Exhibit
99.1
NORTEK
REPORTS
2ND-QUARTER
RESULTS
PROVIDENCE, RI,
August 12, 2008—Nortek,
Inc. (“Nortek”),
a leading diversified global manufacturer of innovative, branded residential and
commercial ventilation, HVAC and home technology convenience and security
products, today announced it achieved second-quarter sales of $647 million and
operating earnings of $46.9 million in continuingly difficult
markets.
Key financial
highlights from continuing operations for the second quarter of 2008
included:
|
·
|
Net sales of
$647 million compared to the $644 million recorded in
2007.
|
|
·
|
Operating
earnings of $46.9 million compared to $64.7 million in the second quarter
of 2007.
|
|
·
|
Depreciation
and amortization expense of $18.6 million compared to $16.5 million
in last year’s second quarter.
|
|
·
|
Acquisitions
contributed approximately $8.4 million in net sales and reduced operating
earnings by $1.3 million for the quarter ended June 28,
2008.
|
As of June 28,
2008, Nortek had
approximately $79 million in unrestricted cash, cash equivalents and marketable
securities and had $35 million of borrowings outstanding under its revolving
credit facility.
Key financial
highlights from continuing operations for the first half of 2008
included:
|
·
|
Net sales of
$1,187 million compared to the $1,197 million recorded in the first six
months of 2007.
|
|
·
|
Operating
earnings of $70.3 million compared to $109.6 million in the first half of
2007.
|
|
·
|
Depreciation
and amortization expense of $36.0 million compared to $31.1 million
in the first six months of 2007.
|
|
·
|
Acquisitions
contributed approximately $19.6 million in net sales and reduced operating
earnings by $2.6 million for the six months ended June 28,
2008.
|
Richard L. Bready,
Chairman and Chief Executive Officer, said, “We are pleased with Nortek second-quarter
performance, as business conditions remained difficult in the Company’s core
markets. Nortek continues to focus on
cost-reduction initiatives, manufacturing efficiency improvements and strategic
sourcing initiatives, which, together with some price increases, have partially
offset cost increases from commodities, particularly steel and copper, and
transportation costs.”
Mr. Bready added,
“The mortgage crisis has driven housing starts down to a level of less than 1
million starts. This action has been amplified by high oil and gas
prices and consumer confidence is at unprecedented lows. While we
expect the difficult housing market will continue throughout 2008, Nortek plans to maintain its
leadership position in these difficult markets while remaining poised for
participation long-term in improving home improvement and residential building
markets.”
Nortek* (a wholly owned
subsidiary of Nortek Holdings,
Inc., which is a wholly owned subsidiary of NTK Holdings, Inc.) is a
leading diversified global manufacturer of innovative, branded residential and
commercial ventilation, HVAC and home
technology convenience and security products. Nortek offers 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 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.
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 with the Securities and Exchange Commission.
#
# #
NORTEK, INC. AND
SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUMMARY
OF OPERATIONS
|
|
|
For the second quarter
ended
|
|
|
For the first six months
ended
|
|
|
|
|
June 28,
2008
|
|
|
June 30,
2007
|
|
|
June 28,
2008
|
|
|
June 30,
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
647.1 |
|
|
$ |
644.3 |
|
|
$ |
1,187.3 |
|
|
$ |
1,196.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
(see Note B)
|
|
|
473.3 |
|
|
|
452.1 |
|
|
|
864.9 |
|
|
|
836.7 |
|
|
Selling, general and
administrative expense, net (see Note B)
|
|
|
118.5 |
|
|
|
121.1 |
|
|
|
237.0 |
|
|
|
238.1 |
|
|
Amortization of
intangible assets
|
|
|
8.4 |
|
|
|
6.4 |
|
|
|
15.1 |
|
|
|
12.4 |
|
|
|
|
|
600.2 |
|
|
|
579.6 |
|
|
|
1,117.0 |
|
|
|
1,087.2 |
|
|
Operating
earnings
|
|
|
46.9 |
|
|
|
64.7 |
|
|
|
70.3 |
|
|
|
109.6 |
|
|
Interest
expense
|
|
|
(31.3 |
) |
|
|
(30.8 |
) |
|
|
(58.7 |
) |
|
|
(60.0 |
) |
|
Loss from debt
retirement
|
|
|
(9.9 |
) |
|
|
--- |
|
|
|
(9.9 |
) |
|
|
--- |
|
|
Investment
income
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.9 |
|
|
Earnings before provision for
income taxes
|
|
|
5.9 |
|
|
|
34.4 |
|
|
|
2.1 |
|
|
|
50.5 |
|
|
Provision for income
taxes
|
|
|
2.2 |
|
|
|
15.7 |
|
|
|
2.5 |
|
|
|
22.6 |
|
|
Net earnings
(loss)
|
|
$ |
3.7 |
|
|
$ |
18.7 |
|
|
$ |
(0.4 |
) |
|
$ |
27.9 |
|
The accompanying notes are an integral
part of this unaudited condensed consolidated summary of
operations.
|
(A)
|
The unaudited condensed
consolidated summary of operations includes the accounts of Nortek, Inc. and all of its wholly-owned
subsidiaries (individually and collectively, the “Company” or
“Nortek”), after elimination of
intercompany accounts and transactions, without audit and, in the opinion
of management, reflects 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 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 Securities and Exchange
Commission (“SEC”).
|
|
(B)
|
During the
second quarter ended June 28, 2008 and June 30, 2007, the Company’s
results of operations include the following (income) and expense items
recorded in cost of products sold and selling, general and administrative
expense, net in the accompanying unaudited condensed consolidated summary
of operations:
|
|
|
|
For the second quarter ended
*
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
|
|
(Amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
Charges
related to the closure of the Company's NuTone, Inc. Cincinnati, OH
facility within the RVP segment
|
|
$ |
--- |
|
|
$ |
0.8 |
|
|
Gain from the
sale of a manufacturing facility within the RVP segment
|
|
|
(2.5 |
) |
|
|
--- |
|
|
Net charges
related to the closure of certain RVP segment facilities
(1)
|
|
|
0.2 |
|
|
|
--- |
|
|
Costs and
expenses incurred within the RVP segment in connection with the start up
of a range hood facility in Mexico (2)
|
|
|
1.4 |
|
|
|
--- |
|
|
Charges
related to the closure of the Company's Mammoth, Inc. Chaska, MN facility
within the HVAC segment
|
|
|
--- |
|
|
|
0.3 |
|
|
Legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland within the RVP
segment
|
|
|
--- |
|
|
|
0.3 |
|
|
Fees,
expenses and a reserve recorded within the HTP segment in connection with
a contemplated settlement of a dispute with one of its former
suppliers
|
|
|
4.5 |
|
|
|
--- |
|
|
Reserve for
amounts due from customers within the HTP segment
|
|
|
--- |
|
|
|
0.5 |
|
|
Product
safety upgrade reserves within the HTP segment (2)
|
|
|
--- |
|
|
|
(0.2 |
) |
|
Foreign
exchange (gains) losses related to transactions, including intercompany
debt not indefinitely invested in the Company's
subsidiaries
|
|
|
(1.5 |
) |
|
|
1.7 |
|
|
|
*
|
Unless
otherwise indicated, all items noted in the table have been recorded in
selling, general and administrative expense, net in the accompanying
unaudited condensed consolidated summary of
operations.
|
|
|
(1)
|
Approximately
$0.3 million of these charges were recorded in cost of products sold,
offset by a reduction in reserves in selling, general and administrative
expense, net of approximately $0.1 million related to the closure of these
RVP segment facilities.
|
|
|
(2)
|
The RVP and
HTP segments recorded these charges in cost of products
sold.
|
During the first
six months ended June 28, 2008 and June 30, 2007, the Company’s results of
operations include the following (income) and expense items recorded in cost of
products sold and selling, general and administrative expense, net in the
accompanying unaudited condensed consolidated summary of
operations:
|
|
|
For the first six months ended
*
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
|
|
(Amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
Charges
related to the closure of the Company's NuTone, Inc. Cincinnati, OH
facility within the RVP segment
|
|
$ |
--- |
|
|
$ |
1.4 |
|
|
Gain from the
sale of a manufacturing facility within the RVP segment
|
|
|
(2.5 |
) |
|
|
--- |
|
|
Net charges
related to the closure of certain RVP segment facilities
(1)
|
|
|
0.2 |
|
|
|
--- |
|
|
Costs and
expenses incurred within the RVP segment in connection with the start up
of a range hood facility in Mexico (2)
|
|
|
1.4 |
|
|
|
--- |
|
|
Charges
related to the closure of the Company's Mammoth, Inc. Chaska, MN facility
within the HVAC segment
|
|
|
--- |
|
|
|
0.3 |
|
|
Legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland within the RVP
segment
|
|
|
--- |
|
|
|
1.3 |
|
|
Fees,
expenses and a reserve recorded within the HTP segment in connection with
a contemplated settlement of a dispute with one of its former
suppliers
|
|
|
4.7 |
|
|
|
--- |
|
|
Reserve for
amounts due from customers within the HTP and HVAC
segments
|
|
|
--- |
|
|
|
2.3 |
|
|
Product
safety upgrade reserves within the HTP segment (2)
|
|
|
--- |
|
|
|
(0.2 |
) |
|
Foreign
exchange (gains) losses related to transactions, including intercompany
debt not indefinitely invested in the Company's
subsidiaries
|
|
|
(1.4 |
) |
|
|
2.0 |
|
|
|
*
|
Unless
otherwise indicated, all items noted in the table have been recorded in
selling, general and administrative expense, net in the accompanying
unaudited condensed consolidated summary of
operations.
|
|
|
(1)
|
Approximately
$0.3 million of these charges were recorded in cost of products sold,
offset by a reduction in reserves in selling, general and administrative
expense, net of approximately $0.1 million related to the closure of
these RVP segment facilities.
|
|
|
(2)
|
The RVP and
HTP segments recorded these charges in cost of products
sold.
|
|
(C)
|
The Company
uses EBITDA as both an operating performance and liquidity
measure. Operating performance measure disclosures with respect
to EBITDA are provided below. Refer to Note D for liquidity
measure disclosures with respect to EBITDA and a reconciliation from net
cash flows from operating activities to
EBITDA.
|
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 ABL 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 second quarter
ended June 28, 2008 and June 30, 2007:
|
|
|
For the second quarter
ended
|
|
|
|
|
June 28,
2008
|
|
|
June 30,
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
Net earnings (1),
(2)
|
|
$ |
3.7 |
|
|
$ |
18.7 |
|
|
Provision for income
taxes
|
|
|
2.2 |
|
|
|
15.7 |
|
|
Interest
expense (3)
|
|
|
31.3 |
|
|
|
30.8 |
|
|
Investment
income
|
|
|
(0.2 |
) |
|
|
(0.5 |
) |
|
Depreciation
expense
|
|
|
10.2 |
|
|
|
10.1 |
|
|
Amortization
expense
|
|
|
8.4 |
|
|
|
6.4 |
|
|
EBITDA (1),
(2)
|
|
$ |
55.6 |
|
|
$ |
81.2 |
|
|
|
(1)
|
Net earnings
and EBITDA for the second quarter ended June 28, 2008 includes the
following other income and expense
items:
|
|
|
·
|
a pre-tax
loss from debt retirement of approximately $9.9 million, primarily as a
result of writing off unamortized deferred debt expense related to the
Company’s senior secured credit
facility,
|
|
|
·
|
approximately
$4.5 million of fees, expenses and a reserve recorded in connection with a
contemplated settlement of a dispute with one of its former suppliers
within the HTP segment,
|
|
|
·
|
costs and
expenses incurred in connection with the start up of a range hood facility
in Mexico of approximately $1.4 million within the RVP
segment,
|
|
|
·
|
a gain of
approximately $2.5 million from the sale of a manufacturing facility
within the RVP segment,
|
|
|
·
|
net foreign
exchange gains of approximately $1.5 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries, and
|
|
|
·
|
approximately
$0.2 million in net charges related to the closure of certain RVP segment
facilities.
|
|
|
(2)
|
Net earnings
and EBITDA for the second quarter ended June 30, 2007 includes the
following other income and expense
items:
|
|
|
·
|
net foreign
exchange losses of approximately $1.7 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries,
|
|
|
·
|
a charge of
approximately $0.8 million related to the closure of the Company’s NuTone,
Inc. Cincinnati, Ohio facility within the RVP
segment,
|
|
|
·
|
a charge of
approximately $0.5 million related to a reserve for amounts due from
customers within the HTP segment,
|
|
|
·
|
legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland within the RVP
segment of approximately $0.3
million,
|
|
|
·
|
a charge of
approximately $0.3 million related to the planned closure of the Company’s
Mammoth, Inc. Chaska, Minnesota manufacturing facility within the HVAC
segment, and
|
|
|
·
|
a decrease in
warranty expense of approximately $0.2 million related to a product safety
upgrade within the HTP segment.
|
|
|
(3)
|
Interest
expense for the second quarter ended June 28, 2008 includes cash interest
of approximately $29.4 million and non-cash interest of approximately $1.9
million. Interest expense for the second quarter ended June 30,
2007 includes cash interest of approximately $29.4 million and non-cash
interest of approximately $1.4
million.
|
The following table
presents a reconciliation from net (loss) earnings, which is the most directly
comparable GAAP operating performance measure, to EBITDA for the first six
months ended June 28, 2008 and June 30, 2007:
|
|
|
For the first six months
ended
|
|
|
|
|
June 28,
2008
|
|
|
June 30,
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings (1),
(2)
|
|
$ |
(0.4 |
) |
|
$ |
27.9 |
|
|
Provision for income
taxes
|
|
|
2.5 |
|
|
|
22.6 |
|
|
Interest
expense (3)
|
|
|
58.7 |
|
|
|
60.0 |
|
|
Investment
income
|
|
|
(0.4 |
) |
|
|
(0.9 |
) |
|
Depreciation
expense
|
|
|
20.9 |
|
|
|
18.7 |
|
|
Amortization
expense
|
|
|
15.1 |
|
|
|
12.4 |
|
|
EBITDA (1),
(2)
|
|
$ |
96.4 |
|
|
$ |
140.7 |
|
|
|
(1)
|
Net loss and
EBITDA for the first six months ended June 28, 2008 includes the following
other income and expense items:
|
|
|
·
|
a pre-tax
loss from debt retirement of approximately $9.9 million, primarily as a
result of writing off unamortized deferred debt expense related to the
Company’s senior secured credit
facility,
|
|
|
·
|
approximately
$4.7 million of fees, expenses and a reserve recorded in connection with a
contemplated settlement of a dispute with one of its former suppliers
within the HTP segment,
|
|
|
·
|
costs and
expenses incurred in connection with the start up of a range hood facility
in Mexico of approximately $1.4 million within the RVP
segment,
|
|
|
·
|
a gain of
approximately $2.5 million from the sale of a manufacturing facility
within the RVP segment,
|
|
|
·
|
net foreign
exchange gains of approximately $1.4 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries, and
|
|
|
·
|
approximately
$0.2 million in net charges related to the closure of certain RVP segment
facilities.
|
|
|
(2)
|
Net earnings
and EBITDA for the first six months ended June 30, 2007 includes the
following other income and expense
items:
|
|
|
·
|
charges of
approximately $2.3 million related to reserves for amounts due from
customers within the HTP and HVAC
segments,
|
|
|
·
|
net foreign
exchange losses of approximately $2.0 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries,
|
|
|
·
|
a charge of
approximately $1.4 million related to the closure of the Company’s NuTone,
Inc. Cincinnati, Ohio facility within the RVP
segment,
|
|
|
·
|
legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland within the RVP
segment of approximately $1.3
million,
|
|
|
·
|
a charge of
approximately $0.3 million related to the planned closure of the Company’s
Mammoth, Inc. Chaska, Minnesota manufacturing facility within the HVAC
segment, and
|
|
|
·
|
a decrease in
warranty expense of approximately $0.2 million related to a product safety
upgrade within the HTP segment.
|
|
|
(3)
|
Interest
expense for the first six months ended June 28, 2008 includes cash
interest of approximately $55.4 million and non-cash interest of
approximately $3.3 million. Interest expense for the first six
months ended June 30, 2007 includes cash interest of approximately $57.2
million and non-cash interest of approximately $2.8
million.
|
|
(D)
|
The Company
uses EBITDA as both a liquidity and operating performance
measure. Liquidity measure disclosures with respect to EBITDA
are provided below. Refer to Note C for operating performance
measure disclosures with respect to EBITDA and a reconciliation from net
earnings (loss) to EBITDA.
|
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 ABL 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 summary of operations for a complete evaluation of the
Company’s cash flow performance.
The following table
presents a reconciliation from net cash provided by operating activities, which
is the most directly comparable GAAP liquidity measure, to EBITDA for the first
six months ended June 28, 2008 and June 30, 2007:
|
|
|
For the first six months
ended
|
|
|
|
|
June 28,
2008
|
|
|
June 30,
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
$ |
44.6 |
|
|
$ |
46.1 |
|
Cash used by working capital and other long-term asset and
liability changes
|
|
|
(2.9 |
) |
|
|
20.2 |
|
|
Deferred federal
income tax benefit (provision)
|
|
|
4.7 |
|
|
|
(4.1 |
) |
|
(Gain) loss on
property and equipment
|
|
|
2.5 |
|
|
|
(0.2 |
) |
|
Loss from debt
retirement
|
|
|
(9.9 |
) |
|
|
--- |
|
|
Non-cash interest
expense, net
|
|
|
(3.3 |
) |
|
|
(2.8 |
) |
|
Non-cash stock-based
compensation expense
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
Provision for income
taxes
|
|
|
2.5 |
|
|
|
22.6 |
|
|
Interest expense
(3)
|
|
|
58.7 |
|
|
|
60.0 |
|
|
Investment
income
|
|
|
(0.4 |
) |
|
|
(0.9 |
) |
|
EBITDA (1),
(2)
|
|
$ |
96.4 |
|
|
$ |
140.7 |
|
|
|
(1)
|
EBITDA for
the first six months ended June 28, 2008 includes the following other
income and expense items:
|
|
|
·
|
a pre-tax
loss from debt retirement of approximately $9.9 million, primarily as a
result of writing off unamortized deferred debt expense related to the
Company’s senior secured credit
facility,
|
|
|
·
|
approximately
$4.7 million of fees, expenses and a reserve recorded in connection with a
contemplated settlement of a dispute with one of its former suppliers
within the HTP segment,
|
|
|
·
|
costs and
expenses incurred in connection with the start up of a range hood facility
in Mexico of approximately $1.4 million within the RVP
segment,
|
|
|
·
|
a gain of
approximately $2.5 million from the sale of a manufacturing facility
within the RVP segment,
|
|
|
·
|
net foreign
exchange gains of approximately $1.4 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries, and
|
|
|
·
|
approximately
$0.2 million in net charges related to the closure of certain RVP segment
facilities.
|
|
|
(2)
|
EBITDA for
the first six months ended June 30, 2007 includes the following other
income and expense items:
|
|
|
·
|
charges of
approximately $2.3 million related to reserves for amounts due from
customers within the HTP and HVAC
segments,
|
|
|
·
|
net foreign
exchange losses of approximately $2.0 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries,
|
|
|
·
|
a charge of
approximately $1.4 million related to the closure of the Company’s NuTone,
Inc. Cincinnati, Ohio facility within the RVP
segment,
|
|
|
·
|
legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland within the RVP
segment of approximately $1.3
million,
|
|
|
·
|
a charge of
approximately $0.3 million related to the planned closure of the Company’s
Mammoth, Inc. Chaska, Minnesota manufacturing facility within the HVAC
segment, and
|
|
|
·
|
a decrease in
warranty expense of approximately $0.2 million related to a product safety
upgrade within the HTP segment.
|
|
|
(3)
|
Interest
expense for the first six months ended June 28, 2008 includes cash
interest of approximately $55.4 million and non-cash interest of
approximately $3.3 million. Interest expense for the first six
months ended June 30, 2007 includes cash interest of approximately $57.2
million and non-cash interest of approximately $2.8
million.
|
|
