jul0409_10qntk.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 333-152934

Nortek, Inc.
(exact name of registrant as specified in its charter)

Delaware	05-0314991
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

50 Kennedy Plaza Providence, Rhode Island	02903-2360
(Address of principal executive offices)	(zip code)

Registrant’s Telephone Number, Including Area Code: (401) 751-1600

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether 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 [_]No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [_]No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer [_]

Accelerated filer [_]

Non-accelerated filer [X]

Smaller reporting company [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [_]No [X]

There is no established public trading market for any of the common stock of the Company. The aggregate market value of voting stock held by non-affiliates is zero.

The number of shares of Common Stock outstanding as of August 21, 2009 was 3,000.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Dollar amounts in millions, except share data)

	July 4,			December 31,
	2009			2008
Assets
Current Assets:
Unrestricted cash and cash equivalents	$	172.0		$	182.2
Restricted cash		0.8			0.7
Accounts receivable, less allowances
of $14.1 and $14.5		260.8			260.3
Inventories:
Raw materials		78.3			86.0
Work in process		22.8			26.9
Finished goods		161.1			183.4
		262.2			296.3

Prepaid expenses		12.7			12.8
Other current assets		8.7			9.5
Prepaid income taxes		9.6			11.0
Total current assets		726.8			772.8

Property and Equipment, at Cost:
Land		11.1			12.1
Buildings and improvements		102.4			103.6
Machinery and equipment		229.9			222.6
		343.4			338.3
Less accumulated depreciation		150.1			130.6
Total property and equipment, net		193.3			207.7

Other Assets:
Goodwill		561.5			810.8
Intangible assets, less accumulated amortization
of $119.4 and $107.4		123.7			135.4
Deferred debt expense		39.4			43.8
Restricted investments and marketable securities		2.4			2.4
Other assets		5.2			7.4
		732.2			999.8
Total Assets	$	1,652.3		$	1,980.3

Liabilities and Stockholder’s Deficit

Current Liabilities:
Notes payable and other short-term obligations	$	18.4		$	32.7
Current maturities of long-term debt		40.1			13.1
Long-term debt (see Note B)		6.1			8.1
Accounts payable		135.7			152.3
Accrued expenses and taxes, net		188.3			213.9
Total current liabilities		388.6			420.1

Other Liabilities:
Deferred income taxes		25.1			30.7
Long-term payable to affiliate (see Note A)		43.0			43.1
Other		156.4			160.7
		224.5			234.5

Notes, Mortgage Notes and Obligations
Payable, Less Current Maturities		1,534.2			1,545.5

Commitments and Contingencies (see Note F)

Stockholder’s Deficit:
Common stock, $0.01 par value, authorized 3,000 shares;
3,000 issued and outstanding at July 4, 2009 and
December 31, 2008		---			---
Additional paid-in capital		416.8			416.7
Accumulated deficit		(890.2	)		(612.1	)
Accumulated other comprehensive loss		(21.6	)		(24.4	)
Total stockholder's deficit		(495.0	)		(219.8	)
Total Liabilities and Stockholder's Deficit	$	1,652.3		$	1,980.3

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the second quarter ended
	July 4, 2009			June 28, 2008
	(Dollar amounts in millions)

Net Sales	$	487.8		$	647.1

Costs and Expenses:
Cost of products sold (see Note C)		351.7			473.3
Selling, general and administrative expense, net (see Note C)		95.8			118.5
Goodwill impairment charge (see Note A)		250.0			---
Amortization of intangible assets		6.0			8.4
		703.5			600.2
Operating (loss) earnings		(215.7	)		46.9
Interest expense		(37.7	)		(31.3	)
Loss from debt retirement		---			(9.9	)
Investment income		0.1			0.2
(Loss) earnings before (benefit) provision for income taxes		(253.3	)		5.9
(Benefit) provision for income taxes		(7.9	)		2.2
Net (loss) earnings	$	(245.4	)	$	3.7

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the six months ended
	July 4, 2009			June 28, 2008
	(Dollar amounts in millions)

Net Sales	$	926.8		$	1,187.3

Costs and Expenses:
Cost of products sold (see Note C)		669.2			864.9
Selling, general and administrative expense, net (see Note C)		196.8			237.0
Goodwill impairment charge (see Note A)		250.0			---
Amortization of intangible assets		11.9			15.1
		1,127.9			1,117.0
Operating (loss) earnings		(201.1	)		70.3
Interest expense		(76.0	)		(58.7	)
Loss from debt retirement		---			(9.9	)
Investment income		0.2			0.4
(Loss) earnings before provision for income taxes		(276.9	)		2.1
Provision for income taxes		1.2			2.5
Net loss	$	(278.1	)	$	(0.4	)

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 six months ended
	July 4, 2009			June 28, 2008
	(Dollar amounts in millions)
Cash Flows from operating activities:
Net loss	$	(278.1	)	$	(0.4	)

Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expense		31.6			36.0
Non-cash interest expense, net		5.0			3.3
Non-cash goodwill impairment charge		250.0			---
Loss from debt retirement		---			9.9
Non-cash stock-based compensation expense		0.1			0.1
Gain on sale of property and equipment		(0.3	)		(2.5	)
Deferred federal income tax benefit		(4.1	)		(4.7	)
Changes in certain assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable, net		(2.4	)		(44.8	)
Inventories		33.3			(20.4	)
Prepaids and other current assets		(2.1	)		(4.0	)
Accounts payable		(12.4	)		53.9
Accrued expenses and taxes		(11.1	)		12.3
Long-term assets, liabilities and other, net		(2.8	)		5.9
Total adjustments to net loss		284.8			45.0
Net cash provided by operating activities		6.7			44.6
Cash Flows from investing activities:
Capital expenditures		(6.4	)		(15.9	)
Net cash paid for businesses acquired		(14.1	)		(32.7	)
Proceeds from the sale of property and equipment		1.9			6.2
Change in restricted cash and marketable securities		(0.1	)		---
Other, net		(2.5	)		(1.9	)
Net cash used in investing activities		(21.2	)		(44.3	)
Cash Flows from financing activities:
Increase in borrowings		22.0			133.0
Payment of borrowings		(17.7	)		(66.7	)
Net proceeds from the sale of Nortek's 10% Senior Secured Notes due 2013		---			742.2
Redemption of Nortek's senior secured credit facility		---			(755.5	)
Fees paid in connection with Nortek's new debt facilities		---			(31.7	)
Equity investment by THL-Nortek Investors, LLC		---			4.2
Other, net		---			(0.1	)
Net cash provided by financing activities		4.3			25.4
Net change in unrestricted cash and cash equivalents		(10.2	)		25.7
Unrestricted cash and cash equivalents at the beginning of the period		182.2			53.4
Unrestricted cash and cash equivalents at the end of the period	$	172.0		$	79.1

Supplemental disclosure of cash flow information:
Interest paid	$	72.8		$	47.4

Income taxes paid, net	$	10.1		$	6.8

The impact of changes in foreign currency exchange rates on cash was not material and has been included in Other, net.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE SECOND QUARTER ENDED JUNE 28, 2008

(Dollar amounts in millions)

			Retained		Accumulated
	Additional		Earnings		Other
	Paid-in		(Accumulated		Comprehensive		Comprehensive
	Capital		Deficit)		Income		(Loss) Income

Balance, March 29, 2008	$	412.4	$	164.5	$	38.1	$	---
Net income		---		3.7		---		3.7
Other comprehensive income:
Currency translation adjustment		---		---		0.9		0.9
Comprehensive loss							$	4.6
Capital contribution from parent		4.2		---		---
Stock-based compensation		0.1		---		---
Balance, June 28, 2008	$	416.7	$	168.2	$	39.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE FIRST SIX MONTHS ENDED JUNE 28, 2008

(Dollar amounts in millions)

			Retained			Accumulated
	Additional		Earnings			Other
	Paid-in		(Accumulated			Comprehensive		Comprehensive
	Capital		Deficit)			Income		(Loss) Income


Balance, December 31, 2007	$	412.4	$	168.6		$	37.7	$	---
Net loss		---		(0.4	)		---		(0.4	)
Other comprehensive income:
Currency translation adjustment		---		---			1.3		1.3
Comprehensive loss								$	0.9
Capital contribution from parent		4.2		---			---
Stock-based compensation		0.1		---			---
Balance, June 28, 2008	$	416.7	$	168.2		$	39.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S DEFICIT

FOR THE SECOND QUARTER ENDED JULY 4, 2009

(Dollar amounts in millions)

						Accumulated
	Additional					Other
	Paid-in		Accumulated			Comprehensive			Comprehensive
	Capital		Deficit			(Loss) Income			(Loss) Income


Balance, April 4, 2009	$	416.7	$	(644.8	)	$	(26.0	)	$	---
Net loss		---		(245.4	)		---			(245.4	)
Other comprehensive (loss) income:
Currency translation adjustment		---		---			5.5			5.5
Pension liability adjustment		---		---			(1.1	)		(1.1	)
Comprehensive loss									$	(241.0	)
Stock-based compensation		0.1		---			---
Balance, July 4, 2009	$	416.8	$	(890.2	)	$	(21.6	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S DEFICIT

FOR THE FIRST SIX MONTHS ENDED JULY 4, 2009

(Dollar amounts in millions)

						Accumulated
	Additional					Other
	Paid-in		Accumulated			Comprehensive			Comprehensive
	Capital		Deficit			(Loss) Income			(Loss) Income


Balance, December 31, 2008	$	416.7	$	(612.1	)	$	(24.4	)	$	---
Net loss		---		(278.1	)		---			(278.1	)
Other comprehensive (loss) income:
Currency translation adjustment		---		---			3.8			3.8
Pension liability adjustment		---		---			(1.0	)		(1.0	)
Comprehensive loss									$	(275.3	)
Stock-based compensation		0.1		---			---
Balance, July 4, 2009	$	416.8	$	(890.2	)	$	(21.6	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 4, 2009 AND JUNE 28, 2008

(A) The unaudited condensed consolidated financial statements presented herein (the “Unaudited Financial Statements”) reflect the financial position, results of operations and cash flows of Nortek, Inc. (“Nortek”) and all of its wholly-owned subsidiaries, collectively the “Company”, and have been prepared on the basis of a going concern. However, the conditions noted below create uncertainty about Nortek’s and its parent company’s, NTK Holdings, Inc. (“NTK Holdings”), ability to meet their debt obligations as they come due or may be accelerated as discussed below and the implications of such non payments, including a possible change of control at Nortek, as discussed further below.

The Company announced on June 17, 2009 that it had retained financial and legal advisors (combined, the “Advisors”) to assist NTK Holdings and Nortek in the analysis of their capital structures in light of the current economic conditions. NTK Holdings, Nortek and the Advisors have had preliminary discussions and outlined preliminary proposals as to potential equity and debt restructuring alternatives for NTK Holdings and Nortek with an informal committee comprised of certain holders of NTK Holdings’ 10 ¾% Senior Discount Notes due 2014 and Nortek’s 10% Senior Secured Notes due 2013 and 8 ½% Senior Subordinated Notes due 2014 (the “Bondholder Committee”). No definitive agreement has been reached between NTK Holdings, Nortek and the Bondholder Committee as to the terms of any potential equity and debt restructuring. The discussions and negotiations are continuing and may result in, among other things: (1) a restructuring of the equity and debt of NTK Holdings and Nortek pursuant to a negotiated transaction or under a “pre-packaged” plan of reorganization under Title 11 of the United States Bankruptcy Code, (2) a change of control of Nortek as discussed further below and (3) events of default and cross defaults under certain of NTK Holdings’ and Nortek’s outstanding indebtedness depending on the future decisions to be made by NTK Holdings and Nortek, which may or may not result in the acceleration of substantially all of the Company’s indebtedness. The Company has been and continues to be in compliance with the terms of all of the obligations that are subject to the Bondholder Committee negotiations. There can be no assurance that NTK Holdings and Nortek will be successful in reaching a definitive agreement with respect to the potential equity and debt restructuring and, if not successful, NTK Holdings or Nortek may be compelled to seek other financing arrangements or debt restructuring under supervision of an appropriate court proceeding. NTK Holdings and Nortek expect to continue to operate its business in the ordinary course during and following any potential equity and debt restructuring.

The Company and its lenders amended the ABL Facility (the “Amendment”) to eliminate the requirement that Nortek represent that it is solvent, as defined, when requesting new borrowings under the ABL facility effective as of July 4, 2009, and when providing the quarterly compliance certificate effective as of May 20, 2008. The Amendment also provides that the proceeds of any future borrowings under the ABL Facility must be used to primarily fund operating expenses and liabilities of Nortek’s operating subsidiaries. The Company has been and continues to be in compliance with the terms of the ABL Facility.

The Unaudited Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.

The Unaudited Financial Statements include the accounts of Nortek and all of its wholly-owned subsidiaries 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. The term “Company” 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.

Although certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted, the Company believes that the disclosures included are adequate to make the information presented not misleading. Operating results for the second quarter and first six months ended July 4, 2009 are not necessarily indicative of the results that may be expected for other interim periods or for the year ending December 31, 2009. Certain amounts in the prior year’s Unaudited Financial Statements have been reclassified to conform to the current period presentation. The Company has evaluated subsequent events for potential recognition or disclosure through the date the financial statements were issued, August 24, 2009. It is suggested that these Unaudited Financial Statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s latest annual report on Form 10-K and its latest Current Reports on Form 8-K as filed with the Securities and Exchange Commission (“SEC”).

The Company and its parent company, NTK Holdings, have substantial debt service obligations. During 2010, NTK Holdings alone has cash debt service obligations of approximately $162.3 million, including a payment of approximately $147.4 million due on March 1, 2010 under its 10 3/4% Senior Discount Notes. The Company has significant cash payments due on its indebtedness and certain other specified obligations in 2009 and thereafter. For the second half of 2009, Nortek estimates that it will pay approximately $115.2 million in principal and interest payments on its indebtedness. In the fiscal year ending December 31, 2010, the total of principal and interest payments on indebtedness is approximately $146.6 million. For 2009, the Company’s principal sources of liquidity include approximately $124.1 million of unrestricted cash and cash equivalents at July 4, 2009, cash flow from its subsidiaries in 2009 and Nortek’s subsidiaries’ unrestricted cash and cash equivalent balances of approximately $47.9 million at July 4, 2009.

The ability of NTK Holdings to service its outstanding indebtedness depends on the likelihood of obtaining additional capital, restructuring the terms of such indebtedness or obtaining dividends or other payments from Nortek. The ability of NTK Holdings to obtain additional capital is adversely affected by the substantial amount of NTK Holdings’ and the Company’s outstanding indebtedness, including indebtedness of Nortek and its subsidiaries, which is structurally senior in right of payment to any new debt or equity financing for NTK Holdings. Although Nortek’s 10% Senior Secured Notes due 2013, Nortek’s 8 1/2% Senior Subordinated Notes due 2014 and Nortek’s ABL Facility limit Nortek’s ability to make certain payments, including dividends, to NTK Holdings, under the indenture that governs Nortek’s 10% Senior Secured Notes due 2013, Nortek has the capacity to make certain payments, including dividends, of up to approximately $145.9 million at July 4, 2009 and Nortek may make a distribution or other payment to NTK Holdings. However, Nortek is under no obligation to make any distribution or other payment to NTK Holdings even if Nortek has available cash and the making of such a payment is permitted by the terms of its existing indebtedness. In light of Nortek’s own substantial indebtedness and liquidity needs, Nortek believes there is a substantial likelihood that it will choose not to make a distribution or other payment to NTK Holdings sufficient to enable NTK Holdings to make the payments due in 2010 on its outstanding indebtedness, including the payment due on March 1, 2010 under its 10 3/4% Senior Discount Notes. If NTK Holdings and Nortek are not successful in restructuring their indebtedness, the failure by NTK Holdings to make such payments will constitute events of default under the terms of the documentation governing such indebtedness and will permit the holders of such indebtedness to accelerate the payment of such indebtedness in full. Such defaults, including cross defaults under NTK Holdings’ senior unsecured loan facility, and any related acceleration will likely require additional equity or a restructuring of the indebtedness, whether pursuant to privately negotiated transactions or under supervision of an appropriate court proceeding.

A restructuring of or default under the indebtedness of NTK Holdings could result in a change of control of Nortek. A change of control may constitute an event of default under Nortek’s ABL Facility and would also require Nortek to offer to purchase its 10% Senior Secured Notes due 2013 and 8 1/2% Senior Subordinated Notes due 2014 at 101% of the principal amount thereof, together with accrued and unpaid interest, and a default of Nortek’s ABL Facility would trigger a cross-default under the indentures governing substantially all of NTK Holdings’ and Nortek’s indebtedness. The failure of Nortek to complete the purchase of any notes tendered pursuant to such offer, whether due to lack of funds or otherwise, would constitute an event of default under the indentures governing such notes. Such defaults, including cross defaults under substantially all of Nortek’s outstanding indebtedness, and any related acceleration will likely require additional equity or a restructuring of the indebtedness, whether pursuant to privately negotiated transactions or under supervision of an appropriate court proceeding.

The Company operates on a calendar year and for its interim periods operates on a 4-4-5 fiscal calendar, where each fiscal quarter 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 second quarters ended July 4, 2009 (“second quarter of 2009”) and June 28, 2008 (“second quarter of 2008”) each include 91 days. The first six months ended July 4, 2009 (“six months of 2009”) and June 28, 2008 (“six months of 2008”) include 185 days and 180 days, respectively.

The Company is a diversified manufacturer of innovative, branded residential and commercial building products, operating within four reporting segments:

·	the Residential Ventilation Products (“RVP”) segment,

·	the Home Technology Products (“HTP”) segment,

·	the Residential Air Conditioning and Heating Products (“R-HVAC”) segment, and

·	the Commercial Air Conditioning and Heating Products (“C-HVAC”) segment.

Through these segments, the Company manufactures and sells, primarily in the United States, Canada and Europe, a wide variety of products for the professional remodeling and replacement markets, the residential and commercial construction markets, the manufactured housing market and the do-it-yourself (“DIY”) market.

During the fourth quarter of 2008, the Company changed the composition of its reporting segments to report the R-HVAC segment separately. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information”, the Company has restated prior period segment disclosures to reflect the new composition.

Goodwill and Other Long-Lived Assets

The Company has classified as goodwill the cost in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions, net of any subsequent impairment losses. At July 4, 2009 and December 31, 2008, the Company had approximately $561.5 million and $810.8 million of goodwill recorded on its unaudited condensed consolidated balance sheet. Goodwill, by reporting segment, at July 4, 2009 and December 31, 2008 was as follows:

Residential

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