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NTK
HOLDINGS REPORTS
2nd-QUARTER
RESULTS
PROVIDENCE,
RI,
August 11, 2006—NTK
Holdings, Inc. (“NTK
Holdings”),
the parent
company of Nortek
Holdings, Inc.
(“Nortek
Holdings”)
and Nortek,
Inc.
(“Nortek”),
a leading
diversified manufacturer of innovative, branded residential and commercial
ventilation, home technology convenience and security, and HVAC products,
today
announced second-quarter financial results. In light of the filing by
NTK
Holdings
of a registration
statement with the Securities and Exchange Commission for a proposed initial
public offering of its common stock, NTK
Holdings
will not be
holding a conference call to discuss second-quarter results.
Key
financial
highlights from continuing operations for the second quarter of 2006
included:
Key
financial
highlights from continuing operations for the first half of 2006
included:
As
of July 1, 2006,
NTK
Holdings
had approximately
$55 million in unrestricted cash, cash equivalents and marketable securities.
Nortek
previously
announced on April 3 that it entered into an Amended and Restated Credit
Agreement with its banks to, among other things, expand its revolving credit
facility from $100 million to $200 million, adding liquidity and covenant
flexibility. As of July 1, 2006, Nortek
had $25 million of
borrowings outstanding under this facility.
NTK
Holdings
announced in April
the acquisition of Huntair, Inc. and Cleanpak International, LLC to expand
its
wide range of custom-designed HVAC systems for the commercial systems market.
Both of the Portland, Oregon area companies manufacture, market and distribute
custom air handlers and related products for commercial and cleanroom
applications. On June 26, 2006, NTK
Holdings
acquired Secure
Wireless, Inc. and Advanced Bridging Technologies, Inc. of Carlsbad, California,
to expand its offerings of Home Technology Products.
NTK
Holdings*,
the parent
company of Nortek
Holdings*
and Nortek*,
is
a leading
diversified manufacturer of innovative, branded residential and commercial
ventilation, home technology convenience and security, and HVAC products.
NTK
Holdings
and Nortek
offer a broad
array of products including:
range
hoods, bath
fans, indoor air quality systems, medicine cabinets and central vacuums,
heating
and air conditioning systems, and home technology offerings, including audio,
video, access control and security and other products.
*As
used
herein, the terms “NTK Holdings,” “Nortek Holdings” or “Nortek” refers to NTK
Holdings, Inc., together with its subsidiaries, unless the context indicates
otherwise. These terms are used for convenience only and are not intended
as a
precise description of any of the separate corporations, each of which manages
its own affairs.
This
press
release contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on Nortek’s
current plans and expectations and involve risks and uncertainties 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 impacting such forward-looking statements include the availability
and
cost of raw materials and purchased components, the level of construction
and
remodeling activity, changes in general economic conditions, the rate of
sales
growth and product liability claims. 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, please refer to the
reports
and filings of Nortek Holdings and Nortek with the Securities and Exchange
Commission.
#
#
#
NTK
HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
The
accompanying notes are an integral part of this unaudited condensed consolidated
summary of operations.
(A)
NTK Holdings,
Inc. (the “Company” or “NTK Holdings”) is a Delaware corporation that was formed
to hold the capital stock of Nortek Holdings, Inc. (“Nortek Holdings”). NTK
Holdings became the parent company of Nortek Holdings on February 10, 2005.
The
unaudited condensed consolidated summary of operations presented herein for
periods prior to February 10, 2005, reflect the results of operations and
cash
flows of Nortek Holdings and all of its wholly-owned subsidiaries and subsequent
to February 10, 2005, reflect the results of operations and cash flows of
NTK
Holdings.
The
unaudited
condensed consolidated summary of operations include
the
accounts of Nortek Holdings and NTK Holdings, as appropriate and all of their
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. Certain
amounts in
the prior year’s unaudited condensed consolidated summary of operations have
been reclassified to conform to the current year presentation. It is suggested
that this unaudited condensed consolidated summary of operations be read in
conjunction with the consolidated financial statements and the notes included
in
the Company’s latest quarterly report on Form 10-Q, its latest annual report on
Form 10-K and its Current Reports on Form 8-K as filed with the
SEC.
EBITDA
is defined
as net earnings (loss) before interest, taxes, depreciation and amortization
expense. EBITDA is not a measure of operating performance under U.S. generally
accepted accounting principles (“GAAP”) and should not be considered as an
alternative or substitute for GAAP profitability measures such as operating
earnings (loss) from continuing operations, discontinued operations,
extraordinary items and net earnings (loss). EBITDA as an operating performance
measure has material limitations since it excludes, among other things, the
statement of operations impact of depreciation and amortization expense,
interest expense and the provision (benefit) for income taxes and therefore
does
not necessarily represent an accurate measure of profitability, particularly
in
situations where a company is highly leveraged or has a disadvantageous tax
structure. The Company uses a significant amount of capital assets and
depreciation and amortization expense is a necessary element of the Company’s
costs and ability to generate revenue and therefore its exclusion from EBITDA
is
a material limitation. The Company has a significant amount of debt and interest
expense is a necessary element of the Company’s costs and ability to generate
revenue and therefore its exclusion from EBITDA is a material limitation. The
Company generally incurs significant U.S. federal, state and foreign income
taxes each year and the provision (benefit) for income taxes is a necessary
element of the Company’s costs and therefore its exclusion from EBITDA is a
material limitation. As a result, EBITDA should be evaluated in conjunction
with
net earnings (loss) for a more complete analysis of the Company’s profitability,
as net earnings (loss) includes the financial statement impact of these items
and is the most directly comparable GAAP operating performance measure to
EBITDA. As EBITDA is not defined by GAAP, the Company’s definition of EBITDA may
differ from and therefore may not be comparable to similarly titled measures
used by other companies, thereby limiting its usefulness as a comparative
measure. Because of the limitations that EBITDA has as an analytical tool,
investors should not consider it in isolation, or as a substitute for analysis
of the Company’s operating results as reported under GAAP.
Company
management
uses EBITDA as a supplementary non-GAAP operating performance measure to assist
with its overall evaluation of Company and subsidiary operating performance
(including the performance of subsidiary management) relative to outside peer
group companies. In addition, the Company uses EBITDA as an operating
performance measure in financial presentations to the Company’s Board of
Directors, shareholders, various banks participating in Nortek’s Credit
Facility, note holders and Bond Rating agencies, among others, as a supplemental
non-GAAP operating measure to assist them in their evaluation of the Company’s
performance. The Company is also active in mergers, acquisitions and
divestitures and uses EBITDA as an additional operating performance measure
to
assess Company, subsidiary and potential acquisition target enterprise value
and
to assist in the overall evaluation of Company, subsidiary and potential
acquisition target performance on an internal basis and relative to peer group
companies. The Company uses EBITDA in conjunction with traditional GAAP
operating performance measures as part of its overall assessment of potential
valuation and relative performance and therefore does not place undue reliance
on EBITDA as its only measure of operating performance.
The
Company
believes EBITDA is useful for both the Company and investors as it is a commonly
used analytical measurement for comparing company profitability, which
eliminates the effects of financing, differing valuations of fixed and
intangible assets and tax structure decisions. The Company believes that EBITDA
is specifically relevant to the Company, due to the different degrees of
leverage among its competitors, the impact of purchase accounting associated
with acquisitions, which impacts comparability with its competitors who may
or
may not have recently revalued their fixed and intangible assets, and the
differing tax structures and tax jurisdictions of certain of the Company’s
competitors. The Company has included EBITDA as a supplemental operating
performance measure, which should be evaluated by investors in conjunction
with
the traditional GAAP performance measures discussed earlier in this Results
of
Operations section for a complete evaluation of the Company’s operating
performance.
The
following table
presents a reconciliation from net earnings, which is the most directly
comparable GAAP operating performance measure, to EBITDA for the second quarters
ended July 1, 2006 and July 2, 2005:
(1)
Net
earnings include an approximate pre-tax $35.6 million curtailment gain related
to post-retirement medical benefits and an approximate pre-tax $3.5 million
charge related to the planned closure of the Company’s NuTone, Inc. Cincinnati,
Ohio facility in the Residential Ventilation Products segment for the second
quarter ended July 1, 2006. Net earnings include approximately $0.1 million
of
stock-based compensation charges recorded in each of the second quarters of
2006
and 2005, respectively.
(2)
Interest
expense
for the second quarter of 2006 includes cash interest of approximately $31.1
million (including approximately $3.9 million relating to the accelerated
amortization of the Nortek Holdings deferred compensation plan) and non-cash
interest of approximately $11.2 million. Interest expense for the second quarter
of 2005 includes cash interest of approximately $25.7 million and non-cash
interest of approximately $7.0 million.
The
following table
presents a reconciliation from net earnings, which is the most directly
comparable GAAP operating performance measure, to EBITDA for the first six
months ended July 1, 2006 and July 2, 2005:
(1)
Net
earnings include an approximate pre-tax $35.6 million curtailment gain related
to post-retirement medical benefits and an approximate pre-tax $3.5 million
charge related to the planned closure of the Company’s NuTone, Inc. Cincinnati,
Ohio facility in the Residential Ventilation Products segment for the first
six
months ended July 1, 2006. Net earnings include approximately $0.2 million
of
stock-based compensation charges recorded in each of the first six months of
2006 and 2005, respectively.
(2)
Interest
expense
for the first six months of 2006 includes cash interest of approximately $58.5
million (including approximately $3.9 million relating to the accelerated
amortization of the Nortek Holdings deferred compensation plan) and non-cash
interest of approximately $19.9 million. Interest expense for the first six
months of 2005 includes cash interest of approximately $56.8 million (including
approximately $8.2 million relating to the accelerated amortization of the
Nortek Holdings deferred compensation plan) and non-cash interest of
approximately $13.1 million.
EBITDA
is defined
as net earnings (loss) before interest, taxes, depreciation and amortization
expense. EBITDA is not a measure of cash flow under U.S. generally accepted
accounting principles (“GAAP”) and should not be considered as an alternative or
substitute for GAAP cash flow measures such as cash flows from operating,
investing and financing activities. EBITDA does not necessarily represent an
accurate measure of cash flow performance because it excludes, among other
things, capital expenditures, working capital requirements, significant debt
service for principal and interest payments, income tax payments and other
contractual obligations, which may have a significant adverse impact on a
company’s cash flow performance thereby limiting its usefulness when evaluating
the Company’s cash flow performance. The Company uses a significant amount of
capital assets and capital expenditures are a significant component of the
Company’s annual cash expenditures and therefore their exclusion from EBITDA is
a material limitation. The Company has significant working capital requirements
during the year due to the seasonality of its business, which require
significant cash expenditures and therefore its exclusion from EBITDA is a
material limitation. The Company has a significant amount of debt and the
Company has significant cash expenditures during the year related to principal
and interest payments and therefore their exclusion from EBITDA is a material
limitation. The Company generally pays significant U.S. federal, state and
foreign income taxes each year and therefore its exclusion from EBITDA is a
material limitation. As a result, EBITDA should be evaluated in conjunction
with
net cash from operating, investing and financing activities for a more complete
analysis of the Company’s cash flow performance, as they include the financial
statement impact of these items. Although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized will often have
to
be replaced in the future and EBITDA does not reflect any cash requirements
for
replacements. As EBITDA is not defined by GAAP, the Company’s definition of
EBITDA may differ from and therefore may not be comparable to similarly titled
measures used by other companies thereby limiting its usefulness as a
comparative measure. Because of the limitations that EBITDA has as an analytical
tool, investors should not consider it in isolation, or as a substitute for
analysis of the Company’s cash flows as reported under GAAP.
Company
management
uses EBITDA as a supplementary non-GAAP liquidity measure to allow the Company
to evaluate its operating units cash-generating ability to fund income tax
payments, corporate overhead, capital expenditures and increases in working
capital. EBITDA is also used by management to allocate resources for growth
among its businesses, to identify possible impairment charges, to evaluate
the
Company’s ability to service its debt and to raise capital for growth
opportunities, including acquisitions. In addition, the Company uses EBITDA
as a
liquidity measure in financial presentations to the Company’s Board of
Directors, shareholders, various banks participating in Nortek’s Credit
Facility, note holders and Bond Rating agencies, among others, as a supplemental
non-GAAP liquidity measure to assist them in their evaluation of the Company’s
cash flow performance. The Company uses EBITDA in conjunction with traditional
GAAP liquidity measures as part of its overall assessment of cash flow ability
and therefore does not place undue reliance on EBITDA as its only measure of
cash flow performance.
The
Company
believes EBITDA is useful for both the Company and investors as it is a commonly
used analytical measurement for assessing a company’s cash flow ability to
service and/or incur additional indebtedness, which eliminates the impact of
certain non-cash items such as depreciation and amortization. The Company
believes that EBITDA is specifically relevant to the Company due to the
Company’s leveraged position as well as the common use of EBITDA as a liquidity
measure within the Company’s industries by lenders, investors, others in the
financial community and peer group companies. The Company has included EBITDA
as
a supplemental liquidity measure, which should be evaluated by investors in
conjunction with the traditional GAAP liquidity measures discussed earlier
in
this Liquidity and Capital Resources section for a complete evaluation of the
Company’s cash flow performance.
The
following table
presents a reconciliation from net cash used in operating activities, which
is
the most directly comparable GAAP liquidity measure, to EBITDA for the first
six
months ended July 1, 2006 and July 2, 2005:
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