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Exhibit 99.1
NORTEK REPORTS 3RD-QUARTER RESULTS
PROVIDENCE, RI, December 3, 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 third-quarter sales of $452 million despite the sustained adverse conditions in the U.S. housing market. Key financial highlights for the third quarter of 2009 included:
As of October 3, 2009, Nortek had approximately $181 million in unrestricted cash, cash equivalents and marketable securities and had $150 million of borrowings outstanding under its revolving credit facility. Key financial highlights for the first nine months of 2009 included:
Richard L. Bready, Chairman and Chief Executive Officer, said, "Nortek continues to manage its business effectively as the residential and commercial markets continue to struggle. Nortek’s focus on cost-reduction initiatives, working capital management, manufacturing efficiency improvements and strategic sourcing actions have resulted in positive liquidity and improving margins. Recovery of the housing market is uneven, but more positive than negative. Additionally, the North American commercial construction market continues its downward trend. Our continuing long-term strategy is to maintain our distinctive brand leadership, hold market share and emerge from bankruptcy ready to grow in a rising future economy." As previously announced on October 21, 2009, Nortek and its domestic subsidiaries filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Bankruptcy Court has approved orders allowing Nortek and its domestic subsidiaries to operate their businesses in the ordinary course throughout the chapter 11 process while the Company seeks confirmation of the prepackaged plans of reorganization. A confirmation hearing currently remains on schedule for December 4, 2009 in the Delaware Bankruptcy Court. As previously stated, Nortek and its domestic subsidiaries anticipate emerging from bankruptcy by the end of the year. 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. #
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NORTEK,
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
The
accompanying notes are an integral part of this unaudited condensed consolidated
summary of operations.
Following the
Commencement Date, the Debtors filed joint prepackaged plans of reorganization
(the “Prepackaged Plans”) and a proposed disclosure statement (the “Disclosure
Statement”) pursuant to sections 1125 and 1126(b) of the Bankruptcy Code, which,
as discussed further in Note B below, provide for a restructuring of
substantially all of the Debtors’ domestic long-term and short-term
debt. Nortek and its subsidiaries will continue to operate their
businesses in the ordinary course throughout the chapter 11 process while they
seek confirmation of the Prepackaged Plans.
The unaudited
condensed consolidated summary of operations includes the accounts of Nortek and
all of its wholly-owned subsidiaries, collectively, the “Company”, 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 and has been
prepared on the basis of a going concern, although the events leading up to the
chapter 11 bankruptcy proceedings and the chapter 11 bankruptcy proceedings
create uncertainties about Nortek’s ability to meet its debt obligations as they
become due in the event that the Prepackaged Plans are not confirmed by the
Bankruptcy Court or the Bankruptcy Court confirms a substantially different plan
of reorganization. As a result of certain events of default or cross
defaults pursuant to the terms of the Company’s indentures or other debt
instruments, the Company has reclassified substantially all of its outstanding
debt as of October 3, 2009 to current on its condensed consolidated balance
sheet. The Unaudited Financial Statements do not include any other
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of these uncertainties.
The unaudited
condensed consolidated summary of operations does not purport to reflect or
provide for the consequences of the bankruptcy cases, including the accounting
requirements under the Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) Topic 852, Reorganizations (“ASC
852”). As a
result, the unaudited condensed consolidated summary of operations does not
segregate reorganization items, net nor does it reflect any of the fresh-start
reporting adjustments required by ASC 852, which the Company expects will be
required when it emerges from the Bankruptcy Cases.
The Company
operates on a calendar year and for its interim periods operates on a 4-4-5
fiscal calendar, where each fiscal quarter is comprised of two 4-week periods
and one 5-week period, with each week ending on a Saturday. The
Company’s fiscal year always begins on January 1 and ends on December
31. As a result, the Company’s first and fourth quarters may have
more or less days included than a traditional 4-4-5 fiscal calendar, which
consists of 91 days. The third quarters ended October 3, 2009 (“third
quarter of 2009”) and September 27, 2008 (“third quarter of 2008”) each include
91 days. The first nine months ended October 3, 2009 (“nine months of
2009”) and September 27, 2008 (“nine months of 2008”) include 276 days and 271
days, respectively.
The Company has
evaluated subsequent events for potential recognition or disclosure through the
date the financial statements were issued, December 2, 2009. 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”).
As part of the
Company’s strategy to preserve and enhance its near-term liquidity, the Company
elected to forego making the approximately $26.6 million semi-annual interest
payment on its 8 1/2% Notes that was due on September 1, 2009 (subject to a
thirty (30) day grace period), which constituted an event of default under the
indenture governing its 8 1/2% Notes prior to the consolidated balance sheet
date of October 3, 2009. The failure to make this interest payment
also constituted a cross default under Nortek’s 10% Notes, ABL Facility, and
certain other debt agreements prior to October 3, 2009, as well as a cross
default under the NTK 10 3/4% Notes and the NTK Holdings Senior Unsecured Loans
(the “NTK Unsecured Loans”). The terms of the Restructuring
Agreement provided that, subject to certain conditions, the holders of the Notes
who executed the Restructuring Agreement would not exercise their rights and
remedies against NTK Holdings or Nortek, respectively, with respect to the
events of default resulting from the failure to pay the interest due on the 8
1/2% Notes under their applicable indentures. In addition, on
September 3, 2009, the Company entered into a forbearance agreement, as amended,
with the lenders (the “Lenders”) under Nortek’s ABL Facility (the “ABL
Forbearance Agreement”), whereby the Lenders agreed, among other things, to not
exercise their rights and remedies against Nortek and its guarantor
subsidiaries, respectively, with respect to the event of default resulting from
the failure to pay the interest due on the 8 1/2% Notes, provided Nortek
complied with the terms of the ABL Forbearance Agreement. The
Restructuring Agreement and ABL Forbearance Agreement were in effect up to the
time the Bankruptcy Cases were filed.
As discussed above,
on the Commencement Date, the Debtors filed the Bankruptcy Cases and, following
the Commencement Date, the Debtors filed the Prepackaged Plans and Disclosure
Statement. The Company also disclosed the results of the votes on the
Prepackaged Plans obtained from the Solicitation that the Debtors performed
prior to the Commencement Date for all of the impaired or potentially impaired
classes that were entitled to vote on the Prepackaged Plans, which included,
among others, the NTK 10 3/4% Notes, the NTK Unsecured Loans, the 10% Notes, the
8 1/2% Notes and the 9 7/8% Notes. Except for the holders of the NTK
Unsecured Loans, all of the impaired or potentially impaired classes entitled to
vote accepted the Prepackaged Plans. A hearing to consider the
compliance of the Disclosure Statement with the Bankruptcy Code’s disclosure
requirements and any objections or other pertinent matters has been scheduled by
the Bankruptcy Court for December 4, 2009 (the “Disclosure Statement
Hearing”). A hearing to consider confirmation of the Prepackaged
Plans and any objections thereto (the “Confirmation Hearing”) is scheduled to
commence immediately following the Disclosure Statement Hearing. Any
objections to the Disclosure Statement and/or the Prepackaged Plans were to be
filed and served upon the Bankruptcy Court by 4:00PM EST on November 23,
2009. One creditor, Ore Hill Partners LLC, filed an objection to the
Prepackaged Plans, has filed a motion asking the Bankruptcy Court to compel the
United States Trustee to form an official committee of unsecured creditors, and
has sought a status conference with the Bankruptcy Court and discovery from the
Debtors. Ore Hill’s motion will be heard on December 4,
2009. The Confirmation Hearing may be rescheduled by the Bankruptcy
Court in the event that the Bankruptcy Court does not find compliance with the
Disclosure Statement at the Disclosure Statement Hearing. Assuming
that the Prepackaged Plans are confirmed on the scheduled hearing date of
December 4, 2009, the Company expects to emerge from bankruptcy on or about
December 21, 2009 (the “Effective Date”). There can be no assurance
that the bankruptcy court will confirm the Prepackaged Plans or the actual
Effective Date will be December 21, 2009, as it is subject to matters beyond the
control of the Debtors, including potential third party objections, including
the holders of the NTK Unsecured Loans, as well as the final approval of the
Bankruptcy Court.
The Prepackaged
Plans provide that, on the Effective Date, Nortek shall issue the following
securities: (i) New Nortek Senior Secured Notes bearing interest at 11% and due
in 2013 and having a total principal amount of $750 million, plus the amount of
accrued and unpaid interest payable under the 10% Notes as of the Effective Date
(the “New Nortek Senior Secured Notes”), issued by Nortek and guaranteed by
certain of its subsidiaries; (ii) one class of common stock issued by Nortek
(the “New Common Stock”); and (iii) new warrants, which may be exercised for a
period of five years, subject to certain terms and conditions, to purchase a
number of shares of New Common Stock equal to an aggregate of 5% of the number
of outstanding shares of New Common Stock as of the Effective Date (assuming the
exercise of all New Warrants) at an exercise price of $52.80 per share (assuming
15,000,000 shares of New Common Stock are issued on the Effective Date) (the
“New Warrants”).
The Prepackaged
Plans provide for the following distributions on the Effective Date, except to
the extent any claimholder agrees to less favorable treatment:
On or about October
29, 2009, the Debtors caused notice of the commencement of the Bankruptcy Cases
to be served on all known or potential creditors and other parties in
interest. As discussed above, the Bankruptcy Cases constituted an
event of default under the ABL Facility, the 10% Notes, the 8 1/2 % Notes, the 9
7/8% Notes and certain other domestic debt agreements, as well as an event of
default under the NTK 10 ¾% Notes and the NTK Unsecured
Loans. Subject to certain exceptions under the Bankruptcy Code, the
filing of the Bankruptcy Cases automatically enjoined, or stayed, the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a claim
arising prior to the Commencement Date. Thus, for example, creditor
actions to obtain possession of property from the Debtors, or to create, perfect
or enforce any lien against the property of the Debtors, or to collect on or
otherwise exercise rights or remedies with respect to a pre-petition claim are
enjoined unless and until the Bankruptcy Court lifts the automatic
stay.
On October 23,
2009, the Debtors received approval from the Bankruptcy Court of several first
day motions (the “First Day Motions”), including interim authorization to pay
trade creditor balances that were incurred prior to the Commencement
Date. Trade creditor balances incurred subsequent to the
Commencement Date will be paid in the ordinary course of
business. The Bankruptcy Court also authorized, among other things,
the Debtors to pay all salaries and wages to their employees earned and unpaid
as of the Commencement Date and approved the Debtor’s ability to honor all
customer programs, including product warranties, in the ordinary course of
business. In addition, the Bankruptcy Court authorized the Debtors to
use their cash on hand for the operation of business in the normal
course. The relief granted by the Bankruptcy Court through the First
Day Motions was designed to stabilize the Company’s operations and business
relationships with vendors, lenders, employees and others, minimize the effects
of the commencement of the Bankruptcy Cases and preserve the value of the
Debtors’ assets. On November 19, 2009, the Company received final
approval for all of the First Day Motions that were originally granted on an
interim basis. Certain of the First Day Motions are subject to
Bankruptcy Court approved caps which limit the amounts that can be paid or
honored subject to further approval by the Bankruptcy Court (the
“Caps”). The Debtors believe that the approved Caps included in the
First Day Motions (and subsequently modified on November 19, 2009) are
sufficient to permit the Company to operate in the ordinary course through the
Effective Date without the need for additional Bankruptcy Court approval to
raise the Caps.
On October 9, 2009,
Nortek secured a commitment from a group of lenders for a $250 million asset
based revolving credit facility (the “New ABL Facility”) in conjunction with its
Prepackaged Plans, which includes a provision that the group of lenders will use
commercially reasonable efforts to form a syndicate of lenders to increase the
facility to $300 million. As further required by the Prepackaged
Plans, on November 13, 2009, the Company filed a draft of the agreement for the
New ABL Facility that the Company expects to execute on the Effective Date
provided Nortek remains in compliance with the terms of the commitment
agreement. The New ABL Facility will mature on the earlier of
four years from the Commencement Date and the date that is 95 days before the
stated maturity of the New Nortek Senior Secured Notes. It will be
subject to a borrowing base calculation that is similar to the existing ABL
Facility. Similar to the existing ABL Facility, Nortek will have
various interest rate options based on LIBOR, the prime rate and the federal
funds rate for any borrowings. There will be limitations on Nortek’s
ability to incur the full $250 million ($300 million if increased) of
commitments under the new ABL Facility and Nortek will be required to make
normal and customary representations and warranties prior to execution and to
comply with normal and customary affirmative and negative covenants subsequent
to execution. As discussed further below, Nortek did not require any
debtor-in-possession financing, as existing cash and cash generated from
operations are expected to be sufficient to fund the operations of Nortek
through the Effective Date.
As discussed above,
upon emergence from chapter 11, Nortek and its subsidiaries (“Reorganized
Nortek”) are expected to adopt fresh start reporting in accordance with ASC
852. Fresh start reporting results in Reorganized Nortek becoming a
new entity for financial reporting purposes. Upon adoption of fresh
start reporting, the Reorganized Debtor’s financial statements will not be
comparable, in various material respects, to any of Nortek’s previously issued
financial statements.
The filing of the
Bankruptcy Cases also constituted an event of default under substantially all of
Nortek’s and NTK Holdings’ domestic debt including the 8 1/2% Notes, the 10%
Notes, Nortek’s 9 7/8% Series A and Series B Senior Subordinated Notes due 2011
(the “9 7/8% Notes”), the ABL Facility, the NTK 10 3/4% Notes and the NTK
Unsecured Loans and, as such, the debt under these various agreements and
indentures became automatically due and payable, subject to the automatic stay
provisions of the Bankruptcy Code which prevents the enforcement of any actions
to collect the amounts due. Accordingly, substantially all of
the Company’s long-term debt was reclassified to current as of October 3, 2009
with the exception of certain capital leases where the payment of the monthly
lease payments has not been accelerated based on the terms of the capital lease
agreements and certain foreign debt that is not impacted by the Bankruptcy
Cases.
For the nine months
of 2009, there can be no assurance that the Company will not incur additional
substantial adjustments to this estimated impairment charge as a result of the
completion of the Company’s impairment test in the fourth quarter of
2009. Due to the complexity of the analysis required to complete the
Step 2 and the timing of the Company’s determination of the goodwill impairment,
the Company has not yet finalized its Step 2. The Company completed a
preliminary assessment of the expected impact of the Step 2 Test using
reasonable estimates for the theoretical purchase price allocation and has
recorded a preliminary estimate of the goodwill impairment loss for Home
Technology Product’s (“HTP) reporting unit for the nine months of
2009. The estimated fair value of the Company’s Residential
Ventilation Product, Residential HVAC and Commercial HVAC reporting units
exceeded its carrying values so no further impairment analysis was required for
these reporting units. The Company believes that the preliminary
estimate of the goodwill impairment loss for HTP is reasonable and represents
the Company’s best estimate of the goodwill impairment loss to be incurred by
HTP; however, it is possible that when the final Step 2 testing is completed the
Company may be required to record a material adjustment to this preliminary
estimate.
EBITDA represents
net income before interest, income taxes, depreciation and
amortization. Adjusted EBITDA (which has the same meaning as
Consolidated Cash Flow as defined by the indenture governing the 10% Notes) is
defined as EBITDA further adjusted to exclude certain non-cash, non-recurring
items. EBITDA and Adjusted EBITDA are not defined terms under
GAAP. Neither EBITDA nor Adjusted EBITDA should be considered an
alternative to operating income or net income as a measure of operating results
or an alternative to cash flow as a measure of liquidity. There are
material limitations associated with making the adjustments to the Company’s
earnings to calculate EBITDA and Adjusted EBITDA and using these non-GAAP
financial measures as compared to the most directly comparable GAAP financial
measures. For instance, EBITDA and Adjusted EBITDA do not
include:
The Company
presents EBITDA because it considers it an important supplemental measure of its
performance and believes it is frequently used by the Company’s investors and
other interested parties, as well as by the Company’s management, in the
evaluation of companies in its industry, many of which present EBITDA when
reporting their results. In addition, EBITDA provides additional
information used by the Company’s management and board of directors to
facilitate internal comparisons to historical operating performance of prior
periods. Further, management believes EBITDA facilitates their
operating performance comparisons from period to period because it excludes
potential differences caused by variations in capital structure (affecting
interest expense), tax positions (such as the impact of changes in effective tax
rates or net operating losses) and the age and book depreciation of facilities
and equipment (affecting depreciation expense).
The Company
believes that the inclusion of supplementary adjustments to EBITDA applied in
presenting Adjusted EBITDA are appropriate to provide additional information to
investors about the performance of the business, and the Company is required to
reconcile net income to Adjusted EBITDA to demonstrate compliance with debt
covenants. While the determination of appropriate
adjustments in the calculation of Adjusted EBITDA is
subject to interpretation under the terms of the 10% Notes, management believes
the adjustments described below are in accordance with the covenants in the 10%
Notes.
The following table
reconciles net loss to Adjusted EBITDA for the last twelve months ended October
3, 2009:
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