; the level of domestic and foreign construction and remodeling activity affecting residential and commercial markets; the availability and cost of certain raw materials and purchased components (including, among others, steel, copper, aluminum, electronics, motors, plastics, compressors, various chemicals and paints, and packaging); compliance with conflict minerals regulations; weather fluctuations; acquisition and integration risks; the success of our operational improvement initiatives; potential restructurings and business shutdowns; competition; foreign economic and political conditions; increased costs associated with regulatory compliance, including environmental, health and safety laws and the U.S. Foreign Corrupt Practices Act; foreign currency fluctuations; international business practices; maintaining good relationships with customers and suppliers; labor disruptions; product innovations and improvements; product and warranty liability claims; product recalls or reworks; employment levels; intellectual property rights; security breaches; maintaining pension plans; changes in tax law; and our ability to service our indebtedness. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Nortek undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For further information, readers are urged to carefully review and consider the reports and filings of Nortek with the Securities and Exchange Commission including the description of "risk factors" set forth under Item 1A in our Annual Report on Form 10-K and any further disclosures the Company makes on related subjects in subsequent reports filed with the SEC.
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
For the first quarter ended
---------------------------
March 28, 2015 March 29, 2014
-------------- --------------
(Dollar amounts in millions,
except per share data)
Net Sales $572.7 $547.8
Cost of products sold 405.9 393.5
----- -----
Gross profit 166.8 154.3
Selling, general and
administrative expense,
net 143.3 128.2
Amortization of intangible
assets 15.8 13.6
---- ----
Operating earnings 7.7 12.5
Net interest expense (27.2) (24.1)
----- -----
Loss before benefit from
income taxes (19.5) (11.6)
Benefit from income taxes (5.6) (3.0)
---- ----
Net loss $(13.9) $(8.6)
====== =====
Basic loss per share $(0.87) $(0.55)
====== ======
Diluted loss per share $(0.87) $(0.55)
====== ======
Weighted Average Common
Shares:
Basic 15,909,464 15,496,151
Diluted 15,909,464 15,496,151
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions)
March 28, 2015 December 31, 2014
-------------- -----------------
ASSETS
Current
Assets:
Unrestricted
cash and
cash
equivalents $43.7 $58.4
Restricted
cash 0.5 0.6
Accounts
receivable,
less
allowances 349.1 324.9
Net
inventories 414.8 374.3
Prepaid
expenses 22.1 18.4
Other
current
assets 11.3 10.1
Tax
refunds
receivable 7.0 8.0
Deferred
tax
assets 37.5 28.1
---- ----
Total
current
assets 886.0 822.8
----- -----
Long-Term
Assets:
Total
property
and
equipment,
net 230.0 238.0
Goodwill 499.5 474.3
Intangible
assets,
less
accumulated
amortization 646.8 642.6
Deferred
debt
expense 16.4 17.3
Other
assets 14.4 14.1
---- ----
1,407.1 1,386.3
-------
Total
Assets $2,293.1 $2,209.1
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current
Liabilities:
Short-
term bank
obligations $0.4 $0.6
Current
maturities
of long-
term debt 7.7 6.3
Accounts
payable 280.2 288.8
Accrued
expenses
and taxes 238.5 222.4
----- -----
Total
current
liabilities 526.8 518.1
----- -----
Other
Liabilities:
Deferred
income
taxes 121.7 123.5
Other 180.5 185.9
----- -----
302.2 309.4
----- -----
Notes,
Mortgage
Notes and
Obligations
Payable,
Less
Current
Maturities 1,441.8 1,339.4
------- -------
Total
stockholders'
investment 22.3 42.2
---- ----
Total
Liabilities
and
Stockholders'
Investment $2,293.1 $2,209.1
======== ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the first quarter ended
---------------------------
March 28, 2015 March 29, 2014
-------------- --------------
(Dollar amounts in millions)
Cash
flows
from
operating
activities:
Net
cash
used
in
operating
activities $(55.3) $(52.6)
------ ------
Cash
flows
from
investing
activities:
Capital
expenditures (10.1) (7.9)
Net
cash
paid
for
businesses
acquired (51.8) -
Proceeds
from
the
sale
of
property
and
equipment 0.1 1.3
Change
in
restricted
cash
and
marketable
securities 0.1 -
Other,
net 0.1 (0.4)
--- ----
Net
cash
used
in
investing
activities (61.6) (7.0)
----- ----
Cash
flows
from
financing
activities:
Proceeds
from
ABL
and
other
borrowings 155.6 40.7
Payment
of ABL
and
other
borrowings (51.6) (6.6)
Net use
from
equity
transactions (1.8) (4.0)
Other,
net - (0.3)
--- ----
Net
cash
provided
by
financing
activities 102.2 29.8
----- ----
Net
change
in
unrestricted
cash
and
cash
equivalents (14.7) (29.8)
Unrestricted
cash
and
cash
equivalents
at the
beginning
of the
period 58.4 80.9
---- ----
Unrestricted
cash
and
cash
equivalents
at the
end of
the
period $43.7 $51.1
===== =====
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NORTEK, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
(A) Nortek, Inc. ("Nortek") and all of its wholly owned subsidiaries, collectively the "Company," is a global, diversified company whose many market-leading brands deliver broad capabilities and a wide array of innovative, technology-driven products and solutions for lifestyle improvement at home and at work. Operating within five primary reporting segments, the Company manufactures and sells, primarily in the United States, Canada and Europe, with additional manufacturing in China and Mexico, a wide variety of products for the remodeling and replacement markets, the residential and commercial new construction markets, the manufactured housing market, and the personal and enterprise computer markets.
The Company operates on a calendar year, and each interim period is comprised of two 4-week periods and one 5-week period, with each week ending on a Saturday. The Company's fiscal year always begins on January 1 and ends on December 31. As a result, the Company's first and fourth quarters may have more or less days included than a traditional 4-4-5 fiscal calendar, which consists of 91 days. The three months ended March 28, 2015 ("first quarter of 2015") and March 29, 2014 ("first quarter of 2014") include 87 days and 88 days, respectively.
The accompanying unaudited condensed consolidated summary of operations reflects the accounts of Nortek and all of its wholly-owned subsidiaries after elimination of intercompany accounts and transactions. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation.
This unaudited condensed consolidated summary of operations should be read in conjunction with the consolidated financial statements and the notes included in the Company's latest annual report on Form 10-K, as may be updated by quarterly reports on Form 10-Q, and current reports on Form 8-K as filed with the Securities and Exchange Commission.
(B) The Company has supplemented the reporting of financial information determined under U.S. generally accepted accounting principles ("GAAP") with certain non-GAAP financial measures, which the Company refers to as "adjusted" measures, including adjusted operating earnings and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Adjusted operating earnings is defined as operating earnings as reported, adjusted to exclude certain cash and non-cash, non-recurring items that are otherwise included in operating earnings. Adjusted EBITDA is defined as adjusted operating earnings, further adjusted to exclude depreciation and amortization expense, and share-based compensation expense.
Adjusted operating earnings and EBITDA are not defined terms under GAAP. Neither should be considered as an alternative to operating earnings or net earnings (loss) as a measure of operating results. There are material limitations associated with making the adjustments to the Company's earnings to calculate adjusted operating earnings and EBITDA, and using these non-GAAP financial measures as compared to the most directly comparable GAAP financial measures. For instance, adjusted operating earnings and EBITDA do not include:
-- interest expense, and, because the Company has borrowed money in order
to finance its operations, interest expense is a necessary element of
the Company's costs and ability to generate revenue;
-- income tax expense, and because the payment of taxes is part of the
Company's operations, tax expense is a necessary element of its costs
and ability to operate; or
-- certain cash and non-cash, non-recurring items, and share-based
compensation expense, and, because such items can, at times, affect the
Company's operating results, the exclusion of such items is a material
limitation.
Further, adjusted EBITDA does not include depreciation and amortization expense, and, because the Company uses capital assets, depreciation and amortization expense is a necessary element of its costs and ability to generate revenue.
The Company presents adjusted operating earnings and EBITDA because it considers them important supplemental measures of its performance and believes they are frequently used by the Company's investors and other interested parties, as well as by management, in the evaluation of other companies in its industry. In addition, adjusted operating earnings and EBITDA provide additional information used by the Company's management and Board of Directors to facilitate internal comparisons to historical operating performance of prior periods. Further, management believes that adjusted operating earnings and EBITDA facilitate operating performance comparisons from period to period because it excludes potential differences caused by variations in capital structure (affecting interest expense), tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting depreciation expense).
While adjusted operating earnings and EBITDA are frequently used as measures of operations and the ability to meet debt service requirements by other companies, the Company's use of this financial measure is not necessarily comparable to such other similarly titled captions of other companies. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review Company financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The following table reconciles operating earnings to adjusted operating earnings and EBITDA for the first quarters ended March 28, 2015 and March 29, 2014:
For the first quarter ended
March 28, 2015 March 29, 2014
-------------- --------------
(Dollar amounts in millions)
Operating earnings $7.7 $12.5
Restructuring and
transformation
charges (a) 6.5 3.8
Other Adjustments:
Non-recurring
losses (b) 1.0 0.5
Acquisition fees
and expenses 0.1 2.0
Gain on sale of
assets - (0.2)
Joint venture
income (0.2) (0.3)
Net foreign
exchange losses
(c) 0.3 -
Subtotal -Other
Adjustments 1.2 2.0
--- ---
Adjusted Operating
Earnings 15.4 18.3
Depreciation and
amortization
expense 28.7 23.5
Share-based
compensation
expense 1.9 1.7
--- ---
Adjusted EBITDA (d) $46.0 $43.5
===== =====
(a) Includes all restructuring charges, including severance, relocation and transformation/transition costs. Costs associated with these activities for the first quarters ended March 28, 2015 and March 29, 2014 were as follows:
For the first quarter
ended
March 28, March 29,
2015 2014
---------- ----------
(Dollar amounts in
millions)
Subsidiary Combinations $0.1 $0.1
Manufacturing Rationalization &
Relocation Initiatives 2.7 1.7
Warehousing & Distribution
Consolidation 2.1 1.3
Other operational improvement
initiatives 0.8 0.7
All other exit and disposal
activities 0.8 -
---
$6.5 $3.8
==== ====
(b) For the first quarter ended March 28, 2015, this amount includes approximately $1.0 million in legal and other professional services incurred related to the FCPA investigation in the SCS segment.
For the first quarter ended March 29, 2014, this amount includes (1) severance of approximately $0.4 million related to headcount reductions in the CAS segment, and (2) amortization of approximately $0.1 million to record leasehold fair value adjustments.
(c) Non-cash foreign exchange (gains) losses relate to intercompany debt not indefinitely invested in our subsidiaries.
(d) See the Company's Form 10-Q for the quarterly period ended March 28, 2015 for information pertaining to the pro forma effect of acquisitions, which is not reflected in the above presentation of Adjusted EBITDA.
Contact:
Michael Botelho
Vice President, Strategy and Investor Relations
Nortek, Inc.
401.751.1600
michael.botelho@nortek.com
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SOURCE Nortek, Inc.
