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[Note
to
Editors: The following NTK Holdings release is similar to the Nortek, Inc.
release on fourth-quarter financial results except primarily for the impact
of
certain NTK Holdings debt and deferred compensation and amounts reported
as
shareholders investment.]
NTK
HOLDINGS REPORTS
2006
SALES AND OPERATING EARNINGS
PROVIDENCE,
RI, April 2, 2007—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, HVAC and home technology convenience and security
products, today announced 2006 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 2006 financial results.
Key
financial highlights from continuing operations for 2006 included:
Key
financial highlights from continuing operations for the fourth quarter of
2006
included:
As
of
December 31, 2006, NTK
Holdings
had
approximately $57 million in unrestricted cash and cash equivalents and had
$10
million of borrowings outstanding under its $200-million revolving credit
facility.
On
December 12, 2006, NTK
Holdings
acquired
Gefen, Inc. (“Gefen”) of Woodland Hills, California, to expand its technology
products offering. Gefen designs and sells audio and video products which
extend, switch, distribute and convert signals in a variety of formats,
including high definition for both the residential and commercial
markets.
On
November 11, 2006, NTK
Holdings
acquired
Zephyr Corporation and Pacific Zephyr Range Hood, Inc. (“Zephyr” and “Pacific”)
each located in San Francisco, California. Zephyr and Pacific design and
sell
upscale built-in kitchen range hoods for residential properties.
NTK
Holdings*,
the
parent company of Nortek
Holdings*
and
Nortek*,
is
a
leading diversified
manufacturer of innovative, branded residential and commercial ventilation,
HVAC
and home technology convenience and security 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,
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 NTK 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 includes
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. 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 annual report on Form 10-K and its Current
Reports on Form 8-K as filed with the Securities and Exchange Commissions
(“SEC”).
* Unless
otherwise indicated, all items noted in the above table have been recorded
in
selling, general and administrative expense, net in the accompanying unaudited
condensed consolidated statement of operations.
(1) For
the
fourth quarter ended December 31, 2006, the gain of approximately $0.6 million
related to the reduction of the NuTone restructuring accrual was recorded in
selling, general and administrative expense, net. For the year ended December
31, 2006, approximately, $1.8 million of the NuTone restructuring costs was
recorded in cost of products sold and approximately $1.7 million was recorded
in
selling, general and administrative expense, net.
(2)
The
RVP
and HTP segments recorded these product
safety upgrade reserves in cost of products sold. In the fourth quarter of
2006,
the HTP segment recorded an approximate $1.7 million reduction to its product
safety upgrade reserve originally provided in the second quarter of
2006.
Certain
sole source suppliers of various material components to the Company’s kitchen
range hood subsidiaries based in Italy and Poland experienced financial
difficulties in January 2007. The Company is working and will continue to work
closely with these suppliers to help them in meeting the supply needs of these
subsidiaries for the foreseeable future. The Company has not experienced any
significant difficulties in its production or shipments to its customers as
a
result of these suppliers’ difficulties in maintaining its production as of
March 30, 2007. However, there can be no assurance that the Company will be
able
to continue to prevent a disruption in the supply of such material components
or
be able to find alternative suppliers. Should these suppliers be unable to
continue in operation and the Company is unable to find alternative suppliers
for a lengthy period of time, the Company could experience a material adverse
effect on its operations. These subsidiaries based in Italy and Poland accounted
for approximately 7% of the Company’s consolidated net sales and 5%, before the
loss described below, of consolidated operating earnings for the year ended
December 31, 2006 and accounted for approximately 7% of the Company’s
consolidated net sales and 4% of consolidated operating earnings for the year
ended December 31, 2005 and approximately 6.5% and 6.2% of consolidated assets
at December 31, 2006 and 2005, respectively. The Company recorded approximately
$16.0 million of estimated losses in the RVP segment in the fourth quarter
of
2006 in selling, general and administrative expense, net resulting from the
unlikelihood that these suppliers will be able to repay advances from our
subsidiaries based in Italy and Poland and amounts due under other arrangements.
While the Company has recorded its best estimate of the losses related to these
suppliers, the actual losses may be different than the amounts recorded at
December 31, 2006.
On
May
5, 2006, the Company filed a registration statement on Form S-1 (most recently
amended on September 15, 2006) with the SEC for an initial public offering
of
shares of its common stock (the “Offering”). Although the Company has not
withdrawn its registration statement on Form S-1, there can be no assurance
that
the Company will complete the Offering in the foreseeable future. Accordingly,
the Company expensed approximately $2.5 million of costs incurred in connection
with the Offering, which are included in selling, general and administrative
expense, net in the unaudited condensed consolidated summary of operations
for
the year ended December 31, 2006.
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 summary
of
operations 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 fourth
quarter ended December 31, 2006 and 2005:
(1)
Net
earnings include reserves of approximately $16.0 million related to estimated
losses as a result of the unlikelihood that certain suppliers to our kitchen
range hood subsidiaries based in Italy and Poland will be able to repay advances
and amounts due under other arrangements and a gain of approximately $0.6
million related to the closure of the Company’s NuTone, Inc. Cincinnati, Ohio
facility in the RVP segment for the fourth quarter ended December 31, 2006.
Net
earnings include a decrease in warranty expense of approximately $1.7 million
related to a product safety upgrade in the HTP segment for the fourth quarter
ended December 31, 2006. Net earnings include a charge of approximately $1.2
million, net of minority interest of approximately $0.8 million, related to
a
reserve for amounts due from a customer in China related to a Chinese
construction project in the HVAC segment for the fourth quarter ended December
31, 2006. Net earnings include an approximate $3.5 million reduction of a
compensation accrual originally provided in 2004 that was determined to be
no
longer required, a charge of approximately $2.5 million related to expenses
incurred related to the Company’s initial public offering not yet completed and
a non-cash foreign exchange gain of approximately $0.8 million related to
intercompany debt not indefinitely invested in the Company’s subsidiaries, which
is included in Unallocated, for the fourth quarter ended December 31,
2006.
(2)
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