Nortek’s Debt Issues Won’t Affect Linear Subsidiaries

NTK Holdings, parent company of Nortek Inc., has some debt problems.

But that shouldn't affect its Linear subsidiary, which includes Elan, Gefen, LiteTouch, Niles, Omnimount, Panamax, SpeakerCraft, Xantech, and other brands in the custom electronics channel.

"Nortek is Nortek," says Grant Rummell, chairman of Linear LLC. "It is not going to have an effect on the subsidiaries. We have money in the bank."

Formerly a NYSE-listed company, Nortek went private in 2004 but still holds public debt.

The company announced on June 17 that they were "analyzing their capital structures in light of current economic conditions," and that newly retained advisors "will be contacting bondholders and debt holders as appropriate."

Nortek, which also has subsidiaries in the HVAC and ventilation business, had a net loss of $48.3 million in the first quarter ended April 4, 2009 on sales of $439 million. That compares to a net loss of $14 million in the same quarter of 2008 on sales of $540 million.

The company likely will not be able to service its $2 billion in debt, much of which comes due in 2010.

Even so, as the company notes in its most recent SEC filing, "NTK Holdings conducts no separate operations and acts only as a holding company. NTK Holdings’ primary liquidity needs are to service its outstanding indebtedness."

In other words, Nortek exists basically to repay debt, not necessarily to run its subsidiaries.

"Each brand gets to do its own thing," Rummell says.

SpeakerCraft president Jeremy Burkhardt can vouch for that.

"I have met with Grant about strategy only about a half-dozen times," he says.

That amounts to once or twice per year since Nortek bought SpeakerCraft in 2004.

"It's still left to all of us [the subsidiaries]," Burkhardt says.

For its part, SpeakerCraft is "a very profitable and aggressive entity investing heavily in R&D," Burkhardt says. "We're going to CEDIA with the largest product introduction ever."

That's not to say that all is wonderful in Nortek's Linear group.

"We're certainly having more creaks than usual," Rummell says. "Business is down, but by no means disastrous. We got ahead of it. We knew things were going down, but we're still spending on cap ex."

Among the bright spots in the Linear group are digital signage, CCTV, outdoor security and personal emergency reporting systems (PERS), according to Rummell.

For the first quarter of 2009, the NTK's home technology segment had operating earnings of approximately $1.1 million, compared to operating earnings of approximately $10.3 million for the first quarter of 2008.

Net sales for the quarter were $98.4 million, down nearly 21 percent from the year prior.

Rummell suggests that pessimists revisit the Nortek of 15 years ago. "The same thing happened," he says. "They restructured and came right out of it."