| |
Exhibit
99.1
Richard L. Bready,
Chairman and CEO
Edward J. Cooney,
Vice President and Treasurer
(401)
751-1600
IMMEDIATE
NORTEK
REPORTS 2008 UNAUDITED RESULTS
AND
DELAY IN FILING OF 2008 FORM 10-K
PROVIDENCE, RI,
March 31, 2009—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 has delayed the filing with the Securities and
Exchange Commission (“SEC”) of its Annual Report on Form 10-K for the year ended
December 31, 2008 and also announced unaudited 2008 financial
results.
Nortek was unable to timely
finalize its accounting documentation and analysis and prepare its financial
statements which are to be included in its Annual Report on Form 10-K for the
year ended December 31, 2008 (the “Form 10-K”) by the prescribed filing date
without unreasonable effort and expense, primarily due to the complexities of
the goodwill impairment calculation, as required under
SFAS No. 142, and the related
valuations. Nortek currently anticipates
filing the Form 10-K on or before April 15, 2009, although there can
be no assurance in this regard.
Richard L. Bready,
Chairman and Chief Executive Officer, said, “Nortek performed reasonably
well in 2008 considering the difficult market conditions. Revenues
for 2008 were $2,270 million, down 4.1 percent from 2007. Nortek fourth-quarter 2008
revenues were down 12.1 percent as remodeling and renovation spending was
severely impacted by the low level of housing activity and the worldwide crisis
in the credit and financial markets. Additionally, the troubled
mortgage market, rising unemployment and decreasing home values have had a
further negative impact on consumer disposable income and has resulted in lower
sales across all of our markets.”
Key financial
highlights for 2008 included:
|
·
|
Net sales of
$2,270 million, a decrease of 4.1 percent, compared to the $2,368 million
recorded in 2007.
|
|
·
|
An operating
loss of $610.0 million (including the impact of the estimated $710 million
non-cash goodwill impairment charge), compared to operating earnings of
$185.5 million for 2007.
|
|
·
|
Adjusted
operating earnings of $100.0 million for
2008.
|
|
·
|
Depreciation
and amortization expense of $68.6 million compared to $65.1 million
in 2007.
|
|
·
|
Acquisitions
contributed approximately $20.7 million in net sales and reduced operating
earnings by $3.2 million for the year ended December 31,
2008.
|
Key financial
highlights for the fourth quarter of 2008 included:
|
·
|
Net sales of
$500 million, a decrease of 12.1 percent, compared to the $569
million recorded in the fourth quarter of
2007.
|
|
·
|
An operating
loss of $100.7 million (including the impact of the $110 million
additional estimated non-cash goodwill impairment charge), compared to
operating earnings of $38.3 million in the fourth quarter of
2007.
|
|
·
|
Adjusted
operating earnings of $9.3 million in the fourth quarter of
2008.
|
|
·
|
Depreciation
and amortization expense of $15.5 million compared to $18.2 million
in last year’s fourth quarter.
|
As of December 31,
2008, Nortek had
approximately $182 million in unrestricted cash, cash equivalents and marketable
securities and had $145 million of borrowings outstanding under its asset-backed
revolving credit facility.
Mr. Bready added,
“Nortek expects these
difficult markets to continue throughout 2009 and adversely impact operating
results. In the first quarter of 2009, Nortek anticipates net sales
to be approximately 20 percent lower than the first quarter of
2008. Additionally, the instability in the global economy is expected
to continue to impact consumer confidence and spending on home remodeling and
repair expenditures throughout 2009. Nortek intensified cost
reduction initiatives in the fourth quarter of 2008 and into 2009 to
significantly reduce discretionary spending and achieve reductions in Nortek’s
workforce. Nortek expects to reduce
expense levels by an amount of $50 million to $60 million in 2009 from 2008
spending levels.”
Mr. Bready
continued, “Nortek is
looking at its business with a long-term view and a continued focus on its
low-cost country sourcing strategy and cost-reduction
initiatives. Balance sheet management is an extremely important
priority for all of our businesses so we can maximize our cash flow from
operating activities. During this challenging environment, we will
only fund necessary capital investments that will improve our business
operations.”
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 Fourth Quarter
Ended
|
|
|
For the Years
Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
499.8 |
|
|
$ |
569.2 |
|
|
$ |
2,269.7 |
|
|
$ |
2,368.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
(see Note D)
|
|
|
374.2 |
|
|
|
410.2 |
|
|
|
1,673.5 |
|
|
|
1,679.9 |
|
|
Selling, general and
administrative expense, net (see Note D)
|
|
|
109.9 |
|
|
|
112.1 |
|
|
|
468.0 |
|
|
|
475.3 |
|
|
Goodwill impairment
charge (see Note B)
|
|
|
110.0 |
|
|
|
--- |
|
|
|
710.0 |
|
|
|
--- |
|
|
Amortization of
intangible assets
|
|
|
6.4 |
|
|
|
8.6 |
|
|
|
28.2 |
|
|
|
27.5 |
|
|
|
|
|
600.5 |
|
|
|
530.9 |
|
|
|
2,879.7 |
|
|
|
2,182.7 |
|
|
Operating (loss)
earnings
|
|
|
(100.7 |
) |
|
|
38.3 |
|
|
|
(610.0 |
) |
|
|
185.5 |
|
|
Interest
expense
|
|
|
(38.9 |
) |
|
|
(30.7 |
) |
|
|
(134.7 |
) |
|
|
(122.0 |
) |
|
Loss from debt
retirement
|
|
|
--- |
|
|
|
--- |
|
|
|
(9.9 |
) |
|
|
--- |
|
|
Investment
income
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.8 |
|
|
|
2.0 |
|
|
(Loss) earnings before provision
for income taxes
|
|
|
(139.4 |
) |
|
|
8.1 |
|
|
|
(753.8 |
) |
|
|
65.5 |
|
|
(Benefit) provision for income
taxes
|
|
|
(3.8 |
) |
|
|
5.0 |
|
|
|
26.9 |
|
|
|
33.1 |
|
|
Net (loss)
earnings
|
|
$ |
(135.6 |
) |
|
$ |
3.1 |
|
|
$ |
(780.7 |
) |
|
$ |
32.4 |
|
The accompanying notes are an integral
part of this unaudited condensed consolidated summary of
operations.
NORTEK,
INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
|
(A)
|
The unaudited
condensed consolidated summary of operations, which includes the accounts
of Nortek, Inc. and all of its wholly-owned subsidiaries (individually and
collectively, the “Company” or “Nortek”), is preliminary and is subject to
the Company completing the documentation of its accounting for SFAS No.
142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) (see Note
B). These unaudited condensed consolidated summary of
operations have been prepared 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 periods presented. On March 31, 2009, the
Company announced it had delayed the filing with the Securities and
Exchange Commission (“SEC”) of its report on Form 10-K for the year ended
December 31, 2008. Although the Company does not expect there
to be any further adjustments to its operating results and financial
condition for the year ended December 31, 2008, there can be no assurance
that additional adjustments will not be required in the filing of its Form
10-K with the SEC. 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, its quarterly reports on Form
10-Q and its Current Reports on Form 8-K as filed with the
SEC.
|
|
(B)
|
The Company
accounts for acquired goodwill and intangible assets in accordance with
Statement of Financial Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS No. 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets”
(“SFAS No. 142”) which involves judgment with respect to the determination
of the purchase price and the valuation of the acquired assets and
liabilities in order to determine the final amount of
goodwill.
|
Under SFAS No. 142,
goodwill and intangible assets determined to have indefinite useful lives are
not amortized. Instead these assets are evaluated for impairment on
an annual basis, or more frequently when an event occurs or circumstances change
between annual tests that would more likely than not reduce the fair value of
the reporting unit below its carrying value, including, among others, a
significant adverse change in the business climate. The Company has
set the annual evaluation date as of the first day of its fiscal fourth
quarter. The reporting units evaluated for goodwill impairment by the
Company have been determined to be the same as the Company’s operating segments
in accordance with the criteria in SFAS No. 142 for determining reporting units
and include Residential Ventilation Products (“RVP”), Home Technology Products
(“HTP”), Residential Air Conditioning and Heating Products (“Residential HVAC”)
and Commercial Air Conditioning and Heating Products (“Commercial
HVAC”).
As a result of the
Company’s belief that the severe impact of the worldwide crisis in the credit
and financial markets in the second half of 2008, declines in new and existing
home sales, the instability in the troubled mortgage market, rising unemployment
and decreasing home values would continue to have a negative impact on
residential new construction activity, consumer disposable income and spending
on home remodeling and repair expenditures through at least 2009, the Company
concluded in the third quarter of 2008 that indicators of potential goodwill
impairment were present and therefore the Company needed to perform an interim
test of goodwill impairment in accordance with SFAS No. 142. The
interim test of goodwill impairment was performed for all four of the Company’s
reporting units.
In accordance with
SFAS No. 142, the Company prepared a “Step 1” Test that compared the estimated
fair value of each reporting unit to its carrying value. The Company utilized a
discounted cash flow approach in order to value the Company’s reporting units
for the Step 1 Test, which required that the Company forecast future cash flows
of the reporting units and discount the cash flow stream based upon a weighted
average cost of capital that was derived, in part, from comparable companies
within similar industries. The discounted cash flow calculations also
included a terminal value calculation that was based upon an expected long-term
growth rate for the applicable reporting unit. The Company believes
that its procedures for estimating discounted future cash flows, including the
terminal valuation, were reasonable and consistent with market conditions at the
time of estimation. The results of the Step 1 Tests performed in the
third quarter of 2008 indicated that the carrying values of the RVP, HTP and
Residential HVAC reporting units exceeded the estimated fair values determined
by the Company and, as such, a “Step 2” Test was required under SFAS No. 142 for
each of these reporting units. The estimated fair value of Commercial
HVAC exceeded its carrying value so no further impairment analysis was required
for this reporting unit. Based on the Company’s estimates at
September 27, 2008, the impact of reducing the Company’s fair value estimates
for Commercial HVAC by 10% would have no impact on the Company’s goodwill
assessment for this reporting unit.
The preliminary
Step 2 Test for the third quarter of 2008 required the Company to measure the
potential impairment loss by allocating the estimated fair value of each
reporting unit, as determined in Step 1, to the reporting units’ assets and
liabilities, with the residual amount representing the implied fair value of
goodwill and, to the extent the implied fair value of goodwill was less than the
carrying value, an impairment loss was recognized. As such, the Step
2 Test under SFAS No. 142 required the Company to perform a theoretical purchase
price allocation for each of the applicable reporting units to determine the
implied fair value of goodwill as of the evaluation date. Due to the
complexity of the analysis required to complete the Step 2 Tests and the timing
of the Company’s determination of the goodwill impairment, the Company had not
finalized its Step 2 Tests at the end of the third quarter of
2008. In accordance with the guidance in SFAS No. 142, the Company
completed a preliminary assessment of the expected impact of the Step 2 Tests
using reasonable estimates for the theoretical purchase price allocation and
recorded a preliminary goodwill impairment charge in the third quarter of 2008
of approximately $600.0 million. The allocation of this preliminary
goodwill impairment charge for the third quarter of 2008 was approximately
$340.0 million, approximately $60.0 million and approximately $200.0 million for
the RVP, HTP and Residential HVAC reporting units, respectively.
The Company is in
the process of completing Step 2 under SFAS No. 142 for RVP, HTP and Residential
HVAC and is performing the following procedures, among others:
|
·
|
Detailed
appraisals to determine the estimated fair value of intangible assets,
real estate and machinery and equipment for the RVP, HTP and Residential
HVAC reporting units in accordance with methodologies for valuing assets
under SFAS No. 141.
|
|
·
|
The
allocation of the estimated fair value of pension liabilities determined
in accordance with the Company’s consolidated financial statement
requirements to the RVP and Residential HVAC reporting units based on the
actuarially determined pension benefit obligations and an allocation of
plan assets as of September 27, 2008 for the plans associated with these
reporting units.
|
|
·
|
Analysis to
determine the estimated fair value adjustment required to inventory for
the RVP, HTP and Residential HVAC reporting
units.
|
|
·
|
Deferred tax
analysis for the RVP, HTP and Residential HVAC reporting units, which
includes allocating estimated deferred tax requirements as of September
27, 2008 to the specific reporting units and calculating the deferred tax
consequences of the theoretical purchase price adjustments required by the
Step 2 test.
|
The Company
believes that the procedures being performed and estimates used in the
theoretical purchase price allocations required for Step 2 Testing under SFAS
No. 142 are reasonable and in accordance with the guidelines for acquisition
accounting included in SFAS No. 141 to determine the theoretical fair value of
the assets and liabilities of the RVP, HTP and Residential HVAC used in the Step
2 Tests.
As a result of the
Step 2 analysis to-date, the Company estimates that the goodwill impairment
charge as of September 27, 2008 is approximately $710.0 million, consisting of
approximately $444.0 million, approximately $77.0 million and approximately
$189.0 million for the RVP, HTP and Residential HVAC reporting units,
respectively. This represents an increase in the goodwill impairment
charges for RVP and HTP of approximately $104.0 million and $17.0 million,
respectively, and a decrease in the goodwill impairment charge for Residential
HVAC of approximately $11.0 million, as compared to the preliminary estimates
recorded in the third quarter of 2008. The primary reason for the change from
the preliminary goodwill charge recorded in the third quarter of 2008 were
changes in the theoretical valuation of intangible assets from the initial
estimates used for the RVP and HTP reporting units.
The Company is also
in the process of completing its annual test of goodwill impairment as of the
first day of the fourth quarter of 2008 or September 28,
2008. The preliminary results of the Step 1 Tests performed as
of September 28, 2008 indicate that the fair value of each of the reporting
units exceeds its carrying value and, as such, no additional impairment analysis
will be required.
As a result of the
continuing severity of the worldwide economic downturn and the impact that it
continues to have in the market valuations of both the Company’s public
competitors and in the overall stock market valuations, the Company concluded
that indicators of potential goodwill impairment were present during the fourth
quarter of 2008 and therefore the Company is in the process of performing an
interim test of goodwill impairment in accordance with SFAS No. 142 as of
December 31, 2008. The preliminary results of the Step 1 Tests
performed as of December 31, 2008 indicate that the fair value of each of the
reporting units exceeds its carrying value and, as such, no additional
impairment analysis will be required. Based on the Company’s
estimates at December 31, 2008, the impact of reducing the Company’s fair value
estimates for RVP, Residential HVAC and Commercial HVAC by 10% would have no
impact on the Company’s goodwill assessment for these reporting units. For HTP
the impact of reducing the Company’s fair value estimates as of December 31,
2008 by 10% would have reduced the estimated fair value to an amount below the
carrying value for this reporting unit and therefore would have required the
Company to perform additional impairment analysis for this reporting
unit.
The Company is in
the process of completing the documentation of its accounting for SFAS No.
142. Although the Company does not expect there to be any further
adjustments to the Company’s SFAS No. 142 conclusions discussed above, there can
be no assurance that the Company will not have to record additional adjustments
prior to the filing of the Company’s Form 10-K, which the Company currently
anticipates filing on or before April 15, 2009.
|
(C)
|
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 (“Residential HVAC“)
segment and
|
|
·
|
the
Commercial Air Conditioning and Heating Products (“Commercial 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 2008, the Company changed the
composition of its reporting segments to reflect the Residential HVAC segment
separately. In accordance with Statement of Financial Standards
(“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information”, the Company
has restated prior period segment disclosures to conform to the new
composition.
The RVP segment manufactures and sells
room and whole house ventilation products and other products primarily for the
professional remodeling and replacement markets, the residential new
construction market and the DIY market. The principal products sold
by this segment include:
|
·
|
exhaust fans (such as bath fans
and fan, heater and light combination units),
and
|
|
·
|
indoor air quality
products.
|
The HTP segment manufactures and sells a
broad array of products designed to provide convenience and security for
residential and certain commercial applications. The principal
products sold by this segment are:
|
·
|
audio / video distribution and
control equipment,
|
|
·
|
speakers and
subwoofers,
|
|
·
|
security and access control
products,
|
|
·
|
power conditioners and surge
protectors,
|
|
·
|
audio / video wall mounts and
fixtures,
|
|
·
|
lighting and home automation
controls, and
|
The Residential HVAC segment
manufactures and sells heating, ventilating and air conditioning systems for
site-built residential and manufactured housing structures and certain
commercial markets. The principal products sold by the segment
are:
|
·
|
split-system air
conditioners,
|
|
·
|
furnaces and related
equipment.
|
The Commercial HVAC segment manufactures
and sells heating, ventilating and air conditioning systems for custom-designed
commercial applications to meet customer specifications. The
principal products sold by the segment are large custom roof top cooling and
heating products.
Net sales and
operating (loss) earnings for the Company’s segments and pre-tax (loss) earnings
for the Company are presented in the table that follows for the three years
ended December 31, 2008:
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Amounts in
millions)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
Residential ventilation
products
|
|
$ |
715.9 |
|
|
$ |
828.8 |
|
|
$ |
821.0 |
|
|
Home technology
products
|
|
|
514.1 |
|
|
|
570.2 |
|
|
|
484.5 |
|
|
Residential HVAC
products
|
|
|
524.5 |
|
|
|
515.3 |
|
|
|
518.5 |
|
|
Commercial HVAC
products
|
|
|
515.2 |
|
|
|
453.9 |
|
|
|
394.4 |
|
|
Consolidated
net sales
|
|
$ |
2,269.7 |
|
|
$ |
2,368.2 |
|
|
$ |
2,218.4 |
|
|
Operating (loss)
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ventilation products
(1)
|
|
$ |
(391.9 |
) |
|
$ |
102.9 |
|
|
$ |
139.5 |
|
|
Home technology products
(2)
|
|
|
(39.2 |
) |
|
|
76.3 |
|
|
|
83.9 |
|
|
Residential HVAC products
(3)
|
|
|
(176.8 |
) |
|
|
10.8 |
|
|
|
37.7 |
|
|
Commercial HVAC products
(4)
|
|
|
34.2 |
|
|
|
20.3 |
|
|
|
27.2 |
|
|
Subtotal
|
|
|
(573.7 |
) |
|
|
210.3 |
|
|
|
288.3 |
|
|
Unallocated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
charges
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
Foreign exchange (losses) gains on
transactions,
|
|
|
|
|
|
|
|
|
|
|
including
intercompany debt
|
|
|
(1.0 |
) |
|
|
0.4 |
|
|
|
1.2 |
|
|
Estimated loss contingency on
lease guarantee
|
|
|
(6.4 |
) |
|
|
--- |
|
|
|
--- |
|
|
Compensation reserve
adjustment
|
|
|
--- |
|
|
|
--- |
|
|
|
3.5 |
|
|
Unallocated,
net
|
|
|
(28.8 |
) |
|
|
(24.9 |
) |
|
|
(25.7 |
) |
|
Consolidated operating (loss) earnings
|
|
|
(610.0 |
) |
|
|
185.5 |
|
|
|
267.0 |
|
|
Interest
expense
|
|
|
(134.7 |
) |
|
|
(122.0 |
) |
|
|
(115.6 |
) |
|
Loss from debt
retirement
|
|
|
(9.9 |
) |
|
|
--- |
|
|
|
--- |
|
|
Investment
income
|
|
|
0.8 |
|
|
|
2.0 |
|
|
|
2.2 |
|
|
(Loss)
earnings before provision for income taxes
|
|
$ |
(753.8 |
) |
|
$ |
65.5 |
|
|
$ |
153.6 |
|
|
(1)
|
The operating
results of the RVP segment for the year ended December 31, 2008
include:
|
|
·
|
a non-cash
goodwill impairment charge of approximately $444.0
million,
|
|
·
|
costs and
expenses incurred in connection with the start up of a range hood facility
in Mexico of approximately $4.5
million,
|
|
·
|
a gain of
approximately $2.7 million from the sale of certain segment manufacturing
facilities,
|
|
·
|
approximately
$2.2 million of estimated inefficient production costs and expenses
associated with the relocation of certain manufacturing
operations,
|
|
·
|
a reduction
in the social liability reserve related to one of the segment’s foreign
subsidiaries of approximately $2.0
million,
|
|
·
|
a charge of
approximately $1.9 million related to the discontinuance of certain range
hood products within the U.S.
market,
|
|
·
|
approximately
$1.8 million of severance charges incurred related to certain reduction in
workforce initiatives implemented during
2008,
|
|
·
|
approximately
$0.7 million in net charges related to the closure of certain segment
facilities and
|
|
·
|
net foreign
exchange gains of approximately $0.4 million related to transactions,
including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.
|
|
|
The operating
results of the RVP segment for the year ended December 31, 2007
include:
|
|
·
|
a favorable
adjustment to selling, general and administrative expense, net based upon
the Company’s revised estimate of reserves provided in 2006 for certain
suppliers in Italy and Poland of approximately $6.7
million,
|
|
·
|
approximately
$2.9 million in charges related to the closure of certain segment
facilities,
|
|
·
|
legal and
other professional fees and expenses incurred in connection with matters
related to certain subsidiaries based in Italy and Poland of approximately
$2.1 million,
|
|
·
|
an
approximately $1.9 million loss related to the settlement of
litigation,
|
|
·
|
net foreign
exchange losses of approximately $1.0 million related to transactions,
including intercompany debt not indefinitely invested in Nortek’s
subsidiaries,
|
|
·
|
a charge to
warranty expense of approximately $0.5 million related to a product safety
upgrade and
|
|
·
|
a charge of
approximately $0.4 million related to a reserve for amounts due from a
customer.
|
|
|
The operating
results of the RVP segment for the year ended December 31, 2006
include:
|
|
·
|
an
approximately $35.9 million curtailment gain related to post-retirement
medical and life insurance
benefits,
|
|
·
|
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,
|
|
·
|
an
approximately $3.5 million charge related to the closure of certain
segment facilities and
|
|
·
|
an increase
in warranty expense in the first quarter of 2006 of approximately $1.5
million related to a product safety
upgrade.
|
|
(2)
|
The operating
results of the HTP segment for the year ended December 31, 2008
include:
|
|
·
|
a non-cash
goodwill impairment charge of approximately $77.0
million,
|
|
·
|
approximately
$4.9 million of fees and expenses recorded in connection with the
settlement of a dispute with one of its former
suppliers,
|
|
·
|
a charge of
approximately $2.7 million related to a reserve for amounts due from
customers,
|
|
·
|
approximately
$0.8 million of severance charges incurred related to certain reduction in
workforce initiatives implemented during
2008,
|
|
·
|
net foreign
exchange losses of approximately $0.7 million related to transactions
and
|
|
·
|
an
approximately $0.1 million charge related to the closure of certain
facilities.
|
The operating
results of the HTP segment for the year ended December 31, 2007
include:
|
·
|
approximately
$2.0 million of fees and expenses incurred in connection with a dispute
with a supplier,
|
|
·
|
a reduction
in warranty expense of approximately $0.7 million related to a product
safety upgrade and
|
|
·
|
a charge of
approximately $0.5 million related to a reserve for amounts due from
customers.
|
The operating
results of the HTP segment for the year ended December 31, 2006 include an
increase in warranty expense of approximately $2.3 million related to a product
safety upgrade.
|
(3)
|
The operating
results of the Residential HVAC segment for the year ended December 31,
2008 include a non-cash goodwill impairment charge of approximately $189.0
million and approximately $0.9 million of severance charges incurred
related to certain reduction in workforce initiatives implemented during
2008. The operating results of the Residential HVAC segment for
the year ended December 31, 2006 include an approximately $1.6 million
gain related to the favorable settlement of
litigation.
|
|
(4)
|
The operating
results of the Commercial HVAC segment for the year ended December 31,
2008 include:
|
|
·
|
an
approximately $3.3 million non-cash write-down of a foreign subsidiary in
the Commercial HVAC segment,
|
|
·
|
net foreign
exchange gains of approximately $2.1 million related to transactions,
including intercompany debt not indefinitely invested in Nortek’s
subsidiaries,
|
|
·
|
a lease
termination fee of approximately $1.9 million related to the closure of
the segment’s Mammoth, Inc. Chaska, Minnesota manufacturing
facility,
|
|
·
|
approximately
$1.5 million of severance charges incurred related to certain reduction in
workforce initiatives implemented during 2008,
and
|
|
·
|
a gain on the
settlement of litigation of approximately $1.2 million resulting from a
prior bad debt write-off.
|
The operating
results of the Commercial HVAC segment for the year ended December 31, 2007
include:
|
·
|
a charge of
approximately $3.7 million related to the closure of the segment’s
Mammoth, Inc. Chaska, Minnesota manufacturing
facility,
|
|
·
|
net foreign
exchange losses of approximately $2.5 million related to transactions,
including intercompany debt not indefinitely invested in Nortek’s
subsidiaries and
|
|
·
|
a charge of
approximately $1.8 million related to a reserve for amounts due from
customers.
|
The operating
results of the Commercial HVAC segment for the year ended December 31, 2006
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
and
|
|
·
|
net foreign
exchange gains of approximately $0.4 million related to transactions,
including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.
|
Depreciation
expense, amortization expense and capital expenditures for the Company’s
segments are presented in the table that follows for the three years ended
December 31, 2008:
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Amounts in
millions)
|
|
|
Depreciation
Expense:
|
|
|
|
|
|
|
|
|
|
|
Residential ventilation
products
|
|
$ |
16.0 |
|
|
$ |
14.3 |
|
|
$ |
12.9 |
|
|
Home technology
products
|
|
|
6.3 |
|
|
|
5.8 |
|
|
|
4.4 |
|
|
Residential HVAC
products
|
|
|
10.5 |
|
|
|
10.1 |
|
|
|
9.3 |
|
|
Commercial HVAC
products
|
|
|
6.8 |
|
|
|
6.7 |
|
|
|
5.7 |
|
|
Unallocated
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
Consolidated
depreciation expense
|
|
$ |
40.2 |
|
|
$ |
37.6 |
|
|
$ |
33.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ventilation products
(1)
|
|
$ |
9.0 |
|
|
$ |
6.3 |
|
|
$ |
6.4 |
|
|
Home technology products
(2)
|
|
|
13.0 |
|
|
|
13.3 |
|
|
|
11.4 |
|
|
Residential HVAC products
(3)
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
1.2 |
|
|
Commercial HVAC products
(4)
|
|
|
5.3 |
|
|
|
6.5 |
|
|
|
8.7 |
|
|
Unallocated
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Consolidated
amortization expense
|
|
$ |
28.4 |
|
|
$ |
27.5 |
|
|
$ |
28.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential ventilation
products
|
|
$ |
10.5 |
|
|
$ |
13.7 |
|
|
$ |
20.2 |
|
|
Home technology
products
|
|
|
3.7 |
|
|
|
5.5 |
|
|
|
6.2 |
|
|
Residential HVAC
products
|
|
|
6.3 |
|
|
|
12.8 |
|
|
|
6.1 |
|
|
Commercial HVAC
products
|
|
|
4.9 |
|
|
|
4.3 |
|
|
|
9.6 |
|
|
Unallocated
|
|
|
--- |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
Consolidated
capital expenditures
|
|
$ |
25.4 |
|
|
$ |
36.4 |
|
|
$ |
42.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
amortization of approximately $0.3 million for the year ended December 31,
2006 of excess purchase price allocated to inventory recorded as a
non-cash charge to cost of products
sold.
|
|
(2)
|
Includes
amortization of approximately $0.2 million for the year ended December 31,
2006 of excess purchase price allocated to inventory recorded as a
non-cash charge to cost of products
sold.
|
|
(3)
|
Includes
amortization of approximately $0.2 million for the year ended December 31,
2008 of excess purchase price allocated to inventory recorded as a
non-cash charge to cost of products
sold.
|
|
(4)
|
Includes
amortization of approximately $2.8 million for the year ended December 31,
2006 of excess purchase price allocated to inventory recorded as a
non-cash charge to cost of products
sold.
|
|
(D)
|
During the
fourth quarter ended December 31, 2008 and 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 Fourth
Quarter
|
|
| |
|
|
|
Ended Dec. 31,
*
|
|
| |
|
|
|
2008
|
|
|
2007
|
|
| |
|
|
|
(Amounts in
millions)
|
|
| |
|
|
|
|
|
|
|
|
| |
(1 |
) |
Gains related to certain RVP
segment suppliers based in Italy and Poland
|
|
$ |
--- |
|
|
|
(6.7 |
) |
| |
(2 |
) |
Severance charges incurred related
to certain reduction in workforce initiatives
|
|
|
|
|
|
|
|
|
| |
|
|
implemented in all
four segments (2)
|
|
|
5.0 |
|
|
|
--- |
|
| |
(3 |
) |
Fees and expenses incurred in the
HTP segment in connection with the dispute
|
|
|
|
|
|
|
|
|
| |
|
|
and settlement with
one of its former suppliers
|
|
|
--- |
|
|
|
1.2 |
|
| |
(4 |
) |
Cost and expenses incurred in the
RVP segment in connection with the start up of
|
|
|
|
|
|
|
|
|
| |
|
|
a range hood facility
in Mexico (1)
|
|
|
1.3 |
|
|
|
--- |
|
| |
(5 |
) |
Charges related to the closure of
the Commercial HVAC segment's
|
|
|
|
|
|
|
|
|
| |
|
|
Mammoth, Inc. Chaska,
MN facility
|
|
|
--- |
|
|
|
1.1 |
|
| |
(6 |
) |
Non-cash write-down of a foreign
subsidiary in the Commercial HVAC segment
|
|
|
3.3 |
|
|
|
--- |
|
| |
(7 |
) |
Foreign exchange losses (gains)
related to transactions, including intercompany
debt
|
|
|
|
|
|
| |
|
|
not indefinitely
invested in Nortek's subsidiaries
|
|
|
0.1 |
|
|
|
(0.3 |
) |
| |
(8 |
) |
Net charges related to the closure
of certain RVP segment facilities (2)
|
|
|
0.1 |
|
|
|
0.9 |
|
| |
(9 |
) |
Reserve for amounts due from
customers in the RVP, HTP
|
|
|
|
|
|
|
|
|
| |
|
|
and Commercial HVAC
segments
|
|
|
1.2 |
|
|
|
--- |
|
| |
(10 |
) |
Gain from the sale of certain
manufacturing facilities in the RVP segment
|
|
|
(0.2 |
) |
|
|
--- |
|
| |
(11 |
) |
Estimated inefficient production
costs and expenses associated with the
|
|
|
|
|
|
|
|
|
| |
|
|
relocation of certain
RVP segment manufacturing operations (2)
|
|
|
0.2 |
|
|
|
--- |
|
| |
(12 |
) |
Legal and other professional fees
and expenses incurred in connection with matters
|
|
|
|
|
|
|
|
|
| |
|
|
related to certain
subsidiaries based in Italy and Poland in the RVP
segment
|
|
|
--- |
|
|
|
(0.1 |
) |
| |
(13 |
) |
Reduction in social liability
reserve related to one of the Company's foreign
|
|
|
|
|
|
|
|
|
| |
|
|
subsidiaries in the
RVP segment
|
|
|
(0.1 |
) |
|
|
--- |
|
| |
(14 |
) |
Charges related to the
discontinuance of certain range hood products within
the
|
|
|
|
|
|
|
|
|
| |
|
|
U.S. market in the RVP segment
(1)
|
|
|
1.9 |
|
|
|
--- |
|
| |
(15 |
) |
Lease termination fee related to
the closure of the Commercial HVAC
|
|
|
|
|
|
|
|
|
| |
|
|
segment's Mammoth,
Inc. Chaska, Minnesota manufacturing facility
|
|
|
1.9 |
|
|
|
--- |
|
| |
(16 |
) |
Product safety upgrade reserves in
the RVP and HTP segments (1)
|
|
|
--- |
|
|
|
(0.8 |
) |
| |
(17 |
) |
Net charges related to the closure
of certain HTP segment facilities
|
|
|
0.1 |
|
|
|
--- |
|
|
*
|
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 summary of
operations.
|
|
(1)
|
Recorded in
cost of products sold.
|
|
(2)
|
Approximately
$1.3 million of these severance charges incurred related to certain
reduction in workforce initiatives was recorded in cost of products sold
for the fourth quarter ended December 31,
2008.
|
Approximately $0.1
million and $0.2 million of the net charges related to the closure of certain
RVP segment facilities was recorded in cost of products sold for the fourth
quarter ended December 31, 2008 and 2007, respectively.
Approximately $0.2
million of these estimated inefficient production costs and expenses associated
with the relocation of certain RVP segment manufacturing operations was recorded
in cost of products sold for the fourth quarter ended December 31,
2008.
During the years
ended December 31, 2008 and 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 Years Ended Dec. 31,
*
|
|
| |
|
|
|
2008
|
|
|
2007
|
|
| |
|
|
|
(Amounts in
millions)
|
|
| |
|
|
|
|
|
|
|
|
| |
(1 |
) |
Gains related to certain RVP
segment suppliers based in Italy and Poland
|
|
$ |
--- |
|
|
$ |
(6.7 |
) |
| |
(2 |
) |
Estimated loss contingency on
lease guarantee
|
|
|
6.4 |
|
|
|
--- |
|
| |
(3 |
) |
Severance charges incurred related
to certain reduction in workforce initiatives
|
|
|
|
|
|
|
|
|
| |
|
|
implemented in all
four segments (2)
|
|
|
5.0 |
|
|
|
--- |
|
| |
(4 |
) |
Fees and expenses incurred in the
HTP segment in connection with the dispute
|
|
|
|
|
|
|
|
|
| |
|
|
and settlement with
one of its former suppliers
|
|
|
4.9 |
|
|
|
2.0 |
|
| |
(5 |
) |
Cost and expenses incurred in the
RVP segment in connection with the start up of
|
|
|
|
|
|
|
|
|
| |
|
|
a range hood facility
in Mexico (1)
|
|
|
4.5 |
|
|
|
--- |
|
| |
(6 |
) |
Charges related to the closure of
the Commercial HVAC segment's
|
|
|
|
|
|
|
|
|
| |
|
|
Mammoth, Inc. Chaska,
MN facility
|
|
|
--- |
|
|
|
3.7 |
|
| |
(7 |
) |
Non-cash write-down of a foreign
subsidiary in the Commercial HVAC segment
|
|
|
3.3 |
|
|
|
--- |
|
| |
(8 |
) |
Foreign exchange losses (gains)
related to transactions, including intercompany
debt
|
|
|
|
|
|
| |
|
|
not indefinitely
invested in Nortek's subsidiaries
|
|
|
(0.8 |
) |
|
|
3.1 |
|
| |
(9 |
) |
Net charges related to the closure
of certain RVP segment facilities (2)
|
|
|
0.7 |
|
|
|
2.9 |
|
| |
(10 |
) |
Reserve for amounts due from
customers in the RVP, HTP
|
|
|
|
|
|
|
|
|
| |
|
|
and Commercial HVAC
segments
|
|
|
2.7 |
|
|
|
2.7 |
|
| |
(11 |
) |
Gain from the sale of certain
manufacturing facilities in the RVP segment
|
|
|
(2.7 |
) |
|
|
--- |
|
| |
(12 |
) |
Estimated inefficient production
costs and expenses associated with the
|
|
|
|
|
|
|
|
|
| |
|
|
relocation of certain
RVP segment manufacturing operations (2)
|
|
|
2.2 |
|
|
|
--- |
|
| |
(13 |
) |
Legal and other professional fees
and expenses incurred in connection with matters
|
|
|
|
|
|
|
|
|
| |
|
|
related to certain
subsidiaries based in Italy and Poland in the RVP
segment
|
|
|
--- |
|
|
|
2.1 |
|
| |
(14 |
) |
Reduction in social liability
reserve related to one of the Company's foreign
|
|
|
|
|
|
|
|
|
| |
|
|
subsidiaries in the
RVP segment
|
|
|
(2.0 |
) |
|
|
--- |
|
| |
(15 |
) |
Charges related to the
discontinuance of certain range hood products within
the
|
|
|
|
|
|
|
|
|
| |
|
|
U.S. market in the RVP segment
(1)
|
|
|
1.9 |
|
|
|
--- |
|
| |
(16 |
) |
Lease termination fee related to
the closure of the Commercial HVAC
|
|
|
|
|
|
|
|
|
| |
|
|
segment's Mammoth,
Inc. Chaska, Minnesota manufacturing facility
|
|
|
1.9 |
|
|
|
--- |
|
| |
(17 |
) |
Loss on settlement of litigation
in the RVP segment
|
|
|
--- |
|
|
|
1.9 |
|
| |
(18 |
) |
Gain on settlement of litigation
in the Commercial HVAC segment resulting from a
|
|
|
|
|
|
|
|
|
| |
|
|
prior bad debt
write-off
|
|
|
(1.2 |
) |
|
|
--- |
|
| |
(19 |
) |
Product safety upgrade reserves in
the RVP and HTP segments (1)
|
|
|
--- |
|
|
|
(0.2 |
) |
| |
(20 |
) |
Net charges related to the closure
of certain HTP segment facilities
|
|
|
0.1 |
|
|
|
--- |
|
|
*
|
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 summary of
operations.
|
|
(1)
|
Recorded in
cost of products sold.
|
|
(2)
|
Approximately
$1.3 million of these severance charges incurred related to certain
reduction in workforce initiatives was recorded in cost of products sold
for the year ended December 31,
2008.
|
Approximately $0.8
million and $0.3 million of the net charges related to the closure of certain
RVP segment facilities was recorded in cost of products sold for the years ended
December 31, 2008 and 2007, respectively.
Approximately $1.8
million of these estimated inefficient production costs and expenses associated
with the relocation of certain RVP segment manufacturing operations was recorded
in cost of products sold for the year ended December 31, 2008.
|
(E)
|
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 F 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 (loss) earnings, which is the most directly
comparable GAAP operating performance measure, to EBITDA for the fourth quarter
ended December 31, 2008 and 2007:
|
|
|
For the Fourth Quarter
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollar amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings (1),
(2)
|
|
$ |
(135.6 |
) |
|
$ |
3.1 |
|
|
(Benefit) provision for income
taxes
|
|
|
(3.8 |
) |
|
|
5.0 |
|
|
Interest expense
(3)
|
|
|
38.9 |
|
|
|
30.7 |
|
|
Investment
income
|
|
|
(0.2 |
) |
|
|
(0.5 |
) |
|
Depreciation
expense
|
|
|
8.9 |
|
|
|
9.6 |
|
|
Amortization
expense
|
|
|
6.6 |
|
|
|
8.6 |
|
|
EBITDA (1),
(2)
|
|
$ |
(85.2 |
) |
|
$ |
56.5 |
|
|
(1)
|
Net loss and
EBITDA for the fourth quarter ended December 31, 2008 includes the
following other income and expense
items:
|
|
·
|
a non-cash
goodwill impairment charge of approximately $110.0
million,
|
|
·
|
approximately
$5.0 million of severance charges incurred related to certain reduction in
workforce initiatives implemented in all four
segments,
|
|
·
|
costs and
expenses incurred in connection with the start up of a range hood facility
in Mexico of approximately $1.3 million in the RVP
segment,
|
|
·
|
an
approximately $3.3 million non-cash write-down of a foreign subsidiary in
the Commercial HVAC segment,
|
|
