oct0309_10qntk.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 333-152934

Nortek, Inc.
(exact name of registrant as specified in its charter)

Delaware	05-0314991
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

50 Kennedy Plaza Providence, Rhode Island	02903-2360
(Address of principal executive offices)	(zip code)

Registrant’s Telephone Number, Including Area Code: (401) 751-1600

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.Yes [_]No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [_]No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer [_]

Accelerated filer [_]

Non-accelerated filer [X]

Smaller reporting company [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [_]No [X]

There is no established public trading market for any of the common stock of the Company. The aggregate market value of voting stock held by non-affiliates is zero.

The number of shares of Common Stock outstanding as of November 27, 2009 was 3,000.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Dollar amounts in millions, except share data)

	October 3,			December 31,
	2009			2008
Assets
Current Assets:
Unrestricted cash and cash equivalents	$	180.6		$	182.2
Restricted cash		0.8			0.7
Accounts receivable, less allowances
of $11.8 and $14.5		271.0			260.3
Inventories:
Raw materials		72.0			86.0
Work in process		23.9			26.9
Finished goods		163.6			183.4
		259.5			296.3

Prepaid expenses		13.4			12.8
Other current assets		9.2			9.5
Prepaid income taxes		9.6			11.0
Total current assets		744.1			772.8

Property and Equipment, at Cost:
Land		11.3			12.1
Buildings and improvements		106.7			103.6
Machinery and equipment		241.1			222.6
		359.1			338.3
Less accumulated depreciation		164.0			130.6
Total property and equipment, net		195.1			207.7

Other Assets:
Goodwill		561.4			810.8
Intangible assets, less accumulated amortization
of $124.5 and $107.4		118.3			135.4
Deferred debt expense		37.2			43.8
Restricted investments and marketable securities		2.4			2.4
Other assets		5.4			7.4
		724.7			999.8
Total Assets	$	1,663.9		$	1,980.3

Liabilities and Stockholder’s Deficit

Current Liabilities:
Notes payable and other short-term obligations	$	17.9		$	32.7
Current maturities of long-term debt		24.6			13.1
Long-term debt (see Note B)		1,524.4			8.1
Accounts payable		135.2			152.3
Accrued expenses and taxes, net		231.4			213.9
Total current liabilities		1,933.5			420.1

Other Liabilities:
Deferred income taxes		25.4			30.7
Intercompany account with affiliates, net		43.0			43.1
Other		150.0			160.7
		218.4			234.5

Notes, Mortgage Notes and Obligations
Payable, Less Current Maturities		14.4			1,545.5

Commitments and Contingencies (see Note E)

Stockholder’s Deficit:
Common stock, $0.01 par value, authorized 3,000 shares;
3,000 issued and outstanding at October 3, 2009 and
December 31, 2008		---			---
Additional paid-in capital		416.8			416.7
Accumulated deficit		(902.6	)		(612.1	)
Accumulated other comprehensive loss		(16.6	)		(24.4	)
Total stockholder's deficit		(502.4	)		(219.8	)
Total Liabilities and Stockholder's Deficit	$	1,663.9		$	1,980.3

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the third quarter ended
	Oct. 3, 2009			Sept. 27, 2008
	(Dollar amounts in millions)

Net Sales	$	451.8		$	582.6

Costs and Expenses:
Cost of products sold		321.7			434.4
Selling, general and administrative expense, net		96.7			121.1
Goodwill impairment charge (see Note A)		---			600.0
Amortization of intangible assets		5.7			6.7
		424.1			1,162.2
Operating earnings (loss)		27.7			(579.6	)
Interest expense		(37.7	)		(37.1	)
Investment income		---			0.2
Loss before provision for income taxes		(10.0	)		(616.5	)
Provision for income taxes		2.4			28.2
Net loss	$	(12.4	)	$	(644.7	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the nine months ended
	Oct. 3, 2009			Sept. 27, 2008
	(Dollar amounts in millions)

Net Sales	$	1,378.6		$	1,769.9

Costs and Expenses:
Cost of products sold		990.9			1,299.3
Selling, general and administrative expense, net		293.5			358.1
Goodwill impairment charge (see Note A)		250.0			600.0
Amortization of intangible assets		17.6			21.8
		1,552.0			2,279.2
Operating loss		(173.4	)		(509.3	)
Interest expense		(113.7	)		(95.8	)
Loss from debt retirement		---			(9.9	)
Investment income		0.2			0.6
Loss before provision for income taxes		(286.9	)		(614.4	)
Provision for income taxes		3.6			30.7
Net loss	$	(290.5	)	$	(645.1	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	For the nine months ended
	Oct. 3, 2009			Sept. 27, 2008
	(Dollar amounts in millions)
Cash Flows from operating activities:
Net loss	$	(290.5	)	$	(645.1	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense		45.8			53.1
Non-cash interest expense, net		7.5			5.7
Non-cash goodwill impairment charge		250.0			600.0
Loss from debt retirement		---			9.9
Non-cash stock-based compensation expense		0.1			0.1
Gain on sale of property and equipment		(0.1	)		(2.5	)
Deferred federal income tax (benefit) provision		(3.7	)		16.8
Changes in certain assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable, net		(9.3	)		(20.2	)
Inventories		37.7			(16.3	)
Prepaids and other current assets		(2.3	)		(1.5	)
Accounts payable		(14.9	)		22.7
Accrued expenses and taxes		27.2			30.3
Long-term assets, liabilities and other, net		(5.6	)		5.1
Total adjustments to net loss		332.4			703.2
Net cash provided by operating activities		41.9			58.1
Cash Flows from investing activities:
Capital expenditures		(13.6	)		(20.7	)
Net cash paid for businesses acquired		(14.1	)		(32.7	)
Proceeds from the sale of property and equipment		2.1			6.2
Change in restricted cash and marketable securities		(0.1	)		0.3
Other, net		(2.9	)		(2.1	)
Net cash used in investing activities		(28.6	)		(49.0	)
Cash Flows from financing activities:
Increase in borrowings		64.0			165.4
Payment of borrowings		(78.9	)		(105.5	)
Net proceeds from the sale of Nortek's 10% Senior Secured Notes due 2013		---			742.2
Redemption of Nortek's senior secured credit facility		---			(755.5	)
Fees paid in connection with Nortek's new debt facilities		---			(33.1	)
Equity investment by THL-Nortek Investors, LLC		---			4.2
Other, net		---			---
Net cash (used in) provided by financing activities		(14.9	)		17.7
Net change in unrestricted cash and cash equivalents		(1.6	)		26.8
Unrestricted cash and cash equivalents at the beginning of the period		182.2			53.4
Unrestricted cash and cash equivalents at the end of the period	$	180.6		$	80.2

Supplemental disclosure of cash flow information:

Interest paid	$	75.6		$	75.7

Income taxes paid, net	$	11.8		$	9.3

The impact of changes in foreign currency exchange rates on cash was not material and has been included in Other, net.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

NORTEK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 3, 2009 AND SEPTEMBER 27, 2008

(A)

On October 21, 2009 (the “Commencement Date”), NTK Holdings, Inc. (“NTK Holdings”), the parent company of Nortek, Inc. (“Nortek”), and certain of NTK Holding’s affiliates, including Nortek and certain of its domestic subsidiaries (collectively, the “Debtors”), filed voluntary petitions for reorganization under chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The cases are being jointly administered under Case No. 09-13611 (the “Bankruptcy Cases”). As a result, the Debtors are currently operating as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code (see Note H). The chapter 11 bankruptcy proceedings do not directly impact Nortek’s foreign subsidiaries.

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 H 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 financial statements presented herein (the “Unaudited Financial Statements”) reflect the financial position, results of operations and cash flows of Nortek and all of its wholly-owned subsidiaries, collectively the “Company”, and have 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 (see Note B). 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 Financial Statements include the accounts of Nortek and all of its wholly-owned subsidiaries after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. The term “Company” 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.

The Unaudited Financial Statements do 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 Financial Statements do not segregate liabilities subject to compromise in the condensed consolidated balance sheet and reorganization items, net in the condensed consolidated statement of operations, nor do they 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 (see Note H for certain pro forma financial information).

Although certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted, the Company believes that the disclosures included are adequate to make the information presented not misleading. Operating results for the third quarter and first nine months ended October 3, 2009 are not necessarily indicative of the results that may be expected for other interim periods or for the year ending December 31, 2009. Certain amounts in the prior year’s Unaudited Financial Statements have been reclassified to conform to the current period presentation. 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 these Unaudited Financial Statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s latest annual report on Form 10-K and its latest Current Reports on Form 8-K as filed with the Securities and Exchange Commission (“SEC”).

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.

Goodwill and Other Long-Lived Assets

The Company has classified as goodwill the cost in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions, net of any subsequent impairment losses. At October 3, 2009 and December 31, 2008, the Company had approximately $561.4 million and $810.8 million, respectively, of goodwill recorded on its unaudited condensed consolidated balance sheet. Goodwill, by reporting segment, at October 3, 2009 and December 31, 2008 was as follows:

	Residential		Home			Residential			Commercial
	Ventilation		Technology			HVAC			HVAC
	Products		Products			Products			Products			Consolidated
	(Amounts in millions)

Balance as of December 31, 2008	$	341.0	$	351.4		$	43.0		$	75.4		$	810.8
Estimated impairment loss		---		(250.0	)		---			---			(250.0	)
Impact of changes in foreign currency
translation and other		0.6		0.2			(0.1	)		(0.1	)		0.6
Balance as of October 3, 2009	$	341.6	$	101.6		$	42.9		$	75.3		$	561.4

The Company’s accounting for acquired goodwill and intangible assets requires considerable judgment in the valuation of acquired goodwill and other long-lived assets and the ongoing evaluation of goodwill and other long-lived assets impairment. 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 and include Residential Ventilation Products (“RVP”), Home Technology Products (“HTP”), Residential Air Conditioning and Heating Products (“R-HVAC”), and Commercial Air Conditioning and Heating Products (“C-HVAC”) (see Note C).

During 2008, the Company recognized a goodwill impairment charge totaling approximately $710.0 million based upon an interim impairment test performed during the third quarter and finalized in the fourth quarter. As of December 31, 2008, the Company completed another interim impairment test, but no additional charges were recognized.

During the first nine months of 2009, the Company’s businesses continued to experience a difficult market environment due primarily to weak residential new construction, remodeling and residential air conditioning markets. Based on these macro-economic assumptions, the Company believes that EBITDA will continue to decline in 2009 and then begin to rebound in 2010 with continued growth through at least 2014. The Company’s prior long-term forecasts had expected the rebound in EBITDA to begin to occur in the second half of 2009. As a result, in the second quarter of 2009 the Company significantly lowered its cash flow forecasts for 2009 and 2010 for all of the reporting units and for 2011 through 2014 for the HTP, R-HVAC and C-HVAC reporting units. As a result, the Company concluded in the second quarter of 2009 that indicators of potential goodwill impairment were present and, therefore, the Company needed to perform an interim test of goodwill impairment.

As of July 4, 2009, 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 combination of a discounted cash flow approach (“DCF Approach”) and an EBITDA multiple approach (“EBITDA Multiple Approach”) in order to value the Company’s reporting units for the interim Step 1 Test.

The DCF Approach 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 EBITDA Multiple Approach required that the Company estimate a valuation multiple of EBITDA derived from comparable companies, and apply those derived multiples to the applicable reporting unit EBITDA for selected EBITDA measurement periods.

The interim Step 1 valuations were determined using a weighted average of 70% of the DCF Approach and 30% for the EBITDA Multiple Approach, as the Company believes that the DCF Approach is a more representative measurement of the long-term fair value of the reporting units and, as such, a higher weighting of valuation probability was appropriate in the overall weighted average computation of fair value.

The results of the Step 1 Tests performed as of July 4, 2009 indicated that the carrying value of the HTP reporting unit exceeded the estimated fair value determined by the Company and, as such, a “Step 2 Test” was required for this reporting unit. The estimated fair values of the RVP, R-HVAC and C-HVAC reporting units exceeded the carrying values so no further impairment analysis was required for these reporting units. The Company also determined that no interim Step 1 Testing was required as of October 3, 2009.

The Company believes that its assumptions used to determine the fair values for the RVP, HTP, R-HVAC and C- HVAC reporting units were reasonable. If different assumptions were to be used, particularly with respect to estimating future cash flows, the weighted average costs of capital, terminal growth rates, EBITDA, and selected EBITDA multiples, different estimates of fair value may result and there could be the potential that an impairment charge could result for RVP, R-HVAC and C-HVAC and an additional impairment charge could be required for HTP. Actual operating results and the related cash flows of these reporting units could differ from the estimated operating results and related cash flows. Based on the Company’s estimates at October 3, 2009, the impact of reducing the Company’s fair value estimates for the RVP, HTP and C-HVAC reporting units by 10% would have no impact on the Company’s goodwill assessment for these reporting units. For the R-HVAC reporting unit, the impact of reducing the Company’s fair value estimates by 10% would have reduced the estimated fair value to an amount below the carrying value for this reporting unit as of October 3, 2009 and, therefore, would have required the Company to perform additional impairment analysis for this reporting unit.

The preliminary Step 2 Test for the HTP reporting unit as of July 4, 2009 required the Company to measure the potential goodwill impairment loss by allocating the estimated fair value of the reporting unit, as determined in Step 1, to the reporting unit’s assets and liabilities, with the residual amount representing the implied fair value of goodwill. 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 required the Company to perform a theoretical purchase price allocation for the reporting unit 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 Test, the Company has not yet finalized its Step 2 Test. The Company has completed a preliminary assessment of the expected impact of the Step 2 Test using reasonable estimates for the theoretical purchase price allocation and recorded a preliminary estimate of the goodwill impairment loss for the HTP reporting unit of approximately $250.0 million in the second quarter of 2009. The preliminary estimate of goodwill impairment loss is expected to be finalized prior to reporting 2009 annual results.

The following procedures are, among others, the more significant analyses that the Company needs to complete in order to finalize its Step 2 Test:

·	Finalize appraisals to determine the estimated fair value of property and equipment, and intangible assets within the HTP reporting unit,

·	Finalize analyses within the HTP reporting unit to determine the estimated fair value adjustment required for inventory, and

·	Finalize deferred tax analyses for the HTP reporting unit.

In connection with the preliminary Step 2 Test, the Company made what it considered to be reasonable estimates of each of the above items in order to determine its preliminary best estimate of the goodwill impairment loss under the theoretical purchase price allocation required for Step 2 impairment testing. The completion of the final analyses described above may result in significant changes to the estimates used and, therefore, may have a significant impact on the final HTP goodwill impairment loss recorded in 2009. In addition, there can be no assurance that the Company will not identify other issues during the completion of the Step 2 Test that may have a significant impact on the final HTP goodwill impairment loss recorded for 2009.

The Company evaluates the recoverability of long-lived assets, which primarily consist of property and equipment and definite lived intangible assets (the “Long-Lived Assets”), when events or business conditions warrant it, including whenever an interim goodwill impairment test is required. Prior to the goodwill impairment test, long-lived assets are assessed for recoverability, and any impairment is recorded. As a result of the Company’s conclusion that an interim impairment test of goodwill was required during the second quarter of 2009, the Company performed an interim test for the recoverability of the Long-Lived Assets as of July 4, 2009, and determined that there was no impairment. As of October 3, 2009, the Company did not identify any events or conditions that warranted an additional impairment test for Long-Lived Assets.

The interim evaluation of the recoverability of Long-Lived Assets, other than goodwill, was based on expectations of non-discounted future cash flows compared to the carrying value of the long-lived asset groups. If the sum of the expected non-discounted future cash flows was less than the carrying amount of the Long-Lived Assets, the Company would recognize an impairment loss. The Company’s cash flow estimates were based upon historical cash flows, as well as future projected cash flows received from subsidiary management in connection with a Company-wide interim forecasting process. The estimates also included a terminal valuation for the applicable asset group based upon a multiple of earnings before interest expense, net, depreciation and amortization expense, and income taxes (“EBITDA”). The Company estimated the EBITDA multiple by reviewing comparable company information and other industry data. The Company believes that its procedures for estimating gross future cash flows, including the terminal valuations, are reasonable and consistent with market conditions at the time the testing was performed.

Fair Value

Fair Value of Financial Instruments

Following is information about the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents --

The carrying amount approximates fair value because of the short maturity of those instruments.

Restricted Investments and Marketable Securities --

The fair value of investments is based on quoted market prices. The fair value of investments was not materially different from their cost basis at October 3, 2009 or December 31, 2008.

Long-Term Debt --

At October 3, 2009 and December 31, 2008, the fair value of long-term indebtedness was approximately $185.9 million lower and $721.2 million lower, respectively, than the amount on the Company’s consolidated balance sheet, before unamortized discount, based on available market quotations (see Note B).

Assets and Liabilities Measured on a Non-Recurring Basis

During the nine months of 2009, HTP reporting unit goodwill with a carrying value amount of approximately $351.7 million was written down to its implied fair value of approximately $101.7 million. This resulted in an estimated non-cash goodwill impairment charge of approximately $250.0 million, which was included in the unaudited condensed consolidated statement of operations for nine months of 2009.

The HTP reporting unit's assets itemized below were measured at fair value on a non-recurring basis during the nine months of 2009 using a combination of the DCF Approach and the EBITDA Multiple Approach:

	Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (“Level 1”)		Significant Other Observable Inputs (“Level 2”)		Significant Unobservable Inputs (“Level 3”)		Total Impaired Losses
	(Amounts in millions)

Goodwill	$	101.7		---		---	$	101.7	$	250.0

Comprehensive Income (Loss)

Comprehensive loss includes net loss, unrealized gains and losses from currency translation, and pension liability adjustments, net of tax. Comprehensive loss for the periods presented is as follows:

	For the third quarter of						For the nine months of
	2009			2008			2009			2008
	(Dollar amounts in millions)

Net loss	$	(12.4	)	$	(644.7	)	$	(290.5	)	$	(645.1	)
Other comprehensive income (loss):
Currency translation adjustment		4.6			(5.7	)		8.4			(4.4	)
Pension liability adjustment		0.4			(0.4	)		(0.6	)		(0.4	)
Comprehensive loss	$	(7.4	)	$	(650.8	)	$	(282.7	)	$	(649.9	)

New Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards Codification (“the Codification”) as the sole source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS No. 168, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. This statement became effective in the third quarter of 2009, and references made to FASB guidance throughout this document have been updated for the Codification.

(B)

On September 3, 2009, NTK Holdings, Nortek Holdings, Inc. and Nortek entered into a restructuring and lock-up agreement (the “Restructuring Agreement”) with certain holders of (i) NTK Holdings’ 10 3/4% Senior Discount Notes due 2014 (the “NTK 10 3/4% Notes”), (ii) Nortek’s 8 1/2% Senior Subordinated Notes due 2013 (the “8 1/2% Notes”), and (iii) Nortek’s 10% Senior Secured Notes due 2013 (the “10% Notes”) (collectively, the “Notes”). Pursuant to the Restructuring Agreement, certain holders of the Notes agreed to restructure and recapitalize the Notes through the implementation of a solicitation of votes for prepackaged plans of reorganization of NTK Holdings and Nortek pursuant to the Bankruptcy Code (the “Solicitation”) (see Note H).

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.

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 (see Note H).

At December 31, 2008, the Company’s Best subsidiary was not in compliance with a maintenance covenant with respect to two loan agreements with aggregate borrowings outstanding of approximately $6.8 million. Non-compliance with these two long-term debt agreements would have resulted in non-compliance with two other long-term debt agreements totaling approximately $5.3 million at December 31, 2008. The Company’s Best subsidiary obtained waivers from the bank, which indicated that the Company’s Best subsidiary was not required to comply with the maintenance covenant as of December 31, 2008. The next measurement date for the maintenance covenant is for the year ended December 31, 2009 and the Company believes that it is probable that its Best subsidiary will not be in compliance with the maintenance covenant when their assessment of the required calculation is completed in the first quarter of 2010. As a result, the Company has classified approximately $4.9 million and $8.1 million of outstanding borrowings under such “long-term debt” agreements as a current liability on its consolidated balance sheet at October 3, 2009 and December 31, 2008, respectively. No assurance can be given that Best will be successful in obtaining a refinancing, amendment or waiver on terms acceptable to the Company, or at all, in the future. Accordingly, Nortek could be required to repay the long-term portion of approximately $4.9 million at December 31, 2009 related to these loans in an event of non-compliance.

Prior to the Bankruptcy Cases being filed, the indentures that govern the 10% Notes and the 8 1/2% Notes limited Nortek’s ability to make certain payments, including distributions or other payments to NTK Holdings. Nortek was under no obligation to make any distribution or other payment to NTK Holdings even if Nortek had available cash and the making of such a payment was permitted by the terms of its existing indebtedness. Nortek has not made any such distributions to NTK Holdings during the nine months of 2009.

In October 2009, following the announcement of the Bankruptcy Cases, Moody’s changed its probability of default rating (“PDR”) from “C” to “D” for NTK Holdings. Moody’s also announced that it would be removing all of Nortek’s debt ratings. Additionally, in October 2009, Standard & Poor’s lowered the corporate credit rating on NTK Holdings to “D” from “CC” following the announcement of the Bankruptcy Cases.

(C)

The Company is a diversified manufacturer of innovative, branded residential and commercial building products, operating within four reporting segments: the RVP segment, the HTP segment, the R-HVAC segment, and the C-HVAC segment. During the fourth quarter of 2008, the Company changed the composition of its reporting segments to report the R-HVAC segment separately and as a result, the Company has restated prior period segment disclosures to reflect the new composition.

The Company evaluates segment performance based on operating earnings before allocations of corporate overhead costs. Intersegment net sales and intersegment eliminations are not material for any of the periods presented. The financial statement impact of all purchase accounting adjustments, including intangible assets amortization and goodwill, are reflected in the applicable operating segment, which are the Company’s reporting units. In the tables below, Unallocated includes corporate related items, intersegment eliminations and certain income and expense items not allocated to reportable segments.

Unaudited net sales, operating earnings (loss) and loss before provision for income taxes for the Company’s reporting segments for the third quarter of 2009 and 2008 were as follows:

	For the third quarter of
	2009			2008
	(Dollar amounts in millions)
Net sales:
Residential ventilation products	$	144.9		$	180.0
Home technology products		100.2			132.7
Residential air conditioning and heating products		112.5			138.0
Commercial air conditioning and heating products		94.2			131.9
Consolidated net sales	$	451.8		$	582.6

Operating earnings (loss):
Residential ventilation products	$	17.5		$	(327.1	)
Home technology products		4.1			(49.3	)
Residential air conditioning and heating products		6.9			(197.9	)
Commercial air conditioning and heating products		9.4			8.4
Subtotal		37.9			(565.9	)
Unallocated, net		(10.2	)		(13.7	)
Consolidated operating earnings (loss)		27.7			(579.6	)
Interest expense		(37.7	)		(37.1	)
Investment income		---			0.2
Loss before provision for income taxes	$	(10.0	)	$	(616.5	)

Unaudited net sales, operating earnings (loss) and loss before provision for income taxes for the Company’s reporting segments for the nine months of 2009 and 2008 were as follows:

	For the nine months of
	2009			2008
	(Dollar amounts in millions)
Net sales:
Residential ventilation products	$	434.2		$	555.2
Home technology products		298.5			388.0
Residential air conditioning and heating products		332.4			435.6
Commercial air conditioning and heating products		313.5			391.1
Consolidated net sales	$	1,378.6		$	1,769.9

Operating earnings (loss):
Residential ventilation products	$	38.4		$	(295.2	)
Home technology products		(241.9	)		(31.2	)
Residential air conditioning and heating products		12.2			(182.3	)
Commercial air conditioning and heating products		39.3			27.4
Subtotal		(152.0	)		(481.3	)
Unallocated, net		(21.4	)		(28.0	)
Consolidated operating loss		(173.4	)		(509.3	)
Interest expense		(113.7	)		(95.8	)
Loss from debt retirement		---			(9.9	)
Investment income		0.2			0.6
Loss before provision for income taxes	$	(286.9	)