Item 2.02 Results of Operations and Financial Condition.
Selected Estimated Fourth Quarter 2007 Results
The following is an
estimate of the preliminary unaudited financial results of Goodman Global, Inc. (Goodman or the Company) for the three months ended December 31, 2007. Neither the review of the financial statements for the three months
ended December 31, 2007 nor the audit as of and for the year ended December 31, 2007 has been completed, and therefore these results may be subject to adjustment.
The Company expects:
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Net sales for the three months ended December 31, 2007 to be approximately $424.5 million, compared to $392.4 million for the same period of 2006, estimated to
result from
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An increase in unit volume of approximately 6% due to a maturing dealer and customer base;
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A higher average selling price due to the increased mix of higher SEER products, and
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Continued market share gains in replacement and new construction applications;
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EBITDA for the three months ended December 31, 2007 to be approximately $51.1 million, compared to $48.5 million for the same period of 2006 ($44.3 million
after giving hedge accounting treatment to commodities derivatives in 2006), estimated to result from
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Higher sales and production volumes;
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Higher margins on new design 13 SEER product platform;
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Favorable commodity costs; and
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Strong improvements in factory efficiency and productivity;
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Net income for the three months ended December 31, 2007 to be approximately $14.7 million, compared to $13.9 million for the same period of 2006 ($11.2 million
after giving hedge accounting treatment to commodities derivatives in 2006); and
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Cash interest expense to be approximately $28.7 million compared to $26.7 million for the same period of 2006.
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The Company also estimates that during the fourth quarter:
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It generated cash from operations of approximately $45.0 million compared to 2006 fourth quarter cash from operations of $54.4 million. 2007 year end inventory is
expected to be approximately $9 million lower than at the end of the 2007 third quarter; and
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It made capital expenditures of approximately $6.1 million for purchases of property plant and equipment, compared to $7.9 million of such purchases in the prior
years fourth quarter.
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Including the quarters beginning balance of cash and cash equivalents, Goodman expects to have used
approximately $180.0 million to reduce outstanding debt during the fourth quarter of 2007.
Given the preliminary nature of the Companys estimates,
Goodmans actual net sales, net income, EBITDA, cash interest expense, cash from operations, inventory, capital expenditures, cash employed to reduce debt and 2007 year-end debt levels may be materially different from the Companys current
expectations.
2
Selected Estimated Full Year 2007 Highlights
Combining Goodmans September 30, 2007 year-to-date results with the above estimates of the Companys preliminary unaudited financial results for the three months ended December 31, 2007, the
Companys full year 2007 results compared to the prior years results would show:
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Net sales increased approximately 8%, including a beneficial mix shift and increases in average prices and market share;
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EBITDA as a percent of net sales of approximately 13.7%, over 200 basis point above the prior years 11.6% EBITDA as a percent of net sales (100 basis points
above the prior years 12.7% Adjusted EBITDA as a percent of net sales);
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Lower levels of inventory and higher inventory turns; and
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Reduced debt and reduced leverage.
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Selected
Estimated and Pro Forma Data
($ in millions)
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Year Ended December 31, 2007
(Estimate)(1)
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Year Ended December 31, 2007
(Pro Forma)(2)
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Net Sales
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1934.0
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1794.8
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EBITDA
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265.0
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265.0
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Adjusted EBITDA
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267.1
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267.1
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Cash Interest Expense(3)
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64.3
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133.4
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Capital Expenditures
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28.2
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28.2
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Cash and Cash Equivalents
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25.0
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Senior Secured Debt
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76.1
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900.0
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Senior Debt
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255.4
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900.0
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Total Debt
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655.4
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1400.0
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(1)
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See Selected Estimated Fourth Quarter 2007 Results and Selected Estimated Full Year 2007 Highlights for a discussion of certain estimates.
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(2)
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Gives pro forma effect to the proposed acquisition of Goodman, the related financing transactions, and other related transactions as if they occurred on January 1, 2007.
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(3)
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At the Companys election, the new senior subordinated notes to be issued in connection with the acquisition will ear interest at either 13.5% cash interest or 11.0% cash
interest/3.0% PIK interest. Pro Forma Cash Interest Expense assumes 11.0% cash interest/3.0% PIK interest.
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NonGAAP Financial
Measures
In addition to financial results that are determined in accordance with GAAP, this report also contains EBITDA and adjusted EBITDA, both of
which are nonGAAP measures. Management believes that the presentation of these nonGAAP financial measures enables investors to better understand the Companys underlying operational and financial performance and facilitates
comparison of results between periods by eliminating the effects of unusual and nonrecurring events that are not part of Goodmans core operations. These measures should be considered in addition to, not as substitutes for, GAAP measures.
They should not be considered as an alternative to operating income, net income or earnings per share, determined in accordance with GAAP; as an indicator of Goodmans operating performance; as an alternative to cash flows from operating
activities, determined in accordance with GAAP; or as a measure of liquidity.
EBITDA, or earnings before interest, taxes, depreciation and amortization,
is calculated as net income plus interest, taxes, depreciation and amortization. Adjusted EBITDA is calculated to exclude the income and expenses of onetime and nonrecurring events. These include, primarily, stock based compensation,
non-recurring Apollo monitoring fees and non-cash asset impairment charges. EBITDA is commonly used in the financial community,
3
and Goodman presents EBITDA to enhance the understanding of its operating performance. Goodman uses EBITDA as one
criterion for evaluating its performance relative to that of its peers. The Companys credit agreement and bond indentures have certain covenants that use ratios utilizing a measure called adjusted EBITDA. In addition, EBITDA may be used to
determine incentive compensation for employees. Goodman believes that EBITDA is an operating performance measure, not a liquidity measure, and that EBITDA provides investors and analysts with a measure of operating results unaffected by differences
in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States, and
Goodmans EBITDA may not be comparable to similarly titled measures of other companies.
The supplementary adjustments to EBITDA to derive adjusted
EBITDA may not be in accordance with current SEC practices or the rules and regulations adopted by the SEC that apply to periodic reports filed under the Securities Exchange Act of 1934. Accordingly, the SEC may require that these measures be
presented differently in filings made with the SEC than as presented in this report, or not be presented at all.
Reconciliation of Net
Income to EBITDA and Adjusted EBITDA
(Unaudited)
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Three Months Ended
December 31,
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2007 (Estimated)
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2006
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(in millions)
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Net Income
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$
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14.7
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$
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13.9
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Add:
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Provision for income taxes
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8.9
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7.7
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Interest expense, net
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18.1
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18.0
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Depreciation and amortization expense
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9.3
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8.8
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EBITDA
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$
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51
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$
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48
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Adjustments:
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Stock based compensation
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1.0
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0.7
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Adjustment for straight line rents
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0.3
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Other Non-cash items
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(2.8
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Net gain on property sale
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Unrealized gains on commodity derivative
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(4.2
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Adjusted EBITDA
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$
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52
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$
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42
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Twelve Months Ended
December 31,
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2007 (Estimated)
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2006
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(in millions)
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Net Income
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$
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101.4
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$
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64.2
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Add:
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Provision for income taxes
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60.1
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34.2
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Interest expense, net
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68.4
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77.8
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Depreciation and amortization expense
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35.1
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32.6
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EBITDA
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$
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265.0
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$
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208.8
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Adjustments:
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Monitoring fees
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0.6
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Stock based compensation
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3.4
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2.7
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Adjustment for straight line rents
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0.8
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Other Non-cash charges
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1.4
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Net gain on property sale
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(3.5
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(0.3
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IPO-related expenses
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16.1
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Adjusted EBITDA
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$
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267.1
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$
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227.9
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4
The above information is being furnished pursuant to Item 2.02 of Form 8K. Accordingly, the information in
Item 2.02 of this report shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed incorporated by reference into any filing by the Company under the