Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~2009

ORor

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-32850

LOGO

GOODMAN GLOBAL, INC.

(Exact name of registrant as specified in our charter)

Delaware		20-1932219
(State or other jurisdiction of incorporation or organization)		(I.R.S. ~~EmployerIdentification~~Employer Identification No.)
5151 San Felipe, Suite 500 Houston, Texas		77056
(Address of principal executive offices)		(Zip code)

5151 San Felipe, Suite 500

Houston, Texas

77056

(Address of principal executive offices)

(Zip code)

(713) 861-2500

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes x No ¨

Indicate by check mark whether the 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 x¨ No ¨ x Although Goodman Global, Inc. is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act for the period commencing January 1, 2009, the company has filed all Securities Exchange Act reports for the preceding 12 months.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: x

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 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~~reporting ~~Company ¨~~company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

No public trading market exists for the common stock, par value $0.01 per share, of Goodman Global, Inc. The aggregate market value of the common stock held by non-affiliates of the registrant was zero as of June 30, ~~2008~~2009, the last business day of the registrant’s most recently completed second fiscal quarter. All of the outstanding shares of common stock, par value $0.01 per share, of Goodman Global, Inc. are held by Chill Intermediate Holdings, Inc., ~~the~~a ~~registrant’s~~wholly ~~parent~~owned ~~company~~subsidiary of Goodman Global Group, Inc. As of March 21, ~~2009~~2010, there were ~~ten~~ ten (10) shares outstanding of Goodman Global, Inc.’s common stock, par value $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE: None

Index to Financial Statements

GOODMAN GLOBAL, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, ~~2008~~2009

TABLE OF CONTENTS

PART I		1
~~ITEM 1.~~	~~Business~~ITEM 1.	2Business	2
~~ITEM 1A.~~	~~Risk~~ITEM ~~Factors~~1A.	11Risk Factors	12
~~ITEM 1B.~~	~~Unresolved~~ITEM ~~Staff Comments~~1B.	19Unresolved Staff Comments	20
~~ITEM 2.~~	~~Properties~~ITEM 2.	19Properties	21
~~ITEM 3.~~	~~Legal~~ITEM ~~Proceedings~~3.	20Legal Proceedings	21
~~ITEM 4.~~	~~Submission~~ITEM ~~of Matters to a Vote of Security Holders~~4.	21Submission of Matters to a Vote of Security Holders	22
PART II		21
~~ITEM 5.~~	~~Market~~ITEM ~~for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~5.	21Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
~~ITEM 6.~~	~~Selected~~ITEM ~~Financial Data~~6.	22Selected Financial Data	23
~~ITEM 7.~~	~~Management’s~~ITEM ~~Discussion and Analysis of Financial Condition and Results of Operations~~7.	24Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
~~ITEM 7A.~~	~~Quantitative~~ITEM ~~and Qualitative Disclosures about Market Risk~~7A.	36Quantitative and Qualitative Disclosures about Market Risk	37
~~ITEM 8.~~	~~Financial~~ITEM ~~Statements and Supplementary Data~~8.	37Financial Statements and Supplementary Data	37
~~ITEM 9.~~	~~Changes~~ITEM ~~in and Disagreements with Accountants on Accounting and Financial Disclosure~~9.	37Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
~~ITEM 9A.~~	~~Controls~~ITEM ~~and Procedures~~9A.	37Controls and Procedures	38
~~ITEM 9B.~~	~~Other~~ITEM ~~Information~~9B.	37Other Information	38
PART III		38
~~ITEM 10.~~	~~Directors,~~ITEM ~~Executive Officers and Corporate Governance~~10.	38Directors, Executive Officers and Corporate Governance	39
~~ITEM 11.~~	~~Executive~~ITEM ~~Compensation~~11.	41Executive Compensation	43
~~ITEM 12.~~	~~Security~~ITEM ~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~12.	58Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
~~ITEM 13.~~	~~Certain~~ITEM ~~Relationships and Related Transactions and Director Independence~~13.	59Certain Relationships and Related Transactions, and Director Independence	58
~~ITEM 14.~~	~~Principal~~ITEM ~~Accountant Fees and Services~~14.	64Principal Accounting Fees and Services	61
PART IV		65
~~ITEM 15.~~	~~Exhibits~~ITEM ~~and Financial Statement Schedules~~15.	65Exhibits and Financial Statement Schedules	62

Index to Financial Statements

PART I

Cautionary Note on Forward Looking Statements

This annual report contains forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance or other statements that are not historical statements that are contained in this annual report under the headings “Summary,” “Risk ~~Factors~~factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” are forward-looking statements. ~~Examples of forward-looking statements include statements such as the statement of our belief that we have sufficient liquidity to fund our business operations for at least the next twelve months.~~ The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, these forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those discussed in this annual report under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations are:

•

general economic conditions;

•

changes in weather patterns and seasonal fluctuations;

•

changes in governmental regulation and policy and effects on our business from our compliance with regulations;

•

changes in customer demand;

•

the maturation of our new company-operated distribution centers;

•

increased competition and technological and product changes and advances;

• increases in the cost of raw materials, components and ~~components~~warranty expenses;

•

our relations with our independent distributors;

•

damage or injury caused by our products;

•

increases in interest rates; and

•

access by us or our customers to credit and financing.

Although forward-looking statements reflect management’s good faith beliefs, they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included in this annual report are made only as of the date hereof. We do not undertake and specifically decline any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or developments, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the impact of general economic conditions in the regions in which we do business; general industry conditions, including competition and product, raw material and energy prices; the realization of expected tax benefits; changes in exchange rates and currency values; capital expenditure requirements; access to credit financing and the capital markets and the risks and uncertainties described in Item 1A, “Risk Factors.” Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements.

Market and Industry Data and Forecasts

Unless otherwise indicated, information contained in this annual report concerning the heating, ventilation and air conditioning, or “HVAC,” industry or market refers to the residential and light commercial sector within the domestic HVAC industry. Our general expectations concerning the HVAC industry and its segments and our market position and market share within the HVAC industry and its segments are derived from data from various third-party sources. In addition, this annual report presents similar information based on management estimates. Such estimates are derived from third-party sources as well as data from our internal research and on assumptions made by us, based on such data and our knowledge of the HVAC industry, which we believe to be reasonable. Although we are not aware of any misstatements regarding any industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those described under the heading “Risk Factors.”

Unless otherwise noted, the terms “company,” “we,” “us,” “our” and “Goodman” refer to Goodman Global, Inc. and our consolidated subsidiaries.

Index to Financial Statements

based on such data and our knowledge of the HVAC industry, which we believe to be reasonable. Although we are not aware of any misstatements regarding any industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those described in Item 1A, “Risk Factors.”

Unless otherwise noted, the terms “company,” “we,” “us,” and “our” refer to Goodman Global, Inc., Goodman Global Holdings, Inc. and our consolidated subsidiaries.

ITEM 1.

Business

Our History

We participate in the heating, ventilation and air conditioning, or HVAC, industry. We believe we are the second largest domestic manufacturer of residential and light commercial heating and air conditioning products based on unit sales. Founded in 1975 as a manufacturer of flexible duct, we expanded into the broader HVAC manufacturing market in 1982. Since then, we have expanded our product offerings and maintained our core competency of manufacturing high-quality products at low costs. Our growth and success can be attributed to our strategy of providing a quality, competitively priced product that we believe is designed to be reliable and easy-to-install.

Goodman Global, Inc. was incorporated under the laws of Delaware in 2004. On December 23, 2004, Apollo Management, L.P., or Apollo, through its affiliate, Frio Holdings LLC, acquired our business from Goodman Global Holdings, Inc., a Texas corporation, and following a reorganization, we operated as Goodman Global, Inc.

On April 11, 2006, Goodman Global, Inc. completed the initial public offering of its common stock.

On February 13, 2008, Chill Acquisition, Inc., a Delaware corporation formed on October 15, 2007, merged with and into Goodman Global, Inc., with Goodman Global, Inc. as the surviving corporation, now a subsidiary of Chill Holdings, Inc., or Parent, a Delaware corporation formed on October 12, 2007 by affiliates of Hellman & Friedman LLC.

Overview

WeGoodman ~~believe~~is wea ~~are~~leading ~~the second largest~~ domestic manufacturer of heating, ventilation and air conditioning, or HVAC, products for residential and light commercial use. Since we began to manufacture HVAC equipment in 1982, we believe that we have grown our share of the residential HVAC market to now become one of the country’s largest residential HVAC manufacturers, based on unit sales ~~in 2008~~. Our activities include engineering, manufacturing, ~~assembling~~distributing, ~~marketing~~ and ~~distributing~~marketing an extensive line of HVAC equipment and related products. Our products are predominantly marketed under the Goodman®, Amana® and Quietflex® brand names. We ~~The~~believe the Goodman® brand is ~~one~~the ofsingle ~~the~~largest ~~leading~~domestic residential HVAC ~~brands~~ inbrand, ~~North~~based ~~America~~on unit sales, and caters to the large segment of the market that is price sensitive and desires reliable and low-cost climate comfort, while our premium Amana® brand includes ~~enhanced~~ advanced features, ~~such~~quieter asoperation ~~higher efficiency~~ and ~~quieter~~enhanced ~~operation~~warranties. The Quietflex® brand is a recognized brand of flexible duct. Founded in 1975 as a manufacturer of flexible duct, we expanded into the broader HVAC manufacturing market in 1982. Since then, we have expanded our product offerings and maintained our core competency of manufacturing high-quality products at low costs. Our growth and success can be attributed to our strategy of providing a quality, competitively priced product that we believe is designed to be reliable and easy-to-install.

WeGoodman ~~sell~~Global, ~~our~~Inc. ~~products~~was ~~through~~incorporated aunder ~~North~~the ~~American distribution network with approximately 900 total distribution points comprised~~ laws of ~~over~~Delaware ~~150 company-operated~~in ~~distribution centers and approximately 750 independent distributor locations~~2004. ~~Our~~On ~~company-operated distribution centers in key states such as Texas~~December 23, ~~Florida~~2004, ~~California~~Apollo Management, ~~Arizona and Nevada provide us direct access to large markets in North America and enable us to maintain a significant amount of market intelligence and control over how our products are distributed~~L.P., ~~Our~~or ~~independent distributors~~Apollo, ~~many~~through ofits ~~which~~affiliate, ~~have~~Frio ~~multiple~~Holdings ~~locations~~LLC, ~~and~~acquired ~~most~~our ofbusiness ~~which~~from ~~exclusively~~Goodman ~~sell~~Global ~~our products~~Holdings, ~~enable us to more fully serve other major sales areas and complement our broad distribution network~~Inc., Wea ~~offer~~Texas ~~our independent distributors incentives to promote our brands~~corporation, ~~which~~and ~~allow~~following ~~them~~a ~~to provide installing contractors~~reorganization, ~~who~~ we ~~refer~~operated to as ~~dealers,~~Goodman ~~with our products at attractive prices while meeting their own profit targets. We believe that our growth is attributable to our strategy of providing quality~~Global, ~~value-priced products through an extensive, growing and loyal distribution network~~Inc.

WeOn ~~operate three manufacturing and assembly facilities in Houston~~April 11, ~~Texas~~2006, ~~two~~Goodman ~~in Tennessee~~Global, ~~one in Arizona, one in Pennsylvania and one in Florida, totaling approximately two million square feet~~Inc. ~~Since~~completed ~~1982,~~an ~~our~~initial ~~unit~~public ~~volume~~offering ~~sales and market share have grown to surpass all but one~~ of ~~our~~its ~~competitors in the residential and light commercial HVAC sector. Approximately 5% of~~common ~~our 2008 net sales and approximately 1% of our total assets as of December 31, 2008 were outside the United States~~stock.

On February 13, 2008, Chill Acquisition, Inc., a Delaware corporation formed in October 2007, merged with and into Goodman Global, Inc., with Goodman Global, Inc. as the surviving corporation, now an indirect subsidiary of Goodman Global Group, Inc. (formerly Chill Holdings, Inc.), or Parent, a Delaware corporation formed in October 2007 by affiliates of Hellman & Friedman LLC. We refer to this as the “2008 Acquisition.” We refer to Goodman Global, Inc. prior to the 2008 Acquisition as “Predecessor” and subsequent to the 2008 Acquisition as “Successor.”

We distribute the majority of our products through a distribution chain of over 160 company-operated distribution centers located in key states such as Texas, California, Arizona, Florida, Maryland and Pennsylvania, which provides us with direct access to major HVAC sales regions in North America. For the years ended December 31, 2008 and 2009, approximately 55% and 57%, respectively, of our net sales were made through company-operated distribution centers and our direct sales force. Because we operate our company-operated distribution centers with a common look and feel and a standardized quality control process, we are able to deliver a consistently high level of service to our installing contractor customers (whom we refer to as dealers) with low overhead costs.

The balance of our products are sold through our network of over 185 independent distributors who operate over 785 locations throughout North America. Our independent distributors, many of which have multiple locations and most of which do not sell competing products, enable us to more fully serve other sales regions. We offer our independent distributors incentives to promote our brands, which allow them to provide dealers with our products at attractive prices while meeting their own profit targets. We believe that our growth is attributable to our strategy of providing quality, value-priced products through an extensive, growing and loyal distribution network. Our layered distribution strategy enables us to provide comprehensive coverage of major HVAC sales regions and easy access to our product for our installing dealers, which is a core principle of our value proposition.

As of December 31, 2009, we operated three manufacturing and assembly facilities in Texas, two in Tennessee, one in Arizona, one in Pennsylvania and one in Florida, totaling approximately two million square feet. In addition, we have a nearly one million square foot logistics center in Houston, Texas. These facilities and our hub-and-spoke distribution model allow us to provide enhanced availability and customer service to our installing dealers.

Our competitive strengths

We believe our competitive strengths include:

Industry leader with track record of industry outperformance. We are a leading domestic manufacturer of HVAC products for residential use based on unit sales. We are a leader in the value sector and have a strengthening position in the premium sector. We believe that our dealer-focused marketing efforts, value-oriented product

Index to Financial Statements

~~Industry~~ offerings and extensive and growing distribution networks have enabled us to gain a significant share of industry unit volumes over the past few years and have allowed us to achieve operating margins that we believe are some of the most attractive in the industry. This is evidenced by our estimated gain of approximately eight market share points in the U.S. residential and light commercial HVAC industry (excluding window room air conditioners) from 2003 through December 31, 2009.

~~The~~Low-cost, ~~U.S.~~value ~~residential~~leader ~~and~~through ~~light~~efficient ~~commercial~~manufacturing ~~HVAC~~and innovative ~~industry~~product isdesign. Our ~~estimated~~engineering atand ~~approximately~~design ~~$8.3~~capabilities, ~~billion~~lean inmanufacturing ~~annual~~processes, ~~sales~~high workforce productivity and ~~approximately~~raw ~~8.1 million~~material ~~units~~sourcing ~~shipped~~capabilities inallow ~~2008.~~us Weto ~~believe~~minimize ~~the~~costs ~~top~~while ~~five~~maintaining ~~domestic~~high ~~manufacturers~~product ~~represent~~quality. Our ~~approximately~~capabilities ~~80%~~are ofevidenced ~~unit~~by ~~sales~~our inproprietary ~~2008.~~product ~~Overall~~innovations, ~~the~~including ~~industry~~processes ~~has~~for ~~historically~~which ~~been~~we ~~characterized~~have bypatents ~~relatively~~pending. ~~stable~~One ~~long-term~~of ~~growth,~~our ainnovations ~~well-established,~~involves ~~fragmented~~a ~~distribution~~technology ~~system~~that ~~and~~we ~~significant~~expect ~~challenges~~will ~~for~~enable ~~new~~us ~~entrants.~~to Wesignificantly ~~believe~~reduce ~~the market~~our ~~shares~~product ofweight ~~the~~and ~~large~~size, allowing ~~incumbent~~us ~~industry~~to ~~participants~~decrease ~~have~~our ~~been~~usage ~~relatively~~of ~~stable~~commodities insuch ~~recent~~as ~~years~~copper, ~~although~~steel weand ~~have continued to gain market share~~aluminum.

~~Stable,~~Targeted ~~Long-Term~~and ~~Industry~~effective ~~Growth~~dealer promotional strategy. We Onhave adeveloped ~~unit~~innovative ~~basis,~~promotional ~~the~~programs ~~HVAC~~aimed ~~industry has grown~~ at aproviding ~~compounded~~our ~~annual~~installing ~~growth~~dealers ~~rate~~with ofthe ~~approximately~~flexibility ~~1.1%~~to ~~over~~market ~~the~~and ~~last~~price 20our ~~years,~~products ~~driven~~in ~~primarily~~a bymanner ~~increased~~that ~~central~~best ~~air conditioning~~suits ~~penetration~~the inneeds ~~both~~of ~~existing~~their businesses and ~~new~~their local ~~homes~~markets. ~~According~~As topart ~~the~~of ~~U.S.~~that ~~Census Bureau~~effort, inwe ~~2007,~~interact ~~the~~each ~~latest~~ year ~~for~~directly ~~which~~with ~~statistics~~thousands ~~are available, 90%~~ of ~~new~~dealers ~~single-family~~through ~~homes completed were equipped with central air conditioning~~local, ~~up from 70% in 1985~~regional, and ~~91% of multi~~Houston-~~family~~based ~~homes~~dealers ~~completed were equipped with air conditioning~~meetings, upwhere ~~from~~we ~~88%~~demonstrate ~~in 1985. In~~ the ~~U.S.~~distinctive ~~Census~~features ~~Bureau’s South Region, which accounted for 52%~~ of ~~housing~~our ~~units~~product ~~completed,~~lines ~~air~~and ~~conditioning~~our ~~was installed in~~value ~~approximately 100% of new single-family homes~~proposition. ~~The~~Compared ~~U.S.~~to ~~Census~~a ~~Bureau~~general ~~reported~~national ~~1.2 million~~advertising ~~privately-owned~~campaign, ~~housing~~we ~~units~~believe ~~were~~this ~~completed~~approach ~~during~~allows ~~2007~~us ~~and~~to ~~the~~efficiently ~~percentage~~spend ofour ~~homes~~marketing ~~completed~~dollars ~~with~~on ~~greater~~highly ~~than~~effective ~~2,400~~targeted ~~square~~efforts ~~feet~~to ~~increased~~educate ~~to approximately~~dealers ~~45%~~about inour ~~2007~~Company ~~from~~and ~~approximately~~our ~~17%~~product inlines ~~1985~~and innovations.

~~Prior~~Comprehensive toproprietary ~~the~~and ~~1980s,~~independent ~~HVAC~~distribution ~~unit~~networks. Our ~~shipments~~company-operated ~~were~~distribution network ~~strongly~~enables ~~correlated~~us to ~~new~~maintain ~~housing construction.~~close Asrelationships ~~the~~with ~~overall~~dealers, ~~housing~~effectively ~~base~~communicate ~~expanded~~our ~~due~~selling toproposition, ~~increased~~capture ~~new~~incremental ~~home~~distribution ~~sales~~margins and ~~central~~better ~~air~~manage ~~conditioning~~inventory. ~~increased~~Our ~~its~~experience ~~penetration~~in ~~into~~identifying ~~homes~~attractive locations, ~~the~~hiring qualified ~~HVAC~~staff ~~industry~~and ~~became~~managing our supply chain has allowed us to open more ~~driven~~than by70 ~~replacement~~net ~~demand.~~new Ascompany-operated ~~older~~distribution ~~units~~centers ~~within~~since ~~the~~January ~~large~~2003, ~~base~~enabling ofus to efficiently grow local market share with low up-front investment expenditures. We ~~existing~~layer ~~homes~~our ~~approach~~proprietary ~~the~~distribution ~~end~~channel with a network of ~~their~~over ~~useful~~185 ~~lives~~independent distributors operating over 785 distribution locations, ~~they~~most ~~will~~of ~~need~~which todo benot ~~replaced~~sell bycompeting ~~newer~~products. ~~and~~Over ~~more~~the ~~efficient~~past ~~models~~few years, ~~creating~~we ahave ~~relatively~~significantly ~~stable~~increased ~~base~~the number of ~~demand~~our ~~for~~independent ~~HVAC~~distribution ~~products.~~locations, Weallowing ~~estimate~~us ~~that~~to ~~replacement~~better ~~products~~access ~~currently~~markets ~~range~~not ~~between~~addressed ~~70% and~~by ~~80%~~our ofcompany-operated ~~industry~~distribution ~~sales~~centers.

~~Highly~~Broad, ~~Fragmented~~high-quality ~~Customer~~product ~~Base~~line. We ~~HVAC~~manufacture ~~manufacturers~~and ~~sell~~market toan aextensive ~~highly~~line ~~fragmented~~of ~~two-tier~~products, ~~distribution~~ including split-system air conditioners and heat pumps, asgas nofurnaces, ~~single~~package ~~distributor~~units, ~~represents~~air ahandlers, package ~~large~~terminal ~~share~~air ofconditioners, ~~industry-wide~~evaporator ~~HVAC~~coils ~~sales~~and accessories. ~~Additionally,~~Our ~~the~~products ~~distributors’~~feature ~~customer~~up-to-date ~~base~~heat istransfer atechnology ~~fragmented~~and ~~group~~are ofdesigned ~~independent~~to ~~dealers~~meet ~~across~~an ~~the~~increasing ~~country~~preference ~~that~~for ~~buy~~higher ~~HVAC~~efficiency ~~units~~products. ~~from~~We ~~distributors~~have ~~and~~strengthened our position in the ~~install~~higher-efficiency ~~them~~segment ~~for~~of the ~~ultimate~~market ~~end~~by ~~user.~~offering ~~There~~a isbroad ~~limited~~line ~~pricing~~of ~~transparency~~Federal totax ~~the~~credit-eligible ~~end~~units ~~user~~and ~~due~~significantly toincreasing ~~this~~our ~~tiered~~share ~~distribution~~of ~~system~~products with a 14+ Seasonal Energy Efficiency Ratio, or SEER.

~~We believe~~Consistent, ~~that~~strong ~~dealers~~cash ~~become~~flow. Our ~~increasingly~~earnings, ~~loyal~~combined aswith ~~they~~our ~~become~~modest ~~accustomed~~capital toexpenditures ~~the installation~~ and ~~service~~limited ofworking acapital requirements, ~~particular~~result ~~product~~in ~~and~~the ~~brand.~~generation ~~Therefore,~~of ~~dealers~~significant ~~prefer~~free ~~distributors~~cash ~~that~~flow. ~~continue~~In tothe ~~carry~~years aended ~~specific~~December 31, ~~manufacturer’s~~2008 ~~product~~ and ~~prefer~~ ~~product~~2009, ~~lines~~our ~~that~~net docash ~~not~~provided ~~change~~by ~~dramatically~~operating soactivities ~~that~~was ~~retraining~~$141.4 ismillion ~~not~~and ~~required~~$207.7 Ifmillion, arespectively. ~~distributor~~In ~~changes~~addition, ~~the~~as ~~brand~~a result of the ~~products~~prior itacquisition ~~carries,~~of ~~that~~our ~~distributor~~business ~~risks~~in ~~alienating~~2004, ~~dealers~~we ~~who~~ have ~~customized~~realized ~~their~~a ~~operations~~significant tostep-up ~~maximize their efficiency~~ in ~~sourcing~~the ~~and~~tax ~~installing~~basis ~~the~~of ~~discontinued~~our ~~brand.~~assets, ~~This~~which ~~distributor/dealer~~is ~~dynamic~~expected ~~further~~to ~~encourages~~result ~~independent~~in ~~distributors~~additional totax ~~continue~~deductions ~~carrying~~over athe ~~specific~~next ~~manufacturer’s~~nine ~~products~~years.

~~Significant~~Proven ~~Challenges~~and ~~for~~motivated ~~New~~management ~~Entrants~~team. Our ~~The~~management ~~HVAC~~team ~~industry~~has issignificant ~~characterized~~HVAC byindustry aexperience ~~fragmented distribution system, high switching costs for distributors~~ and ~~dealers~~a ~~and~~strong ~~the~~track ~~need~~record ~~for sufficient production volume to generate economies~~ of ~~scale~~ success. ~~Distributors~~Our ~~and~~twelve-member ~~dealers~~executive ~~are~~management ~~unlikely to switch manufacturers as a result of expenses associated with inventory stocking~~team, ~~marketing~~led ~~material~~by ~~and personnel~~David ~~training requirements. Distributors and dealers also value an established brand with an extensive history to ensure reliable warranty coverage for the end user. As manufacturers build scale~~Swift, ~~they~~has ~~benefit~~over ~~from~~125 ayears ~~broader~~of ~~distribution~~total ~~network and~~industry ~~more~~or ~~efficient~~related ~~manufacturing~~experience.

WeOur ~~believe~~strategy domestic manufacturers represented over 97% of unit shipments in 2007, as competition from foreign manufacturers has remained limited. Foreign manufacturers are presented with logistical challenges, due to the expense of shipping HVAC products, as well as other business challenges resulting from differences in consumer preferences for single room HVAC systems abroad versus central systems domestically. Additionally, labor costs represent a small percentage of our total costs of goods sold, making it less economical to capitalize on overseas labor costs, particularly given the added cost of transporting products from outside North America. While foreign competition is limited, HVAC manufacturers do source a significant amount of their components overseas which serves to reduce costs of goods sold and increase margins.

We intend to continue to grow operating profits and cash flow through the following key strategies:

Maintain low-cost leadership position. Our value proposition is facilitated by low-cost design and lean manufacturing and sourcing processes. We intend to maintain our cost leadership position by continuing to design low-cost, high-quality products, increasing production efficiencies, improving our raw material and component sourcing and reducing our working capital investment, overhead and other expenses.

Realize benefits of recent company-operated distribution center openings and further increase coverage density. As new company-operated distribution centers opened since 2007 continue to penetrate into their local markets, we believe we will increase our market share in those regions and improve profitability without significant incremental capital expenditures. We plan to opportunistically expand our company-operated distribution center footprint in targeted North American markets currently served by our company-operated distribution channel.

Index to Financial Statements

~~Products~~Strengthen independent distributor network. We maintain strong relationships with an extensive independent distributor network, which provides us efficient access to certain geographies not addressed by our company-operated distribution centers. We employ a number of programs to measure, incentivize and reward our independent distributors for achieving results that align with our key objectives in areas of growth, profitability and working capital management.

Targeted approach to distribution expansion. We utilize a detailed analytical assessment process to identify and prioritize regions for distribution growth. Our decision to open new company-operated distribution centers or add independent locations is based upon factors such as available market size, existing share and current number of centers and locations.

Expand our product line in the light commercial segment. We believe that many of our dealers also install light commercial products. In recent years, we have taken steps, such as introducing new products to broaden our light commercial lines, which has resulted in light commercial shipment growth of 17% for 2009 compared to a 28% decline in unit shipments for the total industry during the same period. As we expand in this segment, we believe we will also see benefits in our residential business, as we are able to serve a higher proportion of dealers’ needs.

Our industry

The U.S. residential and light commercial HVAC equipment industry (excluding window room air conditioners) is estimated to have generated approximately $6.8 billion in 2008 manufacturers’ sales, with an estimated 8.4 million units shipped in 2008. We believe the top six domestic manufacturers represented approximately 90% of unit sales in 2008. We further believe the market shares of the large, incumbent industry participants have been relatively stable in recent years, although we have continued to gain market share.

Opportunity for industry volume growth. On a unit basis, the HVAC industry has grown at a compounded annual growth rate of 3.1% over the 15 years ended 2007. That growth rate was driven primarily by increased central air conditioning penetration in both existing and new homes, and a growing installed base of units that required replacement. According to the U.S. Census Bureau, in 2008, 89% of new single family homes completed were equipped with central air conditioning, up from 70% in 1985. In the 1990s, as the overall housing base expanded due to increased new home sales and central air conditioning increased its penetration into homes, the HVAC industry became more driven by replacement demand. As older units within the large base of existing homes approach the end of their useful lives, they will need to be replaced by newer and more efficient models, creating a relatively stable base of demand for HVAC products. We estimate that replacement and renovation-related products accounted for between 70% and 80% of industry sales over the past three years.

We believe that the recent financial and economic slowdown, beginning in 2007, has led to a decline in the number of HVAC units being replaced as customers have deferred replacements or opted for short-term repairs. Despite an installed base that has grown virtually every year since 1990, unit volume shipments declined by 11.2% in 2008 and 15.0% in 2009. As the domestic economy recovers, we expect consumers will increasingly replace older HVAC units, including those previously repaired units.

Highly fragmented customer base. HVAC manufacturers sell to a highly fragmented two-tier distribution system, and no single distributor represents a large share of industry-wide HVAC sales. There are more than 450 independent HVAC distribution companies in the United States. Additionally, the distributors’ customer base is made of over 100,000 independent dealers across the country that buy HVAC equipment from the distributors and install them for the ultimate end user. There is limited pricing transparency to the end user due to this tiered distribution system.

We believe that dealers become increasingly loyal as they become accustomed to the installation and service of a particular product and brand. Therefore, dealers prefer distributors that continue to carry a specific manufacturer’s product and prefer product lines that do not change dramatically so that retraining is not required. If a distributor changes the brand of products it carries, that distributor risks alienating dealers who have customized their operations to maximize their efficiency in sourcing and installing the discontinued brand. Further, much of the industry utilizes an exclusive distribution model, which requires distributors to carry only a single manufacturer’s product line in a given area. This distributor/dealer dynamic further encourages independent distributors to continue carrying a specific manufacturer’s products.

Significant barriers for new entrants. The HVAC industry is characterized by a fragmented distribution system, high switching costs for distributors and dealers and the need for sufficient production volume to generate economies of scale. Distributors and dealers are unlikely to switch manufacturers as a result of expenses associated with inventory stocking, marketing material and personnel training requirements. Distributors and dealers also value an established brand with an extensive history to ensure reliable warranty coverage for the end user. As manufacturers build scale, they benefit from a broader distribution network and more efficient manufacturing.

Index to Financial Statements

We believe domestic manufacturers represented over 95% of unit shipments in 2008, as competition from foreign manufacturers has remained limited. Foreign manufacturers face challenges, due to the expense of shipping HVAC products, as well as other business challenges resulting from differences in consumer preferences for single room HVAC systems abroad versus central systems domestically. Additionally, labor costs represent a small percentage of our total costs of goods sold, making it less economical to capitalize on overseas labor costs, particularly given the added cost of transporting products from outside North America. While foreign competition is limited, HVAC manufacturers do source a significant amount of their components overseas, which serves to reduce costs of goods sold and increase margins.

Trends toward increasingly efficient and environmentally sound HVAC solutions. On December 7, 2009, the EPA approved final rules that complete the phase-out of HCFC-22 in the production of new units, effective January 1, 2010. We have prepared for this phase-out and utilize R410A refrigerant as a substitute for HCFC-22. Various government programs and policies, are creating incentives for consumers to purchase more energy-efficient comfort solutions. Through 2010, tax credits are available to consumers purchasing certain high efficiency products.

On November 19, 2007, the U.S. Department of Energy, or “DOE,” issued new regulations increasing the minimum annual fuel utilization efficiency, or “AFUE,” for several types of residential furnaces. These regulations apply to furnaces manufactured for sale in the U.S. or imported into the United States on and after November 19, 2015. On December 19, 2007, federal legislation was enacted authorizing the DOE to study the establishment of regional efficiency standards for furnaces and air conditioners. In October 2009, Goodman and the other leading domestic residential HVAC equipment manufacturers and industry representatives signed an agreement with certain U.S. energy-efficiency advocacy organizations supporting new federal standards for domestic residential central HVAC products. The agreement calls for replacing national efficiency standards with different standard levels in three climate regions—North, South, and Southwest. The supported standards would generally require cooling efficiencies of at least 14 SEER in the South and heating efficiencies of at least 90% AFUE in the North. In addition, the agreement would allow states to include even higher efficiency levels for HVAC systems in residential new construction. The signatories agreed to submit their agreement jointly as a legislative proposal to Congress for inclusion in energy legislation currently under consideration and to recommend that the U.S. Department of Energy promulgate rules adopting the agreed-upon regions and standards.

Our product offerings

We manufacture and market an extensive line of HVAC products for residential and light commercial use. These products include split-system air conditioners and heat pumps, gas furnaces, package units, air handlers, Package Terminal Air Conditioners/Heat Pumps, or “PTACs,” evaporator coils, flexible duct and accessories. Our products are predominantly marketed under the Goodman^®, Amana^® and Quietflex^® brands.

Index to Financial Statements

Our principal HVAC products are outlined in the following table and summarized below.

	Size(1)	Efficiency(2)
Product line
Split systems:
Air conditioners	1.5 to 10 Tons	13 to 18 SEER
Heat pumps	1.5 to 10 Tons	13 to 18 SEER
Gas furnaces	45,000–140,000 BTUH	80 to 96% AFUE
Package units(3):
Gas/electric	2 to 1012.5 Tons	13 to 15 SEER
Electric/electric (A/C)	2 to 1012.5 Tons	13 SEER
Electric/electric (heat pump)	2 to 1012.5 Tons	13 to 15 SEER
Air handlers	1.5 to 10 Tons	NA
PTAC(3):
A/C & electric heat coil	7,000 to 15,000 BTUH	9.5 to 12.8 EER
Heat pump	7,000 to 15,000 BTUH	9.3 to 12.8 EER
Evaporator coils	1.5 to 5 Tons	NA
Flexible duct	3” to 22”	R-4.2, 6, 8

(1)	Based on cooling tons of thousands of British Thermal Units Per Hour (BTUH). 12,000 BTUH = 1 ton.

(2)

Measure of a product’s efficiency used to rate it comparatively and to calculate energy usage and cost: SEER—Seasonal Energy Efficiency Rating; AFUE—Annual Fuel Utilization Efficiency; EER—Energy Efficiency Rating. R-value is a comparative measure of thermal resistance used to quantify insulating properties.

(3)	Products with commercial product characteristics and certain other products are not subject to the 13 SEER minimum efficiency standards.

Split-system air conditioners and heat pump units. A split-system air conditioner consists of an outdoor unit that contains a compressor and heat transfer coils and an indoor heat transfer unit with ducting to move air throughout the structure. A split-system heat pump is similar to a split-system air conditioner, but also includes a device that reverses the flow of refrigerant and thus heats when heating is required and cools when cooling is required.

Gas ~~Furnaces~~furnaces. A gas furnace is typically used with a ducting system to heat indoor air. Furnaces use a natural gas-fueled burner and a heat exchanger to heat air and a blower to move the heated air throughout a structure through ducting.

Package units. A package unit consists of a condensing unit and an evaporator coil combined with a gas or electric heat source in a single, self-contained unit. It is typically placed outside of the structure on a ground slab or roof.

Air handlers. An air handler is a blower device used in connection with heating and cooling applications to move air throughout the indoor comfort control system.

Package terminal air conditioners. A PTAC is a single unit heating and air conditioning system used primarily in hotel and motel rooms, apartments, schools, assisted living facilities and hospitals.

Evaporator coils. An evaporator coil is a key component of the indoor section of a split-system air conditioner or heat pump unit. An evaporator coil is comprised of a heat transfer surface of copper tubes surrounded by aluminum fins in which compressed gas is permitted to expand and absorb heat, thereby cooling the air around it.

Other. Other products include flexible duct and other HVAC related products and accessories.

4Distribution network

We sell our products through a North American distribution network with over 945 total distribution points comprised of over 160 company-operated distribution centers and over 785 independent distributor locations. For the years ended December 31, 2008 and 2009, approximately 55% and 57%, respectively, of our net sales were made through company-operated distribution centers and our direct sales force while the remaining 45% and 43%, respectively, of our net sales were made through our independent distributors. Our distribution strategy consists of maintaining broad geographic coverage and strong distributor and dealer relationships.

Index to Financial Statements

~~Distribution~~Our ~~Network~~company-operated distribution centers are located in key states such as Texas, California, Arizona, Florida, Maryland and Pennsylvania. This strategy provides us direct access to large markets in North America and allows us to maintain a significant amount of control over the distribution of our products. Our company-operated distribution center network provides us with considerable operational flexibility by giving us (i) direct access to dealers, which provides us continuous, real-time information regarding their preferences and needs, (ii) better control over inventory through direct information flow, which allows us to efficiently meet customer demand, (iii) the ability to manage pricing at our discretion, (iv) an additional channel in which to conduct market tests of new products and (v) the ability to introduce new products broadly and quickly. Our company-operated distribution centers employ a low-cost distribution strategy to provide competitive pricing. Since January 1, 2003, we have opened more than 70 net new company-operated distribution centers. We expect to continue to seek opportunities to expand our company-operated distribution center footprint in targeted North American markets.

We sell our products through a North American distribution network with approximately 900 total distribution points comprised of over 150 company-operated distribution centers and approximately 750 independent distributor locations. For the year ended December 31, 2008, approximately 62% of our net sales were made through company-operated distribution centers and our direct sales force while the remaining 38% of our net sales were made through our independent distributors. Our distribution strategy consists of maintaining broad geographic coverage and strong distributor and dealer relationships.

We operate company-operated distribution centers in key states such as Texas, California, Arizona, Nevada and Florida. This strategy provides us direct access to large markets in North America and allows us to maintain a significant amount of control over the distribution of our products. Our company-operated distribution center network provides us with considerable operational flexibility by giving us (i) direct access to dealers which provides us continuous, real-time information regarding their preferences and needs, (ii) better control over inventory through direct information flow which allows us to market our full line of products in our company-operated distribution centers, (iii) the ability to manage margins at our discretion, (iv) an additional channel in which to conduct market tests of new products and (v) the ability to introduce new products broadly and quickly. Our company-operated distribution centers employ a low-cost distribution strategy to provide competitive pricing. In the past five years, we have increased our company-operated distribution center base by over 60%. We expect to continue to seek opportunities to expand our company-operated distribution center footprint in targeted North American markets.

We regularly perform market analyses to determine new distribution locations based on whether a given market is either under-served or has poor independent distributor representation. Once an under-served or poorly represented market is identified, we evaluate whether to look for a new independent distributor, open a company-operated distribution center or acquire the under-performing independent distributors.

We maintain an extensive independent distributor network, which ~~provides~~allows us ~~access~~ to access major ~~sales areas~~ markets not addressed by our company-operated distribution centers. We have maintained longstanding relationships with our leading distributors. We seek to ~~effectively~~ align the incentives of our independent distributors with those of the company, while avoiding expensive brand marketing campaigns, through the following programs:

• Mark-up ~~Rebate~~rebate ~~Programs~~programs: WeMany ~~offer~~independent ~~distributor~~distributors take advantage of our rebates that are inversely related to the distributor’s markup, thus motivating distributors to meet certain pricing targets to the dealers. This program is structured to encourage distributors to pass on lower equipment costs to dealers in order to drive market share expansion while preserving the distributors’ margins. Through this program we are able to encourage low final prices of our products to the ultimate consumer.

• Inventory ~~Consignment~~consignment: We provide inventory on consignment to ~~many~~some of our independent distributors. This strategy positions finished goods from our factories directly in the market to be sold as demand requires. Under the consignment program, we carry the cost of appropriate finished goods inventories until they are sold by the distributors, which substantially reduces their investment in inventory and allows us to ~~more easily~~ develop new distributor relationships. We also benefit from reduced warehousing costs.

• New ~~Dealer~~dealer ~~Recruitment~~recruitment ~~Program~~program: We offer a program through which dealers tour our manufacturing and research facilities, are educated onabout our products, review our quality control process and meet with our engineers and management. This interaction allows us to provide visual reinforcement of the quality and care taken in the manufacture of our products. The program also provides us with the opportunity to ~~garner~~obtain direct feedback from dealers onregarding end user receptivity to current products, as well as gauge the dealers’ interest in future products ahead of a broader product introduction.

Our independent distributor network provides us market access where we do not employ company-operated distribution centers. Independent distributors are typically selected and retained on the basis of (i) a demonstrated ability to meet or exceed performance targets, (ii) a solid financial position and (iii) ~~operating with~~ a low-cost structure and competitive pricing. Our selection process, coupled with our incentive programs, ~~which~~makes ~~make~~ switching costs high, which has resulted in a low distributor turnover rate. ~~Since the beginning of 2004, we added approximately 250 new independent distributor locations through the addition of new distributors or the expansion of existing distributors.~~

Index to Financial Statements

We also seek to broaden our customer base by developing new customer relationships with national homebuilders and further developing our customer relationships with large national and regional homebuilders. We believe these relationships will increase sales and continue to add credibility and visibility to our brand names and products.

Manufacturing

We operate three manufacturing and assembly facilities in Houston, Texas, two in Tennessee, one in Arizona, one in Pennsylvania and one in Florida, totaling approximately two million square feet. We believe we have sufficient manufacturing capacity to achieve our business goals for the foreseeable future without the need for further expansion.

We operate two logistics centers, the Houston Logistics Center (a freestanding center) and the Fayetteville Center (a logistics center in the Fayetteville, Tennessee facility). The manufacturing plants feed finished products into these two logistics centers for deployment into the distribution channels. As the distribution network provides point of sale information, these logistics centers deploy products into the marketplace as demand dictates. The Quietflex® branded product is distributed to customers from Quietflex-related manufacturing and assembly facilities located in Houston, Texas, Phoenix, Arizona, Groveland, Florida and Scranton, Pennsylvania.

~~Raw~~7 ~~Materials and Purchased Components~~

Index to Financial Statements

point of sale information, these logistics centers deploy products into the marketplace as demand dictates. The Quietflex branded product is distributed to customers from Quietflex-related manufacturing and assembly facilities located in Houston, Texas, Phoenix, Arizona, Groveland, Florida and Scranton, Pennsylvania.

Raw materials and purchased components

We purchase most of our components, such as compressors, motors, capacitors, valves and control systems, from third-party suppliers. In order to maintain low input costs, we also manufacture select components when it is deemed cost effective. We also manufacture heat transfer surfaces and heat exchangers for our units.

Our primary raw materials are ~~steel~~copper, ~~copper~~aluminum and ~~aluminum~~steel, all of which ~~are~~we ~~purchased~~purchase from third parties. We spent approximately $264.7 million in 2009 and approximately $300.0 million in each of 2008 and 2007 on these raw materials. Cost variability of raw materials can have a material impact on our results of operations. In order to enhance raw material price stability, we monitor principal raw material prices and strategically enter into commodity forward contracts and hedges for the purchase of certain raw materials.

Our procurement initiatives include leveraging our buying power ~~on a global basis~~ to improve purchasing efficiency, reducing the number of suppliers and improving supplier logistics. While we typically concentrate our purchases for a particular material or component with one or two suppliers, alternative suppliers are available and have been identified if we need to procure key raw materials ~~and~~ or components from them.

Where feasible, we solicit bids for our material and component needs from multiple suppliers. Supplier selection is based primarily on cost, quality and delivery requirements. After selecting suppliers, we execute short- and long-term agreements by which we seek to ensure availability and delivery of requisite supplies.

In ~~2008~~2009, our top ten suppliers accounted for approximately 7653% of our supply expenditures. We believe we have strong and longstanding relationships with many of our suppliers.

~~See~~Sales ~~“Item 1A Risk Factors—Significant fluctuations in the cost of raw materials~~ and ~~components~~marketing ~~have, and may continue to, increase our operating margins. In addition, a decline in our relationships with key suppliers may have an adverse effect on our business.”~~

Sales and Marketing

Our strategy is to maintain a lean sales and marketing staff, focused primarily on traditional products, in order to derive the greatest value from our marketing budget while minimizing overhead costs. Our longstanding distributor relationships, low turnover rates and company-operated distribution center footprint allow us to implement our sales and marketing strategy with a modest corporate staff. Our corporate sales and marketing staff monitors market information, develops programming and provides distributors with the promotional materials they need to sell our products. We review the need for additional sales and marketing staff as business opportunities arise.

Our primary HVAC products are marketed under the Goodman®, Amana® and Quietflex® brand names. Our Goodman® branded products cater to the large segment of the market that is price sensitive and desires reliable and low cost comfort. We ~~position~~ believe the Goodman® brand asis the ~~top~~single ~~selling~~largest domestic residential HVAC brand and ~~light~~we ~~commercial~~position the Goodman brand as the preferred brand for quality HVAC equipment at low prices. Our premium Amana branded products include enhanced features such as higher efficiency and quieter operation and enhanced warranties. The Amana brand is positioned as the “great American brand” that outlasts the rest, highlighting durability and long-life. The Quietflex brand is a recognized brand of flexible duct. Our products and brands are marketed for their quality, low cost, ease of installation, superior warranty and reliability.

6Weather and seasonality

We believe that weather patterns have historically impacted the demand for HVAC products. For example, we believe that hot weather in the spring season can cause existing older units to fail earlier in the season, driving customers to accelerate replacement of a unit, which might otherwise be deferred in the case of a late season failure. Similarly, we believe that unseasonably mild weather diminishes customer demand for both commercial and residential HVAC replacement and repairs. Weather also impacts installation during periods of inclement weather as fewer units are installed due to dealers being delayed or forced to shut down their operations.

Although there is demand for our products throughout the year, in each of the past three fiscal years between 58% to 60% of our total sales occurred in the second and third quarters of the fiscal year. Our peak production also typically occurs in the second and third quarters of the fiscal year.

Index to Financial Statements

in North America and as the preferred brand for quality HVAC equipment at low prices. Our premium Amana® branded products include enhanced features such as higher efficiency and quieter operation and generally longer warranties. The Amana brand is positioned as the “great American brand” that outlasts the rest, highlighting durability and long-life. The Quietflex® brand is a recognized brand of flexible duct. Our products and brands are marketed for their quality, low cost, ease of installation, superior warranty and reliability.

Weather and Seasonality

Weather patterns have historically impacted the demand for HVAC products. For example, hot weather in the spring season causes existing older units to fail earlier in the season, driving customers to accelerate replacement of a unit, which might otherwise be deferred in the case of a late season failure. Similarly, unseasonably mild weather diminishes customer demand for both commercial and residential HVAC replacement and repairs. Weather also impacts installation during periods of inclement weather as fewer units are installed due to dealers being delayed or forced to shut down their operations.

Customers

Our customers consist primarily of (i1) distributors who supply independent dealers who install our products for the ultimate end user and (ii2) independent dealers ~~when~~to ~~selling~~whom we sell products through our company-operated distribution centers. We also sell PTAC products directly to the light commercial sector, including hotels, motels and assisted living facilities.

We have a diverse and fragmented customer base ~~in key regions throughout the United States~~. In 2008 and 2009, no independent distributor accounted for more than 10% of our net sales. We believe the loss of any single distributor would not have a material effect on our business and operations. Our top ten independent distributors accounted for approximately 31% and 30% of our net sales in 2008 and 2009, respectively. Our sales, marketing and distribution strategy focuses on keeping prices low to the dealer, while allowing distributors to achieve their profit goals.

Research and ~~Development~~development

We maintain an engineering and research and development staff whose duties include testing and improving existing product lines and developing new products. Company-sponsored research and development expense was $1011.52 million, $910.1 5 million and $89.8 1 million for the years ended December ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007, respectively. We charge research and development costs to selling, general and administrative expense as incurred. Research and development is conducted at our facilities in Houston, Texas, Fayetteville, Tennessee and Dayton, Tennessee. Research and development is focused on maintaining product competitiveness by improving the cost of manufacture, safety characteristics, reliability and performance while ensuring compliance with governmental standards. The engineering staff focuses its cost reduction efforts on standardization, size and weight reduction, the application of new technology and improving production techniques. Our engineering staff maintains close contact with marketing and manufacturing personnel to ensure that their efforts are inconsistent ~~line~~ with market trends and are compatible with manufacturing processes.

Information ~~Systems~~systems

We use software packages from major publishers to support ~~business~~many ~~operations:~~of ~~MAPICS~~our ~~for~~business operations, including manufacturing, order processing, payroll, ~~and~~ finance;, ~~PkMS for~~ logistics center operation;, ~~Kronos for~~ time and attendance reporting; and ~~Mincron~~ for company-operated distribution operations. The major business systems operate on an IBM ~~AS/400~~iSeries computer. located Wewith ~~improved~~production ~~our~~Microsoft ~~systems~~Windows byservers ~~installing~~at ~~the~~a ~~current~~hardened ~~version~~and ofguarded ~~MAPICS~~facility. toCertain ~~improve~~systems ~~service~~we ~~and~~designate ~~data~~as ~~accuracy,~~critical ~~converting Quietflex operations~~ to ~~use~~continued ~~MAPICS,~~business ~~implementing~~operation aare ~~bar code-based~~the ~~control~~subject ~~system~~of atHigh ~~our~~Availability ~~Houston~~processes. ~~Logistics~~We ~~Center~~install ~~and~~updated ~~Fayetteville~~software ~~Logistics~~to ~~Center,~~improve serviceability and ~~completing the installation of Mincron into our company-operated distribution centers~~functionality. Our company-operated distribution centers provide us with significant, real-time information that allows us to monitor the trends in our business and to rapidly respond to changes in the markets we serve to capitalize on potential growth opportunities. We developed and use a custom application system that computes optimal replenishment quantities of equipment and parts ~~into~~in our company-operated distribution centers in order to reduce inventory investment.

7Independent distributors make use of our systems through Internet-based portals. These services give distributors access to data, such as replacement part lists, and systems, such as a consigned inventory accounting function. Consumers make use of our Internet-based systems to obtain general and product-specific information and register products for warranty coverage. We also link our systems with those of our suppliers in order to manage the procurement of materials on a real-time basis. Each night, the programs recalculate component requirements, allowing faster notification of schedule changes to suppliers which reduces our working capital requirements.

Index to Financial Statements

Independent distributors make use of our systems through Internet-based portals. This service gives distributors access to data, such as replacement part lists, and systems, such as the consigned inventory accounting function. Consumers make use of our Internet-based systems to obtain general and product-specific information and register products for warranty coverage. We also link our systems with those of our suppliers in order to manage the procurement of materials on a real-time basis. Each night, the programs recalculate component requirements, allowing faster notification of schedule changes to suppliers which greatly reduces our working capital requirements.

Competition

The production and sale of HVAC equipment by manufacturers is highly competitive. HVAC manufacturers primarily compete on the basis of price, depth of product line, product efficiency and reliability, product availability and warranty coverage. According to industry sources, the top ~~five~~six domestic manufacturers represented approximately 8090% of unit sales in the United States residential and ~~light~~ light commercial HVAC market in ~~2007~~2008. ~~Based~~We ~~on unit sales, we~~ are ~~the~~a ~~second-largest~~leading domestic manufacturer of HVAC ~~equipment~~products for residential and light commercial use. Our four largest competitors in this market are Carrier Corporation (a division of United Technologies Corporation), Trane Inc. (a wholly-owned subsidiary of Ingersoll-Rand Company Limited), Lennox International, Inc. and Rheem Manufacturing Company. A number of factors affect competition in the HVAC market, including the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. In addition, new product introductions are an important factor in the market categories in which our ~~products compete.~~ Some of our competitors are large and have significantly greater financial, marketing and technical resources than we do. Although we believe we have been able to compete successfully in our markets to date, there can be no assurance that we will be able to do so in the future.

~~Patents~~9 ~~and Trademarks~~

We hold a number of patents, and have recently filed a number of patent applications, relating to the design and manufacture of our heating and air conditioning products. We generally endeavor to obtain patent protection for technology that we develop and will enforce such protection as appropriate. Our existing patents generally expire between 2009 and 2015. In connection with the marketing of our products, we have obtained trademark protection for all of our brand names. The trademark registration for these names have an initial term of between five and six years and thereafter a term of 10 years. The 10 year term is renewable for additional 10-year terms so long as the names are still being used by us for the purpose for which they were registered. We have a license to use the Amana brand name and related trademark in connection with our HVAC business. The Amana trademark is controlled by Whirlpool Corporation (subsequent to its acquisition of Maytag) which markets appliances under the Amana brand name. As part of the sale of the Amana appliance business to Maytag in 2001, we entered into a trademark license agreement with Maytag. The trademark license agreement expires in July 2011, with renewal terms available for a total of an additional 15 years. In addition, we possess a wide array of proprietary technology and know-how. We believe that our patents, trademarks, trade names, service marks and other proprietary rights are important to the development and conduct of our business as well as the marketing of our products. We vigorously protect these rights.

Employees

As of December 31, 2008, we had 4,401 full-time employees (3,377 hourly and 1,024 salaried employees). Of those, 2,794 employees were directly involved in manufacturing processes (assembly, fabrication, maintenance, quality assurance and forklift operations) at our eight manufacturing and assembly facilities. Our only unionized workforce is at our Fayetteville, Tennessee manufacturing facility, which we acquired with the 1997 acquisition of Amana. The 1,063 Fayetteville hourly employees are represented by the International Association of Machinist and Aerospace Workers. Although the Fayetteville facility has been unionized since the 1960s, there have been no work stoppages or strikes at the plant since 1978. The current contract will expire on December 5, 2009. We believe we have good relations with our employees.

Index to Financial Statements

products compete. Some of our competitors are large and have significantly greater financial, marketing and technical resources than we do. Although we believe we have been able to compete successfully in our markets to date, there can be no assurance that we will be able to do so in the future.

Patents and trademarks

We hold a number of patents, and have recently filed a number of patent applications, relating to the design and manufacture of our heating and air conditioning products. We generally endeavor to obtain patent protection for technology that we develop and will enforce such protection as appropriate. Our existing patents generally expire between 2010 and 2013. In connection with the marketing of our products, we have obtained trademark protection for all of our brand names. The trademark registrations for these names have an initial term of between five and six years and thereafter a term of 10 years. The 10-year term is renewable for additional 10-year terms so long as the names are still being used by us for the purpose for which they were registered. We have a license to use the Amana brand name and related trademark in connection with our HVAC business. The Amana trademark is controlled by Whirlpool Corporation (subsequent to its acquisition of Maytag), which markets appliances under the Amana brand name. As part of the sale of the Amana appliance business to Maytag in 2001, we entered into a trademark license agreement with Maytag. The trademark license agreement expires in July 2011, with renewal terms available for a total of an additional 15 years. In addition, we possess a wide array of proprietary technology and know-how. We believe that our patents, trademarks, trade names, service marks and other proprietary rights are important to the development and conduct of our business as well as the marketing of our products. We vigorously protect these rights.

Employees

As of December 31, 2009, we had 4,331 full-time employees (3,290 hourly and 1,041 salaried employees). Of those, 2,570 employees were directly involved in manufacturing processes (assembly, fabrication, maintenance, quality assurance and forklift operations) at our eight manufacturing and assembly facilities. Our only unionized workforce is at our Fayetteville, Tennessee manufacturing facility, which we acquired with the 1997 acquisition of Amana. The approximately 929 Fayetteville hourly employees are represented by the International Association of Machinist and Aerospace Workers. Although the Fayetteville facility has been unionized since the 1960s, there have been no work stoppages or strikes at the plant since 1978. We negotiated a three-year collective bargaining agreement with the union that was ratified by the Fayetteville union membership on December 5, 2009. We believe we have good relations with our employees.

Regulation

We are subject to extensive, evolving and often ~~increasingly~~ stringent international, federal, state, provincial, municipal and local laws and regulations.

Environmental Refrigeration Regulation. In 1987, the United States became a signatory to the Montreal Protocol on Substances that Deplete the Ozone Layer. The Montreal Protocol addresses the use of certain ozone depleting substances, including hydrochlorofluorocarbons, or “HCFCs,” a refrigerant ~~commonly~~regulation used for air conditioning and refrigeration equipment. The 1990 amendments to the Clean Air Act implement the Montreal Protocol and have been used by the U.S. Environmental Protection Agency, or “EPA,” to accelerate the phase-out of HCFCs between 2010 and 2020.

In 1987, the United States became a signatory to the Montreal Protocol on Substances that Deplete the Ozone Layer. The Montreal Protocol addresses the use of certain ozone-depleting substances, including ~~EPA~~hydrochlorofluorocarbons, isor ~~authorized~~“HCFCs,” ~~under~~a refrigerant commonly used for air conditioning and refrigeration equipment. The 1990 amendments to the Clean Air Act implement the Montreal Protocol in the United States and authorize the U.S. Environmental Protection Agency, or “EPA,” to ~~promulgate~~issue regulations to accelerate the ~~statutory~~ phase-out ~~schedule~~of ~~for~~HCFCs ~~any~~between ~~Class~~2010 IIand ~~substance, which includes HCFC-22~~2020. Various groups have proposed that the EPA phase-out Class II substances, including HCFC-22, substantially earlier than under the schedule provided by the Clean Air Act. ItOn isDecember 7, ~~uncertain~~2009, ~~whether~~ the EPA ~~will~~approved ~~take~~final ~~action~~rules tothat ~~accelerate~~complete the phase-out of HCFC-22 in the production of new units, effective January 1, 2010. We have prepared for this phase-out and utilize R410A refrigerant as a substitute for HCFC-22. Under the EPA’s final rules on HCFC-22, we generally are able to sell or distribute equipment pre-charged with HCFC-22 after the phase-out so long as the equipment was manufactured prior to January 1, 2010.

~~Some~~As ~~cooling~~a ~~products~~result ~~that~~of wethe ~~manufacture~~international ~~currently~~ and ~~lawfully~~national ~~contain~~actions to end use of HCFC-22., ~~This~~we ~~refrigerant~~currently isuse a ~~sealed~~substitute ~~inside~~refrigerant ~~the~~in ~~condensing~~some ~~unit~~of orour ~~evaporator coil~~air conditioning and isheat ~~expected~~pump toproducts. ~~remain~~This ~~within~~substitute ~~the~~refrigerant, ~~unit~~R410A, ~~throughout~~is ~~the~~a ~~operating~~mixture ~~life~~ of ~~the~~hydrofluorocarbons ~~system~~that ~~without~~the ~~leakage~~EPA tohas ~~the~~determined ~~atmosphere.~~do Wenot ~~believe~~contribute ~~that~~to ~~our~~the ~~operations~~depletion ~~materially~~of ~~comply~~the ~~with~~ozone ~~all~~layer ~~current~~and ~~EPA~~therefore are ~~regulations~~not ~~relating~~subject to ~~refrigerants~~phase-out mandates. InFor ~~addition,~~the ~~we do~~past ~~not~~five ~~believe~~years, ~~that~~we ~~either~~have ~~the~~manufactured ~~Clean Air Act~~ and ~~its~~sold ~~HCFC~~some ~~implementing~~of ~~regulations~~our asair ~~currently~~conditioning inand ~~effect~~heat orpump ~~any~~equipment ~~reasonably~~incorporating ~~anticipated~~the ~~accelerated~~R410A ~~phase-out~~refrigerant. ofProducts ~~HCFC-22~~using ~~will~~the ~~have~~new arefrigerant ~~material~~require ~~adverse~~compressors, ~~impact~~seals, and onheat ~~our~~exchangers ~~business,~~designed ~~financial~~to ~~condition~~meet ~~or results~~its ofhigher ~~operations~~operating pressures.

As10 a result of the international and national actions to end use of HCFC-22 we currently use a substitute refrigerant in some of our air conditioning and heat pump products. This substitute refrigerant, HFC-410A, is a mixture of hydrofluorocarbons that the EPA has determined do not contribute to the depletion of the ozone layer and therefore are not subject to phase-out mandates. We manufacture and sell some of our air conditioning and heat pump equipment incorporating the HFC-410A refrigerant, and have done so for over five years. Products using the new refrigerant require compressors, seals, and heat exchangers designed to meet its higher operating pressures. Although we are unable to predict the full extent of modifications that may be necessary to our manufacturing processes or the costs associated with the use of alternative refrigerants as we transform all manufacturing lines to make products using HFC-410A refrigerant by 2010, we do not expect that either will have a material adverse effect on us unless the phase-out is accelerated more rapidly than is currently anticipated under the Clean Air Act.

Efficiency Standards. We are subject to international, federal, state, provincial and local laws and regulations concerning the energy efficiency of our products, including, among others, the National Appliance Energy Conservation Act of 1987, as amended, or “NAECA”, the Canadian Energy Efficiency Act, and regulations promulgated under these acts. Energy efficiency in air conditioning products is measured by a SEER. A higher SEER indicates a lower amount of energy is required for the same amount of cooling capacity. Typical systems range from 10 SEER to 23 SEER, with 14 SEER and higher considered to be premium efficiency systems. Effective January 23, 2006, the U.S. federal minimum efficiency standard for central air conditioners and heat pumps manufactured in the United States increased from 10 SEER to 13 SEER under NAECA, a change we actively supported. We believe such a standard is beneficial to the environment and that our industry leading cost structure and manufacturing expertise should allow us to capture additional market share. The U.S. Department of Energy is currently revising the national residential furnace standard. We have established processes that we believe will allow us to offer new products that meet or exceed these new national standards well in advance of implementation of the new standards.

Other Environmental, Health and Safety Matters. We are subject to extensive, evolving and often increasingly stringent international, federal, state, provincial and local environmental and health and safety laws and regulations, including, among others, NAECA, the Clean Air Act, the Clean Water Act, the Comprehensive Environmental, Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the Toxic Substances Control Act, the Canadian Energy Efficiency Act, and regulations promulgated under these acts. Many of these laws and regulations relate to the protection of human health and the environment, including those limiting the discharge of pollutants into the environment and those regulating the treatment, storage or disposal and remediation of releases of, and exposure to, hazardous wastes and hazardous

Index to Financial Statements

~~materials.~~ We believe that weour ~~are~~operations inmaterially ~~substantial~~comply ~~compliance~~ with ~~applicable~~all ~~environmental,~~current ~~health~~EPA ~~and safety laws and~~ regulations, ~~many of which provide for~~relating ~~substantial~~to ~~fines and criminal sanctions for violations~~refrigerants. ~~Certain~~In ~~environmental laws and regulations impose strict~~addition, ~~joint~~we ~~and~~do ~~several~~not ~~liability~~believe onthat ~~potentially~~either ~~responsible parties, including past and present owners and operators of sites, to clean up, or contribute to~~ the ~~cost~~Clean ofAir ~~cleaning~~Act ~~up sites at which hazardous wastes~~ or ~~materials~~its ~~were~~HCFC ~~disposed~~implementing orregulations ~~released.~~will Wehave ~~are~~a ~~currently,~~material ~~and~~adverse ~~may~~impact inon ~~the~~our ~~future be~~business, ~~required~~financial tocondition ~~incur costs relating to the investigation~~ or ~~remediation~~results of ~~such sites, including sites where we have, or may have, disposed of our waste~~operations.

AsEfficiency ~~required~~standards by a March 15, 2001 Consent Order with the Florida Department of Environmental Protection, or “FDEP,” Goodman Distribution Southeast, Inc., or “GDI Southeast,” our wholly-owned subsidiary, is investigating and pursuing, under FDEP oversight, the delineation of groundwater contamination at and around the GDI Southeast facility in Fort Pierce, Florida. Remediation has not yet begun. The ultimate cost for this remediation cannot be predicted with certainty due to the variables relating to the contamination and the appropriate remediation methodology, the evolving nature of remediation technologies and governmental regulations, and the inability to determine the extent to which contribution will be available from other parties, all of which factors are taken into account to the extent possible in estimating potential liability. We have reserved approximately $0.5 million as of December 31, 2008, for this matter. It is reasonably possible that the costs could substantially exceed this amount, although we do not believe that this matter is likely to have a material adverse effect on our business or financial condition, or results of operation.

We ~~believe~~are ~~that~~subject ~~this~~to ~~contamination~~international, ~~predated~~federal, ~~GDI~~state, ~~Southeast’s~~provincial, ~~involvement~~municipal ~~with~~and local laws and regulations concerning the ~~Fort~~energy ~~Pierce~~efficiency ~~facility~~of ~~and~~our ~~that~~products, ~~GDI~~including, ~~Southeast~~among ~~has~~others, ~~not~~the ~~caused~~National orAppliance Energy ~~contributed~~Conservation toAct of 1987, as amended, or “NAECA,” the ~~contamination.~~Canadian ~~Accordingly~~Energy Efficiency Act, weand ~~are~~regulations ~~pursuing litigation~~promulgated ~~against~~under ~~former~~these ~~owners~~acts. Energy efficiency in air conditioning products is measured by a SEER. A higher SEER indicates a lower amount of energy is required for the ~~Fort~~same ~~Pierce~~amount ~~facility~~of incooling ancapacity. ~~attempt~~Typical systems range from 10 SEER to ~~recover~~23 ~~our~~SEER, ~~costs~~with 14 SEER and higher considered to be premium efficiency systems. AtEffective ~~this~~January 23, ~~time~~2006, wethe ~~cannot~~U.S. ~~estimate~~federal ~~probable~~minimum efficiency ~~recoveries~~standard for central air conditioners and heat pumps manufactured in the United States increased from ~~this~~10 ~~litigation~~SEER to 13 SEER under NAECA, a change we actively supported.

WeOn ~~are~~November 19, ~~also~~2007, ~~subject~~the toU.S. ~~various~~Department ~~laws~~of ~~and~~Energy, ~~regulations~~or ~~relating~~DOE, toissued ~~worker~~new ~~health~~regulations ~~and~~increasing ~~safety.~~the ~~For~~minimum ~~example~~annual fuel utilization efficiency, inor ~~2004~~AFUE, wefor ~~entered~~several ~~into~~types anof ~~agreement~~residential ~~with~~furnaces. These regulations apply to furnaces manufactured for sale in the ~~Occupational~~ ~~Safety~~U.S. or imported into the United States on and ~~Health~~after ~~Administration~~November 19, or2015. ~~“OSHA~~On December 19,” ~~pursuant~~2007, tofederal legislation ~~which~~was weenacted ~~conducted~~authorizing ~~certain~~the ~~corrective~~DOE ~~actions~~to ~~identified~~study ~~during~~the anestablishment ~~OSHA~~of ~~inspection~~regional ofefficiency ~~two~~standards offor ~~our~~furnaces ~~facilities,~~and ~~paid~~air aconditioners. ~~$277~~In October 2009,~~000~~ ~~penalty~~Goodman and ~~completed~~the ~~performance~~other inleading ~~2008~~domestic ofresidential HVAC equipment manufacturers and industry ~~certain~~representatives ~~compliance~~signed ~~requirements~~an ~~imposed~~agreement bywith ~~the~~certain ~~settlement~~U.S. Weenergy-efficiency ~~expect~~advocacy toorganizations ~~continue~~supporting tonew ~~make~~federal ~~capital~~standards ~~expenditures~~for atdomestic ~~these~~residential ~~and~~central ~~other~~HVAC ~~facilities~~products. toThe ~~improve~~agreement ~~worker~~calls ~~health~~for replacing national efficiency standards with different standard levels in three climate regions—North, South, and ~~safety~~Southwest. ~~Expenditures~~The supported standards would generally require cooling efficiencies of at ~~these~~least 14 SEER in the South and ~~any~~heating ~~other~~efficiencies ~~facilities~~of toat ~~assure~~least ~~compliance~~90% ~~with OSHA~~AFUE ~~standards~~in ~~could~~the beNorth. ~~significant~~In addition, ~~and~~the weagreement ~~may~~would ~~become~~allow ~~subject~~states to ~~additional~~include ~~liabilities~~even ~~relating~~higher efficiency levels for HVAC systems in residential new construction. The signatories agreed to ~~our~~submit ~~facilities~~their agreement jointly as a legislative proposal to Congress for inclusion in energy legislation currently under consideration and to recommend that the ~~future~~DOE promulgate rules adopting the agreed-upon regions and standards. InWe ~~addition,~~have ~~future~~established ~~inspections~~processes atthat ~~these~~we believe will allow us to offer new products that meet or ~~other~~exceed these ~~facilities~~new ~~may~~national ~~result~~standards well in ~~additional~~advance ~~actions~~of byimplementation ~~OSHA~~of the new standards.

~~Although~~Other ~~we do expect to incur expenses related to~~ environmental, health and ~~safety laws and regulations, based on information presently known to us, we~~ ~~believe that the future cost of complying with such laws and regulations and any liabilities associated with environmental, health and~~ safety ~~obligations~~matters will not have a material adverse effect on our business, financial condition or results of operation. However, we cannot assure you that future events, including new or stricter environmental or health and safety laws and regulations, related damage or penalty claims, the discovery of previously unknown environmental or health and safety conditions requiring investigation or remediation, more vigorous enforcement or a new interpretation of existing environmental or health and safety laws and regulations would not require us to incur additional costs that could be material.

~~Florida~~We ~~Office~~are ofsubject ~~Insurance~~to ~~Regulation.~~extensive, ~~One~~evolving ofand ~~our~~often ~~subsidiaries~~stringent international, ~~AsureCare~~federal, ~~Corp.~~state, aprovincial, municipal ~~Florida~~and ~~corporation,~~local isenvironmental ~~licensed~~and ashealth aand ~~service warranty~~safety ~~association~~laws and ~~regulated~~regulations, byincluding, among others, the ~~Florida~~Clean ~~Office~~Air ofAct, ~~Insurance~~the ~~Regulation.~~Clean AsWater aAct, ~~Florida-domestic~~the ~~service~~Comprehensive ~~warranty~~Environmental, ~~association~~Response, ~~AsureCare~~Compensation ~~Corp.~~and isLiability ~~subject~~Act, tothe ~~regulation~~Resource asConservation aand Recovery ~~specialty~~Act, ~~insurer~~the ~~under~~Occupational ~~certain~~Safety ~~provisions~~and ofHealth Act, the ~~Florida~~Toxic ~~Insurance Code.~~Substances ~~Under~~Control ~~applicable Florida law~~Act, nothe ~~person~~Canadian ~~can~~Energy ~~acquire~~Efficiency Act, ~~directly~~and orregulations ~~indirectly,~~promulgated ~~more~~under ~~than~~these ~~10%~~acts. Many of ~~the~~these ~~voting~~laws ~~securities~~and ofregulations arelate ~~service~~to ~~warranty~~the ~~association~~protection orof ~~its~~human ~~controlling~~health ~~company~~and the environment, including ~~Goodman~~those ~~Global,~~limiting ~~Inc.,~~the ~~without~~discharge ~~the~~of ~~written~~pollutants ~~approval~~into of the ~~Florida~~environment ~~Office~~and ofthose ~~Insurance~~regulating ~~Regulation.~~the ~~Accordingly~~treatment, ~~any~~storage ~~person~~or ~~who~~disposal ~~acquires~~and remediation of releases of, ~~directly~~and orexposure ~~indirectly~~to, ~~10%~~hazardous orwastes ~~more~~and ofhazardous ~~our~~materials. ~~common~~We ~~stock,~~believe that ~~must~~we ~~first~~are ~~file~~in anmaterial ~~application~~compliance towith ~~acquire~~applicable ~~control~~environmental, health and safety laws and regulations, many of awhich ~~specialty~~provide ~~insurer~~for substantial fines or ~~its~~civil ~~controlling~~or ~~company,~~criminal sanctions for violations. Certain environmental laws and regulations impose ~~obtain~~strict, ~~the~~joint ~~prior~~and ~~written~~several ~~approval~~liability ofon ~~the~~potentially ~~Florida~~responsible ~~Office~~parties, ofincluding ~~Insurance~~past ~~Regulation.~~and ~~The~~present ~~application~~owners ~~must~~and beoperators ~~filed~~of ~~with~~sites, ~~the~~to ~~Florida~~clean ~~Office~~up, ofor ~~Insurance~~contribute ~~Regulation~~to nothe ~~later~~cost ~~than~~of ~~five~~cleaning ~~days~~up ~~after~~sites ~~any~~at ~~form~~which ofhazardous ~~tender~~wastes ~~offer~~or materials were disposed or released. ~~exchange~~We ~~offer~~are iscurrently, ~~proposed~~and may in the future be, ~~or no~~required ~~later~~to ~~than~~incur ~~five~~costs ~~days~~relating ~~after~~to the ~~acquisition~~investigation or remediation of ~~securities~~such sites, or ~~ownership~~sites ~~interest~~owned ifor nooperated ~~tender~~by ~~offer~~third parties where we have, or ~~exchange~~may ~~offer~~have, isdisposed ~~involved~~of our waste.

~~The Florida~~As ~~Office~~required ofby ~~Insurance~~a ~~Regulation~~March 15, ~~may~~2001 ~~disapprove~~Consent anOrder ~~acquisition~~with ofthe ~~beneficial~~Florida ~~ownership~~Department of ~~10%~~Environmental Protection, or ~~more~~“FDEP,” ofGoodman Distribution Southeast, Inc., or “GDI Southeast,” our ~~voting~~wholly-owned ~~securities~~subsidiary, byis ~~any~~investigating ~~person~~and ~~who~~pursuing, ~~refuses~~under FDEP oversight, the delineation of groundwater contamination at and around the GDI Southeast facility in Fort Pierce, Florida. Remediation is expected to ~~apply~~begin in 2010. The ultimate cost for this remediation cannot be predicted with certainty due to the variables relating to the contamination and ~~obtain~~the ~~regulatory~~appropriate ~~approval~~remediation methodology, the evolving nature of remediation ~~such~~technologies and governmental regulations, and the inability to determine the extent to which contribution will be available from other parties, all of which factors are taken into account to the extent possible in estimating potential liability. We have reserved approximately $0.5 million as of December 31, 2009, although it is possible that the ultimate cost could exceed this amount by up to approximately $3.3 million. Costs of future expenditures are not discounted to their present value. We do not believe that this matter is likely to have a material adverse effect on our business or financial condition, or results of operations.

1011

Index to Financial Statements

~~acquisition.~~We Inbelieve ~~addition, if the Florida Office of Insurance Regulation determines~~ that ~~any~~this ~~person~~contamination ~~has~~predated ~~acquired~~GDI ~~10%~~Southeast’s orinvolvement ~~more of our voting securities without complying~~ with the ~~applicable~~Fort Pierce ~~suitability~~facility ~~provisions,~~and ~~it may order~~ that ~~person~~GDI toSoutheast ~~cease~~has ~~the~~not ~~acquisition~~caused ~~and~~or ~~divest~~contributed ~~itself~~to ~~of any shares of such voting securities which may have been acquired in violation of~~ the ~~applicable Florida law~~contamination. ~~The~~Accordingly, ~~Florida Office~~we ofare ~~Insurance~~pursuing ~~Regulation~~litigation ~~may also take disciplinary action~~ against ~~AsureCare~~a ~~Corp.’s~~former ~~license~~owner ifand ita ~~finds~~former ~~that~~lessee ~~an acquisition made in violation~~ of the ~~applicable~~Fort ~~Florida~~Pierce ~~law~~facility ~~would~~in ~~render~~an ~~the~~attempt ~~further~~to ~~transaction~~recover ofour ~~its~~costs. ~~business~~At ~~hazardous to~~this ~~its customers~~time, ~~creditors,~~we ~~stockholders~~cannot orestimate ~~the~~probable ~~public~~recoveries from this litigation.

~~Available~~We ~~Information~~are also subject to various laws and regulations relating to worker health and safety. We expect to continue to make capital expenditures at our facilities to improve worker health and safety. Expenditures at our facilities to assure compliance with OSHA and other applicable standards could be significant. In addition, future inspections at our facilities may result in liabilities, including enforcement actions by OSHA.

WeAlthough ~~make~~we ~~available~~do ~~free~~expect ofto ~~charge~~incur ~~through~~expenses ~~our~~related ~~internet~~to ~~website (www.goodmanglobal.com)~~environmental, ~~including~~health ~~our~~and ~~annual~~safety ~~report~~laws onand ~~Form 10-K~~regulations, ~~quarterly~~based ~~reports~~ on ~~Form 10-Q,~~information ~~current~~presently ~~reports~~known ~~on Form 8-K and amendments~~ to ~~those~~us, ~~reports~~we ~~filed~~believe orthat ~~furnished voluntarily and pursuant to Section 13(a) or 15(d) of~~ the ~~Securities~~future ~~Exchange~~cost ~~Act~~ of ~~1934,~~complying ~~as amended, as soon as reasonably practicable after electronically filing~~ with orsuch ~~furnishing~~laws toand ~~the~~regulations ~~Securities~~ and ~~Exchange~~any liabilities ~~Commission,~~associated orwith ~~SEC~~environmental, ~~such~~health ~~material.~~and Wesafety ~~also~~obligations ~~make~~will ~~available~~not ~~free~~have ofa ~~charge~~material ~~through~~adverse ~~our~~effect ~~internet~~on ~~website~~ our ~~code of~~ business, ~~conduct~~financial ~~and~~condition ~~ethics~~or ~~and~~results ~~the charters~~ of ~~our board’s committees~~operations. ~~Any~~ ~~amendments to~~However, orfuture ~~waivers from~~events, aincluding ~~provision~~new ofor ~~our~~stricter ~~code~~environmental ofor ~~ethics~~health and ~~that~~safety ~~apply~~laws toand ~~our principal executive officer~~regulations, ~~principal~~related ~~financial~~damage ~~officer, controller,~~ or ~~persons~~penalty ~~performing~~claims, ~~similar functions and that relates to any element of~~ the ~~code~~discovery of ~~ethics~~ ~~enumerated~~previously inunknown ~~paragraph~~environmental ~~(b) of~~or ~~Item 406~~health ofand ~~Regulation~~safety ~~S-K~~conditions ~~will~~requiring beinvestigation ~~disclosed~~or byremediation, ~~posting~~more ~~such~~vigorous ~~information~~enforcement onor ~~our~~a ~~website.~~new ~~The~~interpretation ~~reference~~of existing toenvironmental ~~our~~or ~~website~~health ~~address~~and ~~does~~safety ~~not~~laws ~~constitute~~and ~~incorporation~~regulations bycould ~~reference~~require ofus ~~the~~to ~~information~~incur ~~contained on~~additional ~~our~~costs ~~website~~that ~~and~~may ~~should not~~ be ~~considered part of this document~~material.

Florida office of insurance regulation

One of our subsidiaries, AsureCare Corp., a Florida corporation, is licensed as a service warranty association and regulated by the Florida Office of Insurance Regulation. As a Florida-domestic service warranty association, AsureCare Corp. is subject to regulation as a specialty insurer under certain provisions of the Florida Insurance Code. Under applicable Florida law, no person can acquire, directly or indirectly, more than 10% of the voting securities of a service warranty association or its controlling company, including Goodman Global, Inc., without the written approval of the Florida Office of Insurance Regulation. Accordingly, any person who acquires, directly or indirectly, 10% or more of our common stock, must first file an application to acquire control of a specialty insurer or its controlling company, and obtain the prior written approval of the Florida Office of Insurance Regulation. The application must be filed with the Florida Office of Insurance Regulation no later than five days after any form of tender offer or exchange offer is proposed, or no later than five days after the acquisition of securities or ownership interest if no tender offer or exchange offer is involved.

The Florida Office of Insurance Regulation may disapprove an acquisition of beneficial ownership of 10% or more of our voting securities by any person who refuses to apply for and obtain regulatory approval of such acquisition. In addition, if the Florida Office of Insurance Regulation determines that any person has acquired 10% or more of our voting securities without complying with the applicable suitability provisions, it may order that person to cease the acquisition and divest itself of any shares of such voting securities which may have been acquired in violation of the applicable Florida law. The Florida Office of Insurance Regulation may also take disciplinary action against AsureCare Corp.’s license if it finds that an acquisition made in violation of the applicable Florida law would render the further transaction of its business hazardous to its customers, creditors, stockholders or the public.

ITEM 1A.

Risk Factors

You should carefully consider the risks described below as well as the other information contained in this annual report. Any of the following risks could materially adversely affect our business, financial condition or results of operations.

Our business has been, and may continue to be, adversely impacted by ~~the~~conditions ~~current recession~~ affecting the U.S. economy.

Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Throughout 2008 and 2009, the decline in economic activity in the United States affected, and may in the future materially affect, our business, financial condition and results of ~~operation~~operations. Sales in the residential and commercial new construction market correlate closely to the number of new homes and buildings that are built, which in turn is influenced by factors such as interest rates, inflation or deflation, consumers’ spending habits, employment rates and other macroeconomic factors over which we have no control. Declining economic activity as a result of these factors resulted in a reduction in new construction and replacement purchases, which has affected, and may continue to, affect, our sales volume and profitability. ~~The recession affecting the U.S. economy may materially adversely affect our business.~~

~~The~~12 ~~volatility and disruption of the capital and credit markets and adverse changes in the U.S. and global economy may negatively impact our ability to access financing and/or impede our internal growth.~~

The capital and credit markets have been experiencing extreme volatility and disruption at unprecedented levels. Significant declines in the housing market during the prior year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs have caused many financial institutions to seek government assistance, additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. These disruptions in the financial markets may not only impact our liquidity but that of our suppliers, our independent distributors and our customers. If these market disruptions continue, our financial position, results of operation and cash flows could be adversely affected.

Index to Financial Statements

The volatility and disruption of the capital and credit markets and adverse changes in the U.S. and global economy may negatively impact our ability, and the ability of our customers, to access financing and may impede our internal growth.

In late 2007, 2008 and early 2009, the capital and credit markets experienced volatility and disruption at unprecedented levels. Significant declines in the housing market during that period, coupled with falling home prices, increasing foreclosures and high levels of unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs have caused many financial institutions to seek government assistance and additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Many lenders and institutional investors have reduced, and in some cases ceased to provide, funding to borrowers, including other financial institutions. These disruptions in the financial markets may not only impact our liquidity but that of our suppliers, our independent distributors and our customers. If these market disruptions re-emerge, our business, financial condition, results of operations and cash flows could be adversely affected.

Changes in weather patterns and seasonal fluctuations may adversely affect our operating results.

Weather fluctuations may adversely affect our operating results and our ability to maintain our sales volume. Our operations may be adversely affected by unseasonably warm weather in the months of November to February and unseasonably cool weather in the months of May to August, which has the effect of diminishing customer demand for heating, ventilation and air conditioning systems and decreasing our sales volumes. Many of our operating expenses ~~are fixed and~~ cannot be easily reduced during periods of decreased demand for our products. Accordingly, our results of operations will be negatively impacted in quarters with lower sales due to such weather fluctuations. In addition, our sales volumes and operating results in certain regions can be negatively impacted during inclement weather conditions in these regions.

In addition, our quarterly results may vary significantly. Although there is demand for our products throughout the year, in each of the past three fiscal years ~~approximately~~ 57between 58% to 60% of our total sales occurred in the second and third quarters of the fiscal year. Our peak production also typically occurs in the second and the third quarters of the fiscal year. Therefore, quarterly comparisons of our sales and operating results should not be relied onupon as an indication of future performance, and the results of any quarterly period may not be indicative of expected results for a full year.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under ~~our~~such ~~senior secured credit facilities and our 2016 notes~~indebtedness.

We now have and will continue to have a significant amount of indebtedness for the foreseeable future. This indebtedness exposes us to risks that some of our primary competitors, with less outstanding indebtedness, do not face. On December 31, ~~2008~~2009, we had $1,~~372~~160.08 million of indebtedness, net of original issue discount of $17.2 million, (of which $~~500~~424.0 million consists of our 13.50%/14.00% senior subordinated notes due 2016, ~~our~~which ~~2016~~we refer to as the senior subordinated notes, and ~~the~~$754.0 ~~balance~~million consists of indebtedness under our senior secured credit facilities), excluding approximately $33.5 million of outstanding and undrawn letters of credit and up to $69266.15 million of additional indebtedness that may be borrowed under the terms and conditions of our revolving credit ~~agreement~~facility, of which $198.0 million was available under our borrowing base as of such date.

Our substantial indebtedness could have important consequences to our business, including:

• making it more difficult for us to satisfy our obligations with respect to our ~~2016~~outstanding notes and other indebtedness;

•

increasing our vulnerability to general adverse economic and industry conditions;

•

requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby limiting cash flow available to fund our working capital, capital expenditures or other general corporate requirements;

• exposing us to the risk of interest rate increases on our variable rate borrowings, including borrowings under ~~our~~Goodman ~~new~~Global, Inc.’s senior secured credit facilities;

•

limiting our flexibility in planning for, or reacting to, changes in our business and the industry;

•

placing us at a competitive disadvantage compared to our competitors that have less indebtedness; and

•13 ~~limiting our ability to obtain additional financing to fund future working capital, capital expenditures, other general corporate requirements and acquisitions.~~

Our cash interest expense in 2008 related to our 2016 notes, revolving credit agreement and term loan credit agreement was $118.7 million. At December 31, 2008, we had $500.0 million of outstanding 13.5%/14% senior subordinated notes due 2016, the 2016 notes, and owed $772.0 million and $100.0 million under our term loan credit agreement and revolving credit agreement, respectively. The term loan credit agreement has an interest rate of LIBOR (with a minimum of 3.25%) or Prime, plus applicable margin, based on certain leverage ratios, which was 4.25% and totaled 7.71% as of December 31, 2008. The revolving credit agreement has an interest rate of LIBOR or Prime, plus applicable margin, which totaled 4.25% as of December 31, 2008. An increase of 0.125% in the floating rates would have increased our annual interest expense by approximately $1.1 million in 2008.

Index to Financial Statements

•

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, other general corporate requirements and acquisitions.

Our cash interest expense in 2008 and 2009 related to our senior secured credit facilities and senior subordinated notes was $162.2 million (which includes refinancing costs of $35.6 million incurred in connection with the 2008 Acquisition) and $97.0 million, respectively. At December 31, 2009, we had $424.0 million of outstanding senior subordinated notes, owed $754.0 million under our term loan credit agreement, had approximately $33.5 million in outstanding letters of credit and had no borrowings under our revolving credit agreement. The term loan credit agreement has an interest rate of LIBOR (with a minimum of 3.25%) or Prime, plus an applicable margin, based on certain leverage ratios. As of December 31, 2009, the applicable margin was 3.0% and total interest rate, based on the Prime rate, was 6.25%. The revolving credit agreement has an interest rate of LIBOR or Prime, plus an applicable margin. As of December 31, 2009, the total interest rate, based on the Prime rate, was 4.25%. An increase of 0.125% in the floating interest rates would have increased our interest expense by approximately $0.9 million in the year ended December 31, 2009.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

~~Our~~The agreements governing our senior secured credit facilities and ~~the~~senior ~~indenture~~subordinated ~~governing our 2016~~ notes, contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and certain of our subsidiaries’ ability to, among other things:

• incur additional ~~indebtedness~~debt or issue certain ~~preferred~~capital ~~shares~~stock;

•

pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

•

make certain investments;

• sell ~~or transfer~~ assets;

•

create liens;

• consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; ~~and~~

• enter into certain transactions with our affiliates.; and

•

permit restrictions on the ability of our subsidiaries to make distributions.

In addition, under our revolving credit agreement, when (and for as long as) the combined availability under our revolving credit agreement is less than a specified amount for a certain period of time, or if a payment or bankruptcy event of default has occurred and is continuing, funds deposited into any of our depository accounts will be transferred on a daily basis into a blocked account with the administrative agent and applied to prepay loans under the revolving credit agreement and to cash collateralize letters of credit issued thereunder.

Under our senior secured credit facilities, we will also be required to satisfy and maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance that we will meet those ratios.

The failure to comply with any of these covenants would cause a default under our debt instruments. A default, if not waived, could result in acceleration of the outstanding indebtedness under such debt instruments, in which case such indebtedness would become immediately due and payable. In addition, a default or acceleration ~~of indebtedness~~ under our ~~2016~~senior ~~notes~~secured orcredit ~~our~~facilities or senior ~~secured credit~~subordinated ~~facilities~~notes could result in a default or acceleration of other indebtedness weas ~~may~~a ~~incur~~result ~~with~~of cross-default or cross-acceleration provisions. If any default occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be available on terms that are acceptable to us. Complying with these covenants may cause us to take actions that we otherwise would not take or not take actions that we otherwise would take.

Despite current indebtedness levels, we and our subsidiaries may incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. For example, as of December 31, ~~2008~~2009, we had ~~an additional~~ $69266.15 million of undrawn commitments under ~~the~~our ~~terms~~revolving credit ~~and~~facility ~~conditions~~ (of which $198.0 million was available under our ~~revolving~~borrowing ~~credit~~base ~~agreement~~as of such date) that, if drawn, would further increase our leverage. Under the terms of the indenture governing our ~~2016~~senior subordinated notes, we and the terms of our senior ~~subsidiaries~~secured credit facilities, we are permitted to incur additional indebtedness. If new debt is added to our and our subsidiaries’ current debt levels, the related risks of compliance with certain ratios and of our ability to service our debt obligations that we and they now face could intensify.

To14 ~~service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.~~

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance. This, to a certain extent, is subject to prevailing economic and competitive conditions and to certain financial, business, regulatory and other factors beyond our control. Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us under our revolving credit agreement in an amount sufficient to enable us to service our debt, including our 2016 notes, or to fund our other liquidity needs. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our debt, including our 2016 notes, or sell certain of our assets on or before the maturity of our debt. We may not be able to restructure or refinance any of our debt, including our 2016 notes, on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

In addition, if our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets or seek additional capital.

Index to Financial Statements

~~These~~To ~~alternative~~service ~~measures~~our ~~may not be available to us~~indebtedness, ~~may~~we ~~not~~will berequire ~~successful~~a ~~and~~significant ~~may~~amount ~~not~~of ~~permit us to meet our scheduled debt service obligations, which could result in substantial liquidity problems~~cash. Our ~~senior secured credit facilities and the indenture governing our 2016 notes restricts our~~ ability to ~~dispose of assets and use the proceeds from the disposition. We may not be able to consummate~~generate ~~those~~cash ~~dispositions~~depends oron tomany ~~obtain~~factors ~~the~~beyond ~~proceeds~~our ~~which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due~~control.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance. This, to a certain extent, is subject to prevailing economic and competitive conditions and to certain financial, business, regulatory and other factors beyond our control. Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us under our revolving credit agreement in an amount sufficient to enable us to service our debt, including the senior secured credit facilities and senior subordinated notes, or to fund our other liquidity needs. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our debt, including our senior secured credit facilities and senior subordinated notes, or sell certain of our assets on or before the maturity of our debt. We may not be able to restructure or refinance any of our debt on commercially reasonable terms, or at all, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

In addition, if our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets or seek additional capital. These alternative measures may not be available to us, may not be successful and may not permit us to meet our scheduled debt service obligations, which could result in substantial liquidity problems. Our senior secured credit facilities and senior subordinated notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

A substantial portion of our indebtedness is at a variable rate of interest, which could increase our interest expense in the event interest rates rise.

Certain of our indebtedness bears interest at rates that fluctuate with changes in certain prevailing interest rates. A 1% increase or decrease in the overall interest rate would have resulted in approximately a $86.79 million ($4.2 million, net of tax) increase or decrease in our interest expense in ~~2008~~the year ended December 31, 2009 on our variable rate indebtedness~~, respectively~~. If interest rates increase dramatically, we may be unable to meet our debt service obligations. We have entered into an interest rate cap with a notional amount of $150.0 million that matures in May 2010, an interest rate swap with a notional amount of $200.0 million which matures in March 2010 and an interest rate swap with a notional amount of $300.0 million which matures in March 2011. We are not under any obligation to maintain or renew such arrangements or to enter into additional arrangements, and any such arrangements may not be as effective as we expect in mitigating our exposure to interest rate fluctuations.

Any ~~future~~ determination that a significant impairment of the value of our intangible assets or long-lived assets has occurred could have a material adverse effect on our consolidated financial condition and results of operations.

As a result of the 2008 Acquisition, goodwill and other acquired intangible assets represent a substantial portion of our assets. Goodwill was approximately $1.4 billion and other identifiable intangible assets were $~~802~~782.32 million as of December 31, ~~2008~~2009. We also have long-lived assets consisting of property and equipment, net of depreciation, of $~~177~~169.79 million as of December 31, ~~2008~~2009. We review these assets both on a periodic basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. Any future determination that an impairment of the value of our goodwill, unamortized intangible assets or long-lived assets has occurred would require us to write-down the impaired portion of those assets to fair value, which would reduce our assets and stockholders’ equity and could have a material adverse effect on our ~~business~~financial condition and results of operations.

~~Increased~~If we fail to improve our existing products or develop new ~~competition~~products, ~~and~~or ~~technological~~our ~~changes~~competitors ~~and~~develop ~~advances~~products ~~may~~that ~~reduce~~are superior to ours, our ~~market~~competitiveness ~~share~~in the marketplace, financial condition, results of operations and ~~our~~cash ~~future~~flows ~~sales~~may be adversely affected.

~~The~~Product ~~production~~innovation and ~~sale~~new ~~of HVAC~~product ~~equipment~~development byare ~~manufacturers~~important ~~is highly competitive. According~~ to ~~industry~~maintaining ~~sources,~~ the ~~top~~competitive ~~five~~position ~~domestic manufacturers (including us) represented approximately 80%~~ of ~~the~~our ~~unit~~business ~~sales in the U.S. residential~~ and ~~light~~growing ~~commercial~~our ~~HVAC market in~~sales ~~2007.~~and ~~Our~~profit ~~four largest competitors in this market are Carrier Corporation (a division of United Technologies Corporation), Trane Inc~~margins. ~~(a wholly~~Company-~~owned~~sponsored ~~subsidiary~~research ofand ~~Ingersoll-Rand~~development ~~Company~~expenses ~~Limited),~~were ~~Lennox~~$11.2 ~~International~~million, ~~Inc~~$10.5 ~~and~~million ~~Rheem Manufacturing Company. Several of our competitors may have greater financial~~ and ~~other resources than we have~~$9.1 Amillion ~~number~~for ~~of factors affect competition in~~ the ~~HVAC~~years ~~industry,~~ended ~~including~~December ~~an increasing emphasis on the development of more efficient HVAC products. Existing and future competitive pressures may materially and adversely affect our business~~2009, ~~financial~~2008 condition or results of operations, including pricing pressure if our competitors improve their cost structure. In addition, our company-operated distribution centers face competition from independent distributors and ~~dealers owned by our competitors~~2007, ~~some of whom may be able to provide their products or services at lower prices than we can~~respectively. We ~~may~~intend ~~not~~to becontinue ~~able~~ to ~~compete~~conduct ~~successfully~~research ~~against current~~ and ~~future~~development activities ~~competition~~as ~~and~~a ~~current~~means ~~and~~of ~~future~~improving ~~competitive pressures faced by us may adversely affect our profitability and performance.~~ existing

~~There~~15 are several companies that have recently sought to purchase independent distributors and dealers and consolidate them into large enterprises. These consolidated enterprises may be able to exert pressure on us to reduce prices. Additionally, these new enterprises tend to emphasize their company name, rather than the brand of the manufacturer, in their promotional activities, which could lead to dilution of the importance and value of our brand names. Future price reductions and any brand dilution caused by the consolidation among HVAC distributors and dealers could have an adverse effect on our business, financial condition and results of operations.

Significant fluctuations in the cost of raw materials and components have, and may continue to, reduce our operating margins. In addition, a decline in our relationships with key suppliers may have an adverse effect on our business.

Our operations depend on the supply of various raw materials and components, including steel, copper, aluminum, refrigerants, motors and compressors, from domestic and foreign suppliers. We do not enter into long-term supply contracts for many of our raw materials and component requirements. However, our suppliers may

Index to Financial Statements

~~discontinue providing~~ products toand usdeveloping atnew ~~attractive~~products. ~~prices~~However, ~~and~~there wecan ~~may~~ be ~~unable~~no toassurance ~~obtain~~that ~~such~~we ~~products~~will inbe ~~the~~able ~~future~~to ~~from~~improve ~~these~~existing products or ~~other~~develop ~~providers~~new products on ~~the scale~~a cost-effective and ~~within~~timely ~~the~~basis ~~time~~or ~~frames~~at weall, that ~~require.~~such Ifproducts awill ~~key~~compete ~~supplier~~favorably ~~were~~with ~~unable~~products ordeveloped ~~unwilling~~by ~~to meet~~ our ~~supply requirements~~competitors, ~~we could experience supply interruptions and/~~or ~~cost~~that ~~increases~~our ~~which~~existing ~~(to~~technology ~~the~~will ~~extent that we are~~ not ~~able~~be tosuperseded ~~find~~by ~~alternate suppliers~~other ortechnological ~~pass~~developments ~~these~~that ~~additional~~may ~~costs~~be ~~onto~~utilized by our ~~customers)~~competitors. ~~could~~If ~~adversely~~we ~~affect~~fail ~~our~~to ~~results~~improve ofexisting products ~~operations~~ and/or ~~financial~~develop ~~condition.~~new Toproducts, ~~the~~or ~~extent any of~~ our ~~suppliers~~competitors ~~experiences~~develop aproducts ~~shortage~~that ofare ~~components~~superior ~~that~~to ~~we purchase~~ours, we ~~may~~could ~~not~~experience ~~receive shipments~~lower ofrevenues ~~those components~~ and,/or iflower weprofit ~~were~~margins, ~~unable~~which tocould ~~obtain~~have ~~substitute~~an ~~components~~adverse effect on ~~a timely basis,~~ our ~~production~~competitiveness ~~would be impaired. For example,~~ in the ~~second quarter of 2004 we experienced supply interruptions for steel~~marketplace, ~~copper and aluminum.~~ ~~Historically~~financial condition, ~~these~~results ~~supply~~of ~~interruptions~~operations ~~have resulted in periodic production disruptions~~ and ~~higher~~cash ~~transportation costs~~flows.

~~Between~~Increased ~~2004 and 2008~~competition, ~~commodity~~as ~~prices rose significantly to levels~~ well ~~above~~as ~~prices~~consolidation ~~seen~~among ~~in the prior decade. To help address the rise in commodity costs, we implemented price increases in 2006 and 2008 on the majority of our products. Although commodity~~independent ~~prices have moderated~~distributors, ~~a further increase in commodity prices could have a material adverse effect on our results of operations. We~~ may ~~not be able to further increase the price of our products or~~ reduce our ~~costs~~market toshare ~~offset~~and ~~the higher commodity prices. In addition,~~ our ~~efforts~~future ~~to mitigate rising raw materials costs could adversely affect our results of operations if commodity prices were to unexpectedly decline~~sales.

WeThe ~~are~~production ~~subject~~and tosale ~~price~~of ~~risk~~HVAC asequipment itby manufacturers ~~relates~~is tohighly ~~our~~competitive. ~~principal~~According ~~raw~~to ~~materials:~~industry ~~copper~~sources, ~~aluminum~~the ~~and~~top ~~steel.~~six ~~Cost~~domestic ~~variability~~manufacturers of(including ~~raw~~us) ~~materials~~represented ~~can~~approximately ~~have~~90% aof ~~material~~the ~~impact~~unit onsales ~~our~~in ~~results~~the ~~of operations~~U.S. Toresidential ~~enhance~~and ~~stability~~light commercial HVAC market in ~~the~~ ~~cost~~2008. ofOur ~~major~~four ~~raw~~largest competitors ~~material~~in ~~commodities,~~this ~~such~~market asare ~~copper~~Carrier ~~and~~Corporation ~~aluminum~~(a ~~used~~division inof ~~the~~United ~~manufacturing~~Technologies ~~process~~Corporation), weTrane ~~have~~Inc. ~~entered~~(a ~~and~~wholly-owned ~~may~~subsidiary ~~continue~~of toIngersoll-Rand ~~enter~~Company ~~into~~Limited), ~~commodity~~Lennox ~~derivative~~International, ~~arrangements~~Inc. ~~Maturity~~and ~~dates~~Rheem Manufacturing Company. Several of ~~the~~our competitors ~~contracts~~may ~~are~~have ~~scheduled~~greater tofinancial ~~coincide with~~and ~~market~~other ~~purchases~~resources ofthan ~~the~~we ~~commodity~~have. ~~Cash~~A ~~proceeds~~number orof ~~payments~~factors ~~between~~affect competition in the ~~derivative~~HVAC ~~counter-party~~industry, ~~and~~including usan atincreasing ~~maturity~~emphasis ofon the ~~contracts~~development ~~are~~of ~~recognized~~more asefficient anHVAC ~~adjustment~~products. toExisting ~~the~~and ~~cost~~future competitive ofpressures ~~the~~may ~~commodity~~materially ~~purchased,~~and toadversely ~~the~~affect ~~extent~~our ~~the~~business, ~~hedge~~financial iscondition ~~effective. Charges~~ or ~~credits~~results ~~resulting~~of ~~from~~operations, ~~ineffective~~including ~~hedges~~pricing ~~are~~pressure ~~recognized~~if inour ~~income~~competitors ~~immediately.~~improve Wetheir ~~generally~~cost dostructure. ~~not~~In ~~enter~~addition, ~~commodity~~our ~~hedges~~company-operated ~~extending~~distribution ~~beyond~~centers face ~~eighteen~~competition ~~months.~~from Weindependent ~~have~~distributors ~~entered~~and ~~into~~dealers ~~swaps~~owned ~~for~~by aour ~~portion~~competitors, some of ~~our~~whom ~~commodity~~may ~~supply~~be ~~which~~able ~~expire~~to ~~by December 31,~~provide ~~2009.~~their Aproducts ~~10%~~or ~~change~~services inat ~~the~~lower ~~price~~prices ofthan ~~commodities~~we ~~hedged~~can. ~~would~~We ~~change~~may ~~the~~not ~~fair~~be ~~value~~able ofto ~~the~~compete ~~hedge~~successfully ~~contracts~~against bycurrent ~~approximately~~and ~~$12.9~~future competition ~~million~~and current and ~~$10.3~~future ~~million~~competitive aspressures offaced ~~December 31,~~by ~~2008~~us ~~and~~may ~~December 31,~~adversely ~~2007,~~affect ~~respectively~~our profitability and performance.

There are several companies that have recently sought to purchase, or have purchased, independent distributors and dealers and consolidate them into large enterprises. These consolidated enterprises may be able to exert pressure on us to reduce prices. Additionally, these new enterprises tend to emphasize their company name, rather than the brand of the manufacturer, in their promotional activities, which could lead to dilution of the importance and value of our brand names. Future price reductions and any brand dilution caused by the consolidation among HVAC distributors and dealers could have an adverse effect on our business, financial condition and results of operations.

Significant fluctuations in the cost of raw materials and components have reduced, and may continue to reduce, our operating margins. In addition, a decline in our relationships with key suppliers may have an adverse effect on our business, financial condition or results of operations.

Our operations depend on the supply of various raw materials and components, including copper, aluminum, steel, refrigerants, motors and compressors, from domestic and foreign suppliers. We do not enter into long-term supply contracts for many of our raw materials and component requirements. However, our suppliers may discontinue providing products to us at attractive prices, and we may be unable to obtain such products in the future from these or other providers on the scale and within the time frames we require. If a key supplier were unable or unwilling to meet our supply requirements, we could experience supply interruptions and cost increases which (to the extent that we are not able to find alternate suppliers or pass these additional costs onto our customers) could adversely affect our business, financial condition or results of operations. To the extent any of our suppliers experiences a shortage of components that we purchase, we may not receive shipments of those components and, if we were unable to obtain substitute components on a timely basis, our production would be impaired.

Between 2004 and 2008, commodity prices rose significantly to levels well above prices seen in the prior decade. To help address the rise in commodity costs, we implemented price increases in 2006 and 2008 on the majority of our products. Although commodity prices have moderated, a further increase in commodity prices could have a material adverse effect on our results of operations. We may not be able to increase the prices of our products further or reduce our costs to offset the higher commodity prices. In addition, our efforts to mitigate rising raw materials costs could adversely affect our results of operations if commodity prices were to unexpectedly decline.

Index to Financial Statements

recognized as an adjustment to the cost of the commodity purchased, to the extent the hedge is effective. Charges or credits resulting from ineffective hedges are recognized in income immediately. A 10% change in the price of commodities hedged would change the fair value of the hedge contracts by approximately $12.9 million and $8.8 million as of December 31, 2008 and 2009, respectively.

We continue to monitor and evaluate the prices of our principal raw materials and may decide to enter into additional hedging contracts in the future.

A decline in our relations with our key distributors may adversely affect our business.

Our operations also depend upon our ability to maintain our ~~relations~~relationships with our independent distributors. While we generally enter into contracts with our independent distributors, these contracts typically last for ~~one to~~ two years and can be terminated by either party upon 30 days’ notice. If our key distributors are unwilling to continue to sell our products or if our key distributors merge with or are purchased by a competitor, we could experience a decline in sales. If we are unable to replace such distributors or otherwise replace the resulting loss of sales, our business and results of operations could be adversely affected. For ~~the~~ ~~year~~2008 ~~ended~~and ~~December 31~~2009, ~~2008,~~ approximately 3845% and 43%, respectively, of our net sales were made through our independent distributors.

Damage or injury caused by our products could result in material liabilities associated with product recalls or reworks.

In the event we produce a product that is alleged to contain a design or manufacturing defect, we could be required to incur costs involved to recall or rework that product. InThe ~~September~~costs ~~2004,~~required weto ~~initiated a voluntary~~recall ~~corrective action plan,~~ or ~~“CAP,”~~rework ~~regarding~~any adefective ~~discontinued~~products ~~design~~could ofbe ~~certain Amana®~~material, ~~Trane®~~which ~~and~~may ~~American~~have ~~Standard®~~a ~~brand~~material ~~PTAC~~adverse ~~units~~effect ~~manufactured~~on ~~by one of~~ our ~~subsidiaries~~business. AAny ~~PTAC~~recalls is a single unit heating and air conditioning system used primarily in hotel and motel rooms, apartments, schools, assisted living facilities and hospitals. Under the CAP, we agreed to provide a new thermal limit switch to commercial and institutional PTAC owners. Installation of these switches will be at the commercial or ~~institutional~~reworks ~~owners’~~may ~~expense,~~adversely ~~except~~affect ~~in special~~our ~~and~~reputation ~~limited~~as ~~circumstances (e.g., financial hardship). Pursuant to the CAP, we agreed to pay the cost of installing the replacement switch for any individual homeowner having~~ a ~~PTAC~~manufacturer ~~unit in his/her residence. We have established a reserve relating to the CAP in an amount that we believe is appropriate, which amounted to $2.6 million as~~ of ~~December 31~~quality, ~~2004,~~safe ~~the year in which the CAP was implemented. The costs required to recall or rework any defective~~ products and could ~~be material, which may~~ have a material adverse effect on our ~~business.~~results Inof ~~addition,~~operations. ~~our~~

Index to Financial Statements

reputation for safety and quality is essential to maintaining our market share. Any recalls or reworks may adversely affect our reputation as a manufacturer of quality, safe products and could have a material adverse effect on our results of operations.

We may incur material costs as a result of product liability or warranty claims that would negatively affect our profitability.

The development, manufacture, sale and use of our products involve a risk of product liability and warranty claims, including personal injury and property damage arising from fire, soot, mold and carbon monoxide. We currently carry insurance and maintain reserves for potential product liability claims. However, our insurance coverage may be inadequate if such claims do arise and any liability not covered by insurance could have a material adverse effect on our business. To date, we have been able to obtain insurance in amounts we believe to be appropriate to cover such liability. However, our insurance premiums may increase in the future as a consequence of conditions in the insurance business generally or our situation in particular. Any such increase could result in lower profits or cause the need to reduce our insurance coverage. ~~In addition, a future claim may be brought against us which would have a material adverse effect on us.~~ Any product liability claim may also include the imposition of punitive damages, the award of which, pursuant to certain state laws, may not be covered by insurance. Our product liability insurance policies have limits that if exceeded, may result in material costs that would have an adverse effect on our future profitability. In addition, warranty claims are not covered by our product liability insurance. Any product liability or warranty issues may adversely affect our reputation as a manufacturer of safe, quality products and could have a material adverse effect on our business.

Our financial results or liquidity may be adversely impacted by higher than expected tax rates, or exposure to additional income tax liabilities ~~and the adoption of new accounting pronouncements regarding income tax accounting~~.

Our effective tax rate is highly dependent upon the geographic composition of our earnings and tax regulations governing each region. We are subject to income taxes in multiple jurisdictions within the United States and Canada, and significant judgment is required to determine our tax liabilities. Our effective tax rate as well as the actual tax ultimately payable could be adversely affected by changes in the split of earnings between jurisdictions with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws or by material audit assessments, which could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate future taxable income in the United States. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability.

We adopted the provisions of Financial Accounting Standards Board ~~Interpretation No. 48 Accounting for Uncertainty in Income Taxes~~ (~~FIN 48~~FASB)~~, an~~ ~~interpretation~~accounting ofstandards ~~FASB Statement No. 109 (SFAS 109)~~that, onamong other ~~January 1~~things, ~~2007.~~require Ascompanies ato ~~result~~recognize of the ~~implementation~~tax benefits of ~~FIN~~uncertain ~~48,~~positions weonly ~~recognized~~when anthe ~~adjustment~~position inis ~~the~~“more ~~liability~~likely ~~for~~than ~~unrecognized~~not” ~~income~~to ~~tax~~be ~~benefits~~sustained ofassuming ~~$1.1~~examination ~~million,~~by ~~which~~tax ~~was~~authorities. ~~accounted for~~The asamount arecognized ~~reduction~~represents to the ~~January 1,~~largest amount ~~2007~~of ~~balance~~tax ofbenefit ~~retained~~that ~~earnings.~~is Inmore ~~addition,~~likely atthan ~~January 1,~~not ~~2007~~to webe ~~reclassified~~ultimately ~~$18~~realized.2 ~~million~~A ~~from~~liability ~~deferred~~is ~~taxes~~recognized tofor ~~other~~any ~~long-term~~benefit ~~liabilities. At December 31~~claimed, ~~2008,~~or weexpected ~~had~~to ~~$43.2~~be ~~million of unrecognized tax benefits~~claimed, ofin ~~which~~a ~~$3.4~~tax ~~million~~return ~~would~~in ~~impact~~excess of the ~~effective~~benefit ~~tax~~recorded ~~rate~~in atthe ~~recognition.~~ financial

~~The~~17 ~~cost of complying with laws relating to the protection of the environment and worker safety may be significant.~~

We are subject to extensive, evolving and often increasingly stringent international, federal, state, provincial, municipal and local laws and regulations such as those relating to the protection of human health and the environment, including those limiting the discharge of pollutants into the environment and those regulating the treatment, storage, disposal and remediation of, and exposure to, solid and hazardous wastes and hazardous materials, as well as plaintiffs’ suits seeking to use these laws or common law tort or contractual theories. Certain environmental laws and regulations impose strict joint and several liability on potentially responsible parties, including past and present owners and operators of sites, to clean up, or contribute to the cost of cleaning up sites at which hazardous wastes or materials were disposed or released. We are currently, and may in the future be, required to incur costs relating to the investigation or remediation of such sites, including sites where we have, or may have, disposed of our waste. See Item 1, “Business—Regulation.”

Index to Financial Statements

We statements, ~~believe~~along ~~that~~with weany ~~are~~interest inand ~~substantial~~penalty ~~compliance~~(if ~~with~~ applicable) ~~environmental~~on ~~laws~~the ~~and~~excess. ~~regulations~~At December 31, ~~many of~~2009, ~~which~~we ~~provide~~had ~~for~~established ~~substantial~~a ~~fines~~$53.6 ~~and~~million ~~criminal~~liability ~~sanctions~~in ~~for~~respect ~~violations.~~of ~~Nonetheless,~~such weunrecognized ~~expect~~tax benefits, toof ~~incur~~which ~~expenses~~$4.4 tomillion ~~maintain~~would ~~such~~impact ~~compliance~~the ~~and~~effective ittax israte ~~possible~~at ~~that~~recognition. ~~more~~We ~~stringent~~may ~~environmental~~be ~~laws~~required ~~and~~to ~~regulations,~~make ~~more~~cash ~~vigorous~~payments ~~enforcement or~~in arespect ~~new interpretation~~ of ~~existing~~taxes ~~laws~~ (and ~~regulations~~interest ~~could~~thereon) ~~require~~in usrespect toof ~~incur~~such ~~additional~~unrecognized ~~costs~~tax ~~and penalties~~benefit. ~~Further,~~While ~~existing~~we ordo ~~future~~not ~~circumstances,~~expect any such payments asto ~~the~~have ~~discovery~~a ofmaterial ~~new~~impact oron ~~materially~~our ~~different~~results ~~environmental~~of ~~conditions,~~operations ~~could~~due ~~cause us~~ to ~~incur~~the ~~additional~~liability ~~costs~~we ~~that~~have ~~could~~already ~~have~~recognized, aany ~~material~~such ~~adverse~~payments ~~effect~~could onimpact our ~~business,~~liquidity ~~financial~~at ~~condition~~the ortime ~~results~~they ofare ~~operations~~made.

~~We are~~The ~~also~~costs ~~subject~~of tocomplying ~~various laws and regulations relating to health and safety. In October 2004~~with, we reached an agreement with the Occupational Safety and Health Administration (OSHA) to resolve certain matters identified during an OSHA inspection at our Houston Furnace and Cooling plants. We did not admit any violations of the Occupational Safety and Health Act or ~~OSHA~~addressing ~~standards,~~liabilities ~~but we did agree~~under, ~~among~~laws ~~other~~relating ~~things,~~ to ~~address~~the ~~certain~~protection ~~issues identified by OSHA during its inspection and to pay OSHA a penalty~~ of ~~$277,000. We have paid~~ the ~~penalty~~environment and are currently conducting certain actions required by this settlement, including the installation of certain machine guarding. We expect to make capital expenditures at these and other facilities to improve worker health and safety. ~~Expenditures~~may ~~at these and any other facilities to assure compliance with OSHA standards could~~ be significant~~, and we may become subject to additional liabilities relating to our facilities in the future~~. ~~In addition, future inspections at these or other facilities may result in additional actions by OSHA.~~

~~Our~~We ~~products~~ are ~~also~~ subject to extensive, evolving and often stringent international, federal, state, provincial, municipal and local laws and regulations. Werelating ~~are~~to ~~required~~the protection of human health and the environment, including those limiting the discharge of pollutants into the environment and those regulating the treatment, storage, disposal and remediation of, and exposure to, ~~maintain~~solid and ~~our~~hazardous ~~products~~wastes inand ~~compliance~~hazardous ~~with~~materials. ~~applicable~~Certain ~~current~~environmental laws and regulations impose strict, joint and ~~any~~several ~~changes~~liability on potentially responsible parties, including past and present owners and operators of sites, to clean up, or contribute to the cost of cleaning up, sites at which ~~affect~~hazardous ~~our~~wastes ~~current~~or materials were disposed or released. We are currently, and may in the future ~~products~~be, required to incur costs relating to the investigation or remediation of such sites, or sites ~~could~~owned ~~have~~or aoperated ~~negative~~by ~~impact~~third onparties ~~our~~where ~~business~~we ~~and~~have, ~~could~~or ~~result~~may inhave, ~~additional~~disposed ~~compliance~~of ~~costs~~our waste. See “Business—Regulation.”

~~Effective~~We ~~January 23,~~believe ~~2006,~~that ~~U.S. federal~~we ~~regulations~~are ~~mandated an increase~~ in ~~the~~material ~~minimum~~compliance ~~SEER~~with ~~from~~applicable 10environmental tolaws ~~13 for central air conditioners~~ and ~~heat pumps manufactured in the United States. On November 19~~regulations, ~~2007,~~many ~~the U.S. Department~~ of ~~Energy~~which ~~issued~~provide ~~new~~for ~~regulations~~substantial ~~increasing~~fines ~~the minimum~~or ~~annual~~civil ~~fuel utilization efficiency,~~ or ~~AFUE,~~criminal sanctions for ~~several types of residential furnaces~~violations. ~~These~~We ~~regulations~~incur ~~apply~~expenses to ~~furnaces~~maintain ~~manufactured~~such ~~for~~compliance ~~sale~~and it inis ~~the~~possible ~~U.S.~~that ormore ~~imported~~stringent ~~into~~environmental ~~the~~laws ~~U.S., on~~ and ~~after November 19~~regulations, ~~2015.~~more ~~On December 19,~~vigorous ~~2007,~~enforcement ~~federal~~or ~~legislation~~a ~~was~~new ~~enacted~~interpretation ~~authorizing the U.S. Department~~ of ~~Energy~~existing tolaws ~~study~~and ~~the~~regulations ~~establishment~~could ofrequire ~~regional~~us ~~efficiency~~to ~~standards~~incur ~~for~~additional ~~furnaces~~costs and ~~air conditioners~~penalties. WeFurther, ~~anticipate~~existing ~~that~~or ~~the U.S. Department of Energy will~~future ~~consider~~circumstances, ~~establishing~~such ~~regional~~as ~~standards~~the ~~for~~discovery ~~heating~~of ~~and~~new ~~air~~or ~~conditioners~~materially ~~during~~different ~~future~~environmental ~~rulemaking.~~conditions, Wecould ~~have~~cause ~~established processes that we believe will allow~~ us to ~~offer~~incur ~~products~~unanticipated costs that ~~meet~~could orhave ~~exceed~~a ~~new~~material ~~standards~~adverse ineffect ~~advance~~on ~~of implementation. The required efficiency levels for~~ our ~~products~~business, ~~may~~financial becondition ~~further increased in the future by the relevant regulatory authorities. Any future changes in required efficiency levels~~ or ~~other~~results ~~government~~of ~~regulations could adversely affect our industry and our business~~operations.

We are also ~~currently~~subject ~~use~~to avarious ~~refrigerant~~laws ~~that~~and ~~the~~regulations ~~EPA~~relating isto inhealth ~~the~~and ~~process~~safety ofand ~~phasing~~expect ~~out.~~to ~~See~~continue ~~Item 1,~~to make capital ~~“Business—Regulation.”~~expenditures Toat ~~the~~our ~~extent~~facilities ~~that~~to ~~our~~improve ~~competitors~~worker ~~are~~health ~~not~~and ~~subject~~safety. Expenditures at our facilities to ~~EPA~~maintain ~~regulations~~compliance with the Occupational Safety and Health Administration, or ~~continue~~OSHA, standards could be significant, and we may become subject to liabilities ~~use~~relating ~~such~~to ~~refrigerants~~worker ~~following~~health ~~completion~~and ofsafety at our facilities in the ~~EPA~~future. ~~phase-out~~In addition, wefuture inspections at our facilities may ~~suffer~~result ain ~~competitive~~enforcement ~~disadvantage~~actions by OSHA.

Our products are also subject to international, federal, state, provincial and local laws and regulations. We are required to maintain our products in compliance with applicable current laws and regulations, and any changes which affect our current or future products could have a negative impact on our business and could result in additional compliance costs. For example, effective January 23, 2006, U.S. federal regulations mandated an increase in the minimum or SEER from 10 to 13 for central air conditioners and heat pumps manufactured in the United States. On November 19, 2007, the U.S. Department of Energy, or DOE, issued new regulations increasing the minimum annual fuel utilization efficiency, or AFUE, for several types of residential furnaces. These regulations apply to furnaces manufactured for sale in the U.S. or imported into the United States on and after November 19, 2015. On December 19, 2007, federal legislation was enacted authorizing the DOE to study the establishment of regional efficiency standards for furnaces and air conditioners. We anticipate that the DOE will consider establishing regional standards for heating and air conditioners during future rulemaking. We believe our products are on track to meet or exceed these new standards in advance of implementation. The required efficiency levels for our products may be further increased in the future by the relevant regulatory authorities. Any future changes in required efficiency levels or other government regulations could adversely affect our industry and our business.

Labor disputes with our employees could interrupt our operations and adversely affect our business.

We ~~are~~negotiated a ~~party~~three toyear a collective bargaining agreement with the International Association of Machinists and Aerospace Workers, ~~and~~or ~~Affiliates~~the union, that was ratified by the union membership on December 5, as2009. As of December 31, ~~2008~~2009, the union represented approximately 2420% of our employees., ~~This~~and this agreement covers all hourly employees at our manufacturing facility in Fayetteville, Tennessee ~~and is scheduled to expire in December 2009~~. If we are unable to successfully negotiate acceptable terms with ~~this~~the union when the current agreement expires, our operating costs could increase as a result of higher wages or benefits paid to union members, or if we fail to reach an agreement with the union, our operations could be disrupted. Either event could have a material adverse effect on our business. In addition, there have been in the past, and may be in the future, attempts to unionize our non-union facilities. If employees at our non-union facilities unionize in the future, our operating costs could increase.

~~Our~~18 ~~business operations could be significantly disrupted if we lose members of our management team.~~

Index to Financial Statements

~~longstanding~~Our ~~relationships~~business ~~and~~operations ~~adversely~~could ~~affect~~be ~~our~~significantly ~~business.~~disrupted Weif ~~have~~we ~~employment-related~~lose ~~agreements with 12~~ members of our ~~senior~~ management. ~~Our future performance will be substantially dependent on our ability to retain and motivate our management~~team. ~~The loss of the services of any of our executive officers or key employees could prevent us from executing our business strategy.~~

Our success depends to a significant degree upon the continued contributions of our executive officers and key employees, both individually and as a group. For example, we have longstanding relationships with most of our independent distributors. In many cases, these relationships have been formed over a period of years through personal networks involving our key personnel. The loss of these personnel could potentially disrupt these longstanding relationships and adversely affect our business. We have employment-related agreements with 11 members of our senior management. Our future performance will be substantially dependent on our ability to retain and motivate our management. The loss of the services of any of our executive officers or key employees could prevent us from executing our business strategy.

We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities.

We are a manufacturing company that is heavily dependent on our manufacturing and distribution facilities in order to maintain our business and remain competitive. Any serious disruption to a significant portion of our distribution or manufacturing facilities resulting from fire, earthquake, weather-related events, an act of terrorism or any other cause could materially impair our ability to manufacture and distribute our products to customers. Moreover, we could incur significantly higher costs and longer lead times associated with manufacturing or distributing our products to our customers during the time that it takes for us to reopen or replace damaged facilities. Many of our facilities are located at or near Houston, Texas, which is in close proximity to the Gulf of Mexico. This region is particularly susceptible to natural disruptions, as evidenced by ~~recent~~ hurricane activity in prior years. If any of these events were to occur, our financial condition, results of operations and cash flows could be materially adversely affected.

If we are unable to access funds generated by our subsidiaries we may not be able to meet our financial obligations.

Because we conduct our operations through our subsidiaries, we depend on those entities for dividends, distributions and other payments to generate the funds necessary to meet our financial obligations. Legal and contractual restrictions in certain agreements governing current and future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries. All of our subsidiaries are separate and independent legal entities and have no obligation whatsoever to pay any dividends, distributions or other payments to us.

Our business operations could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.

Our products are marketed primarily under the Goodman^®, Amana^® and Quietflex^® brand names and, as such, we are dependent on those brand names. Failure to protect these brand names and other intellectual property rights or prevent their unauthorized use by third parties could adversely affect our business. We seek to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing and confidentiality agreements. These protections may not be adequate to prevent competitors from copying or reverse engineering our products, or from developing and marketing products that are substantially equivalent to or superior to our own. In addition, we face the risk of claims that we are infringing third parties’ intellectual property rights. Any such claim, even if it is without merit, could be expensive and time-consuming; could cause us to cease making, using or selling certain products that incorporate the disputed intellectual property; could require us to redesign our products, if feasible; could divert management time and attention; and could require us to enter into costly royalty or licensing arrangements.

The interests of our controlling stockholder may differ from the interests of the holders of ~~the~~our ~~notes~~outstanding debt.

As of ~~February~~ December 2831, 2009, Hellman & Friedman LLC (H&F) and its affiliates owned, in the aggregate, approximately 87% of Parent’s common stock and Parent indirectly owns all of our common stock. In addition, H&F and its affiliates, by virtue of their ownership of our Parent’s common stock and their voting rights under a stockholders agreement, control the vote, in connection with substantially all matters subject to Parent stockholder approval. As a result of this ownership and the terms of a stockholders agreement, H&F is entitled to elect directors with majority voting power inon our Parent’s Board of Directors, to appoint new management and to approve actions requiring the approval of the holders of our Parent’s outstanding voting shares as a single class, including adopting most amendments to our certificate of incorporation and approving mergers or sales of all or substantially all of our Parent’s assets. H&F, through its control of Parent and us, also controls all of our ~~subsidiary~~subsidiaries ~~guarantors~~that guarantee our debt.

~~The~~19 interests of H&F and its affiliates may differ from yours in material respects. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of H&F and its affiliates,

Index to Financial Statements

The interests of H&F and its affiliates may differ from yours in material respects. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of H&F and its affiliates, as equity holders, might conflict with interests of a note holder. H&F and its affiliates may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investments, even though such transactions might involve risks to a note holder, including the incurrence of additional indebtedness. Additionally, ~~the indenture~~certain agreements governing our ~~2016~~debt ~~notes~~permit ~~permits~~ us to pay certain advisory fees, dividends or make other restricted payments under certain circumstances, and H&F may have an interest in our doing so.

H&F and its affiliates are in the business of making investments in companies and may, from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. You should consider that the interests of H&F and its affiliates may differ from yours in material respects.

The requirements of publicly filing periodic and other reports in compliance with the federal securities laws may strain our resources and distract management.

Under Section 404 of the Sarbanes-Oxley Act, we ~~will~~are becurrently required to include a report of management on our internal control over financial reporting in our Annual Reports on Form 10-K,. ~~and~~Our ~~our~~ independent public accountants auditing our financial statements will be required to attest to and report on management’s assessment of the effectiveness of our internal control over financial reporting. ~~This~~beginning ~~requirement~~with ~~will first apply to~~ our Annual Report on Form 10-K for our fiscal year ending December 31, 2010. However, we elected to voluntarily comply for the fiscal year ending December 31, 2009. Previously, in connection with our 2006 year-end close, it was determined that some of our predecessor’s commodity derivatives did not qualify for hedge accounting and, as a result, we restated the prior quarters of 2006 to reflect the changes in fair value of those derivatives in other (income) expense, net, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not then effective for this reason. If we are unable to conclude that our disclosure controls and procedures and internal control over financial reporting are effective, or if our independent public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting in future years, the trading price of our ~~2016~~senior subordinated notes may decline.

We may lose the right to use the Amana® brand name which may have an adverse effect on our business.

Under an agreement between the Amana Society and Amana Refrigeration, Inc., Amana Refrigeration, Inc. agreed that it would discontinue the use of the Amana® brand name in its corporate name or in connection with any other business enterprise if it were ever to abandon manufacturing operations in Amana, Iowa. Maytag Corporation purchased the Amana appliance business in July 2001 and now controls the manufacturing operations in Amana, Iowa. Subsequently, Maytag was acquired by Whirlpool Corporation in March 2006. We maintained the right to use the Amana name and trademark under a license agreement with Maytag. The trademark license agreement expires in July, 2011, with renewal terms available for a total of an additional 15 years. Prior to a cessation of such operation or following a decision by Maytag to not maintain trademark registrations for the Amana name, Maytag has agreed to consult with us and provide reasonable assistance to us so that we may register the Amana name as a trademark. However, we have no control over Maytag’s decision to continue operations at that facility, and if such operations are discontinued, it is possible that we could lose the right to use the Amana name in connection with our business, which could have a material adverse effect on our business.

ITEM 1B.

Unresolved Staff Comments

None.

~~ITEM~~20 ~~2. Properties~~

As of December 31, 2008, we owned three manufacturing facilities, one manufacturing/distribution facility, one research and development facility and eight Company-operated distribution facilities. We also leased four manufacturing and assembly facilities, one distribution facility, 148 Company-operated distribution facilities and the space for our corporate headquarters. From time to time, we also lease temporary warehouse space when required due to manufacturing cycles. We believe that our facilities are suitable for their present and intended purposes and are adequate for our current and expected level of operations. We do not anticipate any significant difficulties in renewing or relocating our leased facilities as our leases expire.

Index to Financial Statements

ITEM 2.

Properties

As of December 31, 2009, we owned three manufacturing facilities, one manufacturing/distribution facility, one research and development facility and seven company-operated distribution facilities. We also leased four manufacturing and assembly facilities, one distribution facility, 157 company-operated distribution facilities and the space for our corporate headquarters. From time to time, we also lease temporary warehouse space when required due to manufacturing cycles. We believe that our facilities are suitable for their present and intended purposes and are adequate for our current and expected level of operations. We do not anticipate any significant difficulties in renewing or relocating our leased facilities as our leases expire.

Our headquarters and material operating, manufacturing and distribution facilities are shown in the following table:

Location	Use	Owned/~~Leased~~leased		Approximatesquare footage	~~ApproximateSquare Footage~~
Houston, TX	Split Systems	Owned		525,103	~~518,000~~
Houston, TX	Flexible Duct, Fiberglass Insulation and Mat Materials	Owned		390,000	~~400,000~~
Houston, TX	Heating and Air Handler Products	Owned		225,295	~~230,000~~
Houston, TX	Research and Development	Owned		156,703	~~142,907~~
Houston, TX	Corporate Headquarters	Leased(1)	~~(1)~~	61,000	~~61,000~~
Houston, TX	Logistics Center	Leased(2)	~~(2)~~	969,843	~~969,843~~
Fayetteville, TN	Furnaces, Package Units, PTAC, Split Systems and Logistics Center	Owned		779,620	~~780,000~~
Dayton, TN	Air Handlers / Coils	Leased(3)	~~(3)~~	188,585	~~159,000~~

(1)	Our lease expires in September 2014.

(2) Our Logistics Center is leased under three leases. ~~Two~~All of our Logistics Center leases ~~covering 700,039 square feet~~ will expire in ~~September~~February ~~2014 and a third lease covering an additional 269,804 will expire in May 2015~~2016.

(3)	Our lease expires December 2010. We have an option to purchase the facility upon the expiration of the lease for $206,400.

ITEM 3.

Legal Proceedings

In addition to the matters described below, from time to time we are involved in various routine legal proceedings. These primarily involve commercial claims, product liability claims, environmental claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations.

OnAs ~~October 26,~~part ~~2007, a putative class action was filed on behalf~~ of ~~all~~the ~~similarly~~equity ~~situated~~contribution ~~stockholders~~associated ofwith ~~Goodman Global, Inc. in~~ the Harris County District Court, Houston, Texas, styled Call4U, Ltd. v. Carroll, Case Number 2007-66888. A similar case, styled Pipefitters Local No. 636 Defined Benefit Plan vs. Goodman Global, Inc., was later filed and thensale ~~consolidated~~of ~~with~~ the ~~Call~~Amana ~~4U,~~Appliance ~~Ltd.~~business ~~case.~~in ~~The~~July ~~lawsuits named as defendants Goodman Global~~2001, ~~Inc.,~~we ~~all~~agreed ofto ~~its~~indemnify ~~directors~~Maytag ~~and Hellman & Friedman, and asserted claims~~ for ~~breach~~certain ofpotential ~~fiduciary~~product ~~duty~~liability ~~against the directors and aiding and abetting such breaches against Hellman & Friedman~~claims. ~~The~~In ~~plaintiffs~~light ~~sought an injunction restraining the closing~~ of ~~the~~these ~~merger~~potential liabilities, ~~reimbursement~~we ofhave ~~associated~~purchased ~~attorneys’~~insurance ~~and~~that ~~experts’~~we ~~fees~~expect ~~and~~will ~~other~~shield ~~relief~~us ~~that~~from ~~the~~incurring ~~court deems proper. On~~material ~~January 4,~~costs ~~2008~~associated ~~Goodman~~with ~~Global,~~such ~~Inc.~~potential ~~entered into a memorandum of understanding setting out an agreement in principal to settle all~~ claims ~~in the litigation, which settlement is subject to certain conditions precedent, including court approval~~. As ~~of December 31, 2008, the matter is still pending.~~

AsPursuant ~~part~~to ofa ~~the~~March 15, ~~equity~~2001 ~~contribution~~Consent ~~associated~~Order with the ~~sale~~Florida Department of Environmental Protection (FDEP), our subsidiary, Goodman Distribution Southeast, Inc. (formerly Pioneer Metals Inc.), or GDI Southeast, is continuing to investigate and pursue, under FDEP oversight, the ~~Amana~~delineation of groundwater contamination at ~~Appliance~~and ~~business~~around the GDI Southeast facility in ~~July~~Fort ~~2001~~Pierce, weFlorida. ~~agreed~~Remediation is expected to ~~indemnify~~begin ~~Maytag~~in ~~for~~2010. ~~certain~~The ~~product~~contamination ~~liability~~was ~~and~~discovered through environmental ~~claims.~~assessments Inconducted ~~light~~in ofconnection ~~these~~with ~~potential~~a ~~liabilities,~~Company wesubsidiary’s ~~have~~acquisition ~~purchased~~of ~~insurance~~the Fort ~~that~~Pierce wefacility ~~expect~~in ~~will~~2000 ~~shield~~and uswas ~~from~~reported ~~incurring~~to ~~material~~FDEP, ~~costs due~~giving rise to ~~such~~the ~~potential~~Consent ~~claims~~Order.

~~Pursuant~~The toultimate acost ~~March 15,~~for ~~2001 Consent Order with~~ the ~~Florida Department of Environmental Protection~~ ~~(FDEP)~~investigation, ~~our~~remediation ~~subsidiary,~~and ~~Goodman~~monitoring ~~Distribution~~of ~~Southeast,~~the ~~Inc.~~site ~~(GDI~~cannot ~~Southeast)~~be ~~(formerly~~predicted ~~Pioneer~~with ~~Metals~~certainty ~~Inc.)~~due ~~is continuing~~ to ~~investigate~~the ~~and~~variables ~~pursue,~~relating ~~under~~to ~~FDEP oversight,~~ the ~~delineation of groundwater~~ contamination at and ~~around~~ the ~~GDI~~appropriate ~~Southeast facility~~remediation ~~in Fort Pierce~~methodology, ~~Florida.~~the ~~Remediation~~evolving ~~has~~nature ~~not~~of ~~begun.~~remediation ~~The~~technologies ~~contamination~~and ~~was~~governmental regulations ~~discovered~~and ~~through~~the ~~environmental~~inability ~~assessments~~to ~~conducted~~determine inthe ~~connection~~extent ~~with~~to ~~our~~which ~~subsidiary’s~~contribution ~~acquisition~~will ofbe ~~the~~available ~~Fort~~from ~~Pierce~~other ~~facility~~parties. inAll ~~2000~~of ~~and~~these ~~was~~factors ~~reported~~are ~~to FDEP,~~taken ~~giving~~into ~~rise~~account to the ~~Consent~~extent ~~Order~~possible in estimating potential liability.

~~The~~Based ~~ultimate~~on ~~cost~~analyses ~~for~~of ~~the~~currently ~~investigation~~available information, ~~remediation~~it ~~and~~is ~~monitoring~~probable ofthat the ~~site~~proposed ~~cannot~~infrastructure ~~be predicted~~and ~~with~~startup ~~certainty~~costs ~~due~~associated towith the site ~~variables~~will ~~relating~~be toapproximately ~~the~~$0.5 ~~contamination~~million. ~~and~~We ~~the~~reserved ~~appropriate~~approximately ~~remediation~~$0.5 ~~methodology,~~million ~~the~~ as

2021

Index to Financial Statements

~~evolving nature~~ of ~~remediation~~December 31, ~~technologies~~2009, ~~and~~although ~~governmental~~it ~~regulations~~is ~~and~~possible that the ~~inability~~ultimate tocosts ~~determine~~could ~~the~~exceed ~~extent~~this toamount ~~which~~by ~~contribution~~up ~~will~~to beapproximately ~~available from~~$3.3 ~~other parties~~million. ~~All~~Costs of ~~these~~future ~~factors~~expenditures are ~~taken~~not ~~into~~discounted ~~account~~ to ~~the~~their present ~~extent~~value. ~~possible~~Management inbelieves ~~estimating~~any liability arising from potential ~~liability.~~environmental Aobligations ~~reserve~~is ~~appropriate~~not ~~for~~likely ~~the~~to ~~probable~~have ~~remediation~~a ~~costs,~~material ~~which~~adverse ~~are~~effect ~~reasonably~~on ~~susceptible~~our toliquidity ~~estimation,~~or ~~has~~financial ~~been~~position ~~established~~as such obligations could be satisfied over a period of years. Nevertheless, future developments could require changes in the recorded reserve amount.

~~Based~~We onbelieve ~~analyses~~this ofcontamination predated ~~currently~~GDI ~~available~~Southeast’s ~~information,~~involvement ~~it is probable that costs associated~~ with the ~~site~~Fort ~~will~~Pierce befacility ~~$0.5~~and ~~million.~~GDI WeSoutheast’s ~~reserved approximately~~operation ~~$0.5~~at ~~million~~this aslocation ofhas ~~December 31,~~not ~~2008~~caused inor ~~accordance~~contributed ~~with~~to ~~SFAS~~the 5,contamination. ~~Accounting for Contingencies~~Accordingly, ~~although~~we itare ispursuing ~~possible~~litigation ~~that~~against ~~costs~~a ~~could~~former ~~exceed~~owner ~~this~~and ~~amount by up to approximately $3.0 million. Management believes any~~a ~~liability~~former ~~arising~~lessee ~~from~~of ~~potential~~the ~~environmental~~Fort ~~obligations~~Pierce isfacility ~~not~~in ~~likely~~an attempt to ~~have~~recover ~~a material adverse effect on~~ our ~~liquidity~~costs. orAt ~~financial~~this ~~position as such obligations could be satisfied over a period of years. Nevertheless~~time, ~~future~~we ~~developments~~cannot ~~could require~~estimate ~~material~~probable ~~changes~~recoveries infrom ~~the~~this ~~recorded reserve amount~~litigation.

We ~~believe~~are ~~this~~party ~~contamination~~to ~~predated~~a ~~GDI~~number ~~Southeast’s~~of ~~involvement~~other ~~with~~pending ~~the Fort~~legal ~~Pierce~~and ~~facility~~administrative proceedings and ~~GDI~~are ~~Southeast’s~~subject ~~operation~~to atvarious ~~this~~regulatory ~~location~~and ~~has~~compliance obligations. We believe that these proceedings and obligations will not have ~~caused~~a material adverse effect on our consolidated financial condition, cash flows or ~~contributed~~results toof operations. To the ~~contamination.~~extent ~~Accordingly~~required, we ~~are~~have ~~pursuing~~established ~~litigation~~reserves ~~against~~that ~~former~~we ~~owners~~believe ofto ~~the~~be ~~Fort~~adequate ~~Pierce~~based ~~facility~~on current evaluations and our experience in these types of matters. Nevertheless, an ~~attempt~~unexpected tooutcome ~~recover~~in any such proceeding could have a material adverse impact on our ~~costs.~~ Atconsolidated ~~this~~results ~~time~~of operations in the period in which it occurs. Moreover, wefuture ~~cannot~~adverse ~~estimate~~developments ~~probable~~could ~~recoveries~~require material ~~from~~changes ~~this~~in ~~litigation~~the recorded reserve amounts.

We are party to a number of other pending legal and administrative proceedings and are subject to various regulatory and compliance obligations. We believe that these proceedings and obligations will not have a materially adverse effect on our consolidated financial condition, cash flows or results of operations. To the extent required, we have established reserves that we believe to be adequate based on current evaluations and our experience in these types of matters. Nevertheless, an unexpected outcome in any such proceeding could have a material adverse impact on our consolidated results of operations in the period in which it occurs. Moreover, future adverse developments could require material changes in the recorded reserve amounts.

ITEM 4.

Submission of Matters to a Vote of Security Holders

None

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market ~~Price~~price for ~~Common~~common ~~Stock~~stock and ~~Holders~~holders

All of our outstanding common stock is owned by Chill Intermediate Holdings, Inc. As a result, there is no established public market for our common stock. Investment funds affiliated with Hellman & Friedman LLC control a majority of the common stock of Goodman Global Group, Inc, which owns all the outstanding stock of Chill Intermediate Holdings, Inc.

Dividends

WeIn ~~have~~December ~~not declared~~2009, orwe paid ~~any~~a ~~dividends~~special dividend of $115.0 million on our common stock. Our senior secured credit facilities and the ~~indentures~~indenture governing our ~~2016~~senior subordinated notes generally limit our ability to declare or pay dividends. For more detailed information on our senior secured credit facilities and the ~~indentures~~indenture governing our ~~2016~~senior subordinated notes, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, ~~Capital~~capital ~~Resources~~resources and ~~Off~~off-~~Balance~~balance ~~Sheet~~sheet ~~Arrangements~~arrangements” and notes to our consolidated financial statements.

~~Equity~~22 ~~Compensation Plan Information~~

The following table provides information as of December 31, 2008 with respect to the shares of our Parent’s common stock that could have been issued under the Chill Holdings, Inc. 2008 Stock Incentive Plan (the “2008 Plan”) and option rollover agreements as in effect on December 31, 2008.

Index to Financial Statements

Plan Category	Number ofSecurities to beIssued Upon Exerciseof OutstandingOptions, Warrantsand Rights (1)	WeightedAverage ExercisePrice ofOutstandingOptions, Warrantsand Rights (1)		Number of SecuritiesRemaining AvailableFor Future IssuanceUnder EquityCompensation Plan
Equity compensation plans approved by security holders	6,222,111	$	9.82	350,411
Equity compensation plans not approved by security holders (2)	—		—	—
Total	6,222,111	$	9.82	350,411

Equity compensation plan information

~~(1)~~The ~~All~~following ~~outstanding~~table ~~options~~provides ~~were~~information ~~granted~~as ~~under~~of ~~the~~December 31, ~~2008~~2009 ~~Plan,~~with ~~except~~respect ~~for~~to ~~138,849~~the ~~rollover~~shares ~~options~~of ~~which~~our ~~remain~~Parent’s ~~subject~~common tostock ~~the~~that ~~terms~~could have ~~and~~been ~~conditions~~issued ofunder the ~~Goodman~~Chill ~~Global~~Holdings, Inc. ~~2004~~2008 Stock ~~Option~~Incentive Plan (the “2008 Plan”) and option rollover agreements as in effect on December 31, 2009.

(2) As of December 31, 2008, neither we nor our Parent had any equity compensation plans that were not approved by our stockholders.


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)	Weighted average exercise price of outstanding options, warrants and rights (1)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	6,429,111	$	9.83	143,411
Equity compensation plans not approved by security holders (2)	—		—	—


Total	6,429,111	$	9.83	143,411

(1)	All outstanding options were granted under the 2008 Plan, except for 138,849 rollover options which remain subject to the terms and conditions of the Goodman Global, Inc. 2004 Stock Option Plan (Predecessor plan).

(2)	As of December 31, 2009, neither we nor our Parent had any equity compensation plans that were not approved by our stockholders.

ITEM 6.

Selected Financial Data

The following table presents our selected consolidated financial data. The following selected consolidated financial data should be read in conjunction with, and is qualified by reference to, our Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements ~~and our 2016 notes thereto~~ included elsewhere in this annual report, as well as other financial information included elsewhere in this annual report. Risks ~~and~~ and uncertainties described in ~~“Item~~the ~~1A.~~ “Risk Factors” ofcontained in this report may cause the selected financial data below not to be indicative of our future financial condition or results of operations.

The consolidated statement of operations data for the ~~years~~year ended December 31, ~~2006~~2009, ~~and~~the ~~2007~~period February 14, 2008 to December 31, 2008, the period January 1, 2008 to February 13, 2008 and the ~~period~~year ~~February 14~~ended to December 31, ~~2008~~2007 and the consolidated balance sheet data as of December 31, ~~2007~~2009 and 2008 have been derived from the audited consolidated financial statements included elsewhere in this annual report and have been prepared in accordance with accounting principles generally accepted in the United States, which we refer to throughout this annual report as “GAAP.” The consolidated statement of operations data for the years ended December 31, ~~2004~~2006 and 2005 and the consolidated balance sheet data as of December 31, ~~2004~~2007, ~~2005~~2006 and ~~2006~~2005 have been derived from ~~the~~ consolidated financial statements that are not included in this annual report.

2223

Index to Financial Statements

	Predecessor														Successor						~~Successor~~
	January 1 toDecember 22,2004			December23 toDecember 31,2004			Year Ended December 31,										January 1 toFebruary 13,2008				February 14 toDecember 31,2008
	Years ended December 31,									January 1 toFebruary 13,2008					February 14toDecember 31,2008				Year endedDecember 31,2009
	2005			2006			~~2005~~2007			~~2006~~			~~2007~~
Consolidated statement of income data:
	(In thousands)
Sales, net(1)	$	1,297,295		$	20,285		$	1,565,406		$	1,794,753		$	1,935,690			$	147,137			$	1,730,229
Consolidated statement of income data:
Cost of goods sold		1,005,955			18,471			1,243,408			1,374,774			1,462,776				115,714				1,319,113
Sales, net (1)	$	1,565,406		$	1,794,753		$	1,935,690		$	147,137				$	1,730,229			$	1,851,186
Selling, general and administrative expenses		212,890			7,661			170,077			205,894			210,613				65,616				187,144
Cost of goods sold		1,243,408			1,374,774			1,462,776			115,714					1,319,113				1,290,747
Depreciation and amortization expense		18,101			786			37,717			32,641			35,119				3,835				44,913
Selling, general and administrative expenses		170,077			205,894			210,613			65,616					187,144				236,231
Operating profit		60,349			(6,633	)		114,204			181,444			227,182				(38,028	)			179,059
Depreciation and amortization expense		37,717			32,641			35,119			3,835					44,913				48,435
Interest expense, net		10,877			1,601			74,213			77,825			68,378				56,176				135,616
Operating profit		114,204			181,444			227,182			(38,028	)				179,059				275,773
Other (income) expense, net		(1,406	)		—			(706	)		5,264			(2,752	)			(347	)			1,554
Interest expense, net		74,213			77,825			68,378			56,176					135,616				134,767
Earnings before income taxes		50,878			(8,234	)		40,697			98,355			161,556				(93,857	)			41,889
Other (income) expense, net		(706	)		5,264			(2,752	)		(347	)				1,554				(19,642	)
Provision for (benefit from) income taxes		(1,481	)		(3,568	)		15,817			34,188			60,177				(27,815	)			15,593
Earnings before income taxes		40,697			98,355			161,556			(93,857	)				41,889				160,648
Net income	$	52,359		$	(4,666	)	$	24,880		$	64,167		$	101,379			$	(66,042	)		$	26,296
Provision for (benefit from) income taxes		15,817			34,188			60,177			(27,815	)				15,593				58,870
Statement of cash flows data:
Net income	$	24,880		$	64,167		$	101,379		$	(66,042	)			$	26,296			$	101,778
Net cash (used in) provided by operating activities	$	(20,998	)	$	2,440		$	105,519		$	53,724		$	204,217			$	(42,689	)		$	184,059
Statement of cash flows data:
Net cash used in investing activities		(26,136	)		(1,451,486	)		(24,957	)		(39,343	)		(14,181	)			(3,508	)			(1,963,561	)
Net cash (used in) provided by operating activities	$	105,519		$	53,724		$	204,217		$	(42,689	)			$	184,059			$	207,705
Net cash provided by (used in) financing activities		49,686			1,444,991			(60,639	)		(26,591	)		(182,650	)			36,671				1,914,191
Net cash used in investing activities		(24,957	)		(39,343	)		(14,181	)		(3,508	)				(1,963,561	)			(20,200	)
Other financial data:
Net cash provided by (used in) financing activities		(60,639	)		(26,591	)		(182,650	)		36,671					1,914,191				(291,944	)
Capital expenditures		27,772			—			28,806			39,383			26,416				3,409				18,203
Other financial data:
Ratio of earnings to fixed charges(2)		5.0	x		—	(3)		1.5	x		2.2	x		3.2	x			—	(3)			1.3	x
Capital expenditures		28,806			39,383			26,416			3,409					18,203				20,209
Cash dividends		—			—			—			—					—				115,000
Ratio of earnings to fixed charges (2)		1.5x			2.2x			3.2x			—	(3)				1.3x				2.1x

	Year ended December 31,
	Predecessor								Successor
	2004		2005		2006		2007			2008
	As of December 31,
	(in thousands)
	2005		2006		2007				2008			2009
Consolidated balance sheet data (at period end):
	(In thousands)
Cash and cash equivalents	$	3,856	$	23,779	$	11,569	$	18,955		$	144,118
Consolidated balance sheet data (at period end):
Total assets		1,544,595		1,621,537		1,623,971		1,567,617			3,075,745
Cash and cash equivalents	$	23,779	$	11,569	$	18,955			$	144,118		$	39,679
Total debt		1.024,135		961,375		838,050		655,425			1,347,526
Total assets		1,621,537		1,623,971		1,567,617				3,075,745			2,979,523
Redeemable preferred stock		225,000		225,570		—		—			—
Total debt		961,375		838,050		655,425				1,347,526			1,160,790
Shareholders’ equity		102,719		107,815		521,085		622,106			1,262,297
Redeemable preferred stock		225,570		—		—				—			—
Shareholders’ equity		107,815		521,085		622,106				1,262,297			1,315,518

(1) Sales are presented net of certain rebates paid to customers. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to consolidated financial statements appearing elsewhere in this annual report.

(2)

For purposes of calculating the ratio of earnings to fixed charges, “earnings” represents income before taxes less capitalized interest, plus amortization of capitalized interest and fixed charges. “Fixed charges” include interest expense (including amortization of debt issuance costs), capitalized interest, and the portion of operating rental expense which management believes is representative of the interest component of rent expense.

(3) For the period ~~December 23 to December 31, 2004, earnings were not adequate to cover fixed charges by $8.2 million and for the period~~ January 1 to February 13, 2008, earnings were not adequate to cover fixed charges by $93.9 million.

2324

Index to Financial Statements

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

WeGoodman ~~participate~~is ina ~~the~~leading domestic manufacturer of heating, ventilation and air conditioning, or HVAC, ~~industry~~products for residential and light commercial use. WeSince we began to manufacture HVAC equipment in 1982, we believe that we ~~are~~have grown our share of the ~~second~~residential ~~largest~~HVAC ~~domestic~~market ~~manufacturer~~to now become one of the country’s largest residential HVAC manufacturers, based on unit sales. Our activities include engineering, manufacturing, distributing, and marketing ~~light~~an ~~commercial~~extensive ~~heating~~line of HVAC equipment and ~~air~~related ~~conditioning~~products. Our products are predominantly marketed under the Goodman®, Amana® and Quietflex® brand names. We believe the Goodman brand is the single largest domestic residential HVAC brand, based on unit sales, inand ~~2008~~caters to the large segment of the market that is price sensitive and desires reliable and low-cost climate comfort, while our premium Amana brand includes advanced features, quieter operation and enhanced warranties. The Quietflex brand is a recognized brand of flexible duct. Founded in 1975 as a manufacturer of flexible duct, we expanded into the broader HVAC manufacturing market in 1982. Since then, we have expanded our product offerings and maintained our core competency of manufacturing high-quality products at low costs. Our growth and success can be attributed to our strategy of providing a quality, competitively priced product that we believe is designed to be reliable and easy-to-install.

~~Acquisition~~Goodman byGlobal, ~~Chill~~Inc. was incorporated under the laws of Delaware in 2004. On December 23, 2004, Apollo Management, L.P., or Apollo, through its affiliate, Frio Holdings LLC, acquired our business from Goodman Global Holdings, Inc., a Texas corporation, and ~~Related~~following ~~Events~~a reorganization, we operated as Goodman Global, Inc.

On ~~October~~April 2111, ~~2007~~2006, ~~Chill Holdings, Inc. (Parent), Chill Acquisition, Inc., a subsidiary of Parent (Merger Sub), and~~ Goodman Global, Inc. ~~entered~~completed ~~into~~ an ~~agreement~~initial ~~and~~public ~~plan~~offering of ~~merger~~its (the Merger Agreement) pursuant to which Merger Sub merged with and into Goodman Global, Inc. on February 13, 2008. We refer to these transactions as the 2008 Acquisition. Merger Sub was incorporated on October 15, 2007 for the purpose of acquiring Goodman Global, Inc. and did not have any operations prior to February 13, 2008 other than in connection with the Goodman acquisition. Parent is controlled by investment funds affiliated with Hellman & Friedman LLC, and other stockholders include investment funds affiliated with GSO Capital Partners L.P., Farallon Capital Partners L.P., and AlpInvest Partners N.V., along with certain other investors that GSO syndicated their investments to, as well as certain members of management. In connection with the 2008 Acquisition, our common stock ~~was deregistered and our subsidiary’s senior subordinated 7-7/8% notes due 2012 and its senior floating rates notes due 2012 were repurchased and redeemed, and Goodman Global, Inc~~. issued $500.0 million aggregate principal amount of 13.5%/14.0% senior subordinated notes due 2016. When we refer to the Transactions, we are referring to the foregoing and not our IPO or the 2004 Transactions as defined below.

~~The~~On ~~merger~~February 13, ~~was~~2008, ~~accounted~~Chill ~~for~~Acquisition, ~~under~~Inc., a Delaware corporation formed in October 2007, merged with and into Goodman Global, Inc., with Goodman Global, Inc. as the ~~purchase~~surviving ~~method~~corporation, now an indirect subsidiary of ~~accounting~~Goodman Global Group, Inc. ~~Accordingly~~(formerly Chill Holdings, ~~the results~~Inc.), or Parent, a Delaware corporation formed October 2007 by affiliates of ~~operations~~Hellman & Friedman ~~will~~LLC. beWe ~~included~~refer into this as the ~~consolidated~~“2008 ~~financial~~Acquisition.” ~~statements~~We ~~from~~refer to Goodman Global, Inc. prior to the ~~acquisition~~2008 ~~date~~Acquisition ~~and~~as ~~are~~“Predecessor” ~~not~~and ~~reflected~~subsequent into ~~our~~the ~~2007~~2008 ~~consolidated~~Acquisition ~~financial~~as ~~statements~~“Successor.” ~~The~~In ~~purchase~~connection ~~price~~with the 2008 Acquisition, the common stock of Goodman Global, Inc. was ~~allocated~~deregistered toand ~~the~~its ~~acquired~~senior ~~assets~~subordinated notes and ~~liabilities assumed~~senior atfloating ~~their~~rates ~~estimated~~notes ~~fair~~were ~~market~~redeemed. ~~value~~In ~~considering~~addition, aGoodman ~~number~~Global, ofInc. ~~factors~~issued $500.0 ~~The~~million ~~excess~~aggregate principal amount of 13.50%/14.00% senior subordinated notes due 2016, or the ~~cost~~senior ofsubordinated notes. Also in connection with the ~~acquisition~~2008 ~~over~~Acquisition, we entered into senior secured credit facilities consisting of a term loan agreement with a six-year maturity, or the “term ~~fair~~loan ~~value~~agreement,” under which we borrowed an aggregate of $800.0 million in term loans, and a revolving credit agreement with a five year maturity, or the ~~net~~“revolving ~~assets~~credit ~~acquired~~agreement,” iswhich ~~recorded~~provided asfor ~~goodwill~~revolving credit loans of up to $300.0 million, subject to borrowing base availability. The ~~increase~~merger inwas ~~basis~~accounted for under the purchase method of accounting. The purchase price was allocated to the acquired assets ~~will~~and ~~result~~liabilities inassumed at their estimated fair ~~non-cash~~market ~~charges~~value inconsidering ~~future~~a ~~periods,~~number ~~principally~~of ~~related~~factors. toThe excess of the ~~step-up~~cost inof the acquisition over the fair value of ~~property,~~the ~~plant~~net ~~and~~assets ~~equipment~~acquired ~~and~~was ~~intangible~~recorded ~~assets~~as goodwill.

~~IPO~~Effective December 7, 2009, we amended our term loan agreement and revolving credit agreement to permit a one-time dividend payable to our stockholder in an aggregate amount of $115.0 million. We incurred a fee of $3.0 million to our lenders in satisfaction of a condition to effectiveness of the amendments. We paid the dividend on December 16, 2009.

On ~~April~~December 11, ~~2006~~2009, ~~Goodman~~Parent ~~Global,~~completed ~~Inc~~a private placement of $586.0 ~~completed~~million ~~the~~in ~~initial~~aggregate ~~public~~principal ~~offering~~amount at maturity of its ~~common~~11.5% ~~stock~~Senior Discount Notes due 2014 with gross proceeds of approximately $320 million. The senior discount notes are obligations of the Parent. The senior discount notes are not guaranteed by Goodman Global, Inc. ~~offered~~ ~~20.9 million~~and ~~shares~~its subsidiaries and ~~selling~~are ~~shareholders~~effectively ~~sold~~subordinated anin ~~additional~~right ~~6.1 million~~of ~~shares,~~payment ~~which~~to ~~included~~all ~~3.5 million~~of ~~shares~~our ~~sold~~existing byand ~~selling~~future indebtedness ~~shareholders~~and ~~pursuant~~other toliabilities, including the ~~exercise~~indebtedness ofand ~~the~~other ~~underwriters’~~obligations ~~over-allotment~~under ~~option. Before~~our ~~expenses~~credit wefacilities ~~received~~and ~~proceeds~~outstanding ofsenior ~~approximately~~subordinated ~~$354~~notes.5 ~~million.~~Parent ~~These~~does ~~proceeds~~not ~~were~~generate ~~used~~operating tocash ~~redeem~~and ~~all~~in ofthe ~~our~~event ~~outstanding~~that ~~Series~~a Afuture ~~Preferred~~dividend ~~Stock~~is ~~including~~required to ~~associated~~satisfy ~~accrued~~Parent’s ~~dividends~~obligations under the senior discount notes, the senior secured credit facilities and the indenture governing our senor subordinated notes generally limit our ability to ~~satisfy~~declare aor ~~$16~~pay dividends.0 ~~million~~Parent ~~fee~~used ~~resulting~~the ~~from~~net ~~the~~proceeds ~~termination~~ of ~~our~~the ~~management~~senior ~~agreement~~discount notes along with ~~Apollo~~the ~~Management,~~dividend ~~L.P.,~~that orit ~~Apollo,~~received ~~and~~from us to ~~redeem~~pay ~~$70.7~~a ~~million~~dividend ofto its shareholders and an equitable distribution to our ~~subsidiary’s~~option ~~floating~~holders ~~rate~~as ~~notes~~required by our stock incentive plan.

2004 Transactions

On December 23, 2004, we were acquired by affiliates of Apollo Management, L.P., our senior management and certain trusts associated with members of the Goodman family. We refer to these transactions as the 2004 Transactions. In connection with the 2004 Transactions, the seller sold all of its equity interest in its subsidiaries as well as substantially all of its assets and liabilities for $1,477.5 million plus a working capital adjustment of $29.8 million. The 2004 Transactions were financed with the net proceeds of a private offering of senior unsecured notes, borrowings under our senior secured credit facilities and $477.5 million of equity contributions by affiliates of Apollo, the Goodman family trusts and certain members of senior management, which consisted of $225.0 million of our Series A Preferred Stock and $252.5 million of our common stock. As part of the equity contribution, the Goodman family trusts and members of senior management invested approximately $101.0 million and $18.2 million, respectively. In exchange for the equity contribution, affiliates of Apollo, the Goodman family trusts and certain members of our senior management received a combination of our common stock and our Series A Preferred Stock.

Index to Financial Statements

The 2004 Transactions were recorded as of December 23, 2004, in accordance with Statement of Financial Accounting Standard, or SFAS, No. 141, Business Combinations, and Emerging Issues Task Force, or EITF, 88-16, Basis in Leveraged Buyout Transactions. As such, the acquired assets and assumed liabilities were recorded at fair value for the interests acquired and estimates of assumed liabilities by the new investors and at the carrying basis for continuing investors. The acquired assets and assumed liabilities were assigned new book values in the same proportion as the residual interests of the continuing investors and the new interests acquired by the new investors. Under EITF 88-16, we revalued the net assets at the acquisition date to the extent of the new investors’ ownership of 79%. The remaining 21% ownership was accounted for at the continuing investors’ carrying basis. An adjustment of $144.6 million to record this effect was included as a reduction of shareholders’ equity. The excess of the purchase price over the historical basis of the net assets acquired was applied to adjust net assets to their fair market values to the extent of the new investors’ 79% ownership, with the remainder of $391.3 million allocated to goodwill. The increase in basis of the assets will result in non-cash charges in future periods, principally related to the step-up in the value of property, plant and equipment and intangible assets.

Markets and Sales Channels

We manufacture and market an extensive line of heating, ventilation and air conditioning products for the residential and light commercial markets primarily in the United States and Canada. These products include split-system air conditioners and heat pumps, gas furnaces, package units, air handlers, package terminal air conditioners, evaporator coils and accessories. Essentially all of our products are manufactured and assembled at facilities in Texas, Tennessee, Florida, Pennsylvania and Arizona and are distributed through approximately 900 distribution points across North America.

Our customer relationships include independent distributors, installing contractors or “dealers,” national homebuilders and other national accounts. We sell to dealers primarily through our network of independent distributors and company-operated distribution centers. We sell to some of our independent distribution channel under inventory consignment arrangements. We focus the majority of our marketing on dealers who install residential and light commercial HVAC products. We believe that the dealer is the key participant in a homeowner’s purchasing decision as the dealer is the primary contact for the end user. Given the strategic importance of the dealer, we remain committed to enhancing profitability for this segment of the supply chain while allowing our distributors to achieve their own profit goals. We believe the ongoing focus on the dealer creates loyalty and mutually beneficial relationships between distributors, dealers and us.

Weather, Seasonality and Business Mix

Although there is demand for our products throughout the year, in each of the past three years approximately 57% to 60% of our total sales occurred in the second and third quarters of the fiscal year. Our peak production also typically occurs in the second and third quarters of the fiscal year. However, given the unprecedented dislocations and disruptions in the global credit markets, and the recession currently affecting the U.S. economy, these historical seasonal trends may not be reliable predicators of our sales in 2009.

We believe approximately 20% to 25% of our sales have historically been associated with residential new construction, with the balance attributable to repair, retrofitting and replacement units. With the current downturn in residential new construction activity, we are seeing a decline in the volume of products we sell into this market.

Index to Financial Statements

Markets and sales channels

Weather and seasonality and business mix

We believe approximately 15% to 20% of our sales during 2009 were associated with residential new construction, with the balance attributable to repair, retrofitting and replacement units. With the current downturn in residential new construction activity, we are seeing a decline in the volume of products we sell into this market.

Costs

The principal elements of cost of goods sold in our manufacturing operations are component parts, raw materials, factory overhead, labor, transportation costs and warranty. The principal component parts, which, depending on the product, can approach up to 41% of our cost of goods sold, are compressors and motors. We ~~believe~~purchase ~~that~~most weof ~~have~~our ~~good~~components, ~~relationships~~such ~~with~~as ~~quality~~compressors, ~~component~~motors, capacitors, valves and control systems, from third-party suppliers. ~~The~~In ~~principal~~order ~~raw~~to ~~materials~~maintain ~~used~~low ininput costs, we also manufacture select components when it is deemed cost effective. We also manufacture heat transfer surfaces and heat exchangers for our ~~processes~~units. Our primary raw materials are ~~steel~~copper, ~~copper~~aluminum and ~~aluminum.~~steel, Inall ~~total,~~of which we purchase from third parties. We spent approximately $264.7 million in 2009 and approximately $300.0 million in each of 2008 and 2007 on these raw materials. ~~and~~Cost ~~their~~variability ~~cost~~of ~~variability~~raw materials can have a material impact on our results of operations. In order to enhance raw material price stability, we monitor principal raw material prices and strategically enter into commodity forward contracts and hedges for the purchase of certain raw materials. Shipping and handling costs associated with sales are recorded at the time of the sale. Warranty expense, which is also recorded at the time of sale, is estimated based on historical trends such as incident rates, replacement costs and other factors. Weand ~~believe~~equaled ~~our~~3.6% ~~warranty~~and ~~expense, which equaled~~ 2.7% of our net sales in 2009 and 2008, ~~is less than or equal to the industry average~~respectively.

In 2008, our cost of goods sold reflects a short-term increase as a result of the purchase accounting treatment of the step-up in basis of inventory as a result of the 2008 Acquisition. As a result of the adjustment to our asset basis, the cost of goods sold of ~~our~~Successor ~~successor company~~ was increased by $48.0 million in the first quarter and second quarters of 2008.

Our selling, general and administrative expenses consist of costs incurred to support our marketing, distribution, engineering, information systems, human resources, finance, purchasing, risk management, legal and tax functions. We have historically operated at relatively low levels of selling, general and administrative expense as a percentage of sales compared to other large industry participants. Savings from this lean overhead structure allow us to offer an attractive value proposition to our distributors and support our low-priced philosophy throughout the distribution system. In ~~2006, our selling, general and administrative expenses were negatively impacted by $16.1 million of transaction costs related to our April 2006 initial public offering. In~~ 2008, ~~our predecessor company~~Predecessor’s selling, general and administrative expenses were negatively affected by approximately $42.9 million of expenses related to the ~~Transactions~~2008 Acquisition.

Depreciation expense is primarily impacted by capital expenditure levels. Under the rules of purchase accounting, in February 2008 we adjusted the value of our assets and liabilities to their respective estimated fair values, to the extent of the new investors’ ownership, with any excess of the purchase price over the fair market value of the net assets acquired allocated to goodwill. As a result of the adjustment to our asset basis, our depreciation and amortization expenses increased.

Interest expense, net consists of interest expense, interest income and gains or losses on the related interest rate derivative instruments. In addition, interest expense includes the amortization of the financing costs associated with the Transaction. In 2008, our predecessor company’s net interest expense included a $49.8 million charge related to the Transaction and the related extinguishment of our predecessor outstanding debt.

Other income, net consists of gains and losses on the disposals of assets, ineffectiveness related to hedge accounting of our commodity swaps, and miscellaneous income or expenses.

Employees

We utilize a combination of full-time, hourly and temporary workers in our manufacturing facilities. The number of people working in these facilities varies based on the level of production. We believe there is an adequate pool of temporary workers near our significant manufacturing facilities to address peak production periods.

As of December 31, 2008, approximately 1,063 employees were members of a collective bargaining unit, representing approximately 24% of our full-time employees. The collective bargaining agreement expires in December 2009. We believe we have good relations with our employees.

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Many of the estimates require us to make significant judgments and assumptions. Actual results could differ from our estimates and could have a significant impact on our consolidated results of operations, financial position and cash flows. We consider the estimates used to account for warranty liabilities, self-insurance reserves and contingencies, rebates, income taxes and the impairment of long-lived assets and goodwill as our most significant judgments.

Index to Financial Statements

WeDepreciation ~~base~~expense ~~many~~is ofprimarily ~~our~~impacted ~~assumptions~~by oncapital ~~our~~expenditure ~~historical~~levels. ~~experience~~Under the rules of purchase accounting, ~~recent~~in ~~trends~~February ~~and~~2008 ~~forecasts.~~we Weadjusted ~~develop~~the ~~our forecasts~~value ~~based~~of ~~upon~~our ~~current~~assets and ~~historical~~liabilities ~~operating~~to ~~performance~~their respective estimated fair values, ~~expected~~to ~~industry~~the ~~and~~extent ~~market~~of ~~trends~~the new investors’ ownership, ~~and~~with ~~expected~~any ~~overall~~excess ~~economic~~of ~~conditions.~~the ~~Our~~purchase ~~assumptions~~price ~~about~~over ~~future~~the ~~experience,~~fair ~~cash~~market ~~flows~~value of ~~and~~the ~~profitability~~net ~~require~~assets ~~significant~~acquired ~~judgment since~~allocated ~~actual~~to ~~results~~goodwill. ~~have~~As ~~fluctuated~~a inresult of the ~~past~~adjustment ~~and~~to ~~are~~our ~~expected~~asset tobasis, ~~continue~~our todepreciation doand soamortization expenses increased.

~~Warranties~~Interest expense, net consists of interest expense, interest income and gains or losses on the related interest rate derivative instruments. In addition, interest expense includes the amortization of the financing costs associated with the 2008 Acquisition. In 2008, Predecessor’s net interest expense included a $49.8 million charge related to the 2008 Acquisition and the related extinguishment of Predecessor’s outstanding debt.

WeOther ~~offer~~income, anet ~~variety~~consists of ~~parts~~gains ~~warranties~~and onlosses ~~our products. Provisions for warranties are made at the time revenues are recognized. These reserves are based~~ on ~~estimations~~early ~~derived~~extinguishment ~~from~~of ~~historical failure rates~~debt, ~~estimated~~ineffectiveness service costs and historical trends. In addition, when new products are introduced, we consult with engineering, manufacturing and quality control personnel to determine the initial warranty expense. On a quarterly basis, we reevaluate the estimated liability related to ~~the~~hedge ~~installed~~accounting ~~units~~of ~~still~~our commodity ~~under~~swaps ~~warranty based on updated failure rates~~ and ~~will,~~miscellaneous atincome ~~times,~~or ~~adjust our warranty reserve~~expenses. ~~We do not discount this liability when making this calculation.~~

WeCritical ~~also~~accounting ~~sell~~policies ~~extended service contracts for certain of our products, most with terms of up to 10 years. Revenues from extended warranty contracts are deferred~~ and ~~amortized~~estimates ~~on a straight-line basis over the terms of the contracts. Expenses relating to obtaining and servicing these contracts are expensed as incurred.~~

~~Self~~Estimates ~~Insurance reserves~~ and ~~contingencies~~assumptions

~~We self-insure~~The ~~worker’s~~preparation ~~compensation,~~of ~~product~~consolidated ~~liability,~~financial ~~general~~statements ~~liability,~~in ~~vehicle~~conformity ~~liability,~~with ~~group~~accounting ~~health~~principles ~~and~~generally ~~physical~~accepted ~~damage~~in upthe toUnited ~~certain~~States ~~stop-loss~~requires ~~amounts.~~management ~~We work with our claims administrator~~ to ~~estimate~~make ~~our~~estimates ~~self-insurance expenses~~ and ~~liabilities.~~ ~~The~~assumptions ~~expense~~that ~~and~~affect ~~liabilities~~the amounts ~~are~~reported ~~determined~~in ~~based~~the onconsolidated ~~historical~~financial ~~company~~statements ~~claims information, as well as industry factors~~ and ~~trends~~accompanying innotes. ~~the~~We ~~level~~must ofmake ~~such~~these ~~claims~~estimates and ~~payments.~~assumptions ~~Our~~because ~~self-insurance~~certain ~~reserves,~~information ~~calculated~~is dependent on anfuture ~~undiscounted basis~~events, ascannot ofbe ~~December 31,~~calculated ~~2007~~with ~~and~~a ~~December 31,~~high ~~2008,~~degree ~~represent~~of ~~the~~precision ~~best~~from ~~estimate~~data available ofor ~~the~~simply ~~future~~cannot ~~payments~~be toreadily becalculated ~~made~~based on ~~incurred~~generally ~~claims~~accepted ~~reported~~methodologies. ~~and~~In ~~unreported~~some ~~for~~cases, ~~2008~~these ~~and~~estimates ~~prior~~are ~~years.~~particularly Wedifficult ~~maintain~~to ~~safety~~determine and ~~injury~~significant ~~prevention~~judgment ~~programs~~must ~~that are~~be ~~designed~~exercised. toIn ~~improve~~preparing the ~~work~~financial ~~environment~~statements, ~~and~~the most ~~as a result~~difficult, ~~reduce~~subjective ~~the~~and ~~incident~~complex ~~rate~~estimates and ~~severity~~the ofassumptions ~~our~~that ~~various~~deal ~~self-insured~~with ~~risks.~~the ~~Actual~~greatest ~~payments~~amount ~~for~~of ~~claims~~uncertainty ~~reserved~~relate ~~may~~to ~~vary~~goodwill, ~~depending~~intangible onand ~~various~~long-lived ~~factors~~assets ~~including~~and ~~the~~reserves ~~development~~for self-insurance, warranty and ~~ultimate settlement~~income oftax ~~reported~~liabilities. ~~and~~Actual results ~~unreported~~could ~~claims.~~differ ~~Litigation~~materially ~~and~~from ~~other~~the ~~uninsured~~estimates ~~contingencies~~and ~~require~~assumptions ~~significant~~used ~~judgment~~in ~~and~~the ~~not~~preparation ~~all~~of ~~risks~~our ~~are~~financial ~~insured~~statements.

Warranty costs

We offer a variety of warranties on our products. Provisions for warranties are made at the time revenues are recognized. These reserves are based on estimations derived from historical failure rates, estimated service costs and historical trends. In addition, when new products are introduced, we consult with engineering, manufacturing and quality control personnel to determine the initial warranty expense. On a quarterly basis, we reevaluate the estimated liability related to the installed units still under warranty based on updated failure rates and will, at times, adjust our warranty reserve. We do not discount this liability when making this calculation.

We also sell extended service contracts for certain of our products, most with terms of up to 10 years. Revenues from extended service contracts are deferred and amortized on a straight-line basis over the terms of the contracts. Expenses relating to obtaining and servicing these contracts are expensed as incurred.

Self insurance reserves and contingencies

We self-insure worker’s compensation, product liability, general liability, vehicle liability, group health and physical damage up to certain stop-loss amounts. We work with our claims administrator to estimate our self-insurance expenses and liabilities. The expense and liabilities are determined based on historical company claims information, as well as industry factors and trends in the level of such claims and payments. Our self-insurance reserves, calculated on an undiscounted basis, represent the best estimate of the future payments to be made on incurred claims reported and unreported for all periods presented. We maintain safety and injury prevention programs that are designed to improve the work environment, and as a result, reduce the incident rate and severity of our various self-insured risks. Actual payments for claims reserved may vary depending on various factors including the development and ultimate settlement of reported and unreported claims. Litigation and other uninsured contingencies require significant judgment and not all risks are insured.

Rebates and co-op marketing expenditures

We offer multiple rebate programs to our national accounts, dealers and builders as an inducement to encourage utilization of Goodman® and Amana® branded equipment across replacement and new construction ~~markets. These rebates are part of our volume and new construction incentive programs. In addition, we offer a variety of rebate programs to our independent distributors to encourage~~ ~~distributors to pass on lower equipment costs to dealers, in order to drive market share expansion.~~

Rebates are accrued based on sales. For certain rebates, the accrual rate is impacted by estimates of the customer’s ability to reach targeted purchase levels. Rebates paid or credited to independent distributors, dealers and homebuilders are netted against revenues in accordance with the provisions of EITF Number 01-9, Accounting for Consideration Given to a Customer (Including a Reseller of the Vendor’s Products).

Co-op marketing expenditures are funds reserved for cooperative marketing programs between us and our distributors. These expenditures are reflected in selling costs because they are based on an annual marketing plan whereby the distributor commits to spending the funds on marketing and advertising our products.

Income taxes

We use the liability method of accounting for taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences reverse.

Index to Financial Statements

~~We regularly evaluate valuation allowances established for deferred tax assets for which future~~ ~~realization is uncertain~~markets. WeThese ~~perform~~rebates ~~this~~are ~~evaluation~~part atof ~~least~~our ~~quarterly~~volume and atnew ~~the~~construction ~~end~~incentive ~~of each fiscal year~~programs. ~~The estimation of required valuation allowances includes estimates of future taxable income.~~ In ~~assessing the realizability of deferred tax assets at December 31~~addition, ~~2008,~~ we ~~considered~~offer ~~whether~~a itvariety ~~was more likely than not that some portion or all~~ of ~~the~~rebate ~~deferred~~programs ~~tax~~to ~~assets~~our ~~would~~independent ~~not~~distributors beto ~~realized.~~encourage ~~The ultimate realization of deferred tax assets is dependent upon the generation of future~~distributors ~~taxable~~to ~~income~~pass ~~during~~on ~~the~~lower ~~periods~~equipment incosts ~~which~~to ~~those temporary differences become deductible. We consider taxable income in carry back years~~dealers, ~~the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies~~ in ~~making~~ ~~this~~order ~~assessment.~~to Ifdrive ~~actual~~market ~~future~~share ~~taxable income is different from the estimates, our results could be affected~~expansion.

AtRebates are accrued based on sales. ~~December 31,~~For ~~2008~~certain rebates, wethe ~~had~~accrual arate ~~valuation~~is ~~allowance~~impacted by estimates of ~~$3.3 million~~the ~~against~~customer’s ~~certain~~ability ~~net~~to ~~operating~~reach ~~loss~~targeted ~~carryforwards~~purchase levels. AsRebates ofpaid ~~December 31,~~or ~~2008,~~credited weto ~~had~~independent ~~net~~distributors, ~~deferred~~dealers ~~tax~~and ~~liabilities~~homebuilders ofare ~~$101.6~~netted ~~million~~against ~~primarily~~revenues ~~related~~in toaccordance with the ~~non-deductibility~~ provisions of ~~the~~Financial ~~step~~Accounting Standards Board (FASB) accounting standards. Co-upop inmarketing ~~basis~~expenditures ofare ~~the~~funds ~~assets~~reserved tofor ~~fair~~cooperative ~~value~~marketing programs between us and our distributors. These expenditures are reflected in ~~accordance~~selling costs ~~with~~because ~~purchase~~they ~~accounting~~are ~~related~~based on an annual marketing plan whereby the distributor commits to spending the ~~Transactions~~funds on marketing and advertising our products.

~~Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in~~ Income ~~Taxes~~taxes (FIN 48). FIN 48 clarifies Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, and requires the Company to evaluate its tax positions for all jurisdictions and for all years where the statute of limitations has not expired. FIN 48 requires companies to meet a “more-likely-than-not” threshold (i.e. greater than a 50 percent likelihood of a tax position being sustained under examination) prior to recording a benefit for their tax positions. Additionally, for tax positions meeting this “more-likely-than-not” threshold, the amount of benefit is limited to the largest benefit that has a greater than 50 percent probability of being realized upon effective settlement. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on our income statement.

~~FIN~~We 48use ~~requires significant judgment in determining what constitutes an individual tax position as well as assessing~~ the ~~outcome~~liability method of ~~each~~accounting ~~tax~~for ~~position~~taxes. WeUnder this ~~consider~~method, ~~many~~deferred ~~factors~~tax ~~when~~assets ~~evaluating~~ and ~~estimating~~liabilities ~~our~~are ~~tax~~determined ~~positions~~based ~~and~~on ~~tax~~differences ~~benefits,~~between ~~which~~financial ~~may~~reporting ~~require periodic adjustments~~ and ~~which~~tax ~~may~~bases ~~not accurately anticipate actual outcomes. Changes in judgment as to recognition or measurement~~ of ~~tax~~assets ~~positions~~and ~~can~~liabilities ~~materially~~and ~~affect~~are ~~the~~measured ~~estimate~~using of the ~~effective~~enacted tax ~~rate~~rates and ~~consequently,~~laws ~~affect our operating results. The accounting treatment for recorded tax assets associated with our tax positions reflect our judgment~~ that ~~it is more likely than not that our positions~~ will be ~~respected~~in ~~and~~effect ~~the~~when ~~recorded assets will be realized. However, if~~ such ~~positions are challenged, then, to the extent~~ ~~they~~differences ~~are not sustained, the expected benefits of the recorded assets and tax positions will not be fully realized~~reverse.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. We perform this evaluation at least quarterly and at the end of each fiscal year. The estimation of required valuation allowances includes estimates of future taxable income. In assessing the realizability of deferred tax assets, we considered whether it was more likely than not that some portion or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider taxable income in carry back years, the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. If actual future taxable income is different from the estimates, our results could be affected.

At December 31, 2009 and December 31, 2008, we had a valuation allowance of $3.3 million against certain net operating loss carry forwards. As of December 31, 2009 and December 31, 2008, we had net deferred tax liabilities of $141.9 million and $101.6 million, respectively, primarily related to the non-deductibility of the step-up in basis of our assets to fair value in accordance with purchase accounting related to the 2008 Acquisition and other prior events.

FASB accounting standards require us to evaluate tax positions for all jurisdictions and for all years where the statute of limitations has not expired. FASB accounting standards require companies to meet a “more-likely-than-not” threshold (i.e. greater than a 50 percent likelihood of a tax position being sustained under examination) prior to recording a benefit for their tax positions. Additionally, for tax positions meeting this “more-likely-than-not” threshold, the amount of benefit is limited to the largest benefit that has a greater than 50 percent probability of being realized upon effective settlement. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on our income statement.

Significant judgment is required in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our operating results. The accounting treatment for recorded tax assets associated with our tax positions reflects our judgment that it is more likely than not that our positions will be respected and the recorded assets will be realized. However, if such positions are challenged, then, to the extent they are not sustained, the expected benefits of the recorded assets and tax positions will not be fully realized.

Impairment of long-lived assets other than intangibles

We conduct periodic reviews for idle and under-utilized equipment and facilities and review business plans for possible impairment implications. If an impairment were detected, these costs would be expensed in the same period. Historically, no significant impairment charges have been recorded.

Impairment of goodwill

Goodwill is the excess of the cost of an acquired company over the amounts assigned to assets acquired and liabilities assumed. ~~Under SFAS No. 142,~~ Goodwill and ~~Other Intangible Assets, goodwill and~~ other indefinite-lived intangibles are not amortized, but are tested for impairment annually or more frequently if an event occurs or circumstances change that would indicate the carrying amount could be impaired. Impairment testing for goodwill is done at the reporting unit level. An impairment charge generally would be recognized when the carrying amount of the reporting unit exceeds the estimated fair market value of the reporting unit. We estimate fair value using standard business valuation techniques such as discounted cash flows, industry participant information and reference to comparable business transactions. The discounted cash flow fair value estimates are based on our projected future cash flows and the estimated weighted-average cost of capital of market participants. Management assumptions about expected future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized. The estimated weighted-average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total debt and equity capital. Based on the results of our annual impairment tests, we determined that no impairment of our goodwill existed as of December 31, 2008. In assessing the fair value of our goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change, we may be required to record impairment charges for these assets in the future. We performed our annual test as of October 1, 2008 and determined that no impairment exists. As of December 31, 2008, there were no indicators noted that would require us to re-evaluate our annual impairment test.

Index to Financial Statements

generally would be recognized when the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit. We estimate fair value using standard business valuation techniques such as discounted cash flows, industry participant information and reference to comparable business transactions. The discounted cash flow fair value estimates are based on our projected future cash flows and the estimated weighted-average cost of capital of market participants. Management assumptions about expected future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized. The estimated weighted-average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total debt and equity capital. Based on the results of our annual impairment tests, we determined that no impairment of our goodwill existed as of December 31, 2009. In assessing the fair value of our goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change, we may be required to record impairment charges for these assets in the future. We performed our annual test as of October 1, 2009 and determined that no impairment exists. As of December 31, 2009, there were no indicators noted that would require us to re-evaluate our annual impairment test.

Identifiable intangible assets

The values assigned to amortizable intangible assets are amortized to expense over their estimated useful lives and are reviewed for potential impairment. The estimated useful lives are based on an evaluation of the circumstances surrounding each asset, including an evaluation of events that may have occurred that would cause the useful life to be decreased. In the event the useful life would be considered to be shortened, or if the asset’s future value were deemed to be impaired, an appropriate amount would be charged to amortization expense. Future operating results and residual values could therefore reasonably differ from our current estimates and could require a provision for impairment in a future period. Indefinite lived intangible assets are reviewed ~~in accordance with SFAS No. 142, Goodwill and Other Intangibles~~ by comparison of the fair ~~market~~ value with its carrying amount. We performed our annual test as of October 1, ~~2008~~2009 and determined that no impairment exists. As of December 31, ~~2008~~2009, there were no indicators noted that would require us to re-evaluate our annual impairment test.

The values assigned to our identifiable intangible assets were determined using the income approach, whereby the fair value of an asset is based on the present value of its estimated future economic benefits. This approach was considered appropriate, as the inherent value of these intangible assets is their ability to generate current and future cash flows. The key assumption in using this approach is the identification of the revenue streams attributable to these assets based on budgeted future revenues.

~~Results~~Fair value of ~~Operations~~financial instruments

~~The~~Financial ~~following~~instruments ~~table~~include ~~sets~~cash ~~forth~~equivalents, asaccounts areceivable, ~~percentage~~accounts payable, revolving loans payable, long-term debt, and commodity swap agreements. Management believes the fair value of ~~net~~cash equivalents, ~~sales~~accounts receivable and accounts payable approximates their carrying value due to their short-term nature. The fair value of revolving loans payable and long-term debt is estimated based on anticipated interest rates that management believes would currently be available to us for similar issues of debt, taking into account our ~~statement~~current credit risk and other market factors and arms length trades for debt securities, which are traded. The fair value of ~~operations~~long-term ~~data:~~debt is estimated to approximate the carrying amount. Commodity swaps are recorded at fair value.

	Year ended December 31,
	2006		2007		2008(1)
Consolidated statements of income:
Sales, net	100.0	%	100.0	%	100.0	%
Cost of goods sold	76.6	%	75.6	%	76.4	%
Selling, general and administrative expenses	11.5	%	10.9	%	13.5	%
Depreciation and amortization expense	1.8	%	1.8	%	2.6	%
Operating profit	10.1	%	11.7	%	7.5	%
Interest expense, net	4.3	%	3.5	%	10.2	%
Other (income) expense, net	0.3	%	(0.1	)%	0.1	%
Earnings before taxes	5.5	%	8.3	%	(2.8	)%
Provision for (benefit from) income taxes	1.9	%	3.1	%	(0.7	)%
Net income	3.6	%	5.2	%	(2.1	)%

Derivatives and hedging activities

~~(1)~~We ~~For~~use ~~comparability~~financial ~~purposes,~~instruments ~~the~~to ~~periods~~manage ~~January~~market 1risk from changes in commodity prices and selectively hedge anticipated transactions that are subject to ~~February~~commodity 13price exposure, ~~2008~~primarily using commodity contracts relating to raw materials used in our production process. The instruments are designated as cash flow hedges in accordance with FASB accounting standards and ~~February~~are 14recorded in the consolidated statement of financial position at fair value. The effective portion of the contracts’ gains or losses due to ~~December~~changes 31in fair value are initially recorded as a component of accumulated other comprehensive income, ~~2008~~or ~~have~~OCI, ~~been~~and ~~combined~~are subsequently reclassified into cost of sales in the period in which the end products are sold to our customers.

~~December 31,~~Revenue ~~2008~~recognition ~~compared to December 31, 2007~~

~~Sales,~~Revenue ~~net.~~from ~~Net sales for~~ the ~~year~~sale ~~ended~~of ~~December 31,~~products ~~2008~~is ~~were~~recognized ~~$1,877.4~~when persuasive ~~million,~~evidence aof ~~$58.3~~an ~~million,~~arrangement ~~or 3.1%~~exists, ~~decrease~~delivery ~~from~~has $1occurred,~~935.7~~ ~~million~~sale ~~for~~price ~~the~~is ~~year~~fixed ~~ended~~and ~~December 31,~~determinable ~~2007.~~and ~~Sales~~collectability ~~volume~~is ~~for~~reasonably ~~the year ended December 31, 2008 was 7~~assured.9% ~~lower~~Revenues ~~than~~are ~~the~~recorded ~~previous~~net ~~year, primarily as a result~~ of ~~the~~rebates ~~continuing~~to ~~decline~~certain ~~in the residential new construction market~~distributors, ~~the~~dealers ~~mild~~and ~~weather~~builders. ~~conditions~~These ~~throughout~~rebates relate ~~much~~to ofseveral ~~the~~programs ~~United States~~ and ~~the~~are ~~overall downturn~~designed into ~~the~~stimulate ~~economy. The decline in~~ sales ~~volume~~of ~~was~~our ~~partially offset by a 3~~products.0% ~~increase~~Provisions ~~primarily~~are ~~related~~made tofor awarranties ~~favorable~~at ~~product~~the ~~mix,~~time ~~including~~revenues ~~the~~are ~~continued~~recognized. ~~shift~~Costs toassociated ~~higher~~with ~~priced,~~shipping ~~higher~~and ~~SEER~~handling ~~cooling~~of our products. ~~Also~~is ~~offsetting~~included ~~the~~in ~~decline~~costs ~~were 1.9%~~ of ~~pricing-related~~goods ~~gains~~sold.

Cost of goods sold. Cost of goods sold for the year ended December 31, 2008 was $1,434.8 million, a $28.0 million, or 1.9%, decrease from $1,462.8 million for the year ended December 31, 2007. The decrease primarily relates to lower sales volume, partially offset by an increase resulting from the purchase accounting treatment of the step-up in basis of inventory related to the Transactions. During the period following the Transactions, our cost of goods sold increased by $48.0 million as we recognized the non-cash increase in our inventory value. Excluding the effect of the amortization of the inventory step up, cost of goods sold as a percentage of net sales decreased to 73.9% for year ended December 31, 2008 from 75.6% for the year ended December 31, 2007. This decrease in cost of goods sold as a percentage of net sales was due to cost-reducing product design modifications and increased productivity and efficiencies in our factories, offset by higher commodity costs.

Index to Financial Statements

~~Selling,~~We ~~general~~consign ~~and~~certain ~~administrative~~products ~~expense.~~to ~~Selling,~~many ~~general~~of ~~and~~our ~~administrative~~independent ~~expense~~distributors. ~~for~~Product ~~the~~inventories ~~year~~shipped ~~ended~~on ~~December 31,~~consignment ~~2008,~~terms ~~were~~are ~~$252.8~~maintained ~~million,~~under a ~~$42.2~~consignment ~~million,~~arrangement oron ~~20.0%, increase from $210.6 million for~~ the ~~year~~premises ~~ended December 31, 2007, primarily as a result~~ of ~~the~~independent ~~Transactions completed in 2008~~distributors. ~~Selling,~~Revenues ~~general~~ and ~~administrative~~ ~~expense~~cost ~~for the year ended December 31, 2008 included acquisition-related expenses~~ of ~~$42.9~~sales ~~million~~are ~~associated~~recognized ~~with~~at the ~~Transactions.~~time ~~Excluding~~consigned ~~acquisition-related~~inventory ~~fees,~~is ~~our~~sold ~~selling,~~by ~~general and administrative expenses for~~ the ~~year~~ ~~ended~~independent ~~December 31,~~distributor ~~2008~~to ~~of $209.8 million were $0.8 million less than our selling, general and administrative expenses for the year ended December 31, 2007. As~~ a ~~percentage of net sales (exclusive of acquisition-related expenses),~~third ~~selling, general and administrative expense were 11~~party.2% ~~and 10.9% for the years ended December 31, 2008 and December 31, 2007, respectively, and are considered comparable.~~

~~Depreciation~~Inventories and amortization expense. Depreciation and amortization expense for the year ended December 31, 2008, were $48.7 million, a $13.6 million or 39.0% increase from $35.1 million for the year ended December 31, 2007. The increase was primarily due to increased amortization of identifiable intangible assets and increased depreciation recorded resulting from the Transactions.

~~Operating~~Inventory ~~profit.~~costs ~~Operating~~include ~~profit for the year ended December 31~~material, ~~2008~~labor, ~~was $141.0 million~~logistics, anand ~~$86.1~~plant ~~million, or 37~~overhead.~~9%,~~ ~~decrease~~Our ~~from~~inventory ~~$227.2~~is ~~million~~stated ~~reported~~at ~~for~~ the ~~year~~lower ~~ended December 31, 2007. Operating profit for the year ended December 31, 2008 was negatively impacted by the $48.0 million amortization~~ of ~~the~~cost ~~inventory~~or ~~step~~market ~~up,~~using the ~~$42.9 million Transaction~~first-~~related~~in, ~~expenses and lower sales volumes. The decrease was partially offset by the favorable product mix and pricing~~first-~~related gains~~out, ~~mentioned~~or ~~above~~FIFO, ~~cost-reducing product designs, increased productivity and efficiencies in our factories~~method.

~~Interest expense~~Property, ~~net. Interest expense~~plant, net for the year ended December 31, 2008, was $191.8 million, an increase of $123.3 million from $68.4 million reported for the year ended December 31, 2007. Interest expense, net for the year ended December 31, 2008 included a charge of $35.6 million related to the Transactions and ~~$14.2~~equipment million related to the extinguishment of our predecessor company’s outstanding debt. Additionally, interest expense, net increased due to increases in the amount of debt outstanding and higher interest rates. The outstanding debt balance as of December 31, 2008 was $1,347.5 million compared to $655.4 million as December 31, 2007.

~~Other (income) expense~~Property, ~~net.~~plant ~~Other~~and ~~expense~~equipment ~~for~~are ~~the~~recorded ~~year ended~~at ~~December 31,~~cost ~~2008,~~less ~~was~~accumulated $1depreciation.2 ~~million,~~Expenditures afor ~~net~~renewals ~~change~~and ofbetterments ~~$3.9~~are ~~million~~capitalized ~~from~~and ~~other~~expenditures ~~income~~for ofrepairs ~~$2.7~~and ~~million~~maintenance ~~reported~~are ~~for~~charged ~~the~~to expense ~~year~~as ~~ended~~incurred. ~~December 31,~~Buildings ~~2007.~~and ~~The~~building ~~change~~improvements inare ~~other~~depreciated ~~(income)~~using ~~expense~~the isstraight-line ~~primarily~~method ~~due~~over tothe ~~$1.6~~remaining ~~million~~useful inlives ~~foreign currency~~of ~~translation~~the ~~losses;~~assets, ~~$0.8~~which ~~million~~is ~~related~~10 to ~~overhedges~~39 ~~and~~years. ~~hedging~~Equipment ~~ineffectiveness;~~is ~~and~~depreciated ~~$0.4~~on ~~million~~a ~~and~~straight-line ~~$2.0~~basis ~~million~~over ~~net~~the ~~gains~~assets’ remaining ~~from~~useful ~~asset~~lives, ~~dispositions~~which ~~during~~is ~~the~~3 to 10 years. ~~ended~~Interest ~~December 31,~~attributable ~~2008~~to ~~and~~construction ~~December 31,~~in ~~2007,~~progress ~~respectively~~is capitalized.

~~Provision for income taxes. The income tax benefit for the year ended December 31, 2008, was $12.2 million compared to the tax~~Deferred ~~provision~~financing ofcosts $60.2 million for the year ended December 31, 2007. The effective tax rate for the year ended December 31, 2008 and December 31, 2007 was 37.2% and 37.3%, respectively. The net tax benefit was due to the pre-tax loss in 2008 resulting from expenses related to the Transactions and higher interest expense and the benefit of the domestic production activities deduction.

~~Year~~Debt ~~Ended~~issuance ~~December 31,~~costs ~~2007~~are ~~compared~~capitalized and amortized to ~~Year~~interest ~~Ended~~expense ~~December 31,~~using ~~2006~~the effective interest method over the period the related debt is anticipated to be outstanding.

~~Sales,~~Trade net. Net sales for the year ended December 31, 2007 were $1,935.7 million, a $140.9 million, or 7.9%, increase from $1,794.8 million for the year ended December 31, 2006. This increase was primarily due to approximately 6% growth in sales volume and ~~favorable product~~other ~~mix~~receivables including the continued shift to higher priced, higher SEER cooling products. In addition, we benefited from our April 1 and October 1, 2006 price increases, which added approximately 2% to 2007 sales dollars as compared to the prior year. Our sales volume benefited from seven new company-operated distribution centers that were opened in 2006 and 13 in 2007 on a net basis, and the maturing of the 39 company-operated distribution centers opened in 2004 and 2005.

~~Cost~~Our ofreceivables ~~goods~~are ~~sold.~~recorded ~~Cost~~when ofbilled ~~goods~~and ~~sold~~represent ~~for~~claims ~~the~~against ~~year~~third ~~ended~~parties ~~December 31,~~that ~~2007,~~will ~~was~~be ~~$1,462~~settled in cash.8 ~~million,~~The ancustomer’s financial ~~$88.0~~position ~~million~~is periodically reviewed, orand 6no collateral is required.~~4%,~~ ~~increase from~~The $1carrying value of our receivables,~~374.8~~ ~~million~~net ~~for~~of the ~~year~~allowance ~~ended~~for ~~December 31~~doubtful accounts, ~~2006~~represents their estimated net realizable value. ~~This~~We ~~increase~~estimate ~~primarily~~our ~~relates~~allowance tofor ~~higher~~doubtful accounts ~~sales~~based ~~volume~~on ~~and~~historical ~~higher~~collection ~~commodity~~trends, ~~costs~~type ~~associated~~of ~~with~~customer, ~~copper~~the age of outstanding receivables and ~~aluminum~~existing economic conditions. ~~Cost~~If ofevents ~~goods~~or ~~sold~~changes asin acircumstances ~~percentage~~indicate ofthat ~~net~~specific ~~sales~~receivable ~~decreased~~balances ~~from~~may be impaired, further ~~76.6%~~consideration ~~for~~is given to the ~~year~~collectability ~~ended~~of ~~December 31~~those balances, ~~2006~~and tothe 75allowance is adjusted accordingly.6% ~~for~~We ~~the~~do ~~year~~not have significant credit risk concentrations and historically have not experienced significant losses related to our receivables.

Pensions and other postretirement benefits

We account for our defined benefit pension plan and our defined benefit postretirement medical plan in accordance with FASB accounting standards. These standards require that amounts recognized in the financial statements be determined on an actuarial basis. Significant assumptions involved in determining our pension and other postretirement benefit expense include the expected return on plan assets, expected healthcare cost and the discount rate for calculating future liability. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which results in an estimated return on plan assets that is included in current year pension income or expense.

Research and development

Research and development costs are charged to selling, general and administrative expense as incurred.

Stock-based compensation

FASB accounting standards require that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. We use the modified prospective method of application, which requires us to recognize compensation cost on a prospective basis. We recognize compensation cost on a straight-line basis over the requisite service period for each separately vesting portion of the award. Excess tax benefits related to stock option exercises are reflected as financing cash flows.

All outstanding options to acquire our common stock that were issued prior to the 2008 Acquisition (other than rollover options), whether or not fully vested, became fully vested immediately prior to the 2008 Acquisition and were canceled and converted into cash payments. Immediately following the 2008 Acquisition, on February 13, 2008, the Chill Holdings, Inc. 2008 Stock Incentive Plan, or the 2008 Plan, was adopted.

Index to Financial Statements

~~ended~~Results ~~December 31, 2007. This decrease in cost~~ of ~~goods~~operations sold as a percentage of net sales was due to cost-reducing product design modifications, increased productivity and efficiencies in our factories and the two price increases implemented in 2006, partially offset by higher commodity costs.

~~Selling,~~The ~~general~~financial ~~and~~information ~~administrative~~for ~~expense.~~2008 ~~Selling,~~in ~~general and administrative expense for~~ the ~~year~~table ~~ended~~below ~~December 31,~~is ~~2007, were $210.6 million, a $4.7 million, or 2.3%, increase from $205.9 million for~~ the ~~year~~combined ~~ended~~presentation ~~December 31, 2006. As a percentage~~ of ~~net sales, selling, general and administrative expense were 10.9% and 11.5% for~~ the ~~years~~pre-merger ~~ended~~period ~~December~~January ~~31,~~1 ~~2007 and December 31, 2006, respectively. Selling, general and~~to ~~administrative expense for the year ended December~~February 3113, ~~2006~~2008 ~~included IPO-related expenses associated with the termination of the management agreement with Apollo~~ and the ~~acceleration of stock options totaling $16.1 million. Excluding these non~~post-~~recurring~~merger ~~IPO-related~~period ~~expenses, selling, general and administrative expense for the year ended December~~February ~~31,~~14 ~~2007~~to ~~increased in dollars and as a percentage of net sales from the year ended~~ December 31, ~~2006.~~2008 ~~This increase was primarily due to our continued investment in several of our key growth initiatives, increased incentive compensation expenses,~~ and ~~the~~therefore ~~additional~~constitutes ~~costs~~unaudited ~~of operating as a public company. These key growth initiatives included costs for expansion of our company~~non-~~operated~~GAAP ~~distribution~~financial ~~network, including our sales manager training program and an increase in our dealer recruitment activities~~information.

~~Depreciation~~Management ~~and~~believes ~~amortization~~that ~~expense.~~combining ~~Depreciation~~the ~~and~~Predecessor ~~amortization~~results ~~expense~~for the period January 1, 2008 through February 13, 2008 with the results of the post-acquisition period provides the basis for a meaningful comparison to the operating results for the year ended December 31, ~~2007~~2009. The combined operating results have not been prepared as pro forma results under applicable regulations, ~~were~~may ~~$35~~not reflect the actual results we would have achieved absent the 2008 Acquisition and may not be predictive of future results of operations.1 ~~million~~In addition, adespite ~~$2.5~~the ~~million~~combined presentation not being in accordance with GAAP because of, among other things, the change in the historical carrying value or ~~7.6%~~basis ~~increase~~of assets and liabilities that resulted from ~~$32.6~~the ~~million~~2008 Acquisition, we believe that for comparison purposes, such a presentation is meaningful to an understanding of the ~~year~~results ~~ended~~of ~~December 31,~~the ~~2006~~business. Where the operating results for the ~~The~~pre-merger ~~increase~~and ~~was~~post-merger ~~primarily~~periods ~~due~~in to2008 ~~higher~~have ~~depreciation~~been ~~expense~~impacted ~~related~~by to2008 ~~capital~~Acquisition ~~expenditures~~costs ~~associated~~or ~~with~~changes in the ~~transition~~historical tocarrying values, such items are identified and discussed. Additionally, the ~~federally~~historic ~~mandated~~periods 13do ~~SEER~~not ~~minimum~~reflect ~~efficiency~~the impact the 2008 Acquisition had on us, most notably significantly increased leverage and liquidity requirements, and ~~capacity~~may ~~expansion~~not atbe ~~our~~predictive ~~production~~of ~~facilities~~future results of operations.

Operating profit. Operating profit for the year ended December 31, 2007, was $227.2 million, a $45.8 million, or 25.2%, increase from $181.4 million reported for the year ended December 31, 2006. Operating profit for the year ended December 31, 2006 was negatively impacted by the $16.1 million IPO-related expenses discussed above. In addition, operating profit increased during the year ended December 31, 2007, as compared to the prior year, due to higher gross profit as a result of the growth in sales volume with an increased proportion of sales from higher SEER products, the 2006 price increases, cost-reducing product design modifications and increased productivity and efficiencies in our factories, partially offset by higher selling, general and administrative expenses, higher commodity costs and depreciation.


	2009		2008		2007
Sales, net	100.0	%	100.0	%	100.0	%
Cost of goods sold	69.7		76.4		75.6
Selling, general and administrative	12.8		11.2		10.9
Acquisition-related expenses	—		2.3		—
Depreciation and amortization expenses	2.6		2.6		1.8

Operating profit	14.9		7.5		11.7
Interest expense, net	7.3		10.2		3.5
Other (income) expense, net	(1.1	)	0.1		(0.1	)

Earnings before taxes	8.7		(2.8	)	8.3
Provision for income taxes	3.1		(0.7	)	3.1

Net income	5.6		(2.1	)	5.2

~~Interest expense, net. Interest expense, net for the year ended~~ December 31, ~~2007,~~2009 was $68.4 million, a decrease of $9.4 million or 12.1% from $77.8 million reported for the year ended December 31, 2006. Interest expense, net for 2006 included a $1.4 million premium paid for the early pay-down of debt and the acceleration of $2.3 million of deferred financing costs as the result of the early debt pay-down using a portion of the proceeds from our initial public offering. In addition, interest expense, net decreased due to the lower amount of debt outstanding and more interest income. The outstanding long-term debt balance as of December 31, 2007 was $655.4 million compared to ~~$838.1 million as of~~ December 31, ~~2006.~~2008

~~Other (income) expense~~Sales, net. ~~Other~~ ~~(income)~~Net ~~expense~~sales for the year ended December 31, ~~2007,~~2009 ~~was~~were $21,851.72 million ~~of income~~, a ~~net~~$26.2 ~~change~~million, ofor $81.04%, ~~million~~decrease from $51,877.34 million offor ~~expense~~the ~~reported~~year ended December 31, 2008. Sales volume for the year ended December 31, ~~2006.~~2009 ~~The~~was ~~change~~5.0% inlower ~~other~~than ~~(income)~~the ~~expense~~previous year, ~~net is~~ primarily ~~due~~as to a ~~$6.0~~result ~~million~~of ~~charge~~declines ~~taken~~ in ~~2006~~the ~~for~~residential ~~unrealized~~new ~~losses~~construction ~~resulting~~market ~~from~~and the ~~change~~overall downturn in ~~fair~~the ~~market~~economy. ~~value~~The ofdecline ~~some~~in ofsales ~~our~~volume ~~commodity~~was ~~derivatives~~partially ~~that~~offset ~~did~~by ~~not~~a ~~qualify~~3.1% ~~for~~increase ~~hedge~~primarily ~~accounting~~related ~~treatment~~to a favorable product mix, including gas furnaces and ~~$2.0~~the ~~million~~continued ~~net~~shift ~~gain~~to ~~from~~higher ~~asset dispositions~~priced, ~~recognized~~higher inSEER ~~2007~~cooling products and 0.5% of pricing-related gains.

~~Provision~~Cost ~~for~~of ~~income~~goods ~~taxes~~sold. ~~The~~Cost ~~income~~of ~~tax~~goods ~~provision~~sold for the year ended December 31, ~~2007,~~ 2009 was $601,290.2 7 million, ana ~~increase of~~ $26144.01 million ~~compared~~decrease tofrom ~~the tax provision of~~ $341,434.28 million for the ~~same~~year ~~period~~ended inDecember 31, ~~2006~~2008. ~~The~~Cost ~~effective~~of ~~tax~~goods ~~rate~~sold for the year ended December 31, ~~2007~~2008 ~~and~~was ~~December 31,~~negatively ~~2006~~affected ~~was~~by 37a $48.3%0 ~~and~~million ~~34.8%, respectively.~~purchase ~~The~~accounting ~~increase~~treatment inof the ~~effective~~step-up in ~~tax~~the ~~rate~~basis isof ~~due~~inventory related to the ~~impact~~2008 ofAcquisition. ~~recently~~Excluding ~~enacted~~the ~~higher~~effect ~~Texas~~of ~~state~~the ~~taxes,~~amortization of the ~~effect~~inventory step-up, cost of ~~FIN~~goods ~~48,~~sold ~~and~~as ~~the~~a ~~expiration~~percentage of ~~the~~net ~~2006~~sales ~~benefits~~decreased from ~~the~~73.9% ~~Extraterritorial~~for ~~Income Exclusion (~~the ~~amount~~year ~~of extraterritorial~~ended ~~income~~December 31, ~~gross~~2008 ~~income~~to of69.7% for the ~~taxpayer~~year ~~attributable~~ended toDecember 31, ~~foreign~~2009. ~~trading~~This ~~gross~~decrease ~~receipts,~~in ~~that~~cost isof ~~excluded~~goods ~~from~~sold ~~gross~~as ~~income~~a ~~for~~percentage ~~the~~of ~~tax year),~~ net ofsales ~~the~~was ~~benefit~~due ofto ~~the~~a ~~increased~~reduction ~~Domestic~~in ~~Production~~certain ~~Activities~~raw ~~Deduction~~material (costs, the ~~deduction from~~shift ~~taxable~~in ~~income~~product ~~attributable~~mix to ~~domestic~~higher ~~production~~margin ~~activities)~~products ~~for~~and ~~2007.~~cost-reducing product designs.

Selling, general and administrative expense. Selling, general and administrative expense for the year ended December 31, 2009 was $236.2 million, a $26.4 million, or 12.6% increase from $209.8 million for the year ended December 31, 2008, which related primarily to payroll-related expenses. As a percentage of net sales, selling, general and administrative expense was 12.8% and 11.2% for the years ended December 31, 2009 and December 31, 2008, respectively.

Index to Financial Statements

~~Liquidity,~~Acquisition-related ~~Capital~~expense. ~~Resources~~We ~~and~~incurred ~~Off~~$42.9 million in transaction-~~Balance~~related expenses ~~Sheet~~during ~~Arrangements~~the year ended December 31, 2008 as a result of the 2008 Acquisition.

AsDepreciation ofand amortization expense. Depreciation and amortization expense for the years ended December 31, ~~2008,~~2009 wewas ~~had~~$48.4 ~~unrestricted~~million, ~~cash~~a ~~and~~$0.3 ~~cash~~million ~~equivalents~~decrease offrom $~~144~~48.17 million ~~and~~for ~~working~~the ~~capital~~year ofended December 31, 2008. A $~~289~~1.46 million, ~~excluding~~decrease ~~$69.1~~in depreciation expense ~~million~~related ofto ~~undrawn~~fully ~~commitments~~depreciated ~~under~~assets ~~the~~was ~~terms~~partially ~~and~~offset ~~conditions~~by ofa ~~our~~$1.3 ~~revolving~~million ~~credit~~increase ~~agreement~~in amortization expense related to the 2008 Acquisition.

AtOperating profit. Operating profit for the year ended December 31, ~~2008~~2009 was $275.8 million, ~~primarily~~a as$134.8 million increase from a $141.0 million operating profit reported for the year ended ~~result~~December 31, of2008. Operating profit for the ~~Transactions~~year ended December 31, we2008 ~~had~~was negatively impacted by the $~~1,347~~48.50 million amortization of ~~indebtedness~~the ~~outstanding~~inventory ~~(excluding~~step-up ~~approximately~~and the $3342.59 million acquisition-related expenses. Excluding the effect of ~~issued~~the inventory step-up and ~~outstanding~~the ~~letters~~acquisition-related expenses, operating profit increased $43.8 million, primarily due to favorability in cost of ~~credit)~~goods sold that was partially offset by an increase in selling, general and administrative payroll-related expenses.

WeInterest ~~have~~expense, ~~funded~~net. Interest expense, net for the year ended December 31, 2009 was $134.8 million, a decrease of $57.0 million from $191.8 million reported for the year ended December 31, 2008. Interest expense, net for the year ended December 31, 2008 included a $49.8 million charge related to the retirement of Predecessor’s outstanding debt and ~~expect~~$14.2 million related to ~~continue~~the extinguishment of Predecessor’s outstanding debt. The 2008 Acquisition debt was issued in mid-February 2008 and, on a comparative basis, was outstanding for a longer period in 2009. However, a reduction of our term loan interest rate to ~~fund~~6.25% from 6.5%, ~~operations~~the ~~through~~repurchase ~~cash~~of ~~flows~~$76.0 ~~generated~~million byof ~~operating~~senior ~~activities~~notes and ~~borrowings~~the ~~under~~$100.0 million repayment of our revolving credit agreement. Wein ~~also~~2009 ~~expect~~resulted ~~that~~in ~~ongoing~~lower ~~requirements~~interest ~~for~~expense ~~debt~~in the year ~~service~~ended ~~and~~December 31, ~~capital~~2009 ~~expenditures~~as ~~will~~compared beto ~~funded~~year ~~from~~ended ~~these~~December 31, ~~sources~~2008. Our outstanding debt was $1,160.8 million at December 31, 2009 and $1,345.7 million at December 31, 2008.

~~Based~~Other on(income) ~~our current level of operations~~expense, wenet. ~~believe~~Other ~~that~~income ~~cash~~for ~~flow from~~the ~~operations~~year ~~and~~ended ~~available cash~~December 31, ~~together~~2009 ~~with~~was ~~available~~$19.6 ~~borrowings under our revolving credit agreement~~million, ~~will~~a benet ~~adequate~~change toof ~~meet~~$20.8 ~~our~~million from ~~short-term~~$1.2 ~~and~~million ~~long-term~~expense ~~liquidity~~reported ~~needs~~for ~~over~~ the ~~next~~year 12ended toDecember 31, ~~24 months~~2008. ~~Our~~Other ~~future~~income ~~liquidity requirements will be~~ for ~~working~~the ~~capital,~~year ~~capital~~ended ~~expenditures~~December 31, ~~debt~~2009 ~~service~~consisted ~~and~~primarily ~~general~~of ~~corporate~~a ~~purposes~~$16.6 ~~Our~~million ~~ability~~gain torelated ~~meet our working capital and debt service requirements, however, is subject~~ to ~~future~~the ~~economic~~repurchase ~~conditions~~of ~~and~~our tosenior ~~financial,~~subordinated ~~business~~notes and ~~other~~$2.7 ~~factors,~~million ~~many~~in offoreign ~~which~~currency ~~are beyond our control~~gains. IfOther weincome ~~are~~for ~~not~~the ~~able~~year toended ~~meet such requirements~~December 31, we2008 ~~may~~consisted beprimarily ~~required~~of ~~to seek additional financing~~$1.6 ~~There~~million ~~can~~in beforeign nocurrency ~~assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all~~losses.

AsProvision offor income taxes. The income tax provision for the year ended December 31, 2009 was $58.9 million compared to the tax benefit of $12.2 million for the year ended December 31, 2008. The effective tax rate for the year ended December 31, ~~other~~2009 ~~than~~was ~~routine~~37.3%, ~~leasing~~a ~~agreements~~13.8% increase from the effective tax rate of 23.5% for the year ended December 31, we2008. ~~had~~The nodifference ~~off~~was primarily the result of non-~~balance~~deductible ~~sheet~~transaction costs ~~arrangements~~in the year ended December 31, 2008 related to the 2008 Acquisition.

~~Operating~~December 31, ~~activities~~2008 compared to December 31, 2007

~~For~~Sales, net. Net sales for the year ended December 31, 2008, wewere ~~generated~~ $~~141~~1,877.4 million, ofa $58.3 ~~cash~~million, ~~from~~or ~~operations compared to $204~~3.21%, ~~million~~decrease ~~and~~from $531,935.7 million offor ~~cash~~the ~~generated~~year ~~from~~ended ~~operations~~December 31, in 2007. ~~and~~Sales ~~2006,~~volume ~~respectively.~~for ~~Cash~~the ~~flow~~year ~~from~~ended ~~operations~~December 31, in 2008 was ~~impacted by approximately $78~~7.69% ~~million~~lower ofthan ~~expenses related to~~ the ~~Transactions.~~previous ~~Additionally~~year, ~~cash~~primarily ~~from~~as ~~operations~~a ~~decreased~~result ~~due~~of tothe ~~higher~~continuing ~~interest~~decline ~~expense associated with debt incurred~~ in ~~connection with~~ the ~~Transactions, offset by $67.5 million received from~~ ~~tax~~residential ~~refunds.~~new ~~Cash~~construction ~~flow~~market, ~~from~~the ~~operations~~mild inweather ~~2007~~conditions ~~increased~~throughout ~~due~~much toof ~~higher~~the ~~net~~United ~~income~~States asand ~~well~~the asoverall ~~lower~~downturn ~~inventory~~in ~~levels~~the ~~resulting~~economy. ~~from~~The ~~improved~~decline ~~production attainment, reduction~~ in ~~cooling~~sales ~~SKU’s,~~volume ~~improved~~was ~~order~~partially ~~cycle times and higher sales,~~ offset by ana ~~increase in accounts receivable~~3.0% ~~Cash~~increase ~~flow~~primarily ~~from~~related ~~operations~~to ~~in 2006 was negatively impacted by higher inventory as~~ a ~~result~~favorable product ofmix, including the ~~industry~~continued shift to ~~more~~higher ~~costly~~priced, ~~13-and-~~higher SEER ~~products~~cooling ~~and increased commodity costs~~products. Also ~~affecting~~offsetting ~~2006~~the ~~cash flow~~decline ~~from operations~~ were ~~decreases~~1.9% inof ~~accounts~~pricing-related ~~payable offset by an increase in accounts receivable~~gains.

~~Investing~~Cost ~~activities~~of goods sold. Cost of goods sold for the year ended December 31, 2008 was $1,434.8 million, a $28.0 million, or 1.9%, decrease from $1,462.8 million for the year ended December 31, 2007. The decrease primarily relates to lower sales volume, partially offset by an increase resulting from the purchase accounting treatment of the step-up in basis of inventory related to the 2008 Acquisition. During the period following the 2008 Acquisition, our cost of goods sold increased by $48.0 million as we recognized the non-cash increase in our inventory value. Excluding the effect of the amortization of the inventory step up, cost of goods sold as a percentage of net sales decreased to 73.9% for the year ended December 31, 2008 from 75.6% for the year ended December 31, 2007. This decrease in cost of goods sold as a percentage of net sales was due to cost-reducing product design modifications and increased productivity and efficiencies in our factories, offset by higher commodity costs.

~~For the year ended December 31~~Selling, ~~2008,~~general ~~cash used in investing activities was $1,967.1 million compared to $14.2 million~~ and ~~$39.3 million in 2007 and~~administrative ~~2006, respectively~~expense. ~~This usage was primarily due to $1~~Selling,~~946.6~~ ~~million~~general ~~of cash relating to the Transactions. Capital expenditures were $21.6 million, $26.4 million~~ and ~~$39.4~~administrative ~~million~~expense ~~in 2008, 2007 and 2006, respectively. The capital expenditures~~ for the year ended December 31, 2008 ~~and~~was ~~2007 were offset by~~ $1252.38 million, ~~and~~a $1242.2 million, ofor ~~proceeds from the sale of buildings and associated land used in our company operated distribution network~~20. ~~In 2006~~0%, ~~our~~increase ~~existing~~from ~~production~~$210.6 ~~capacity~~million ~~was increased in certain areas to meet our current growth expectations, and tooling and modifications were required to prepare~~ for the ~~growth~~year ~~expected to result from the change in minimum SEER standards.~~ ended

Financing activities

In 2008, our cash provided by financing activities was $1,950.9 million, compared to $182.7 million and $26.6 million in cash used in financing activities in 2007 and 2006, respectively. In 2008, we extinguished our predecessor company debt and received proceeds of $1,373.0 million from long-term debt, net of original issue discount and $1,278.2 million in equity contributions in connection with the Transactions. Also during 2008, we repaid $28.0 million of our long-term debt. In addition, we had net borrowings of $6.5 million under our revolving credit facility, of which $11.5 million was repaid as a result of the Transactions and incurred deferred financing costs of $45.7 million and equity issuance costs of $8.1 million associated with the Transactions. During 2007, we repaid $182.6 million of our long-term debt. In 2006 as a result of our initial public offering, we received proceeds of $354.5 million, redeemed $255.2 million of preferred stock and accrued dividends, and paid $2.5 million in transaction costs. Also during 2006, we repaid $123.3 million of our long-term debt.

Index to Financial Statements

~~Long~~ December 31, ~~term~~2007, ~~debt~~primarily as a result of the 2008 Acquisition. Selling, general and administrative expense for the year ended December 31, 2008 included acquisition-related expenses of $42.9 million associated with the 2008 Acquisition. Excluding acquisition-related fees, our selling, general and administrative expenses for the year ended December 31, 2008 of $209.8 million was $0.8 million less than our selling, general and administrative expenses for the year ended December 31, 2007. As a percentage of net sales (exclusive of acquisition-related expenses), selling, general and administrative expense were 11.2% and 10.9% for the years ended December 31, 2008 and December 31, 2007, respectively, and are considered comparable.

WeDepreciation ~~incurred~~and ~~substantial~~amortization ~~indebtedness~~expense. Depreciation inand ~~connection~~amortization ~~with~~expense for the ~~Transactions.~~year Onended ~~February~~December 1331, 2008, ~~Merger~~was ~~Sub issued and sold~~ $~~500~~48.07 million, ofa $13.~~50/14.0%~~6 ~~senior~~million ~~subordinated~~or ~~notes due 2016 and borrowed (1) $800~~39.0% ~~million~~increase under a new term loan credit agreement with Barclays Capital and Calyon New York Branch, as joint lead arrangers, Barclays Capital, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, General Electric Capital Corporation, as administrative agent and collateral agent, and the lenders from ~~time to time party thereto, and (2)~~ $~~105~~35.01 million ~~under~~for a new revolving credit agreement with Barclays Capital and General Electric Capital Corporation, as joint lead arrangers, Barclays Capital, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, General Electric Capital Corporation, as administrative agent and collateral agent, General Electric Capital Corporation, as letter of credit issuer, and the ~~lenders~~year ~~from~~ended time to time party thereto. The term loan credit agreement has an interest rate of LIBOR (with a minimum of 3.25%) or Prime, plus applicable margin, based on certain leverage ratios, which was 4.25% and totaled 7.71% as of December 31, ~~2008~~2007. The ~~revolving~~increase ~~credit~~was ~~agreement~~primarily ~~has~~due anto ~~interest~~increased amortization ~~rate~~ of ~~LIBOR~~identifiable orintangible ~~Prime,~~assets plus applicable margin, which totaled 4.25% as of December 31, 2008. The original issue discount is being amortized to interest expense using the effective interest method over the period the debt is anticipated to be outstanding through maturity. We incurred $45.7 million in loan origination fees and ~~direct~~increased ~~loan~~depreciation ~~origination~~recorded ~~costs which~~resulting isfrom ~~also being amortized to interest expense using~~ the ~~effective~~2008 ~~interest method over the period that the debt is anticipated to be outstanding~~Acquisition.

WeOperating ~~had~~profit. ~~availability~~Operating ofprofit for the year ended December 31, 2008 was $69141.0 million, an $86.1 million, ~~under~~or 37.9%, decrease from $227.2 million for the ~~terms~~year ~~and~~ended ~~conditions~~December 31, of2007. ~~our~~Operating ~~revolving~~profit ~~credit~~for ~~agreement~~the atyear ended December 31, 2008. ~~Outstanding~~was ~~commercial~~negatively ~~and~~impacted ~~standby~~by ~~letters~~the of$48.0 ~~credit~~million ~~issued~~amortization ~~under~~of the ~~credit~~inventory ~~facility totaled~~step up, the $3342.59 million transaction-related expenses as a result of ~~December 31,~~the 2008 Acquisition and lower sales volumes. The decrease was partially offset by the favorable product mix and pricing-related gains, mentioned above, cost-reducing product designs, increased productivity and efficiencies in our factories.

InInterest ~~July 2008~~expense, wenet. ~~made~~Interest aexpense, ~~$26.0~~net ~~million~~for ~~payment~~the onyear ~~our~~ended ~~term~~December 31, ~~loan~~2008 ~~credit~~was ~~agreement~~$191.8 ~~to satisfy~~million, ~~its~~an ~~obligation~~increase of $2123.03 million ~~per~~from ~~quarter~~$68.4 million reported for the ~~period~~year ~~beginning July~~ended December 131, ~~2008~~2007. ~~and~~Interest ~~ending September 30~~expense, ~~2011.~~net Infor ~~conjunction~~the year ended December 31, we2008 ~~recognized~~included ana ~~expense~~charge of $035.86 million ofrelated ~~previously~~to ~~unamortized~~the ~~deferred~~2008 ~~financing~~Acquisition ~~fees~~ and $014.9 2 million related to the extinguishment of ~~previously~~Predecessor’s ~~unamortized~~outstanding ~~original~~debt. Additionally, ~~issue~~interest ~~discount~~expense, ~~that~~net ~~related~~increased ~~directly~~due to increases in the amount of ~~the~~debt ~~prepayment.~~outstanding ~~The~~and ~~next~~higher ~~quarterly~~interest ~~payment~~rates. ~~that~~The isoutstanding ~~due~~debt ~~under~~balance ~~the~~as ~~terms~~ of ~~the~~December 31, ~~term~~2008 ~~loan~~was ~~credit~~$1,347.5 ~~agreement~~million iscompared onto $655.4 million as December 31, ~~2011~~2007.

~~Our~~Other ~~ability~~(income) toexpense, ~~make~~net. ~~scheduled~~Other ~~payments~~expense offor ~~principal of, to pay~~ the ~~interest~~year onended December 31, or2008 towas ~~refinance our indebtedness or to fund planned capital expenditures will depend on our ability to generate cash in the future~~$1. ~~This~~2 million, to a ~~certain~~net ~~extent,~~change isof ~~subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control~~$3.9 ~~Our~~million ~~business may not generate sufficient cash flow~~ from ~~operations and future borrowings may not be available to us under our revolving credit agreement in an amount sufficient to enable us to service our debt or to fund our~~ other ~~liquidity~~income ~~needs~~of $2.7 ~~While~~million wereported ~~currently~~for ~~expect that our net cash provided by operating activities will, together with future borrowings under our revolving credit agreement, be sufficient to meet our total contractual obligations over~~ the ~~next~~year ~~twelve~~ended ~~months~~December 31, if2007. weThe ~~are~~change ~~unable~~in ~~to meet our debt obligations or fund our~~ other ~~liquidity~~(income) ~~needs,~~expense weis ~~may~~primarily ~~need~~due to ~~restructure~~$1.6 ormillion ~~refinance~~in ~~all~~foreign orcurrency atranslation ~~portion~~losses, ~~of our debt or sell certain of our assets on or before the maturity of our debt~~$0.8 ~~We may not be able to restructure or refinance any of our debt~~million onrelated ~~commercially reasonable terms, if at all, which could cause us~~ to ~~default~~overhedges onand ~~our~~hedging ~~debt~~ineffectiveness ~~obligations~~ and ~~impair our liquidity~~$2.0 ~~Any~~million ~~refinancing~~net ofgains ~~our~~from ~~indebtedness~~asset ~~could~~dispositions beduring atthe ~~higher~~year ~~interest~~ended ~~rates~~December 31, ~~and may require us to comply with more onerous covenants that could further restrict our business operations~~2007.

~~All~~Provision offor ~~our~~income ~~existing~~taxes. ~~and~~The ~~future~~income ~~restricted~~tax ~~U.S.~~benefit ~~subsidiaries~~for ~~(other~~the ~~than AsureCare~~year ~~Corp.~~ended December 31, a2008 ~~Florida~~was ~~corporation)~~$12.2 ~~guarantee~~million ~~our~~compared ~~debt~~to ~~obligations.~~the Wetax ~~are~~provision ~~structured~~of as$60.2 amillion ~~holding~~for ~~company~~the ~~and~~year ~~substantially~~ended ~~all~~December 31, 2007. ofThe ~~our~~effective ~~assets~~tax ~~and~~rate ~~operations~~for ~~are~~the ~~held~~year byended ~~our~~December 31, ~~subsidiaries.~~2008 ~~There~~and ~~are~~December 31, ~~currently~~2007 nowas ~~significant~~23.5% ~~restrictions~~and on37.3%, ~~our ability~~respectively. toThe ~~obtain~~net ~~funds~~tax ~~from~~benefit ~~our~~was ~~subsidiaries~~due byto ~~dividend~~the orpre-tax ~~loan.~~loss ~~However,~~in ~~all~~2008 ofresulting ~~our~~from ~~subsidiaries~~expenses ~~are~~related ~~separate~~to ~~and~~the ~~independent~~2008 ~~legal~~Acquisition ~~entities~~ and higher ~~have~~interest noexpense ~~obligation~~and tothe ~~pay~~benefit ~~any~~of ~~dividends,~~the ~~distributions~~domestic orproduction ~~other~~activities ~~payments to us~~deduction.

~~Under our term loan credit agreement~~Liquidity, wecapital ~~are required to satisfy and maintain specified financial ratios and other financial condition tests, including a~~resources ~~minimum interest coverage ratio~~ and aoff-balance ~~maximum~~sheet ~~total~~arrangements leverage ratio. In addition, under our revolving credit agreement, we are required to satisfy and maintain, in certain circumstances, a minimum fixed charge coverage ratio. At December 31, 2008, we were in compliance with all of the covenants under our term loan credit agreement and our revolving credit agreement.

As of December 31, 2009, we had unrestricted cash and cash equivalents of $39.7 million, working capital of $293.2 million and $198.0 million in availability under our revolving credit agreement.

At December 31, 2009, we had, excluding original issue discount, $1,178.0 million of indebtedness outstanding that included $424.0 million of senior subordinated notes and $754.0 million related to our term loan credit agreement. At December 31, 2009, we had no borrowings under our revolving credit agreement. Outstanding commercial and standby letters of credit issued under the credit facility totaled $33.5 million as of December 31, 2009.

Effective December 7, 2009, we amended our term loan credit agreement and revolving credit agreement to permit a one-time dividend payable to our stockholder in an aggregate amount of $115.0 million. We incurred a fee of $3.0 million to our lenders in satisfaction of a condition to effect the amendments. We paid the dividend on December 16, 2009.

In 2009, we reduced our outstanding debt by $194.0 million:

•

Index to Financial Statements

~~Our~~unamortized ~~ability~~deferred tofinancing ~~meet~~fees ~~the financial ratios~~ and ~~tests~~$0.4 ~~can~~million beof ~~affected~~previously byunamortized ~~events~~original ~~beyond~~issue ~~our~~discount ~~control, and we cannot assure you~~ that werelated ~~will~~directly ~~be able~~ to ~~meet~~the ~~those~~amount ~~ratios~~of ~~and~~the ~~tests~~early asextinguishment ~~required. A breach~~ of ~~any~~debt. ofThe ~~these~~outstanding ~~covenants~~balance ~~would~~at ~~result~~December ~~in a default (which~~31, if2009 ~~not cured, could mature into an event~~ of ~~default) and in certain cases, an immediate event of default under our term loan credit agreement and our revolving credit agreement~~$754.0 ~~Upon~~million ~~the~~is ~~occurrence of an event of default under such agreements, all amounts outstanding under such agreements could be declared to be (or could automatically become) immediately~~ due ~~and~~at ~~payable~~maturity ~~and~~in ~~all~~February ~~commitments to extend further credit could be terminated~~2014.

• In ~~addition,~~July ~~our term loan credit agreement and revolving credit agreement~~2009, ~~among~~we ~~other~~made ~~things,~~a ~~restrict~~$100 ~~our~~million ~~ability~~payment to ~~incur~~reduce ~~indebtedness or liens, make investments or declare or pay any dividends. The indentures governing our 2016 notes, among other things: (1) limit our ability and~~ the ~~ability~~outstanding ofbalance our subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates; (2) place restrictions on the ability of ~~certain of~~ our ~~subsidiaries~~ torevolving ~~pay~~credit ~~dividends~~agreement ~~or make certain payments~~ to us; and (3) place restrictions on our ability and the ability of our subsidiaries to merge or consolidate with any other person or sell, assign, transfer, convey or otherwise dispose of all or substantially all of our assets$0. ~~However, all of these covenants are subject to significant exceptions. We are currently in compliance with these covenants.~~

• In ~~connection~~April ~~with~~2009, ~~the~~in ~~Transactions~~two separate transactions, we ~~also~~purchased ~~issued~~for $~~500~~58.09 million ~~aggregate~~(inclusive ~~principal amount~~ of 13$1.~~50%/14.00%~~9 ~~senior~~million ~~subordinated~~in ~~notes~~accrued ~~due~~interest) ~~2016,~~approximately ~~our~~$76.0 ~~2016~~million ~~notes,~~aggregate ~~which~~face ~~are~~value ~~wholly and unconditionally guaranteed by each~~ of our ~~subsidiary guarantors. Our subsidiary guarantors, as primary obligors and not as sureties, jointly and severally, irrevocably and unconditionally guaranteed, on an unsecured~~ senior ~~subordinate~~subordinated ~~basis, the performance and full and punctual payment when due, whether at maturity, by acceleration or otherwise, of all of our obligations under the indenture and our 2016~~ notes. ~~The~~We ~~notes~~recognized ~~are~~a ~~our~~gain ~~unsecured senior subordinated obligations and are subordinated in right~~ of ~~payment~~ to$16.6 ~~all~~million ofas ~~our~~a ~~existing~~result ~~and future senior indebtedness (including the senior secured credit agreement), are effectively subordinated to all~~ of ~~our secured indebtedness (including~~ the ~~senior~~early ~~secured~~extinguishment ~~credit agreement) and are senior in right~~ of ~~payment~~ todebt. ~~all~~The ~~of our existing and future subordinate indebtedness~~$76.0 ~~Our~~million ~~2016~~in repurchased notes, ~~among~~were ~~other~~retired ~~things,~~in ~~restrict~~December our and our subsidiary guarantors’ ability to incur additional indebtedness and liens, make certain restricted payments, issue dividends, enter into certain transactions with our affiliates and sell certain assets and stock2009.

~~From~~We ~~time~~paid toapproximately ~~time,~~$97.0 wemillion ~~intend~~in tocash ~~pursue acquisitions,~~interest ~~but~~expense ~~the~~in ~~timing,~~2009 ~~size or success of any acquisition effort and the~~ related ~~potential capital commitments cannot be predicted. We expect~~ to ~~fund future acquisitions primarily with cash flow from operations and borrowings, including borrowing from amounts available under~~ our ~~revolving~~outstanding ~~credit agreement or through new~~ debt ~~issuances~~. WeAt ~~may~~December 31, ~~also~~2009, ~~issue~~we ~~additional~~were ~~equity either directly or~~ in compliance ~~connection~~ with ~~any~~all ~~such~~of ~~acquisitions.~~the ~~There~~covenants ~~can~~under beour noterm ~~assurance~~loan ~~that~~credit ~~acquisition~~agreement ~~funds will~~and berevolving ~~available~~credit ~~on terms acceptable to us, or at all~~agreement.

We ~~and~~have ~~our subsidiaries~~funded, ~~affiliates~~and expect orto ~~significant~~continue ~~stockholders may from time~~ to ~~time~~ fund, inoperations ~~our~~through orcash ~~their~~flows ~~sole~~generated ~~discretion,~~by ~~purchase,~~operating ~~repay,~~activities ~~redeem~~and orborrowings ~~retire~~under ~~any~~our ofrevolving ~~our~~credit ~~outstanding~~agreement. ~~debt~~We oralso ~~equity~~expect ~~securities~~that inongoing ~~privately~~requirements ~~negotiated~~for ordebt ~~open~~service ~~market~~and ~~transactions,~~capital byexpenditures ~~tender~~will ~~offer~~be orfunded ~~otherwise~~from these sources.

~~Recent~~Based ~~Accounting~~on ~~Pronouncements~~our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit agreement, will be adequate to meet our short-term and long-term liquidity needs over the next 12 to 24 months. Our future liquidity requirements will be for working capital, capital expenditures, debt service and general corporate purposes. Our ability to meet our working capital and debt service requirements, however, is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If we are not able to meet such requirements, we may be required to seek additional financing. There can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

~~Effective January 1,~~From ~~2008,~~time weto ~~adopted Statement of Financial Accounting Standards No. 157~~time, ~~Fair~~we ~~Value~~may ~~Measurements~~pursue ~~(SFAS No. 157)~~acquisitions, ~~which~~but ~~establishes~~the ~~a framework for measuring fair value in generally accepted accounting principles~~timing, ~~clarifies~~ ~~the~~size ~~definition~~or success of ~~fair~~any ~~value~~acquisition ~~within~~effort ~~that framework,~~ and ~~expands disclosures about~~ the ~~use~~related potential ofcapital ~~fair~~commitments ~~value~~cannot ~~measurements.~~be ~~SFAS No~~predicted. ~~157~~ isWe ~~effective~~expect ~~for~~to ~~fiscal~~fund ~~years~~any ~~beginning~~future ~~after~~acquisitions ~~November 15,~~primarily ~~2007.~~with ~~However,~~cash inflow ~~February 2008, the~~from ~~Financial~~operations ~~Accounting~~and ~~Standards Board (FASB) issued FASB Staff Position No. FA5 157-2~~borrowings, ~~Effective~~including ~~Date~~borrowing offrom ~~FASB~~amounts ~~Statement~~available ~~No. 157~~under ~~(FSP~~our ~~No. 157-2),~~subsidiaries’ ~~which~~revolving ~~deferred~~credit ~~the~~agreement or ~~effective~~through ~~date~~new ofdebt ~~SFAS No~~issuances. ~~157~~ ~~for~~We ~~one~~or ~~year~~our ~~for non-financial~~Parent ~~assets~~may ~~and~~also ~~liabilities,~~issue ~~except~~additional ~~for~~equity ~~certain~~either ~~items~~directly ~~that are recognized~~ or ~~disclosed at fair value~~ in ~~the~~connection ~~financial~~with ~~statements~~any onsuch ~~a recurring basis (at least annually)~~acquisitions. WeAs ~~are currently evaluating the impact~~ of ~~SFAS No.~~December ~~157~~31, on2009, ~~our Consolidated~~other ~~Financial~~than ~~Statements~~routine ~~for~~leasing ~~items~~agreements, ~~within~~we ~~the~~had ~~scope~~no ~~of FSP No. 157~~off-2,balance ~~which will become effective on January 1, 2009~~sheet arrangements.

Operating activities

Net cash provided by operating activities for the years ended December 31, 2009, 2008 and 2007 was $207.7 million, $141.4 million and $204.2 million, respectively. Cash flow from operations improved in 2009 by $66.3 million as compared to the same period in 2008 primarily as a result of an increase of $142.7 million in net income that was partially offset by a $16.6 million gain related to the retirement of $76.0 million in senior subordinated notes and by 2008 Acquisition related non-cash items that included the $48.0 million step-up in the valuation of inventory that was recognized in cost of sales in 2008 and $14.5 million in deferred financing fees and original issue discount related to the retirement of Predecessor’s debt in 2008. Cash flow from operations decreased in 2008 by $62.8 million as compared to the same period in 2007 primarily as a result of a decrease of $141.2 million in net income that was partially offset by 2008 Acquisition related non-cash items that included the $48.0 million step-up in the valuation of the inventory that was recognized in cost of sales in 2008 and $23.8 million in deferred financing fees and original issue discount related to the retirement of Predecessor’s and the issuance of Successor’s new debt in 2008. Cash flow from operations in 2007 was positively impacted by higher net income as well as lower inventory levels resulting from improved production attainment, reduction in certain types of cooling units, improved order cycle times and higher sales, partially offset by an increase in accounts receivable.

Investing activities

For the year ended December 31, 2009, cash used in investing activities was $20.2 million compared to $1,967.1 million and $14.2 million in 2008 and 2007, respectively. Cash used in investing activities in 2009 was primarily related to $20.2 million in equipment purchases. Cash used in investing activities in 2008 was primarily due to $1,946.6 million of cash relating to the 2008 Acquisition. Capital expenditures were $21.6 million and $26.4 million in 2008 and 2007, respectively.

Index to Financial Statements

~~Beginning~~Financing ~~January 1,~~activities 2009, we will adopt the provisions for nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived tangible assets measured at fair value for impairment assessments, nonfinancial long-lived assets measured at fair value for impairment assessments and those initially measured at fair value in a business combination. We do not expect the provisions of FSP No. 157-2 related to these items to have a material impact on our consolidated financial statements.

~~SFAS~~In ~~No. 157~~2009, ~~defines~~our ~~fair~~cash ~~value~~used asin ~~the~~financing ~~price~~activities ~~that~~was ~~would~~$291.9 bemillion, ~~received~~compared to ~~sell~~ an$1,950.9 ~~asset~~million orin ~~paid~~cash toprovided ~~transfer~~by afinancing ~~liability~~activities in 2008 anand ~~orderly~~$182.7 ~~transaction~~million ~~between~~in ~~market~~cash ~~participants~~used atin ~~the~~financing ~~measurement~~activities ~~date~~in 2007. ~~SFAS~~In No2009, we made payments of $100. ~~157~~0 ~~provides~~million ato ~~framework~~fully ~~for~~satisfy ~~measuring~~our ~~fair~~outstanding ~~value~~obligations under our revolving credit facility, ~~establishes~~payments aof ~~three-level~~$57.0 ~~hierarchy~~million ~~for~~(exclusive ~~fair~~of ~~value~~accrued ~~measurements~~interest) ~~based~~to ~~upon~~purchase ~~the~~$76.0 ~~transparency~~million in face value of ~~inputs~~our senior notes, prepaid $18.0 million due on term loan credit agreement and made a $115.0 million dividend distribution to our stockholder. In 2008, primarily as a result of the ~~valuation~~2008 Acquisition, we received proceeds of an$1,373.0 ~~asset~~million orfrom ~~liability~~long-term asdebt, net of ~~the~~original ~~measurement~~issue ~~date~~discount, and ~~requires~~$1,278.2 ~~consideration~~million in equity contributions and repaid $683.5 million in Predecessor debt. We incurred deferred financing costs of $45.7 million and equity issuance costs of $8.1 million associated with the 2008 Acquisition. Also during 2008, we repaid $28.0 million of our ~~creditworthiness~~term ~~when~~loan ~~valuing~~credit ~~certain~~agreement. ~~liabilities~~During 2007, we repaid $182.6 million of our long-term debt.

~~The~~Long ~~three-level~~term ~~fair~~debt ~~value hierarchy for disclosure of fair value measurements defined by SFAS No. 157 is as follows:~~

Level 1	—	Quoted prices for identical instruments in active markets at the measurement date.
Level 2	—	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at the measurement date and for the anticipated term of the instrument.
Level 3	—	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

We incurred substantial indebtedness in connection with the 2008 Acquisition.

~~Our~~Senior ~~valuation~~subordinated ~~techniques~~notes are applied to all of the financial assets and liabilities carried at fair value as of January 1, 2008, upon adoption of SFAS No. 157. Currently, our commodity derivative instruments are carried at fair value under SFAS No. 157. The fair values are based upon independently sourced market parameters. To ensure that these derivative instruments are recorded at fair value, valuation adjustments may be required to reflect the creditworthiness of either party and constraints on liquidity. Any such adjustment is not material as of December 31, 2008.

~~Effective~~In ~~January~~February 1, 2008, we ~~also~~issued ~~adopted~~and ~~Statement~~sold $500.0 million of ~~Financial~~13.50%/14.00% ~~Accounting~~senior subordinated ~~Standards~~notes Nodue 2016. ~~159,~~ The ~~Fair~~senior ~~Value~~subordinated ~~Option for~~notes ~~Financial~~bear ~~Assets~~interest ~~and~~at ~~Financial~~a ~~Liabilities~~rate ~~(SFAS~~of No13.50% ~~159).~~per ~~SFAS~~annum, ~~No. 159~~provided ~~allows~~that anwe ~~entity~~may, ~~the~~at ~~irrevocable~~our option, elect to ~~elect~~pay ~~fair~~interest ~~value~~in ~~for~~any ~~the~~interest ~~initial~~period ~~and~~at ~~subsequent~~a ~~measurement~~rate ~~for~~of ~~certain~~14.00%, per ~~financial~~annum, ~~assets~~in ~~and~~which ~~liabilities~~case onup ato ~~contract-by-contract basis~~3.0% per Asannum wemay ~~have~~be ~~not~~paid ~~elected~~by ~~the~~issuing ~~fair~~additional ~~value~~notes. ~~option~~The ~~for~~notes ~~any~~are ofwholly ~~our~~and ~~assets~~unconditionally orguaranteed ~~liabilities,~~by ~~the~~each ~~adoption~~subsidiary ~~of SFAS No~~guarantor. ~~159~~ ~~had no impact on our Consolidated Financial Statements.~~

~~Contractual~~In ~~Obligations~~April 2009, we formed Goodman Global Finance (Delaware) LLC (GGF), a Delaware limited liability company and, ~~Commitments~~as of that date, an unrestricted subsidiary, which entered into two separate transactions to purchase for $58.9 million (inclusive of $1.9 million in accrued interest) approximately $76.0 million aggregate face value of our senior subordinated notes. We recognized a gain of $16.6 million in the second quarter of 2009 as a result of this early extinguishment of long-term debt, after taking into consideration the recognition of $2.4 million of previously unamortized deferred financing costs associated with the $76.0 million of senior subordinated notes.

~~The following~~In ~~table~~December ~~reflects~~2009, ~~our~~we ~~contractual~~designated ~~obligations~~GGF ~~and~~a ~~commercial~~restricted ~~commitments~~subsidiary asand ofretired ~~December 31,~~the ~~2008~~$76.0 ~~Commercial~~million ~~commitments~~aggregate ~~include~~face ~~lines~~value of ~~credit,~~senior ~~guarantees~~subordinated ~~and other potential cash outflows resulting from a contingent event that~~notes ~~requires~~that ~~our~~were ~~performance~~held ~~pursuant~~by ~~to a funding commitment~~GGF.

Term loan credit agreement/revolving credit agreement

In February 2008, we entered into an $800.0 million term loan credit agreement due 2014 and a $300.0 million revolving credit agreement due 2013. The term loan credit agreement has an interest rate of Prime or London Interbank Offered Rate (LIBOR), with a minimum of 3.25% plus applicable margin, based on certain leverage ratios, which was 3.0% and totaled 6.25% as of December 31, 2009. The revolving credit agreement has an interest rate of Prime or LIBOR, plus applicable margin, which was 1.0% and totaled 4.25% as of December 31, 2009.

As of December 31, 2009, we owed $754.0 million on our term loan credit agreement and had no outstanding obligation on our revolving credit agreement, other than outstanding and undrawn letters of credit of $33.5 million.

In December 2009, we made an $18.0 million payment on our term loan credit agreement to satisfy our obligation of $2.0 million per quarter for the period beginning October 1, 2011 and ending December 31, 2013. As a result, we recognized an expense of $0.3 million of previously unamortized deferred financing fees and $0.4 million of previously unamortized original issue discount that related directly to the amount of the early extinguishment of debt. The outstanding balance at December 31, 2009 of $754.0 million is due at maturity in February 2014.

We had availability under the revolving credit agreement of $198.0 million at December 31, 2009 after taking into consideration outstanding commercial and standby letters of credit issued under the credit facility, which totaled $33.5 million as of December 31, 2009.

Index to Financial Statements

	Payments due by period
	Total		Less than 1year		2 to 3years		4 to 5years		More than 5years
	(in millions)
Senior subordinated notes	$	500.0	$	—	$	—	$	—	$	500.0
Revolving credit agreement		100.0		—		—		100.0		—
Term loan credit agreement		772.0		—		2.0		16.0		754.0
Interest payments		805.4		131.3		262.5		261.0		150.6
Operating leases		98.3		26.1		38.6		22.6		11.0
Self insurance		6.3		4.0		1.6		0.4		0.3
Pension payments		17.3		1.3		2.8		3.2		10.0
Total contractual obligations	$	2,299.3	$	162.7	$	307.5	$	403.2	$	1,425.9

Original issue discount

~~Excluded~~The ~~from~~term ~~the~~loan ~~foregoing~~credit ~~contractual~~agreement ~~obligations~~included ~~table~~an ~~are~~original ~~open~~issue ~~purchase~~discount ~~orders~~of ~~at December 31,~~$32.0 ~~2008~~million. ~~for~~It ~~raw~~is ~~materials~~being ~~and~~amortized ~~supplies~~to ~~used~~interest inexpense using the effective ~~normal~~interest ~~course~~method ofover ~~business,~~the ~~supply~~period ~~contracts~~the ~~with~~debt ~~customers~~is anticipated to be outstanding through maturity. As of December 31, ~~distribution~~2009, ~~agreements~~the ~~and~~unamortized ~~other~~balance ~~contracts~~of ~~without~~the ~~express~~original ~~funding~~issue ~~requirements~~discount was $17.2 million.

Other

Substantially all of our existing U.S. subsidiaries guarantee our debt obligations under the term loan agreement, the revolving credit agreement and the senior subordinated notes and have granted security interests in, or mortgages on, substantially all of their tangible and intangible assets as collateral for the obligations under the term loan agreement and the revolving credit agreement. In addition, Chill Intermediate Holdings, Inc. guarantees our debt obligations under the term loan and revolving credit agreements. We are structured as a holding company and substantially all of our assets and operations are held by our subsidiaries. There are currently no significant restrictions on the ability of Goodman Global, Inc. to obtain funds from its subsidiaries by dividend or loan.

Under the term loan credit agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests, including a minimum interest coverage ratio and a maximum total leverage ratio. In addition, under our revolving credit agreement, we are required to satisfy and maintain, in certain circumstances, a minimum fixed charge coverage ratio. As of December 31, 2009, we were in compliance with all of the covenants under our senior term loan credit agreement and revolving credit agreement.

We and our subsidiaries, affiliates or significant stockholders may from time to time, in our or their sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise.

Recent accounting pronouncements

Refer to Note 2 in our consolidated financial statements in Part IV of this Annual Report for a discussion of our critical accounting policies and estimates.

Contractual obligations and commitments

The following table reflects our contractual obligations and commercial commitments as of December 31, 2009. Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires our performance pursuant to a funding commitment.


	Payments due by period (1)
	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than five years
	(In millions)
Senior subordinated notes	$	424.0	$	—	$	—	$	—	$	424.0
Term loan credit agreement		754.0		—		—		754.0		—
Interest payments (2)		598.9		119.8		235.8		173.9		69.4
Operating leases		88.8		26.3		36.9		21.5		4.1
Self insurance		10.8		6.6		3.5		0.7		—
Pension payments		19.1		1.4		3.1		3.5		11.1

Total contractual obligations	$	1,895.6	$	154.1	$	279.3	$	953.6	$	508.6

(1)	Excluded from the foregoing contractual obligations table are open purchase orders at December 31, 2009 for raw materials and supplies used in the normal course of business, supply contracts with customers, distribution agreements and other contracts without express funding requirements.

(2)

Interest payments reflect interest payable on our outstanding long term obligations at December 31, 2009 and include our senior subordinated notes and term loan credit agreement. Interest payments are calculated based on an assumed rate of 13.5% for the senior subordinated notes (i.e., payment entirely in cash, rather than using the partial payment, in-kind option) and an assumed rate of 6.25% for the term loan credit agreement.

Index to Financial Statements

Contingencies

Various claims, lawsuits and administrative proceedings with respect to commercial, product liability and environmental matters are pending or threatened against us and our subsidiaries arising from the ordinary course of business. We are also subject to various regulatory and compliance obligations.

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks, which arise during the normal course of business from changes in interest rates, foreign exchange rates and commodity prices. A discussion of our primary market risks are presented below.

Interest ~~Rate~~rate ~~Risk~~risk

We are subject to interest rate and related cash flow risk in connection with borrowings under our term loan ~~credit agreement~~ and ~~our~~ revolving credit ~~agreement~~ facilities which totaled $~~772~~754.0 million ~~and~~at ~~$100.0 million, respectively as of~~ December 31, ~~2008~~2009. To reduce the risk associated with fluctuations in the interest rate of our floating rate debt,: (1) in May 2008, we entered into a two-year interest rate cap with a notional amount of $150.0 million that matures in May 2010; (2) in March 2009, we entered into an interest rate swap with a notional amount of $200.0 ~~The~~million ~~London~~that ~~Interbank~~matures ~~Offered~~in ~~Rate~~March 2010; and (~~LIBOR~~3) in ~~cap~~March is2009, 7%we entered into an interest rate swap with a notional amount of $300.0 million that matures in March 2011.

Our results of operations can be affected by changes in interest rates due to variable interest rates on our ~~senior~~term ~~secured~~loan credit ~~facilities.~~agreement ~~The~~and ~~annual impact~~revolving ofcredit aagreement. A 1% increase or decrease in the overall interest ~~rates~~rate would ~~change~~have ~~our~~resulted ~~results~~in ofapproximately ~~operations~~a by $86.79 million ($5.4 .2 million, net of tax) increase or decrease in our interest expense in the year ended December 31, 2009 on our variable rate indebtedness, after taking into consideration our interest rate swaps.

Foreign ~~Currency~~currency ~~Exchange~~exchange ~~Rate~~rate ~~Risk~~risk

We conduct our business primarily in the United States. We have limited sales in Canada, which are transacted in Canadian dollars. Other export sales, primarily to Latin America and the Middle East, are transacted in United States dollars. Therefore, we have only minor exposure to changes in foreign currency exchange rates. Sales outside the United States have not exceeded 5% in any of the three years ended December 31, ~~2008~~2009, ~~2007~~2008 or ~~2006~~2007. Approximately 1% of our total assets are outside the United States. There has been minimal impact on ~~our commodity costs~~ operations due to currency fluctuations.

Commodity ~~Price~~price ~~Risk~~risk

We are subject to price risk as it relates to our principal raw materials: copper, aluminum and steel. Cost variability of raw materials can have a material impact on our results of operations. To enhance stability in the cost of major raw material commodities, such as copper and aluminum used in the manufacturing process, we have entered and may continue to enter into commodity derivative arrangements. Maturity dates of the contracts are scheduled to coincide with market purchases of the commodity. Cash proceeds or payments between the derivative counter-party and us at maturity of the contracts are recognized as an adjustment to the cost of the commodity purchased, to the extent the hedge is effective. Charges or credits resulting from ineffective hedges are recognized in income immediately. We have entered into swaps for a portion of our commodity supply that expire through December 31, 2011. These swaps had a net fair value as an asset of $23.4 million ($14.4 million, net of tax) as of December 31, 2009. A 10% change in the price of commodities hedged would change the fair value of the hedge contracts by approximately $8.8 million ($5.4 million, net of tax) as of December 31, 2009.

Index to Financial Statements

income immediately. We generally do not enter commodity hedges extending beyond eighteen months. We have entered into swaps for a portion of our commodity supply which expire by December 31, 2009. A 10% change in the price of commodities hedged would change the fair value of the hedge contracts by approximately $12.9 million ($7.9 million, net of tax) and $10.3 million ($6.3 million, net of tax) as of December 31, 2008 and 2007, respectively.

We continue to monitor and evaluate the prices of our principal raw materials and may decide to enter into hedging contracts in the future.

ITEM 8.

Financial Statements and Supplementary Data

Our financial statements are listed under Part IV, Item 15 of this Annual Report on the pages indicated.

Index to Financial Statements

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

WeEffectiveness ~~maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act~~ of 1934, or the “Exchange Act”) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, ~~no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.~~

~~Our~~We ~~management~~maintain a set of disclosure controls and procedures designed to ensure that information we are required to disclose in reports that we file or submit with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC. An evaluation was carried out under the supervision and with the participation of ~~our~~the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), ~~has~~of ~~evaluated~~ the effectiveness of ~~the design and operation of~~ our disclosure controls and procedures as of ~~December 31,~~the end ~~2008~~of the period covered by this report. Based ~~upon~~on ~~this~~that evaluation, the CEO and ~~subject~~CFO tohave ~~the~~concluded ~~foregoing,~~that ~~our~~the ~~Chief~~Company’s ~~Executive~~disclosure ~~Officer~~controls and ~~Chief~~procedures ~~Financial~~are ~~Officer~~effective ~~concluded~~to provide reasonable assurance that ~~our~~information ~~disclosure~~required ~~controls~~to ~~and~~be disclosed by ~~procedures~~us ~~were~~in ~~effective~~reports aswe offile ~~December 31~~with the SEC is recorded, ~~2008~~processed, ~~the~~summarized ~~end~~and ofreported within the ~~period~~time ~~covered~~periods required by ~~this~~the ~~annual~~SEC, ~~report~~and is accumulated and communicated to management including our CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.

~~Our~~Management’s ~~Chief~~report ~~Executive~~on ~~Officer and Chief Financial Officer do not expect that our disclosure controls or our~~ internal ~~controls will prevent all error and all fraud. The design of a~~ control ~~system~~over ~~must~~financial ~~reflect~~reporting the fact that there are resource constraints and the benefit of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that we have detected all of our control issues and all instances of fraud, if any. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

~~There~~Management’s ~~have~~report ~~been~~on ~~no changes in~~ our internal control over financial reporting ~~that~~can ~~occurred~~be ~~during~~found ~~our~~in ~~fiscal~~Part ~~quarter~~IV, ~~ended December~~Item 3115, ~~2008~~“Exhibits and Financial Statement Schedules”, ~~that~~of ~~have~~this ~~materially~~report ~~affected,~~and oris ~~are~~incorporated ~~reasonably~~herein ~~likely~~by toreference. ~~materially~~The ~~affect,~~Independent Registered Public Accounting Firm’s attestation report on management’s assessment of the effectiveness of our internal control over financial reporting can also be found in Part IV, Item 15, “Exhibits and Financial Statement Schedules” of this report and is incorporated by reference.

~~This~~Changes ~~annual~~in ~~report does not include a report of management’s assessment regarding~~ internal control over financial reporting ~~or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.~~

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended December 31, 2009. We determined that there were no changes in our internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

Other Information

None.

3738

Index to Financial Statements

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

MANAGEMENT

The following table provides information regarding our executive officers and directors:

Name	Age	Position
David L. Swift	5051	President, Chief Executive Officer and Director
Lawrence M. Blackburn	5455	Executive Vice President, Chief Financial Officer and Director
Ben D. Campbell	5253	Executive Vice President, Secretary and General Counsel
Donald R. King	5253	Executive Vice President, Human Resources
Peter H. Alexander	7071	Senior Vice President, Independent Distribution
Samuel G. Bikman	4041	Senior Vice President, Logistics and Business Development
Gary L. Clark	4647	Senior Vice President, Marketing
James L. Mishler	5455	Senior Vice President and President of Company Owned Distribution
Terrance M. Smith	5960	Senior Vice President and Chief Information Officer
William L. Topper	5153	Senior Vice President, Operations
Mark M. Dolan	4950	Vice President, Corporate Controller and Treasurer
Ardee Toppe	4546	Vice President and President and General Manager of Quietflex
Charles A. Carroll	59	Chairman and Director
Erik Ragatz	37	Chairman of the Board of Directors
Philip U. Hammarskjold	44	Director
Charles A. Carroll	60	Director
Robert B. Henske	4748	Director
Erik Ragatz	36	Director
Saloni Saraiya Multani	31	Director
Saloni K. Saraiya	30	Director

Mr. David L. Swift joined us on April 21, 2008 as President, Chief Executive Officer and Director. From November 2001 to July 2007, Mr. Swift was President of Whirlpool North America where he also served on its Board of Directors. From December 2000 to November 2001, Mr. Swift served as President of Eastman Kodak Company’s Professional Group. From December 1996 to December 2000, he served as the Chairman and President of Kodak’s Greater Asian Region based in Shanghai, China.

Mr. Lawrence M. Blackburn joined us in September 2001 after having served as Vice President and Chief Financial Officer of Amana Appliances from February 2000 to July 2001. Mr. Blackburn became a Director on April 21, 2008. From April 1983 to August 1999, Mr. Blackburn was with Newell Rubbermaid, Inc. and previously Rubbermaid, Inc., where he had most recently been President and General Manager of its wholly owned subsidiary, Little Tikes Commercial Play Systems, Inc.

~~Mr. Ben D. Campbell~~39 joined us in November 2000 as Executive Vice President, Secretary and General Counsel. Mr. Campbell served as Assistant General Counsel of Centex Corporation from 1998 to 2000 and Senior Group Counsel for J.C. Penney Company, Inc. from 1988 to 1998. Prior to that time, he was a partner in the law firm of Baker, Mills & Glast P.C. in Dallas, Texas.

Mr. Donald R. King joined us in November 2000 as Executive Vice President, Human Resources. Prior to joining Goodman, Mr. King led the human resources function for the Americas Region of Halliburton Company. Mr. King has over 25 years of experience that spans a variety of industries and Fortune 100 companies, including Ryder Systems, Inc., Aetna Insurance Company, The Prudential Insurance Company of America and Phillips Petroleum Company.

Index to Financial Statements

Mr. Ben D. Campbell joined us in November 2000 as Executive Vice President, Secretary and General Counsel. Mr. Campbell served as Assistant General Counsel of Centex Corporation from 1998 to 2000 and Senior Group Counsel for J.C. Penney Company, Inc. from 1988 to 1998. Prior to that time, he was a partner in the law firm of Baker, Mills & Glast P.C. in Dallas, Texas.

Mr. Donald R. King joined us in November 2000 as Executive Vice President, Human Resources. Prior to joining Goodman, Mr. King led the human resources function for the Americas Region of Halliburton Company. Mr. King has over 25 years of human resources experience that spans a variety of industries and Fortune 100 companies, including Ryder Systems, Inc., Aetna Insurance Company, The Prudential Insurance Company of America and Phillips Petroleum Company.

Mr. Peter H. Alexander has been with the Goodman family of companies for over 25 years in numerous executive level positions with us and Amana. All Amana and Goodman sales personnel responsible for independent distribution, national accounts and residential new construction report to Mr. Alexander.

Mr. Samuel G. Bikman joined us in January 2002 from Compaq, where he was responsible for Worldwide Logistics. The Customer Service, Production Scheduling, Logistics, PTAC Sales and International Sales teams all report to Mr. Bikman.

Mr. Gary L. Clark joined us in April 2002 after four years at Rheem and 14 years at Carrier, where he led their Residential Product marketing efforts. Prior to that time, Mr. Clark worked in the contracting business.

Mr. James L. Mishler joined us in September 2003. Mr. Mishler has over 25 years of marketing, sales, service, distribution, operations and general management experience in the ~~highly competitive~~ major appliance and HVAC industries. ~~Some~~His ~~of his~~ previous ~~affiliations~~employment ~~have~~has been with Whirlpool, Frigidaire and Lennox.

Mr. Terrance M. Smith joined us in March 2003. Mr. Smith has over 35 years of business and information technology experience. In his last position, Mr. Smith was the Vice President of Information Systems for Cooper Industries, Ltd.

Mr. William L. Topper joined us in April 2002 after 28 years with Electrolux (Frigidaire), where he had responsibility for all ~~Domestic~~domestic ~~Refrigeration~~refrigeration ~~Production~~production.

Mr. Mark Dolan joined us in April 2005 after 12 years with Lennox, where he held several senior financial and operations positions. Mr. Dolan was previously with PricewaterhouseCoopers.

Mr. Ardee Toppe was appointed President and General Manager of Quietflex in January of 2005. Mr. Toppe joined us in April 2003 as Vice President, Corporate Controller and Treasurer. Prior to joining Goodman, Mr. Toppe spent approximately three years with Dayton Superior, a construction supply company, most recently as the Vice President and General Manager of the Dur-O-Wal division. Previously he held various financial roles with Clopay, Allied Signal, and Eveready Battery Company (Energizer).

Mr. ~~Charles A.~~Erik ~~Carroll~~Ragatz ~~joined~~became usone inof ~~September 2001 and was~~ our ~~President~~directors ~~and Chief Executive Officer until his retirement~~ on ~~April~~February 2113, 2008. Mr. ~~Carroll~~Ragatz ~~remained~~is a ~~director~~Managing ~~and~~Director ~~Chairman~~at ofHellman & ~~our and our~~Friedman ~~Parent’s~~LLC. ~~Board~~Prior ofto ~~Directors.~~joining ~~Before~~Hellman & ~~joining~~Friedman usin 2001, Mr. ~~Carroll~~Ragatz ~~served~~was asa ~~President~~vice-president ~~and~~with ~~Chief~~Pacific ~~Executive~~Equity ~~Officer~~Partners ofin ~~Amana Appliances from January 2000 to July 2001~~Sydney, ~~when~~Australia ~~substantially~~and ~~all~~an ofassociate ~~the~~with ~~assets~~Bain ofCapital ~~Amana~~in ~~Appliances~~Boston, ~~were acquired by Maytag Corporation~~Massachusetts. ~~From 1971 to March 1999,~~ Mr. ~~Carroll~~Ragatz ~~was~~also ~~employed~~worked byas ~~Rubbermaid,~~a management ~~Inc.~~consultant ~~where,~~for ~~from~~Bain & ~~1993,~~Company hein ~~held~~San ~~the~~Francisco, ~~position~~California. ~~of President and Chief Operating Officer~~Mr. Ragatz ~~Effective~~also ~~immediately~~currently ~~after~~serves ~~the~~as ~~filing~~a ~~with~~director ~~the Securities and Exchange Commission (the SEC)~~ of ~~this~~Sheridan ~~annual report on Form 10-K~~Holdings, MrInc. ~~Carroll~~, ~~will~~LP ~~resign~~Financial ~~as Chairman of our~~ and ~~Parent’s~~San ~~Boards~~Francisco ~~and~~Education ~~remain as a director of our and Parent’s Boards~~Fund.

Mr. ~~Philip~~Charles UA. ~~Hammarskjold~~Carroll ~~became~~joined ~~one~~us ofin ~~our~~September ~~directors~~2001 onand ~~February 13,~~was ~~2008,~~our asPresident ~~well~~and asChief ofExecutive ~~Parent.~~Officer ~~Mr. Hammarskjold~~until ~~joined Hellman &~~his ~~Friedman~~retirement ~~LLC~~on ~~in 1992~~April 21, 2008. ~~became~~Before ajoining ~~partner in January 1996~~us, ~~and~~Mr. Carroll ~~has~~ served as aPresident ~~Managing~~and ~~Director~~Chief ofExecutive ~~Hellman &~~Officer ~~Friedman~~of ~~LLC~~Amana ~~since~~Appliances from January ~~1998.~~2000 ~~Mr. Hammarskjold~~to ~~also~~July ~~serves~~2001, aswhen asubstantially ~~director~~all of ~~Emdeon~~the ~~Business~~assets ~~Services, AlixPartners~~of ~~LLP~~Amana ~~and~~Appliances ~~Catalina~~were ~~Marketing~~acquired by Maytag Corporation. ~~Effective~~From ~~immediately~~1971 ~~after~~to March ~~the~~1999, ~~filing~~Mr. Carroll ~~with~~was ~~the~~employed ~~SEC~~by ofRubbermaid, ~~this~~Inc. ~~annual~~where, ~~report~~from ~~on Form 10-K~~1993, ~~Mr. Hammarskjold~~he ~~will~~held ~~resign~~the asposition ~~director~~ of ~~our~~President and ~~Parent’s~~Chief ~~Boards~~Operating Officer.

Mr. Robert B. Henske became one of our directors on February 13, 2008~~, as well as of Parent, and is a member of its Audit Committee and Compensation Committee~~. Mr. Henske has served as a Managing Director of Hellman & Friedman LLC since July 2007. From May 2005 until July 2007, he served as Senior Vice President and General Manager of the Consumer Tax Group of Intuit Inc. He was Intuit’s Chief Financial Officer from January 2003 to September 2005. Prior to joining Intuit, he served as Senior Vice President and Chief Financial Officer of Synopsys, Inc., a supplier of electronic design automation software, from May 2000 until January 2003. From January 1997 to May 2000, Mr. Henske was at Oak Hill Capital Management, a Robert M. Bass Group private equity investment firm, where he was a partner. Mr. Henske also serves ~~on the board of directors of VeriFone, Inc. and Activant Solutions, Inc. Mr. Henske also serves~~ as Chairman of the Board of Activant Solutions, Inc. and is or has been a member of the Board of Directors of VeriFone Holdings, Inc., Williams Scotsman, Grove Worldwide, Reliant Building Products and American Savings Bank.

3940

Index to Financial Statements

MrMs. ~~Erik~~Saloni Saraiya ~~Ragatz~~Multani became one of our directors on February 13, 2008~~, as well as of Parent,~~. ~~Chill Holdings, Inc~~Ms.~~, and is a member of its Audit Committee and Compensation Committee. Mr.~~ ~~Ragatz~~Multani is a ~~Managing~~Principal ~~Director~~ at Hellman & Friedman LLC. Prior to joining Hellman & Friedman in ~~2001~~2006, MrMs. ~~Ragatz~~Multani ~~was~~worked ~~a vice-president~~in ~~with~~the ~~Pacific~~Private Equity ~~Partners~~Group inat ~~Sydney,~~The ~~Australia~~Blackstone Group and anat ~~associate~~Columbia ~~with~~House ~~Bain Capital in Boston~~Company, ~~Massachusetts.~~both ~~Mr. Ragatz also worked as a management consultant for Bain & Company~~ in ~~San~~New ~~Francisco, California~~York. MrMs. ~~Ragatz~~Multani is also currently ~~serving~~serves as a director of ~~Sheridan Holdings~~Vertafore, Inc. ~~Effective immediately after the filing with the SEC of this annual report on Form 10-K, Mr. Ragatz will serve as Chairman of our and Parent’s Boards.~~

~~Ms. Saloni K.~~Code ~~Saraiya became one~~ of ~~our~~ethics directors on February 13, 2008, as well as of Parent, and is a member of Parent’s Audit Committee. Ms. Saraiya is a Principal at Hellman & Friedman LLC. Prior to joining Hellman & Friedman in 2006, Ms. Saraiya worked in the Private Equity Group at The Blackstone Group and at Columbia House Company, both in New York. Ms. Saraiya is also currently serving as a director of Vertafore, Inc.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics applicable to all employees, executive officers and directors of Goodman and each of its subsidiaries, including Goodman’s principal executive officer, principal financial officer, principal accounting officer and controller, and persons performing similar functions.

The purpose of the Code of Ethics is: (1) to deter wrongdoing; (2) to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (3) to promote full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with the SEC or otherwise communicate to the public; (4) to promote compliance with applicable governmental laws, rules and regulations; (5) to promote prompt internal reporting of violations of the code to an appropriate person; and (6) to promote accountability for adherence to the Code.

We will provide a copy of the Code of Business Conduct and Ethics without charge to any person upon request by contacting Goodman’s Corporate Secretary at our executive office. The Code of Business Conduct and Ethics is available on Goodman’s website at www.goodmanglobal.com.

Board ~~Composition~~composition and ~~Governance~~governance

~~The composition~~Our ~~of our~~ Board of Directors isconsists ~~established by the terms~~ of ~~the~~6 ~~stockholders~~directors. ~~agreement~~Our ~~entered into~~ by-laws ~~us,~~provide ~~Parent,~~that ~~funds~~our ~~affiliated~~Board ~~with each~~ of ~~Hellman &~~Directors ~~Friedman~~consist ~~LLC,~~of ~~GSO~~no ~~Capital~~less ~~Partners,~~than ~~Farallon~~2 ~~Partners~~nor ~~and~~more ~~AlpInvest Partners,~~than ~~certain~~10 ~~other~~persons. ~~investors~~The ~~that~~exact ~~the~~number ~~funds~~of ~~affiliated with GSO Capital Partners syndicated their investments to and certain~~ members ofon our ~~management.~~Board ~~Among~~of ~~other~~Directors will ~~things,~~be ~~this~~determined ~~stockholders~~from ~~agreement~~time ~~provides that, prior~~ to antime ~~initial~~by ~~public offering~~resolution of ~~the~~a ~~shares~~majority of ~~Parent’s~~our ~~common~~full ~~stock,~~Board ~~the parties that beneficially own shares~~ of ~~Parent’s~~Directors. ~~common stock will vote those shares to elect a board of directors comprised of the following persons:~~

•Each ~~the~~of ~~chief~~our ~~executive~~directors ~~officer~~serves for a term of ~~Parent;~~one year. Directors hold office until the annual meeting of stockholders and until their successors have been duly elected and qualified.

•In connection with the ~~remaining~~2008 ~~board~~Acquisition, ~~members~~we ~~designated~~entered byinto ~~the~~a stockholders agreement with Parent, funds affiliated with ~~Hellman~~each of Hellman & Friedman LLC, which we refer to as the Hellman & Friedman Investors, GSO Capital Partners, Farallon Partners and AlpInvest Partners, certain other investors that the funds affiliated with atGSO ~~least~~Capital ~~one~~Partners syndicated their investments to and certain members of ~~such~~our ~~designees~~management. ~~being~~Under the stockholders agreement, prior to an initial public offering of the shares of Parent’s common stock, the Board of Directors of Parent will consist of the chief executive officer of Parent and additional directors designated by the Hellman & Friedman ~~Capital~~Investors ~~Executives~~and ~~VI,~~their Laffiliates.P. ~~for~~Following sosuch ~~long~~an asinitial itpublic ~~owns~~offering, ~~any~~the ~~share~~stockholders ~~equivalents~~agreement provides that the Hellman & Friedman Investors will generally be entitled to nominate a number of directors (rounded up to the nearest whole number) corresponding to their proportionate equity interest in Parent.

For a discussion regarding the stockholders agreement, please refer to “Certain Relationships and Related Transactions, and Director Independence—Agreements ~~Related~~related to the 2008 Acquisition – —Stockholders ~~Agreement~~agreement.”

The members of our Board of Directors have been determined by action of Parent, our sole stockholder. Parent has designated the members of its Board of Directors to also be the members of our Board of Directors. Because we have a single stockholder, we do not have a standing nominating committee of our Board of Directors and do not recommend directors for approval by Parent.

We believe that Parent seeks to ensure that our Board of Directors is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow our Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure. In that regard, we believe that Parent considers all factors it deems appropriate, including the information discussed in each of the board members’ biographical information set forth above and, in particular, with regards to Messrs. Ragatz, Henske and Saraiya, their significant experience, expertise and background with regard to financial matters.

Our Board of Directors currently has one standing committee, the Audit Committee.

Audit Committee

The Audit Committee currently consists of three directors, Messrs. Erik Ragatz (Chairman) and Robert B. Henske and Ms. Saloni K. Saraiya. All were appointed to the Audit Committee in 2008. Our Board of Directors has determined that Robert B. Henske has accounting or related financial management expertise and qualifies as an audit committee financial expert as defined under the SEC’s rules and regulations.

Index to Financial Statements

ITEM 11. Executive Compensation

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our executive compensation program, including with respect to our named executive officers (“NEOs”), is overseen and administered by the Compensation Committee of our Parent’s Board of Directors (the “Board”). Our NEOs for 2008 are (1) David L. Swift, our current chief executive officer who commenced employment with us on April 21, 2008, (2) Charles A. Carroll, our former chief executive officer who retired as president and chief executive officer effective April 21, 2008, and who will resign his position as Chairman of our Board of Directors and our Parent’s Board effective immediately after the filing of this annual report on Form 10-K, (3) Lawrence M. Blackburn, our current chief financial officer and (4) Ben D. Campbell, Donald R. King and William L. Topper, who were our three other most highly compensated executive officers who were serving as executive officers at the end of December 31, 2008.

Following the consummation of the Merger, a new Compensation Committee of Chill Holdings, Inc., our Parent (the “Compensation Committee”), was established, consisting of Erik D. Ragatz and Robert B. Henske. None of our executive officers has served as a member of our Compensation Committee (or other committee serving an equivalent function) of any other entity whose executive officers served as a director of our company or member of our Compensation Committee.

For the 2008 fiscal year, the Board, together with the Compensation Committee, administered the Chill Holdings, Inc. 2008 Stock Incentive Plan (the “2008 Plan”) and the 2008 Annual Incentive Compensation Plan (the “2008 Bonus Program”). The Board, together with the Compensation Committee, reviewed the performance of our executive officers and key employees and determined the compensation of our executive officers and other compensation arrangements. The Executive Vice President of Human Resources supported the Compensation Committee in its duties and, along with the president and chief executive officer, was delegated authority to fulfill certain administrative duties regarding the compensation programs. Our former chief executive officer provided recommendations to our Board and Compensation Committee and participated in discussions and evaluations regarding the compensation of the other NEOs.

Objectives of Compensation Programs

In 2008, we compensated our senior executives, including the NEOs, at levels we believed to be competitive within the HVAC industry and with similar durable goods manufacturing businesses of comparable revenue ranges. Our primary objective for executive compensation in 2008 was to ensure our ability to continue to retain our senior level executives, as well as to attract, retain and motivate the management team required to lead the Company in achieving its vision and mission while supporting our core values in a highly competitive marketplace. Our business strategy depends to a significant degree upon our executive officers and key employees and their relationships with distributors. Therefore, we seek to retain our senior executives over the long-term and believe that continuity of management is in the best interests of our shareholders.

We designed our executive compensation programs to provide a competitive base salary for our NEOs as well as award performance-based cash incentives and long-term equity incentives. Our executive compensation for 2008 was determined in conjunction with the Merger and with a view to each NEO’s past compensation levels as well as our future business strategy. The total compensation and benefits package provided to our NEOs in 2008 was designed to be competitive and to exceed median market compensation for talented and experienced senior executives.

Compensation paid to Mr. Carroll, our former president and chief executive officer, was materially greater than the compensation paid to our other non-CEO NEOs to reflect the primary differences in the scope of job responsibilities and to include his role as Chairman of the Board. Compensation payable to Mr. Swift, our current president and chief executive officer, continues to be materially different from the compensation paid to our other non-CEO NEOs to reflect those same differences in the scope of job responsibilities, although Mr. Swift does not also serve in the capacity of Chairman. Our pay practices are reflective of competitive market data, which reflect

Index to Financial Statements

~~competitive~~Audit ~~pay~~Committee practices found among companies in our specific industry as well as general industry (see “Competitive Analysis,” below). We did not engage an outside consultant in 2008 to review our executive compensation program.

~~Compensation~~The ~~Philosophy~~Audit Committee currently consists of three directors, Messrs. Erik D. Ragatz (Chairman) and Robert B. Henske and Ms. Saloni Saraiya Multani. All were appointed to the Audit Committee in 2008. Our Board of Directors has determined that Robert B. Henske has accounting or related financial management expertise and qualifies as an audit committee financial expert as defined under the SEC’s rules and regulations.

~~Our~~Compensation ~~overall~~committee ~~compensation~~interlocks ~~philosophy~~and ~~is to use straightforward compensation programs that offer appropriate incentives to our executives, while providing~~insider ~~transparency~~participation to our shareholders. In implementing this philosophy, we generally do not provide perquisites, personal benefits, defined benefit plans or supplemental plans for executives. For 2008, our executive compensation emphasized cash and equity compensation, and consisted primarily of the following:

•Compensation ~~base~~decisions ~~salary~~are tomade ~~provide~~by ~~stable~~the ~~income~~Board of Directors and Compensation Committee of Parent. Parent’s board has appointed Messrs. Henske and Ragatz, who are also members of our Board of Directors, to serve on Parent’s compensation committee. None of our ~~NEOs~~executive ~~during~~officers has served as a member of the ~~fiscal~~compensation ~~year~~committee (or other committee serving an equivalent function) of any other entity, whose executive officers served as a director of our company or members of Parent’s compensation committee.

•Messrs. ~~annual~~Henske ~~performance-based~~and ~~cash~~Ragatz ~~incentives~~are ~~tied~~managing todirectors ~~our~~of ~~profitability~~Hellman & Friedman LLC. As of December 31, ~~which~~2009, ~~bonus~~affiliates ~~awards~~of Hellman & ~~were~~Friedman ~~granted~~LLC ~~under~~control ~~our~~approximately ~~2008~~87% ~~Bonus~~of ~~Program~~the outstanding common stock of Parent. See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Certain Relationships and Related Transactions, and Director Independence.”

•Director ~~equity~~compensation awards in the form of stock options which were granted in February 2008 (and for David Swift, our current chief executive officer, in April 2008) under the 2008 Plan to provide retention benefits and long-term incentives to continue to build share price and shareholder value.

~~For~~During ~~2008~~fiscal year 2009, asnone of our executive officer directors received additional compensation for ~~prior~~serving ~~years,~~on our Board ~~and~~of ~~Compensation~~Directors, except ~~Committee~~for ~~emphasized~~reimbursement aof ~~mix~~out of ~~base~~pocket ~~salary~~expenses ~~and~~associated ~~cash~~with ~~incentives.~~attendance ~~Approximately~~at ~~forty~~Board ~~percent~~meetings. ofLikewise, ~~each~~during ~~NEO’s~~fiscal ~~cash~~year ~~compensation~~2009, ~~for~~none ~~2008~~of ~~was~~our ~~“at~~non-employee ~~risk”~~directors ~~incentive~~received compensation ~~that~~ ~~depended~~from ~~upon~~us ~~our~~for ~~profitability~~serving ~~for~~on ~~the~~our ~~year.~~Board Inof ~~addition~~Directors, as ~~noted~~they ~~above, option grants~~ were compensated ~~made~~for intheir ~~February~~services ~~2008~~by inH&F. ~~connection~~Mr. Carroll ~~with~~served ~~the~~as ~~closing~~a ofnon-executive ~~the~~employee ~~Merger~~during in2009, ~~order~~for towhich ~~encourage~~he ~~the~~received ~~achievement~~compensation of ~~long-term~~$150,000, ~~business~~pursuant ~~objectives~~to ~~that~~his ~~enhance shareholder~~employment ~~value on a continuing basis~~agreement.

~~Competitive~~The ~~Analysis~~following table sets forth the aggregate compensation during 2009 awarded to, earned by, or paid to non-executive officer directors.

For 2008, Donald King, the Executive Vice-President of Human Resources (“EVP HR”), compiled executive compensation data from the Hewitt Associates Total Compensation Measurement Survey (the “Survey”) to assist with the assessment of our compensation programs. This survey included data from approximately 400 manufacturing service and financial services organizations. The Board and Compensation Committee reviewed the data compiled by the EVP HR from the Survey regarding executive compensation paid by companies against which we believe we compete for executive talent.


Name	Fees earned or paid in cash		Total
Charles A. Carroll	$	150,000	$	150,000
Messrs. Ragatz and Henske and Ms. Multani		—		—

The compensation of each of the NEOs was compared against competitive market ranges derived from the compensation programs of companies participating in the Survey for executives with comparable positions and job responsibilities. The compensation components reviewed for each position were base salary, annual cash bonus and long-term incentives, both individually and in the aggregate. Although the Survey data was used as an important measure for determining competitive levels of compensation for our NEOs, we did not benchmark the compensation of our NEOs against the companies participating in the Survey. Rather, the Survey data was used as a guide, such that the Board and Compensation Committee exercised their discretion in setting both the individual compensation components and the total pay of each of our NEOs at levels that were commensurate with their specific position and job responsibilities, taking into account the need to retain and motivate our NEOs to achieve superior levels of performance. The compensation of our NEOs was set at levels that were above the 50th percentile (and in some cases above the 75th percentile) as compared to the companies participating in the Survey. These levels of compensation are, in our opinion, necessary to retain and incentivize our NEOs to continue to provide outstanding performance.

Compensation Programs

Design of Compensation Programs. Our compensation programs in 2008 were designed to effectively retain our NEOs and continue to build the Company in a stable management environment as well as attract, retain and motivate highly talented individuals to lead the Company in achieving its vision and mission in a very competitive marketplace. Specifically,

Index to Financial Statements

•ITEM ~~base~~11. ~~salary~~Executive ~~was designed at levels to attract, retain and motivate employees capable of managing our operations following the Merger,~~Compensation

•EXECUTIVE ~~annual~~COMPENSATION ~~cash incentives based on pre-determined performance targets were designed to reward execution of our strategy and achievement of profitability objectives, and~~

•Compensation ~~equity~~discussion ~~awards in the form of stock options (which were granted in connection with the Merger under our new 2008 Plan) were designed to provide additional retention benefits~~ and ~~long-term~~analysis ~~incentives to build shareholder value.~~

~~Impact~~Our ofexecutive ~~Performance~~compensation ~~on Compensation.~~program, ~~Approximately~~including ~~40%~~with ofrespect ~~each~~to ~~NEO’s~~our ~~cash~~named ~~compensation~~executive inofficers, ~~2008~~or ~~was~~ “~~at risk~~NEOs” ~~and depended on our performance. On March 12~~, ~~2008,~~is ~~the~~overseen ~~Board~~and ~~adopted~~administered by ~~our 2008 Bonus Program. Under~~ the ~~2008~~Compensation ~~Bonus~~Committee ~~Program,~~of ~~each NEO~~Parent’s ~~annual~~Board ~~cash~~of ~~incentives~~Directors. ~~were~~Our ~~tied~~NEOs tofor ~~pre-established~~2009 ~~EBITDA targets which~~ were ~~designed~~(1) David ~~to emphasize profitability~~L. ~~The~~Swift, ~~EBITDA~~our ~~targets~~current ~~provided~~chief ~~incentives~~executive toofficer, ~~increase~~(2) Lawrence ~~revenues~~M. ~~and also to control costs~~Blackburn, toour ~~the~~current ~~degree~~chief ~~that~~financial ~~costs~~officer ~~were within~~and ~~the~~(3) Ben D. Campbell, ~~control~~Donald ~~of the executive officers~~R. AsKing ~~discussed in greater detail below under the heading “Annual Cash Incentive~~ and ~~Description~~William ofL. ~~Performance Metrics~~Topper,” ~~cash~~who ~~incentive~~were ~~compensation~~our ~~earned~~three byother ~~the~~most ~~NEOs~~highly incompensated ~~2008~~executive ~~was~~officers atwho ~~the~~were ~~target~~serving ~~level established~~as ~~under~~executive ~~the~~officers ~~2008~~as ~~Bonus~~of ~~Program~~December 31, ~~based on the level of our consolidated EBITDA for the year~~2009.

~~With~~Following ~~respect~~the to2008 ~~equity-based incentive awards~~Acquisition, ~~any~~a ~~increase~~new inCompensation ~~our~~Committee ~~value~~of asParent a(the ~~result~~“Compensation ofCommittee”) ~~the~~was ~~efforts~~established, consisting of ~~the~~Erik ~~NEOs~~D. toRagatz ~~improve~~and ~~our~~Robert ~~performance~~B. ~~also~~Henske. ~~increased~~None ~~the~~of ~~value~~our ofexecutive ~~the~~officers ~~NEOs’~~has ~~stock~~served ~~options,~~as ~~and~~a ~~therefore~~member ~~rewarded~~of ~~the~~our ~~NEOs~~Compensation ~~for~~Committee ~~contributing~~(or toother ~~shareholder~~committee ~~value. Additionally,~~serving ~~40%~~an equivalent function) of ~~the~~any ~~stock~~other ~~options~~entity ~~granted~~whose toexecutive ~~our~~officers ~~NEOs~~served ~~(except~~as ~~Mr. Carroll)~~a indirector ~~2008~~of ~~were~~our company ~~subject~~or tomember ~~performance-based~~of ~~vesting~~our ~~criteria~~Compensation Committee.

~~Elements~~For 2009, our Board of Directors, or the “Board,” together with the Compensation Committee, administered Parent’s 2008 Stock Incentive Plan, or the “2008 Stock Incentive Plan”, and our 2008 Annual Incentive Compensation Plan, or the “Bonus Program.” Under the Bonus Program, the Board and the Compensation Committee adopt annual performance goals and bonus levels. The Board, together with the Compensation Committee, reviewed the performance of our executive officers and key employees and determined the compensation of our executive officers and other compensation arrangements. The Executive Vice President of Human Resources supported the Compensation Committee in its duties and, along with the president and chief executive officer, was delegated authority to fulfill certain administrative duties regarding the compensation programs. Our chief executive officer provided recommendations to our Board and Compensation Committee and participated in discussions and evaluations regarding the compensation of the other NEOs.

AsObjectives ~~discussed~~of ~~above,~~ compensation ~~paid~~programs ~~or awarded to our NEOs during 2008 included base salary, an annual cash incentive award and stock options, each as further described below.~~

~~Base~~In ~~salary~~2009, ofwe compensated our senior executives, including the NEOs, at levels we believed to be competitive within the HVAC industry and with similar durable goods manufacturing businesses of comparable revenue ranges. Our primary objective for executive compensation in 2009 was to ensure our ability to continue to retain our senior level executives, as well as to attract, retain and motivate the management team required to lead us in achieving our vision and mission while supporting our core values in a highly competitive marketplace. Our business strategy depends to a significant degree upon our executive officers and key employees and their relationships with distributors. Therefore, we seek to retain our senior executives over the long-term and believe that continuity of management is in the best interests of our stockholders.

~~The~~We ~~salary~~have ~~component~~structured ~~was~~our ~~designed~~executive compensation programs to provide ~~the~~a ~~executives~~competitive base salary for our NEOs as well as to award performance-based cash incentives and long-term equity incentives. Our executive compensation for 2009 was determined with a ~~stable~~view ~~income~~to each NEO’s past compensation levels as well as our future business strategy. The total compensation and benefits package provided to ~~attract~~each ~~and~~of ~~retain~~our ~~talented~~NEOs in 2009 was designed to be competitive and ~~experienced executives~~to ~~capable~~exceed ofmedian ~~managing~~market ~~our~~compensation ~~operations~~for talented and ~~strategic~~experienced ~~growth~~senior executives.

InCompensation ~~connection~~paid ~~with~~to ~~the Merger, all of our NEOs (except~~ Mr. Swift), asour ~~well~~president asand ~~other~~chief ~~of our~~ executive ~~officers~~officer, ~~negotiated~~was ~~new~~materially ~~employment~~greater ~~arrangements~~than ~~with~~the ~~our~~compensation ~~controlling~~paid ~~stockholders,~~to ~~which~~our other ~~became~~non-CEO ~~effective~~NEOs onto ~~February 13,~~reflect ~~2008,~~the ~~upon~~primary differences in the ~~closing~~scope of ~~the~~job ~~Merger~~responsibilities. ~~Pursuant~~Our topay ~~those~~practices ~~arrangements, the~~are ~~salaries~~reflective ~~and the executive positions~~ of ~~each~~competitive ofmarket ~~our NEOs remained unchanged at that time~~data, aswhich ~~they~~reflect ~~were viewed to be at~~ competitive ~~levels.~~pay ~~The~~practices ~~base~~found ~~salary~~among ~~for~~companies ~~Mr. Swift was negotiated~~ in ~~connection~~our ~~with~~specific ~~his~~industry ~~employment~~as ~~agreement~~well as ~~entered~~general ~~into effective~~industry as(see of“Competitive ~~April 21~~Analysis,” ~~2008~~below). ~~Mr. Swift’s~~We ~~base~~did ~~salary~~not ~~was~~engage ~~set~~an atoutside aconsultant ~~level~~in ~~determined~~2009 to bereview ~~competitive for his position and level of responsibility and necessary to induce him to serve as~~ our ~~president and chief~~ executive ~~officer~~compensation program.

~~Following the review by the Board and the~~ Compensation ~~Committee~~philosophy of the recommendations of our EVP HR, in March 2008, the Board approved an annual increase in base salary of approximately 3.9% for each of Messrs. Blackburn, Campbell, King and Topper, effective as of April 1, 2008. The increase was implemented in order to maintain the base salaries of our NEOs within the 50th to 75th percentile of comparable compensation offered by the surveyed companies in the Hewitt Associates Total Compensation Management Survey. However, no increase was approved for Mr. Carroll because of his more limited role with us on a going forward basis.

~~Annual~~Our ~~Cash~~overall ~~Incentive~~compensation philosophy is to use straightforward compensation programs that offer appropriate incentives to our executives, while providing transparency to our stockholders. In implementing this philosophy, we generally do not provide perquisites, personal benefits, defined benefit plans or supplemental plans for executives. For 2009, our executive compensation emphasized cash and ~~Description~~equity compensation, and consisted primarily of ~~Performance~~the ~~Metrics~~following:

~~Cash~~• ~~Incentive~~base ~~Awards.~~salary ~~Approximately~~to ~~forty~~provide ~~percent~~stable ofincome ~~each~~to ~~NEO’s cash compensation was paid as a cash incentive award under the 2008 Bonus Program and depended upon~~ our ~~profitability,~~NEOs asduring ~~measured by consolidated EBITDA for~~ the ~~2008~~ fiscal year ~~(see “Performance Metrics~~,” below). The bonus payment was “at risk” and was designed to reward the executives for reaching pre-established levels of profitability. Awards were structured to be paid based on the company achieving threshold, target, target plus, superior, excellence or excellence plus levels for consolidated EBITDA, which comprised 93.1%, 100%, 106.9%, 110.3%, 113.8% and 117.2% of the target,

•

annual performance-based cash incentives under our Bonus Program that are tied to our profitability and

Index to Financial Statements

~~respectively,~~• asequity ~~set~~awards ~~forth~~ in the ~~table~~form ~~below.~~of Westock ~~set~~options ~~the~~which ~~consolidated EBITDA goals at levels that reflected our internal business plan at the time the awards~~ were ~~established.~~granted ~~The~~in ~~consolidated EBITDA target level for our cash incentive awards was set at $290 million for~~ 2008 ~~and~~under ~~required~~the ~~a challenging but achievable level of financial performance. The highest specified level, excellence plus (at consolidated EBITDA of $340 million for~~ 2008), ~~represented~~Stock ~~truly~~Incentive ~~exceptional~~Plan ~~performance~~to ~~beyond~~provide ~~reasonably~~retention ~~likely~~benefits ~~levels of achievement,~~ and welong-term ~~have~~incentives ~~never~~to ~~achieved~~continue ~~this~~to ~~level~~build ofshare ~~performance.~~price ~~Historically, we have generally achieved performance between the target~~ and ~~target~~stockholder ~~plus levels~~value.

~~Pursuant~~For to2009, ~~their~~as ~~bonus~~for ~~award~~prior ~~agreements~~years, ~~each of~~ our ~~NEOs agreed that the maximum payout~~Board ~~available~~and ~~for~~Compensation ~~the~~Committee ~~2008~~emphasized ~~year~~a ~~would~~mix ~~not~~of ~~exceed~~base ~~the~~salary ~~payout~~and ~~available~~cash atincentives. ~~the~~Approximately ~~superior~~49% ~~level~~ of ~~performance~~Mr. Swift’s ~~under~~target ~~the~~cash ~~2008~~compensation ~~Bonus~~and ~~Program~~approximately in43% ~~return~~percent ~~for~~of ~~the~~other ~~Board~~NEO’s ~~lowering the initially projected consolidated EBITDA~~ target ~~reflected~~cash incompensation ~~their~~for ~~employment~~2009 ~~and~~was “at ~~severance~~risk” ~~agreements,~~incentive ascompensation ~~applicable,~~that ~~from~~depended ~~$300~~upon ~~million~~our toprofitability ~~$290~~for ~~million. The revised target reflected a recognition of~~ the ~~continuing~~year. ~~weakness~~We inhave ~~the~~structured ~~overall~~our ~~macro-economic~~executive ~~environment,~~compensation ~~including~~programs awith ~~slower~~performance ~~rate~~metrics ofdesigned ~~growth~~to inencourage ~~new~~balanced ~~housing~~and ~~starts~~sustained ~~than previously~~corporate ~~anticipated at the time their agreements were negotiated~~growth.

~~In setting the range of bonus awards to our NEOs, we considered the potential bonuses available for comparable positions based on the subset of the Survey data discussed above (see “~~Competitive ~~Analysis”)~~analysis and the total compensation payable for such comparable positions, including other elements of compensation and perquisites provided for such comparable positions, using the 75th percentile as a guideline, as well as internal equity differentiation based on the scope and complexity of each position. The range of payouts was based on a multiple of each NEO’s base salary for the 2008 fiscal year. The range of payouts in dollars, assuming consolidated EBITDA goals were met at threshold, target and superior levels for 2008, is indicated in the Grants of Plan-Based Awards Table, reflecting that for 2008, all of the NEOs agreed that the payout for the 2008 fiscal year would not exceed the amount payable for achieving the superior level of performance of consolidated EBITDA of $320 million, even if actual financial performance were to have exceeded $320 million. The table below summarizes the range of bonus opportunities for 2008 for our NEOs as a percentage of base salary, based on the level of achievement of the consolidated EBITDA target of $290 million:

	ThresholdLevel			TargetLevel			TargetPlus Level			SuperiorLevel			ExcellenceLevel			ExcellencePlus Level
							As a percentage of consolidated EBITDA target									(in millions)
		93.1	%		100.0	%		106.9	%		110.3	%		113.8	%		117.2	%
	$	270		$	290		$	310		$	320		$	330		$	340
	Bonus opportunity as a percentage of base salary
NEO
David L. Swift (1)		35.6	%		95.0	%		154.4	%		255.4	%		255.4	%		255.4	%
Lawrence M. Blackburn		25.0			75.0			125.0			212.5			212.5			212.5
Ben D. Campbell		25.0			75.0			125.0			212.5			212.5			212.5
Donald R. King		25.0			75.0			125.0			212.5			212.5			212.5
William L. Topper		25.0			75.0			125.0			212.5			212.5			212.5
Charles A. Carroll (2)		37.5			100.0			162.5			268.8			268.8			268.8

For 2009, Donald King, the Executive Vice-President of Human Resources, or “EVP HR”, compiled executive compensation data from the Hewitt Associates Total Compensation Measurement Survey, or the “Survey”, to assist with the assessment of our compensation programs. This survey included data from approximately 500 manufacturing service and financial services organizations. The Board and Compensation Committee reviewed the data compiled by the EVP HR from the Survey regarding executive compensation paid by companies against which we believe we compete for executive talent.

~~(1)~~ The ~~amount~~compensation of ~~the~~each ~~bonus~~of ~~payable~~the NEOs was ~~pro-rated~~compared to competitive market ranges derived from ~~April~~the 21compensation programs of companies participating in the Survey for executives with comparable positions and job responsibilities. The compensation components reviewed for each position were base salary, ~~2008~~annual cash bonus and long-term incentives, ~~the~~both ~~effective~~individually ~~date~~and ofin Mrthe aggregate. ~~Swift’s~~Although ~~employment~~the ~~with~~Survey usdata was used as an important measure for assessing competitive levels of compensation for our NEOs, ~~through~~we ~~December~~did 31not benchmark the compensation of our NEOs against the companies participating in the Survey. Rather, ~~2008~~the Survey data was used as a guide, onsuch that the ~~basis~~Board and Compensation Committee exercised their discretion in setting both the individual compensation components and the total pay of each of our NEOs at levels that were commensurate with their specific positions and job responsibilities, taking into account the ~~amount~~need to retain and motivate our NEOs to achieve superior levels of ~~base~~performance. ~~salary~~The ~~actually~~compensation ~~earned~~of ~~during~~our NEOs was set at levels that were above the ~~2008~~50th ~~fiscal~~percentile ~~year~~(and in some cases above the 75th percentile) as compared to the companies participating in the Survey. These levels of compensation are, in our opinion, necessary to retain and incentivize our NEOs to continue to provide outstanding performance.

~~(2)~~Compensation ~~The~~programs amount of the bonus payable was pro-rated through April 21, 2008, the effective date of Mr. Carroll’s retirement as our and our Parent’s president and chief executive officer, on the basis of the amount of base salary actually earned during the 2008 fiscal year.

~~Bonus opportunities~~Design ~~for~~of ~~our~~Compensation Programs. Our ~~president~~compensation ~~and~~programs ~~chief~~in ~~executive~~2009 ~~officer~~ were ~~materially~~designed ~~different~~to ~~from~~effectively ~~the~~retain ~~opportunities for~~ our ~~other~~ NEOs and continue to ~~reflect~~build the ~~primary~~company ~~differences~~ in ~~the~~a ~~scope~~stable ofmanagement ~~job~~environment ~~responsibilities,~~as ~~overall~~well ~~ability~~as to ~~achieve our business objectives~~attract, ~~strategic~~retain ~~impact of the position~~ and ~~expected~~motivate ~~future~~highly ~~contributions.~~talented Inindividuals ~~addition,~~to lead ~~the~~us ~~bonus~~in ~~opportunities~~achieving ~~of Mr. Carroll,~~ our ~~former~~vision ~~president~~ and ~~chief~~mission ~~executive~~in ~~officer,~~a ~~were~~very ~~intended~~competitive ~~to reflect his additional role as Chairman of the Board~~marketplace. ~~As noted above~~Specifically, ~~these pay practices are reflective of competitive market data, which reflects competitive pay practices found among companies in our specific industry as well as general industry.~~

In• ~~2008, we achieved consolidated EBITDA of $290 million, which was target level of consolidated EBITDA for the 2008 fiscal year. As a result, Mr. Swift was awarded a bonus of 95% of his~~ base salary ~~earned~~levels inwere ~~2008,~~set orto ~~$626~~attract,~~736,~~ ~~Mr. Carroll~~retain ~~was~~and ~~awarded~~motivate aemployees ~~bonus~~capable of ~~100%~~managing ~~of his base salary earned in 2008 as~~ our ~~president and~~ operations,

•

annual cash incentives based on pre-determined performance targets were designed to reward execution of our strategy and achievement of profitability objectives, and

•

equity awards in the form of stock options (which were granted in 2008) were granted to provide additional retention benefits and long-term incentives to build stockholder value.

Impact of Performance on Compensation. Approximately 49% of Mr. Swift’s target cash compensation and approximately 43% percent of other NEO’s target cash compensation in 2009 was “at risk” and depended on our performance. On March 13, 2009, the Board adopted performance goals and bonus levels for 2009 under our Bonus Program. Under the Bonus Program, each NEO’s annual cash incentives were tied to pre-established EBITDA targets which were designed to emphasize profitability. The EBITDA targets provided incentives to increase revenues and also to control costs, to the degree that costs were within the control of the executive officers. As discussed in greater detail below under the heading “Annual Cash Incentive and Description of Performance Metrics,” cash incentive compensation earned by the NEOs in 2009 was at the “excellence” level established under the Bonus Program, based on the level of our consolidated EBITDA for the year.

With respect to equity-based incentive awards, any increase in our value as a result of the efforts of the NEOs to improve our performance also increased the value of the NEOs’ stock options, and therefore rewarded the NEOs for contributing to stockholder value. Additionally, 40% of the stock options granted to our NEO’s in 2008 were subject to performance-based vesting criteria. No stock options were granted to our NEO’s in 2009.

Index to Financial Statements

~~chief~~Elements ~~executive officer, or $328,136, Mr. Blackburn was awarded a bonus~~ of ~~75%~~compensation of his base salary, or $344,888, and our other NEOs were likewise awarded a bonus equal to 75% of their base salaries, or $286,535, $278,945 and $252,019, respectively, for each of Messrs. Topper, Campbell and King.

~~Performance~~As ~~Metrics.~~discussed ~~The~~above, ~~primary financial metric used under our performance-based annual and long-term incentive programs is consolidated EBITDA. Consolidated EBITDA as used in our executive~~ compensation ~~programs~~paid inor ~~2008~~awarded ~~was equal~~ to ~~consolidated~~our ~~net~~NEOs ~~income~~during ~~before~~2009 ~~interest,~~included ~~taxes,~~base ~~depreciation~~salary and ~~amortization~~an asannual ~~reflected~~cash inincentive ~~our audited consolidated financial statements for such period~~award, ~~consistent~~each ~~with the definition of consolidated EBITDA in our credit arrangements, subject~~as tofurther ~~certain~~described ~~adjustments, including adjustments for projected cost savings and stock-based compensation expense and certain other pro-forma adjustments~~below.

~~The~~Base ~~performance~~salary ~~metrics established by our Board and Compensation Committee are based upon assumptions about the future business~~ of ~~our company as of~~ the ~~date~~NEOs the goal is established. The annual cash incentive plan provides that in the event that, after the date the performance metrics are fixed, the Compensation Committee determines, after consultation with our chief executive officer, that any acquisition or disposition or any unusual event, unusual or nonrecurring transaction or certain other extraordinary events affecting our company occur, such that an adjustment is determined by the Compensation Committee to be appropriate in order to prevent diminution or enlargement of benefits, then the Compensation Committee may adjust the performance metrics to reflect the projected effect of such transactions or events. Except as required by applicable law, there is no policy that would allow us or our Parent to recover awards or payments paid if the company performance metrics upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.

~~Discretionary~~The ~~Bonuses.~~base Insalary ~~addition,~~component of our ~~Parent’s~~compensation ~~chief~~was ~~executive~~designed ~~officer has the discretion~~ to ~~pay~~provide ~~to some or all of~~ the ~~participants~~executives inwith ~~the cash bonus plan (other than himself), for~~ a ~~calendar~~stable ~~year, incentive~~income ~~compensation in an aggregate amount not to exceed $750,000, without regard to consolidated EBITDA for such year~~ and to ~~allocate~~attract ~~the amount of such incentive compensation among the participants~~ and ~~employees~~retain ~~who do not formally participate~~talented inand ~~the~~experienced ~~cash~~executives ~~bonus~~capable ~~plan, as the chief executive officer determines in his discretion. In 2008, none~~ of managing our ~~NEOs~~operations ~~received~~and ~~any~~strategic ~~portion of the discretionary $750,000 bonus pool~~growth.

~~Long-Term~~In ~~Incentives—Stock~~connection ~~Options~~with the 2008 Acquisition, all of our NEOs (except Mr. Swift), as well as other of our executive officers, negotiated employment arrangements with our controlling stockholders, which became effective on February 13, 2008, upon the closing of the 2008 Acquisition. Pursuant to those arrangements, the salary and the executive position of each of our NEOs remained unchanged at that time, as they were viewed to be at competitive levels. The base salary for Mr. Swift was negotiated in connection with his employment agreement entered into as of April 21, 2008. Mr. Swift’s base salary was set at a level determined to be competitive for his position and level of responsibility and necessary to induce him to serve as our president and chief executive officer.

~~Option~~Following ~~Acceleration~~the inreview ~~Connection~~by ~~with~~the Board and the ~~Merger.~~Compensation ~~All~~Committee of the ~~outstanding~~recommendations ~~time-vesting~~of ~~options~~our ~~granted~~EVP HR, ~~prior~~in toMarch 2008, the ~~Merger~~Board ~~automatically~~approved ~~accelerated~~an inannual ~~full~~increase ~~upon~~in ~~the~~base ~~closing~~salary of ~~the~~approximately ~~Merger;~~3.9% ~~additionally,~~for ~~our Board~~each ~~exercised~~of ~~its~~Messrs. ~~discretion~~Blackburn, toCampbell, ~~accelerate~~King ~~the~~and ~~remaining~~Topper, ~~unvested~~effective ~~performance-vesting~~as ~~options~~of April 1, 2008. ~~Other~~The ~~than~~increase ~~options~~was ~~that~~implemented ~~were~~in ~~subject~~order to ~~option~~maintain ~~rollover~~the ~~agreements~~base salaries ~~(see~~of ~~“Equity~~our ~~Contribution~~NEOs ~~Agreements,”~~within ~~below),~~the ~~all~~50th to 75th percentile of ~~the~~comparable ~~options outstanding~~compensation atoffered by the ~~time~~surveyed ofcompanies in the ~~Merger~~Hewitt ~~were~~Associates ~~canceled~~Total ~~and~~Compensation ~~converted~~Management ~~into~~Survey. ~~the~~In ~~right~~light toof ~~receive~~the anuncertain ~~amount~~and challenging macroeconomic environment in ~~cash~~early 2009, ~~less~~the ~~applicable~~Board ~~tax~~decided ~~withholding~~not ~~and~~to ~~without~~approve ~~interest,~~merit ~~equal~~increases to the ~~product~~base salaries of ~~(x) the~~our ~~number~~NEOs ofand ~~shares~~other salaried employees until economic conditions clarified. In light of ~~our~~Company ~~common~~performance ~~stock~~and ~~subject~~improvements ~~to each~~in ~~option~~economic asconditions during the course of 2009, in October 2009 the ~~effective~~Board approved a one-time oflump-sum ~~the~~performance ~~Merger~~and ~~multiplied~~merit-based bypayment ~~(y)~~ to the ~~excess~~executive ofofficers ~~the~~and ~~Merger~~certain ~~consideration~~other ~~over~~exempt ~~the~~and ~~exercise~~non-exempt ~~price~~employees ~~per~~who ~~share~~had not theretofore received 2009 merit increases. The payment was equal to approximately 2.5% of ~~common~~salary ~~stock~~for ~~under~~the ~~such~~months ~~option~~April through December.

~~New~~Annual ~~Option~~cash ~~Grants Made in Connection with the Merger. On February 13, 2008, Parent’s Board adopted a new equity~~ incentive ~~plan to replace our two pre-existing equity incentive plans, as described in greater detail below under “New Equity Incentive Plan.” At that time, we granted new time-vesting~~ and ~~performance-vesting options to all of our then current NEOs, except~~description ~~for Mr. Carroll who received time-vesting options only in light~~ of the nature of his ongoing relationship with us, since he was expected to serve as our president and chief executive officer only until a replacement was found. Additionally, Mr. Swift was granted time-vesting and performance~~-vesting~~ ~~options~~metrics on April 21, 2008 in connection with the commencement of his employment with us (see “New Equity Incentive Plan,” below) at a level that reflected the scope and nature of his responsibilities as our president and chief executive officer. All options granted to our NEOs in 2008 under the new equity incentive plan had an exercise price of $10.00 per share, which was equal to the price at which our current stockholders subscribed for common stock of Parent at closing.

Cash Incentive Awards. Approximately 75% of each NEO’s cash compensation for 2009 was paid as a cash incentive award under the Bonus Program and depended upon our profitability, as measured by consolidated EBITDA for the 2009 fiscal year (see “Performance Metrics” below). The bonus payment was “at risk” and was designed to reward the executives for reaching pre-established levels of profitability. Awards were structured to be paid based on the company achieving threshold, target, target plus, superior, excellence or excellence plus levels for consolidated EBITDA, which comprised 91.4%, 100.0%, 106.9%, 110.3%, 113.8% and 117.2% of the target, respectively, as set forth in the table below. We set the consolidated EBITDA goals at levels that reflected our internal business plan at the time the awards were established. The consolidated EBITDA target level for our cash incentive awards was set at $290 million for 2009 and required a challenging but achievable level of financial performance. The highest specified level, excellence plus (at consolidated EBITDA of $340 million for 2009), represented truly exceptional performance beyond reasonably likely levels of achievement, and we have never achieved this level of performance. Historically, we have generally achieved performance between the target and target plus levels.

Index to Financial Statements

~~Severance~~In setting the range of bonus awards to our NEOs, we considered the potential bonuses available for comparable positions based on the Survey data discussed above (see “Competitive Analysis”) and ~~Change~~the total compensation payable for such comparable positions, including other elements of compensation and perquisites provided for such comparable positions, using the 75th percentile as a guideline, as well as internal equity differentiation based on the scope and complexity of each position. The range of payouts was based on a multiple of each NEO’s base salary for the 2009 fiscal year. The range of payouts in ~~Control~~dollars, ~~Benefits~~assuming consolidated EBITDA goals were met at threshold, target and excellence levels for 2009, is indicated in the Grants of Plan-Based Awards in 2009 Table. NEO bonuses with respect to 2009 under the Bonus Program were capped at the excellence level. The table below summarizes the range of bonus opportunities for 2009 for our NEOs as a percentage of base salary, based on the level of achievement of the consolidated EBITDA target of $290 million:

We have entered into executive arrangements with certain key executives, including the NEOs, providing for severance benefits, as described in further detail below. The severance and change in control benefits are designed to provide economic protection to our key executives so that they can remain focused on our business without undue personal concern in the event that an executive’s position is eliminated or significantly altered by the company, including in connection with a change in control of our company. We recognize that circumstances may arise in which we may consider eliminating certain key positions that are no longer necessary or a change in control transaction may occur. These benefits are intended to provide the security needed for the executives to remain focused and reduce the distraction regarding personal concerns during a transition. The level of severance benefits for our president and chief executive officer and our chief financial officer is generally twice that payable to our other current NEOs to reflect the level of seniority, responsibility and strategic impact of those positions, as well as the greater potential impact for us in losing the services of our top two executive officers.


	Threshold level			Target level			Target plus level			Superior level			Excellence level			Excellence plus level
	*As a percentage of consolidated EBITDA target*
		91.4	%		100.0	%		106.9	%		110.3	%		113.8	%		117.2	%
(Dollars in millions)	$	265		$	290		$	310		$	320		$	330		$	340

	Bonus opportunity as a percentage of base salary
NEO
David L. Swift		35.6	%		95.0	%		154.4	%		255.4	%		356.3	%		356.3	%
Lawrence M. Blackburn		25.0			75.0			125.0			212.5			300.0			300.0
Ben D. Campbell		25.0			75.0			125.0			212.5			300.0			300.0
Donald R. King		25.0			75.0			125.0			212.5			300.0			300.0
William L. Topper		25.0			75.0			125.0			212.5			300.0			300.0

InBonus ~~the event of a change in control~~opportunities ~~transaction,~~for ~~all outstanding unvested options held by~~ our ~~NEOs~~president ~~will automatically accelerate~~ and ~~become~~chief ~~exercisable.~~executive ~~This~~officer ~~provision~~were ~~preserves~~materially ~~our~~different ~~NEO’s~~from ~~equity stake in~~ the ~~event~~opportunities offor ~~a change in control and assists in aligning their interests with those of~~ our ~~majority~~other ~~shareholder.~~NEOs Into ~~addition,~~reflect in the ~~event~~primary ~~that~~differences ~~any payment or benefit to be received~~ in ~~connection with a change in control transaction under~~ the ~~employment~~scope ~~or severance agreements entered into with our NEOs will trigger the imposition~~ of ~~excise~~job ~~tax under Section 4999 of the Internal Revenue Code of 1986~~responsibilities, asoverall ~~amended~~ability ~~(the “Code”), then all payments will be reduced~~ to ~~the~~achieve ~~extent~~our ~~necessary~~business soobjectives, ~~that the excise tax will not be imposed unless the amount of such~~strategic ~~reduction~~impact ~~would equal or exceed 110%~~ of the ~~excise~~position ~~tax~~and ~~that~~expected ~~would~~future ~~be imposed on such amounts~~contributions. ~~This~~As ~~provision~~noted ~~imposes~~above, athese ~~potential~~pay ~~cut-back~~practices onare ~~change~~reflective ~~in control payments to be received by our NEOs where the benefit~~ of ~~avoiding~~competitive ~~the~~market ~~excise~~data, ~~tax~~which ~~and associated~~reflects ~~costs~~competitive topay uspractices ~~overrides~~found ~~the~~among ~~benefit~~companies ofin ~~paying~~ our ~~NEOs the full amount of the benefits they would otherwise be entitled to receive in connection with a change in control transaction~~industry.

~~Personal~~In ~~Benefits~~2009, we achieved consolidated EBITDA of $330.1 million, which was the excellence level of consolidated EBITDA for the 2009 fiscal year. As a result, Mr. Swift was awarded a bonus equal to 356.3% of his base salary earned in 2009, or $3,285,277, Mr. Blackburn was awarded a bonus equal to 300.0% of his base salary, or $1,392,600, and ~~Perquisites~~our other NEOs were likewise awarded a bonus equal to 300.0% of their base salaries, or $1,157,013, $1,126,353 and $1,017,600, respectively, for each of Messrs. Topper, Campbell and King.

~~None~~Performance ofMetrics. The ~~our~~primary ~~NEOs,~~financial ~~with~~metric ~~the~~used ~~exception~~under ofour ~~Mr. Swift,~~performance-based ~~received~~annual ~~any~~and ~~perquisites~~long-term orincentive ~~personal~~programs ~~benefits~~is inconsolidated ~~2008~~EBITDA. ~~other~~Consolidated ~~than~~EBITDA ~~those~~as ~~broadly~~used ~~available~~in toour ~~all~~executive compensation ~~employees.~~programs Asin a2009 ~~general~~was ~~matter,~~equal weto ~~emphasize~~consolidated ~~cash~~net ~~compensation~~income ~~and~~before ~~equity~~interest, ~~compensation~~taxes, ~~and~~ ~~therefore~~depreciation ~~perquisites~~ and ~~personal~~amortization ~~benefits~~as ~~constituted~~reflected anin ~~immaterial~~our ~~portion~~audited ofconsolidated ~~each~~financial ~~NEO’s~~statements ~~total~~for ~~compensation~~such period, ~~except~~consistent ~~for~~with ~~Mr. Swift~~the ~~who~~definition ~~received~~of anconsolidated EBITDA ~~aggregate~~in ofour $1credit arrangements,~~064~~ subject to certain adjustments,~~083~~ inincluding ~~2008~~adjustments for ~~various~~projected ~~expenses~~cost ~~incurred~~savings inand ~~connection~~stock-based ~~with~~compensation ~~the commencement~~expense ofand ~~his~~certain ~~employment~~other ~~with~~pro usforma ~~and~~adjustments. ~~his~~Consolidated ~~relocation~~EBITDA toas ~~Houston,~~defined ~~Texas,~~for ~~which~~this ~~perquisites~~purpose ~~were~~is different ~~negotiated~~from asthe ~~part~~definitions of ~~his~~consolidated ~~new~~EBITDA ~~employment~~used ~~arrangement~~in ~~with~~the usindentures ~~(see~~governing ~~“Executive~~our ~~Compensation—New~~senior ~~Employment~~subordinated ~~Agreement”)~~notes or Parent’s 11.5% senior discount notes due 2014.

~~Historical~~The ~~Employment~~performance ~~Agreements~~metrics established by our Board and Compensation Committee are based upon assumptions about the future business of our company as of the date the goal is established. The annual cash incentive plan provides that, in the event that after the date the performance metrics are fixed, the Compensation Committee determines, after consultation with our president and chief executive officer, that any acquisition or disposition or any unusual event, unusual or nonrecurring transaction or certain other extraordinary events affecting our company occur, such that an adjustment is determined by the Compensation Committee to be appropriate in order to prevent diminution or enlargement of benefits, then the Compensation Committee may adjust the performance metrics to reflect the projected effect of such transactions or events. Except as required by applicable law, there is no policy that would allow us or our Parent to recover awards or payments paid if the company performance metrics upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.

Employment Agreements. Through the closing of the Merger, we had employment agreements in place with Messrs. Carroll and Blackburn. The employment agreements each had an initial term of three years, with automatic extensions of one year each unless notice was given by either party at least 180 days prior to expiration.

• The employment agreements provided for the payment of an annual base salary for Mr. Carroll and Mr. Blackburn, and for annual target bonuses that were payable in the event that certain financial and other performance targets were met.

• Under the agreements, the executives were each granted a non-qualified stock option under the 2004 Stock Option Plan to purchase shares of our common stock.

• As amended in 2006, each of the employment agreements provided that the executive would receive an amount equal to two times base salary and annual target bonus following the executive’s termination of employment under certain circumstances, as well as a pro-rated annual bonus for the year of termination.

Index to Financial Statements

•Discretionary ~~Each~~Bonuses. In ofaddition, our chief executive officer has the discretion ~~employment~~to ~~agreements~~pay ~~also~~to ~~contained~~some ~~restrictive~~or ~~covenants~~all ~~providing~~of ~~that~~the participants in the ~~executive~~cash ~~would~~bonus beplan ~~subject~~(other than himself), for a calendar year, incentive compensation in an aggregate amount not to ~~certain~~exceed ~~non-competition~~$750,000, ~~and~~without ~~non-solicitation~~regard ~~restrictions~~to consolidated EBITDA for ~~two~~such ~~years~~year ~~following~~and to allocate the amount of such incentive compensation among the participants and employees who do not formally participate in the cash bonus plan, as the chief executive’s ~~termination~~officer determines in his discretion. In 2009, none of ~~employment~~our NEOs received any portion of the discretionary $750,000 bonus pool.

•Long-term ~~Additionally,~~incentives—Stock ~~Mr.~~options Carroll’s employment agreement, as amended, provided that, following Mr. Carroll’s termination of employment under certain circumstances, Mr. Carroll and his eligible dependents would receive continued group health benefits until Mr. Carroll reached age 65, or the qualifying age under Medicare, if later.

~~Severance~~On ~~Agreements.~~February 13, ~~Through~~2008, the ~~closing~~Board of Parent adopted the ~~Merger~~2008 Stock Incentive Plan. At that time, weParent ~~had~~granted ~~severance~~time-vesting ~~agreements~~and performance-vesting ~~with~~options ~~several~~to each of ~~our~~Messrs. ~~executive~~Blackburn, ~~officers~~Campbell, ~~including~~King ~~Ben D~~and Topper. ~~Campbell~~On April 21, ~~Donald~~2008, RMr. Swift ~~King~~was granted time-vesting and ~~William~~performance-vesting Loptions of Parent in connection with the commencement of his employment with us at a level that reflected the scope and nature of his responsibilities as our president and chief executive officer. ~~Topper~~All of such options had an exercise price of $10.00 per share, which was equal to the price at which our Parent’s stockholders subscribed for common stock of Parent at the closing of the 2008 Acquisition.

•Severance ~~The~~and ~~severance~~change ~~agreements~~in control ~~generally~~benefits ~~had an initial term of two years with automatic extensions of one year each unless notice was given by either party at least 90 days prior to expiration of the term.~~

•We Ashave ~~amended~~entered ininto ~~2006~~arrangements, ~~each~~pursuant to employment and severance ~~agreement~~agreements, ~~provided~~with ~~for~~certain key executives, including the ~~payment~~NEOs, ofproviding ~~one~~for ~~times~~severance ~~base~~benefits, ~~salary~~as ~~plus~~described anin ~~annual~~further ~~target~~detail ~~bonus~~below. ~~following~~The severance and change in control benefits are designed to provide economic protection to our key executives so that they can remain focused on our business without undue personal concern in the event that an executive’s ~~termination~~position is eliminated or significantly altered by the company, including in connection with a change in control of ~~employment~~our ~~under~~company. ~~certain~~We recognize that circumstances may arise in which we may consider eliminating certain key positions that are no longer necessary or a change in control transaction may occur. These benefits are intended to provide the security needed for the executives to remain focused and reduce distraction regarding personal concerns during a transition. The level of severance benefits for our president and chief executive officer and our chief financial officer is generally twice that payable to our other current NEOs to reflect the level of seniority, responsibility and strategic impact of those positions, as well as the greater potential impact for us in losing the services of our top two executive officers.

~~Non-Competition~~In ~~Agreements~~the event of a change in control transaction, all outstanding unvested options held by our NEOs will automatically accelerate and become exercisable. ~~Through~~This provision preserves the ~~closing~~equity stake of each of our NEOs in the ~~Merger~~event of a change in control and assists in aligning their interests with those of our majority stockholder. In addition, wein ~~had~~the ~~non-competition~~event ~~agreements~~that any payment or benefit to be received in connection with a ~~number~~change ofin control transaction under the employment or severance agreements entered into with our ~~executive~~NEOs ~~officers~~will trigger the imposition of excise tax under Section 4999 of the Internal Revenue Code of 1986, ~~including~~as amended, ~~Ben~~or D.the ~~Campbell~~“Internal Revenue Code”, ~~Donald~~then R.all ~~King~~payments ~~and~~will ~~William~~be L.reduced ~~Topper.~~to ~~These~~the ~~non-competition~~extent ~~agreements~~necessary ~~provided~~so that ~~each~~the ~~executive~~excise ~~would~~tax will not be ~~subject~~imposed tounless ~~certain~~the amount of such reduction would equal or exceed 110% of the excise tax that would be ~~non-solicitation~~imposed ~~and~~on ~~non-competition~~such ~~restrictions~~amounts. ~~for~~This provision imposes a ~~period~~potential cut-back on change in control payments to be received by our NEOs where the benefit of ~~two~~avoiding ~~years~~the ~~following~~excise tax and associated costs to us overrides the ~~executive’s~~benefit ~~termination~~of paying our NEOs the full amount of ~~employment~~the benefits they would otherwise be entitled to receive in connection with a change in control transaction.

~~Transaction Bonus~~Personal benefits and ~~Equity~~perquisites ~~Rollover Incentive~~

~~Upon~~None ~~the consummation~~ of ~~the~~our ~~Merger,~~NEOs ~~certain~~received ~~members~~any ofperquisites ~~senior~~or ~~management~~personal ~~received~~benefits ~~transaction~~in ~~bonuses~~2009 ~~equal~~other ~~to 75% of their current base salary, totaling more~~ than ~~$3,202,110~~those inbroadly ~~the~~available ~~aggregate. The transaction bonuses paid~~ to ~~our~~all ~~named executive officers are set forth in the table below~~employees. InAs ~~addition, certain members of senior management were given~~ a ~~“rollover”~~general ~~incentive~~matter, ~~bonus~~we ~~payment~~emphasize ~~equal~~cash tocompensation ~~100%~~and ofequity ~~their then current base salary~~compensation, ~~totaling~~and ~~not~~therefore ~~more~~perquisites ~~than~~and ~~$4,269,480~~personal inbenefits ~~the~~constituted ~~aggregate.~~an ~~The~~immaterial ~~rollover~~portion ~~incentive bonuses paid to our NEOs in connection with the consummation~~ of ~~the Merger~~each ~~are~~NEO’s ~~set forth in the table below~~total compensation.

	Transaction Bonus PaidUpon Consummation ofthe Merger		Equity Rollover IncentivePaid Upon Consummationof the Merger
Executive Officers:
Charles A. Carroll	$	805,425	$	1,073,900
Lawrence M. Blackburn		335,100		446,800
Ben D. Campbell		271,013		361,350
Donald R. King		244,875		326,500
William L. Topper		278,378		371,170

Employment and severance arrangements

~~New~~Upon ~~Employment~~the consummation of the 2008 Acquisition, we entered into an employment agreement with Mr. Blackburn and ~~Severance~~severance ~~Arrangements~~agreements with all our executive officers, including Messrs. Campbell, King and Topper. We also entered into an employment agreement with Mr. Swift, effective as of April 21, 2008, to serve as our president and chief executive officer. The specific terms of the agreements are set forth below under “Narrative to the Summary Compensation Table and Grants of Plan-Based Awards in 2009 Table.”

Upon the consummation of the Merger, we entered into new employment agreements with Messrs. Carroll and Blackburn, and new severance agreements with all our executive officers, including Ben D. Campbell, Donald R. King and William L. Topper. In general, the agreements provided for substantially similar levels of base salary and bonus opportunities, and similar severance provisions as compared with the employment and severance agreements in effect prior to the closing of the Merger.

We also entered into a new employment agreement with David L. Swift, effective as of April 21, 2008, to serve as our President and Chief Executive Officer. The specific terms of the new agreements are set forth below under “Executive Compensation—New Employment Agreements” and “Executive Compensation—New Severance Agreements,” respectively.

Index to Financial Statements

Equity ~~Contribution~~contribution and ~~Share~~share ~~Subscription~~subscription ~~Agreements~~agreements

Prior to the closing of the ~~Merger~~2008 Acquisition, ~~Parent~~we entered into equity contribution agreements with ~~each of~~ our ~~named~~ executive officers, other than Mr. Swift. Pursuant to the terms of these agreements, each executive committed to acquire shares of common stock of ~~our~~Goodman ~~Parent~~Global Group, Inc. at closing, by either transferring the number of shares of Goodman Global, Inc. common stock having a value equal to an agreed upon amount ($~~10,000,000 in the case of Mr. Carroll, $~~8,771,000 in the case of Mr. Blackburn, $3,736,000 in the case of Mr. Campbell, $23,~~405~~687,000 in the case of Mr. ~~Topper,~~King and $32,~~687~~405,000 in the case of Mr. ~~King~~Topper) or using cash proceeds from the ~~transaction~~ transaction equal to 90% of such agreed upon amount. At closing, each of the executives purchased that number of shares of ~~Parent~~Goodman Global Group, Inc. stock with the values indicated below by contributing an equivalent value in shares of Goodman Global, Inc. stock at $25.60 per share, which was the price other stockholders were paid per share of Goodman Global, Inc. common stock in the ~~Merger~~2008 Acquisition.

Executive	Value of Shares Rolled
	Value of shares rolled
Charles A. Carroll	$	10,000,000
Executive
Lawrence M. Blackburn	$	8,718,208
Ben D. Campbell		3,736,000
Donald R. King		3,687,000
William L. Topper		2,405,000

The shares so acquired by ~~each of~~ our ~~NEOs~~executives are subject to the terms and conditions of the Management Stockholders Agreement, described under the section entitled “Certain Relationships and Related ~~Party~~ Transactions, and Director Independence—Agreements related to the 2008 Acquisition—Management ~~Stockholders~~stockholders ~~Agreement~~agreement.” To the extent that an executive did not own a sufficient number of shares to cover his committed amount, each of the equity contribution agreements also provided that the executive would be able to satisfy such shortfall by rolling over options to acquire shares of our common stock into options to acquire shares of common stock of ~~Parent~~Goodman Global Group, Inc. As Mr. Blackburn did not have a sufficient number of shares to cover his committed amount, he entered into an option rollover agreement with ~~Parent~~Goodman Global Group, Inc. at closing, pursuant to which he rolled over an option to acquire shares of our common stock having an intrinsic value of approximately $53,000 (i.e., the excess of the value of the shares subject to the option over the aggregate exercise price for such shares), into an option to acquire shares of ~~Parent~~Goodman Global Group, Inc. common stock having substantially the same intrinsic value. The exercise price for each rollover option was set at $2.07 per share, such that Mr. Blackburn received an option over 6,659 shares of ~~Parent~~Goodman Global Group, Inc. common stock. ~~The~~These rollover options, which became vested in full at closing, are generally subject to the same terms and conditions under which they were ~~originally~~ granted; however, any shares acquired pursuant to the exercise of such options will be subject to the terms of the Management Stockholders Agreement.

In connection with the execution of his employment agreement, Mr. Swift agreed to subscribe for shares of Goodman Global ~~Parent~~Group, Inc.’s common stock having an aggregate value equal to $1,000,000. Effective as of December 22, 2008, Mr. Swift entered into a share subscription agreement with ~~Parent~~Goodman Global Group, Inc. to purchase 99,900.10 shares of ~~Parent~~Goodman Global Group, Inc.’s common stock for an aggregate purchase price of $1,000,000, or $10.01 per share. The shares so purchased are subject to the terms and conditions of the Management Stockholders Agreement.

~~New~~2008 ~~Equity~~Stock Incentive Plan

The following is a summary of the material terms and conditions of the 2008 Stock Incentive Plan. This summary is qualified in its entirety by reference to the terms of the 2008 Stock Incentive Plan, filed as exhibit 10.10 to Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008. Awards under the 2008 Stock Incentive Plan may be in the form of stock options (either incentive stock options or non-qualified stock options) or other stock-based awards, including restricted stock purchase awards, restricted stock units and stock appreciation rights. The 2008 Stock Incentive Plan, unless sooner terminated by ~~Parent’s~~ the Board, will remain in effect through the tenth anniversary of its adoption.

~~The~~As of the date of this Report on Form 10-K, the maximum number of shares of Goodman Global Group, Inc. reserved for the grant or settlement of awards under the 2008 Stock Incentive Plan is 6,~~734~~834,923 shares ~~of Parent~~, subject to adjustment in the event of an extraordinary dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange or other similar ~~corporate transaction. In the~~ ~~event of a change in control, the Compensation Committee~~

Index to Financial Statements

corporate transaction. In the event of a change in control, the Compensation Committee will have the discretion to accelerate all outstanding awards, cancel awards for fair value, provide for the issuance of substitute awards and/or provide award holders an opportunity to exercise their awards prior to the occurrence of the change in control transaction. Subject to certain conditions, all options granted in 2008 under the 2008 Stock Incentive Plan will become fully vested and exercisable in the event of a “change in control” of ~~Parent~~Goodman Global Group, Inc.

In connection with the consummation of the Merger, we granted options under the 2008 Plan to our then current NEOs at a strike price equal to $10 per share, which was the subscription price for each share of Parent common stock paid by our current controlling stockholders at closing. Options granted under the 2008 Plan to our NEOs have generally consisted of both time-vesting and performance-vesting options, except that only time-vesting options were granted to Mr. Carroll, as described above (see “Long-Term Incentives—Stock Options”). We also granted time-vesting and performance-vesting options with a strike price of $10 per share to David Swift, our current president and chief executive officer, at the time he commenced employment with us.

To the extent vested, options are generally exercisable for a period of 90 days following termination of employment, except in the case of death or disability where the period of exercisability is extended to 12 months after either such termination. Under the terms of the option grant agreements, both time-vesting and performance-vesting options will accelerate in full upon the occurrence of a change in control transaction. All of the options have a 10-year term and may be exercised by way of a “cashless exercise” unless such exercise would result in adverse accounting treatment or would be prohibited by the terms of applicable financing arrangements.

The following non-qualified (i.e., non-statutory) option grants were made ~~to our NEOs~~ on February 13, 2008, with the exception of Mr. Swift whose option grant was made on April 21, 2008, in connection with the commencement of his employment with us:

Named Executive Officer	Time-vesting Options	Performance-vesting Options
	Time-vestingoptions	Performance-vestingoptions
Named Executive Officer
David L. Swift	1,010,239	673,492
Charles A. Carroll	431,035	—
Lawrence M. Blackburn	581,897	387,932
Ben D. Campbell	202,048	134,698
Donald R. King	202,048	134,698
William L. Topper	202,048	134,698

The consolidated EBITDA targets for the performance-vesting options were established in a similar manner as described above under the heading “Annual Cash Incentive and Description of Performance Metrics—Performance Metrics,” and are based on “Consolidated EBITDA” as such term is defined under our credit agreements, subject to certain adjustments for projected cost savings and stock-based compensation expenses and certain other pro-forma adjustments. Consolidated EBITDA as defined for this purpose is different from the definitions of consolidated EBITDA used in the indentures governing our senior subordinated notes or Parent’s 11.500% senior discount notes due 2014. The consolidated EBITDA targets were established based on our operating business plan over a period of five years and were designed to represent a challenging but achievable level of performance. In the event that a performance target is missed in a given fiscal year, but the performance target for the following fiscal year is achieved, the tranche of performance-vesting options that did not vest during the preceding fiscal year will also become vested. The performance targets are subject to adjustment under certain circumstances such as corporate acquisitions and divestitures. In ~~2008~~2009, we achieved consolidated EBITDA of $~~290~~330.1 million, which ~~was~~exceeded ~~below~~ the threshold of $~~300~~290 million necessary to vest the ~~first~~second 20% tranche of the performance-vesting options granted ~~to our NEOs. In light of the difficult business climate~~ during ~~the~~ 2008 ~~fiscal~~. ~~year,~~This ~~including~~threshold ~~the~~was ~~deteriorating~~amended ~~economic~~by ~~condition of~~ the ~~housing~~Board ~~market~~ and ~~overall global recession, our financial performance was not as robust as had been originally projected at~~ the ~~beginning of 2008. As part of its review of executive performance for 2008, the~~ Compensation Committee ~~determined~~in ~~that~~March ~~our~~2009 ~~NEOs’~~from ~~contribution~~approximately to$346 ~~our~~million ~~profitability~~in ~~was~~light ~~exceptional, notwithstanding the very challenging economic climate, and for this reason decided to vest the first tranche~~ of the ~~performance-vesting~~ ~~options~~deterioration ~~which~~in ~~is equal to 20% of~~ the ~~performance-vesting~~macroeconomic ~~options~~environment ~~granted~~and tooverall ~~our~~global ~~NEOs~~recession inafter February 2008., ~~All~~when ~~other employees who were granted performance-vesting options were also vested in~~ the ~~first~~original ~~tranche~~threshold ofwas ~~their options in the same manner as our NEOs~~set.

The first 20% tranche of such performance-vesting options had previously vested, by joint action of the Board and the Compensation Committee, following determination by the Compensation Committee that, even though 2008 financial performance had not met the performance-vesting threshold for the first tranche, our NEOs’ contribution to our profitability in 2008 was exceptional, notwithstanding the very challenging economic climate. All other employees who were granted performance-vesting options were also vested in the first tranche of their options in the same manner as our NEOs.

In 2009, our Parent paid a cash dividend to its stockholders, including the NEOs, of approximately $3.15 per outstanding share. Because Parent’s Board of Directors determined that the dividend was an extraordinary dividend, the board was required to make an equitable adjustment to outstanding options under the terms of the 2008 Stock Incentive Plan. Accordingly, Parent paid a distribution to its optionholders, including the NEOs, of approximately $3.15 per outstanding option, and did not make any other adjustments to the terms of outstanding options. The distribution to optionholders was paid contemporaneously in the case of vested options; the distribution on unvested options will be paid as the options vest.

Index to Financial Statements

~~Impact~~Deductibility of ~~Tax~~executive ~~and~~compensation/Internal ~~Accounting~~Revenue ~~Rules~~Code Section 162(m)

Internal Revenue Code Section 162(m). ~~Section 162~~(m)as ofinterpreted ~~the~~by ~~Code~~IRS ~~places~~Notice a2007-49) ~~limit~~denies ofa ~~$1,000,000~~federal onincome ~~the~~tax ~~amount~~deduction for ofcertain compensation ~~that~~in ~~may~~excess beof ~~deducted~~$1 bymillion usper ~~in any~~ year ~~with~~paid ~~respect~~ to the ~~NEOs~~chief ~~unless~~executive ~~the~~officer ~~compensation~~and isthe ~~performance-based~~three ~~compensation~~other asmost ~~described~~highly-paid inexecutive ~~Section 162~~officers (m)other ~~and~~than the ~~related~~company’s ~~regulations,~~chief asexecutive ~~well~~officer asand ~~pursuant~~chief tofinancial aofficer) ~~plan~~of ~~approved~~a publicly-traded bycorporation. ~~our~~Certain ~~stockholders.~~types ~~Cash~~of ~~incentives~~compensation, ~~paid~~including ~~with~~compensation ~~respect~~based ~~to 2008~~on ~~were~~performance ~~fully~~criteria ~~deductible~~that ~~for~~are ~~purposes~~approved ofin ~~162(m).~~advance Inby ~~addition~~stockholders, ~~following~~are excluded from the deduction limit. Following the consummation of the ~~Merger,~~2008 Acquisition, we ceased to be subject to Section 162(m) because we no longer have any class of equity securities that is required to be registered under Section 12 of the Securities Exchange Act of 1934.

FAS 123(R). Options granted in 2008 resulted in compensation expense to us under FAS 123(R).

COMPENSATION COMMITTEE REPORT

The Compensation Committee of Parent’s Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the Compensation Committee, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report.

Members of the Compensation Committee of Parent’s Board of Directors:

Robert B. Henske (Chairman)

Erik Ragatz

March 12 11, ~~2009~~2010

Index to Financial Statements

Summary ~~Compensation~~compensation ~~Table~~ table

The following tables set forth the aggregate compensation during ~~2008~~2009 awarded to, earned by, or paid to ~~both~~ our ~~current and former~~ president and chief executive officer, ~~the~~our chief financial officer and our three other most highly compensated executive officers ~~other than the chief executive officers and the chief financial officer~~ who were serving as executive officers at the end of the last completed fiscal year.

Name and Principal Position	Year	Salary ($)				Bonus				OptionAwards ($) (3)			Non-EquityIncentive PlanCompensation($) (4)			All OtherCompensation			Total ($)
Name and principal position	Year	Salary			Bonus(1)			Optionawards(2)			Non-equityincentive plancompensation(3)			All othercompensation			Total
David L. SwiftPresident and Chief Executive Officer	2008	$	659,722	(1)		$	1,490,000	(2)		$	1,104,846		$	626,736		$	1,064,083	(11)	$	4,945,387
David L. Swift	2009	$	950,000		$	17,813		$	—		$	3,385,277		$	—		$	4,353,090
Charles A. CarrollFormer President andChief Executive Officer (5)	200820072006		451,717 1,064,0841,004,166	(6)			— — —				599,182963,419799,319			328,1362,306,0081,347,591			— — —			1,379,0354,333,5113,151,076
President and Chief Executive Officer	2008		659,722			1,490,000			5,744,604			626,736			1,064,083			9,585,145
Lawrence M. BlackburnExecutive Vice Presidentand Chief Financial Officer	200820072006		459,850 443,106426,900	(7)			— — —				704,332523,514477,707			344,888751,608436,955			— — —			1,509,0701,718,2281,341,562
Lawrence M. Blackburn	2009		464,200			8,704			—			1,392,600			—			1,865,504
Ben D. CampbellExecutive Vice President,Secretary and General Counsel	200820072006		371,926 358,399346,152	(8)			— — —				244,559204,898185,252			278,945607,873354,358			— — —			895,4301,171,170885,762
Executive Vice President and Chief Financial Officer	2008		459,850			—			3,329,445			344,888			—			4,134,183
Donald R. KingExecutive Vice President, Human Resources	200820072006		336,025 323,800311,927	(9)			— — —				244,559204,898185,252			252,019549,246319,287			— — —			832,6031,077,944816,466
	2007		443,106			—			711,000			751,608			—			1,905,714
William L. TopperSenior Vice President,Operations	200820072006		382,046 368,102355,650	(10)			— — —				244,559133,196110,209			286,535624,395364,044			— — —			913,1401,125,693829,903
Ben D. Campbell	2009		375,450			7,040			—			1,126,353			—			1,508,843
Executive Vice President, Secretary and General Counsel	2008		371,926			—			1,156,057			278,945			—			1,806,928
	2007		358,399			—			276,500			607,873			—			1,242,772
Donald R. King	2009		339,200			6,360			—			1,017,600			—			1,363,160
Executive Vice President, Human Resources	2008		336,025			—			1,156,057			252,019			—			1,744,101
	2007		323,800			—			276,500			549,246			—			1,149,546
William L. Topper	2009		385,670			7,231			—			1,157,013			—			1,549,914
Senior Vice President, Operations	2008		382,046			—			1,156,057			286,535			—			1,824,638
	2007		368,102			—			197,500			624,395			—			1,189,997

(1) ~~Pursuant~~Bonuses togranted ~~the~~in ~~terms~~2009 ofreflect ~~his~~a ~~employment~~one-time ~~agreement,~~lump-sum ~~Mr.~~payment ~~Swift~~paid isto ~~entitled~~all toexecutive anemployees ~~annualized~~and ~~base~~all ~~salary~~non-executive ofemployees ~~$950,000.~~who ~~The~~would ~~amount~~otherwise ~~indicated~~have ~~above~~received ~~reflects~~a ~~his~~raise ~~pro-rated~~in ~~base~~April 2009 equal to approximately 2.5% of salary ~~from~~for ~~April~~the ~~21,~~months ~~2008~~April through December. ~~31,~~These ~~2008~~payments were approved and paid in October 2009.

(2) ~~Represents~~The amounts in this column reflect the ~~sum~~aggregate grant date fair value of ~~signing~~option ~~bonus~~awards ~~and~~granted ~~“stage~~during 2the ~~bonus”~~specified ~~payments~~fiscal ~~made~~year as calculated pursuant to MrFinancial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation (ASC Topic 718). ~~Swift~~The ~~pursuant~~assumptions toused ~~the~~in ~~terms~~calculating ofthese ~~his~~amounts ~~employment~~under ~~agreement~~ASC ~~with~~Topic us718 ~~dated~~are asset offorth ~~April~~in ~~21,~~Note ~~2008~~5 to our audited financial statements included in this annual report on Form 10-K.

(3) ~~The~~Amounts ~~amounts~~listed inunder ~~this~~the column ~~reflect~~“Non-Equity ~~the~~Incentive ~~expense~~Plan ~~recognized~~Compensation” ~~for~~constitute ~~financial~~annual ~~statement~~incentive ~~reporting~~payments ~~purposes~~earned for ~~the~~2009 ~~year~~and ~~ended~~paid ~~December 31, 2008,~~ in ~~accordance~~October ~~with~~2009 ~~FAS~~and ~~123(R),~~March ~~of outstanding stock options granted in 2008~~2010. ~~The assumptions used in calculating these amounts under FAS 123(R) are set forth in Note 4 to our audited financial statements included in this Form 10-K.~~

~~(4)~~Grants ~~Amounts~~of ~~listed under the column “Non~~plan-~~Equity~~based ~~Incentive~~awards ~~Plan Compensation” constitute annual incentive payments earned~~ in ~~2008 and paid in November 2008 and March~~ 2009.

(5) Charles Carroll retired as our president and chief executive officer effective April 21, 2008, the date on which our new president and chief executive officer, David L. Swift, commenced employment. Mr. Carroll remains as Chairman of our and our Parent’s Board of Directors.


	Estimated future payouts under non-equity incentive plan awards
Name	Threshold		Target		Maximum
David L.Swift	$	338,438	$	902,500	$	3,385,277
Lawrence M. Blackburn		116,050		348,150		1,392,600
Ben D. Campbell		93,863		281,588		1,126,353
Donald R. King		84,800		254,400		1,017,600
William L. Topper		96,418		289,253		1,157,013

(6) The executive’s annualized base salary was $1,073,900 until his retirement as our president and chief executive officer; thereafter, his base salary was reduced to $150,000 per year.

(7) The executive’s annualized base salary was $446,800 until April 1, 2008, when the base salary was increased to $464,200 per year.

(8) The executive’s annualized base salary was $361,350 until April 1, 2008 when the base salary was increased to $375,450 per year.

(9) The executive’s annualized base salary was $326,500 until April 1, 2008, when the base salary was increased to $339,200 per year.

(10) The executive’s annualized base salary was $371,171 until April 1, 2008, when the base salary was increased to $385,670 per year.

(11) For Mr. Swift, amount consists of $85,315 of relocation expenses for temporary housing and transportation of household goods, $15,194 reimbursement for legal fees and an aggregate of $963,574 of tax gross-up payments on account of the signing bonus and “stage 2 bonus” received by Mr. Swift.

Index to Financial Statements

~~Grants~~Amounts earned for 2009 were at the excellence level of ~~Plan-Based~~performance ~~Awards~~of ~~for~~$330.1 ~~Fiscal~~million ~~Year~~of consolidated ~~2008~~EBITDA, as specified under the Bonus Program. Amounts shown in the table as maximum payout reflect the excellence level specified under the Bonus Program.

	Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards(1)							EstimatedFuturePayoutsUnder EquityIncentivePlan Awards	All otherOptionAwards:Number ofSecuritiesUnderlyingOptions	ExercisePrice ofOptionsAwards		Grant DateFair Valueof OptionAwards($)(4)
Name	Option GrantDate	Threshold($)		Target($)		Maximum($)
David L. Swift (2)	April 21, 2008	$	234,861	$	626,736	$	1,684,930	673,492	1,010,239	$	10.00	$	5,744,604
Charles A. Carroll (3)	Feb. 13, 2008	$	123,051	$	328,136	$	882,030	—	431,035	$	10.00		1,518,719
Lawrence M. Blackburn	Feb. 13, 2008	$	114,963	$	344,888	$	977,181	387,932	581,897	$	10.00		3,329,445
Ben D. Campbell	Feb. 13, 2008	$	92,982	$	278,945	$	790,343	134,698	202,048	$	10.00		1,156,057
Donald R. King	Feb. 13, 2008	$	84,006	$	252,019	$	714,053	134,698	202,048	$	10.00		1,156,057
William L. Topper	Feb. 13, 2008	$	95,512	$	286,535	$	811,848	134,698	202,048	$	10.00		1,156,057

The amounts shown in the Grants of Plan-Based Awards Table in 2009 Table represent payouts at the threshold, target and the excellence levels for the annual cash incentives earned by the NEOs in 2009. The potential payouts were performance-driven, based on achievement of pre-established consolidated EBITDA targets, and therefore completely at risk. If threshold levels of performance were not met, then the payout could have been zero. A portion of the annual incentive compensation for 2009 was paid in November 2009 and the remainder in March 2010, and reflected the excellence level of performance, or consolidated EBITDA of $330.1 million.

~~(1)~~Narrative ~~Amounts~~to ~~earned for 2008 were at~~ the ~~target~~Summary ~~level~~Compensation ofTable ~~performance~~and ofGrants ~~$290 million~~ of ~~consolidated~~Plan-Based ~~EBITDA,~~Awards ~~as specified under the 2008 Bonus Program. Amounts shown~~ in ~~the~~2009 ~~table~~Table ~~as Maximum payout reflect the superior level specified under the 2008 Bonus Program.~~

~~(2)~~Executive ~~Mr. Swift’s annual incentive award for 2008 was pro-rated based on the period from April 21, 2008 (the date he commenced~~ employment ~~with~~agreements ~~us) through December 31, 2008 on the basis of the amount of base salary earned during the 2008 fiscal year.~~

(3) Mr. Carroll’s annual incentive award for 2008 was pro-rated based on the period from January 1, 2008 through April 21, 2008, the date on which he retired as our president and chief executive officer, on the basis of the amount of base salary earned during the 2008 fiscal year in that capacity.

(4) In accordance with FAS 123(R), the amounts in this column reflect the aggregate grant date fair value of option awards granted in 2008, based on the assumptions set forth for financial statement reporting purposes for the year ended December 31, 2008, in Note 4 to our audited financial statements included in this Form 10-K.

As shown in the Summary Compensation Table, above, the primary elements of compensation of the NEOs are cash in the form of base salary and incentive bonus. For 2008, amounts paid as performance-based cash compensation were less than base salary for all of our NEOs except Mr. Carroll whose bonus was equal to his base salary for the 2008 fiscal year in his capacity as our president and chief executive officer. The lower levels of cash bonuses earned by our NEOs in 2008, as compared with prior years, are generally reflective of the more difficult economic climate in which we have been operating.

The amounts shown in the Grants of Plan-Based Awards Table represent payouts at the threshold, target and the superior levels for the annual cash incentives earned by the NEOs in 2008. The potential payouts were performance-driven, based on achievement of pre-established consolidated EBITDA targets, and therefore completely at risk. If threshold levels of performance were not met, then the payout could have been zero. If our EBITDA performance exceeded the level corresponding to the highest specified payout (the superior level), it was also agreed that the Board would not award an amount greater than the highest specified payout. A portion of the annual incentive compensation for 2008 was paid in November 2008 and the remainder in March 2009, and reflected the target level of performance, or consolidated EBITDA of $290 million.

Outstanding Equity Awards at Fiscal Year-End 2008

	Option Awards
Name	Number of SecuritiesUnderlyingUnexercised Options(#) Exercisable	Number of SecuritiesUnderlyingUnexercised Options(#) Unexercisable(1)		Equity Incentive PlanAwards: Number ofSecurities UnderlyingUnexercised UnearnedOptions (#)		OptionExercisePrice ($)		OptionExpirationDate
David L. Swift	134,698	1,010,239	(2)	538,794	(1)(3)	$	10.00	4/21/18
Charles A. Carroll	89,799	341,236	(4)	—		$	10.00	2/13/18
Lawrence M. Blackburn	6,659	—		—		$	2.07	12/23/14
	77,586	581,897	(5)	310,346	(3)	$	10.00	2/13/18
Ben D. Campbell	26,940	202,048	(5)	107,758	(3)	$	10.00	2/13/18
Donald R. King	26,940	202,048	(5)	107,758	(3)	$	10.00	2/13/18
William L. Topper	26,940	202,048	(5)	107,758	(3)	$	10.00	2/13/18

(1) In the event of a change in control, both the time-vesting options and the performance-vesting options shall, subject to certain conditions, accelerate and immediately become fully vested and exercisable immediately prior to the effective date of the change in control.

Index to Financial Statements

(2) The time-vesting option vests in four equal installments (of 25%) each) on April 21 of each calendar year 2009 through 2012, subject to Mr. Swift’s continuous service with us.

(3) The performance-vesting options will vest in five equal installments (of 20% each) of the shares covered by the option on December 31 of each calendar year 2008 through 2012, subject to the satisfaction of certain performance targets for each such year, and further subject to “catch-up” vesting in the event an EBITDA target is satisfied in the year following the year in which an EBITDA target is missed. In light of the current economic conditions and their impact on our financial performance, the Compensation Committee determined to vest 20% of the performance vesting options effective as of December 31, 2008, notwithstanding that the consolidated EBITDA performance target of $300 million was not satisfied.

(4) The first grant of 269,397 options vests in equal installments of 33-1/3% on June 30 of each of 2008, 2009 and 2010, provided that Mr. Carroll continues to provide services to us. The second time-vesting option grant of 161,638 will vest as to 25% of each of the first four anniversaries of February 13, 2008, so long as Mr. Carroll continues to serve as Chairman of our Board. The terms of this option were amended by letter agreement dated March 13, 2009, whereby the options will continue to vest following Mr. Carroll’s resignation from his position as Chairman of our and our Parent’s Boards so long as he continues to serve as a director of our Parent’s Board. See “Executive Compensation—New Employment Agreement—Charles Carroll,” below.

(5) The time-vesting options will vest as to 25% of the award on the first anniversary of the grant date of February 13, 2008, and on each of the following three anniversaries thereafter, subject to the optionholder’s provision of continued services.

Option Exercises

None of our NEOs exercised options in 2008.

New Employment Agreements

David L. Swift

Mr. Swift entered into an employment agreement with us, effective as of April 21, 2008, pursuant to which he commenced serving as ~~our and our Parent’s~~ president and chief executive officer, and as a member of our and our Parent’s Board of Directors. Mr. Swift’s employment agreement has an initial term of five years, which will renew for additional one-year periods unless either party provides notice of non-renewal at least 180 days prior to the end of the then-current term.

Salary and Bonus. The employment agreement provides that while employed as our president and chief executive officer, Mr. Swift will receive a base salary at the annual rate of $950,000, subject to annual review and adjustment, and will be eligible to earn an annual bonus in a target amount equal to 95% of his base salary, with a maximum bonus opportunity equal to 457.33% of his base salary. The employment agreement also required us to pay Mr. Swift an initial cash signing bonus of $850,000; we also paid Mr. Swift a tax gross-up payment equal to the federal income, state income and employment taxes imposed on the initial signing bonus, in the amount of $596,493. As Mr. Swift remained employed with us through the Stage 2 Date (as defined below), on November 6, 2008, we paid an additional cash bonus, of $640,000, plus a tax gross-up payment on such additional cash bonus in the amount of $367,081. Mr. Swift is also entitled to participate in our employee benefit plans on the same basis as those plans are generally made available to other similarly situated executives.

In the event that any payment or benefit to be received under the employment agreement will trigger the imposition of excise tax under Section 4999 of the Internal Revenue Code, then all payments will be reduced to the extent necessary so that the excise tax will not be imposed unless the amount of such reduction would equal or exceed 110% of the excise tax that would be imposed on such amounts.

Equity Participation. Mr. Swift’s equity participation in us, our Parent, and any of their subsidiaries ~~will~~is be pursuant to the 2008 ~~Plan,~~Stock ~~described in the section entitled “Executive Compensation—New Equity~~ Incentive Plan,” option award agreements issued under the 2008 ~~Plan,~~Stock ~~the~~Incentive ~~Management Stockholders Agreement~~Plan, ~~described in~~ the ~~section above entitled “~~Management Stockholders Agreement,” and any contribution or subscription agreements relating to our or our Parent’s equity. On April 21, 2008, Mr. Swift ~~and Parent~~ entered into both a time-vesting stock option agreement and a performance-vesting stock option agreement with us. In addition, it was agreed that on the Stage 2 Date, Parent and Mr. Swift ~~and Parent~~ would enter into a share subscription agreement, providing that Mr. Swift shall purchase that number of shares of our Parent’s common stock, par value $0.01 per share, having an aggregate value equal to $1,000,000, on the terms described in the share subscription agreement. Pursuant to a share subscription agreement dated as of December 22, 2008, Mr. Swift purchased 99,900.10 shares of Parent’s common stock at a purchase price of $10.01 per share.

53The options granted to Mr. Swift are subject to the provisions of the 2008 Stock Incentive Plan, as well as the terms of the applicable award agreements. Pursuant to a performance-vesting stock option agreement, Mr. Swift was granted an option to purchase 673,492 shares at an exercise price of $10 per share, vesting in five equal installments (of 20% each) of the shares covered by the option on December 31 of each calendar year 2008 through 2012, subject to the satisfaction of certain performance targets for each such year. Pursuant to a time-vesting stock option agreement, Mr. Swift was granted an option to purchase 1,010,239 shares at an exercise price of $10 per share. The time-vesting option vests in four equal installments (of 25% each) on April 21 of each calendar year 2009 through 2012, subject to Mr. Swift’s continuous service with us. In the event of a change in control, both the time-vesting options and the performance-vesting options then outstanding shall accelerate and immediately become fully vested and exercisable immediately prior to the effective date of the change in control.

Index to Financial Statements

that number of shares of Parent’s common stock, par value $0.01 per share, having an aggregate value equal to $1,000,000, on the terms described in the share subscription agreement. Pursuant to a share subscription agreement dated as of December 22, 2008, Mr. Swift purchased 99,900.10 shares of Parent’s common stock at a purchase price of $10.01 per share.

The options granted to Mr. Swift are described under the heading “New Equity Incentive Plan,” above and are subject to the provisions of the 2008 Plan, as well as the terms of the applicable award agreements. Pursuant to a performance-vesting stock option agreement, Mr. Swift was granted an option to purchase 673,492 shares at an exercise price of $10 per share, vesting in five equal installments (of 20% each) of the shares covered by the option on December 31 of each calendar year 2008 through 2012, subject to the satisfaction of certain performance targets for each such year. Pursuant to a time-vesting stock option agreement, Mr. Swift was granted an option to purchase 1,010,239 shares at an exercise price of $10 per share. The time-vesting option vests in four equal installments (of 25% each) on April 21 of each calendar year 2009 through 2012, subject to Mr. Swift’s continuous service with us. In the event of a change in control, both the time-vesting options and the performance-vesting options then outstanding shall accelerate and immediately become fully vested and exercisable immediately prior to the effective date of the change in control.

Relocation Arrangements. We agreed with Mr. Swift that an agent acting as a representative for us would purchase Mr. Swift’s residential property in St. Joseph, Michigan (the Property) for a purchase price of $1,150,000 and simultaneous with such purchase, the agent would enter into a lease agreement to lease the Property to Mr. Swift and his spouse. The Property was listed by the agent for sale. Our prior consent was required to accept any purchase offer, and Mr. Swift’s and our prior consent was required to accept any purchase offer for the Property received prior to July 31, 2008 for a price less than $1,700,000. The date of closing of the sale of the Property by the agent to an unaffiliated third party was the Stage 2 Date and the purchase price was the Stage 2 Price.

We also agreed with Mr. Swift that the purchase price paid for the Property would be calculated as the average of two third-party appraisals, and such amount represented the good faith belief of both Mr. Swift and us as to the fair market value of the Property. It was also agreed that to the extent that the Stage 2 Price was less than $1,000,000, Mr. Swift would indemnify us for the amount of such loss.

Pursuant to the employment agreement, we were required to pay or reimburse Mr. Swift for relocation costs incurred in connection with his permanent move to Houston, Texas, and for reasonable legal fees incurred in connection with the negotiation of the employment agreement. We reimbursed Mr. Swift for such expenses in an aggregate amount of $100,509.

Termination Arrangements. In the event that Mr. Swift is terminated by us without “cause,” or resigns for “good reason,” we will provide him with payments totaling two times his base salary, plus two times his target bonus, over the two-year period following such termination, as well as a pro-rated annual bonus for the year of termination, payable at the time such payment would have otherwise been paid under the bonus program. In the event that prior to April 21, 2009, Mr. Swift is terminated by us with “cause” or he resigns without “good reason,” Mr. Swift must repay both the initial cash signing bonus and additional cash bonus, as well as any tax gross-ups paid pursuant thereto.

Pursuant to the employment agreement, Mr. Swift has agreed not to disclose our confidential information at any time, and, for the period during which he provides services to us and for the two-year period thereafter, he has also agreed not to compete with us, interfere with our business, or solicit or hire our employees or customers.

Charles Carroll

In connection with the closing of the Merger on February 13, 2008, we entered into a new employment agreement with Charles Carroll under which Mr. Carroll continued to serve as our president and chief executive officer until April 21, 2008. Charles Carroll retired as our president and chief executive officer effective April 21, 2008, the date on which our new president and chief executive officer, David L. Swift, commenced employment. Mr. Carroll’s employment agreement provides that he will remain as the Chairman of our Board after his service as our chief executive officer ends, unless otherwise agreed. In the event Mr. Carroll is no longer serving as the Chairman of the Board, the agreement also provides that Mr. Carroll will be given the opportunity to serve as a non-executive employee for the period ending no earlier than June 30, 2010.

Index to Financial Statements

While employed as our chief executive officer, Mr. Carroll received a base salary at the annual rate of $1,073,900 and became eligible to earn a pro-rata annual bonus (based on the number of days Mr. Carroll served as our Chief Executive Officer) in a target amount equal to 100% of his base salary as chief executive officer, with a maximum bonus opportunity equal to 481.4% of his base salary. For the period effective from April 21, 2008, his base salary was paid at the annual rate of $150,000 and he was no longer entitled to participate in our annual bonus program. During his service with us in any capacity, Mr. Carroll will be entitled to participate in our employee benefit plans on the same basis as those plans are generally made available to other similarly situated executives. Mr. Carroll’s employment agreement was amended effective May 29, 2008 to provide that he will be entitled to continued participation in our group health plans until he reaches the age of 65, or if later, the qualifying age under Medicare, irrespective of his continued employment, provided he pays the premium up to the amount that would have been payable if such coverage were provided under COBRA.

In the event Mr. Carroll is terminated by us without “cause,” or resigns for “good reason,” we will provide him with payments totaling two times his base salary, plus two times his target bonus, over the two-year period following such termination, as well as a pro-rated annual bonus for the year of termination (if such termination had occurred during his service as our president and chief executive officer), payable at the time such payment would have otherwise been paid under the bonus program, and post-termination health insurance coverage.

Pursuant to the employment agreement, Mr. Carroll has agreed not to disclose our confidential information at any time, and, for the period during which he provides services to us and for the two-year period thereafter, he has also agreed not to compete with us, interfere with our business, or solicit or hire our employees or customers.

In the event that any payment or benefit to be received under the employment agreement will trigger the imposition of an excise tax under Section 4999 of the Code, then all payments will be reduced to the extent necessary so that the excise tax will not be imposed unless the amount of such reduction would equal or exceed 110% of the excise tax that would be imposed on such amounts.

Mr. Carroll has informed our and Parent’s Boards of his intention to resign as Chairman of our and Parent’s Boards and to continue to serve as a director on both Boards. Our and Parent’s Boards approved Mr. Carroll’s resignation as Chairman, to be effective immediately after the filing with the Securities and Exchange Commission (the SEC) of this Annual Report on Form 10-K. The Board also approved a letter agreement, dated March 13, 2009, between Mr. Carroll, Parent and us, to be effective immediately after the filing with the SEC of this annual report on Form 10-K, which is filed as an exhibit hereto. Pursuant to this letter agreement, Mr. Carroll’s resignation as Chairman will not constitute termination of Mr. Carroll’s employment or result in the termination of Mr. Carroll’s option agreement with us, as he will continue to offer valuable service to us and our Parent as one of our and Parent’s directors and service as a non-executive employee. Mr. Carroll and we agreed to amend the terms of vesting of one of the options granted to him on February 13, 2008. Subject to Mr. Carroll’s continuous service on Parent’s Board, this option will continue to vest according to the terms of the grant. All other terms of Mr. Carroll’s employment and option agreements remain unchanged.

Lawrence Blackburn

On February 13, 2008, we also entered into a new employment agreement with Lawrence Blackburn, pursuant to which Mr. Blackburn ~~will~~serves ~~continue to serve~~ as our and our Parent’s chief financial officer and as our and our Parent’s executive vice-president. Mr. Blackburn became a director of us and our Parent on April 21, 2008. Mr. Blackburn’s employment agreement has an initial term of four years, which will renew for additional one-year periods until either party provides notice of non-renewal at least 180 days prior to the end of the then-current term. The agreement provides that while employed as our and our Parent’s chief financial officer, Mr. Blackburn will receive a base salary at the annual rate of $446,800 (currently $464,200), subject to annual review and adjustment, and will be eligible to earn an annual bonus in a target amount equal to 75% of his base salary, with a maximum bonus opportunity equal to 387.5% of his base salary. The agreement further provides that during his employment with us, Mr. Blackburn will be entitled to participate in our employee benefit plans on the same basis as those plans are generally made to other similarly situated executives.

Index to Financial Statements

In the event Mr. Blackburn is terminated by us without “cause,” or resigns for “good reason,” we will provide him with payments totaling two times his then-applicable base salary, plus two times his target bonus, payable over the two-year period following such termination, as well as a pro-rated annual bonus for the year of termination, payable at the time such payment would have otherwise been paid had Mr. Blackburn’s employment not terminated.

In the event that any payment or benefit to be received under the employment agreement will trigger the imposition of an excise tax under Section 4999 of the Internal Revenue Code, then all payments will be reduced to the extent necessary so that the excise tax will not be imposed unless the amount of such reduction would equal or exceed 110% of the excise tax that would be imposed on such amounts.

Pursuant to his employment agreement, Mr. Blackburn has agreed not to disclose our confidential information at any time and, for the period during which he is employed by us and for a two-year period following termination of his employment, he has also agreed not to compete with us, interfere with our business, or solicit or hire our employees or customers.

~~New~~ Severance ~~Agreements~~ agreements

In connection with the closing of the ~~Merger~~2008 Acquisition on February 13, 2008, we also entered into individual severance agreements with ~~our other named executive officers,~~ Messrs. Topper, Campbell and King. Each severance agreement has an initial term of four years and renews automatically for additional one-year periods unless either party provides notice of non-renewal at least 90 days prior to the end of the then-current term. Each agreement provides for the payment of an ~~annual base salary (currently $385,670 for Topper, $375,450 for Campbell, and $339,200 for King), subject to annual review and adjustment, and~~ each agreement also provides that the executive will be eligible to earn an annual bonus in a target amount equal to 75% of the executive’s base salary, with a maximum bonus opportunity in an amount equal to 387.5% of the executive’s base salary.

Index to Financial Statements

annual base salary (currently $385,670 for Mr. Topper, $375,450 for Mr. Campbell, and $339,200 for Mr. King), subject to annual review and adjustment, and each agreement also provides that the executive will be eligible to earn an annual bonus in a target amount equal to 75% of the executive’s base salary, with a maximum bonus opportunity in an amount equal to 387.5% of the executive’s base salary.

The severance agreements also provide that if the executive is terminated by us without “cause” or resigns for “good reason,” we will provide the executive with payments totaling one times the executive’s then-applicable base salary, plus one times his bonus, payable over the two-year period following such termination, as well as a pro-rated annual bonus for the year of termination, payable at the time such payment would have otherwise been paid had the executive’s employment not terminated. Each severance agreement further provides that the executive will not disclose our confidential information at any time and, for the period during which the executive is employed by us and for a period following termination of employment, the executive will not compete with us, interfere with our business, or solicit or hire our employees or customers.

In the event that any payment or benefit to be received under the severance agreement will trigger the imposition of an excise tax under Section 4999 of the Internal Revenue Code, then all payments will be reduced to the extent necessary so that the excise tax will not be imposed unless the amount of such reduction would equal or exceed 110% of the excise tax that would be imposed on such amounts.

~~Potential~~Outstanding ~~Payments~~equity ~~Upon~~awards ~~Termination~~at or2009 ~~Change~~fiscal inyear-end ~~Control under Employment and Severance Agreements~~

As summarized above, following the closing of the Merger, each of our named executive officers (except Mr. Swift who entered into an employment agreement effective as of April 21, 2008) entered into new employment or new severance agreements, as applicable, and agreed to terminate the employment and severance agreements that were in place prior to the closing.


	Option awards
Name	Number of securities underlying unexercised options exercisable	Number of securities underlying unexercised options unexercisable (1)		Equity incentive plan awards: number of securities underlying unexercised unearned options		Option exercise price		Option expiration date
David L. Swift	521,956	757,680	(2)	404,095	(1)(3)	$	10.00	4/21/18
Lawrence M. Blackburn	6,659	—		—			2.07	12/23/14
	300,647	436,423	(4)	232,759	(3)		10.00	2/13/18
Ben D. Campbell	104,391	151,536	(4)	80,819	(3)		10.00	2/13/18
Donald R. King	104,391	151,536	(4)	80,819	(3)		10.00	2/13/18
William L. Topper	104,391	151,536	(4)	80,819	(3)		10.00	2/13/18

~~The~~(1) ~~amounts~~In ~~payable to~~ the ~~NEOs~~event ~~upon~~of ~~termination~~a ofchange ~~employment~~in ~~(including~~control, ~~termination~~both ~~following~~the atime-vesting ~~change~~options ofand ~~control)~~the ~~are~~performance-vesting ~~summarized~~options inshall, ~~the~~subject ~~table~~to ~~below~~certain conditions, ~~calculated~~ onaccelerate ~~the~~and ~~basis~~immediately ofbecome ~~the~~fully ~~agreements~~vested and ~~arrangements~~exercisable inimmediately ~~effect~~prior asto the effective date of ~~December 31,~~the ~~2008.~~change in control.

56(2) The time-vesting option vests in four equal installments (of 25% each) on April 21 of each year 2009 through 2012, subject to Mr. Swift’s continuous service with us.

(3)

The performance-vesting options will vest in five equal installments (of 20% each) of the shares covered by the option on December 31 of each calendar year 2008 through 2012, subject to the satisfaction of certain performance targets for each such year, and further subject to “catch-up” vesting in the event an EBITDA target is satisfied in the year following the year in which an EBITDA target is missed. In light of then existing economic conditions and their impact on our financial performance, the Compensation Committee determined to vest 20% of the performance vesting options effective as of December 31, 2008, notwithstanding that the consolidated EBITDA performance target of $300 million was not satisfied.

(4)	The time-vesting options will vest as to 25% of the award on the first anniversary of the grant date of February 13, 2008, and on each of the following three anniversaries thereafter, subject to the optionholder’s provision of continued services.

Option exercises

None of our NEOs exercised options in 2009.

Index to Financial Statements

Potential ~~Payments~~payments onupon ~~Change~~termination inor ~~Control~~change orin ~~Severance~~control

	Severance upon Qualifying Termination and Change in Control Vesting
Name	Trigger (1)	Salary $		Bonus $		Pro-ratedAnnualBonus		MedicalBenefits (2)		Change ofControlVesting (3)		Total
David L. Swift	Termination	$	1,900,000	$	1,805,000	$	626,736	$	—	$	15,490	$	4,347,226
Charles A. Carroll	Termination		300,000		656,272		—		—		3,412		959,684
Lawrence M. Blackburn	Termination		928,400		696,300		344,888		—		8,922		1,978,510
Ben D. Campbell	Termination		375,450		281,588		278,945		—		3,098		939,081
Donald R. King	Termination		339,200		254,400		252,019		—		3,098		848,717
William L. Topper	Termination		385,670		289,253		286,535		—		3,098		964,556

As summarized above, following the closing of the 2008 Acquisition, each of our named executive officers (except Mr. Swift who entered into an employment agreement effective as of April 21, 2008) entered into employment or severance agreements, as applicable, and agreed to terminate the employment and severance agreements that were in place prior to the closing.

~~(1)~~The Aamounts ~~“qualifying~~payable ~~termination”~~to ofthe ~~employment~~NEOs isupon a termination byof usemployment ~~without~~(including ~~“cause”~~termination ~~(other~~following ~~than~~a ~~due~~change toin ~~disability~~control) orare ~~resignation~~summarized byin the table ~~executive~~below, ~~for~~calculated ~~“good~~on ~~reason.” In~~ the ~~event~~basis ~~that~~of ~~any payment or benefit to be received by~~ the ~~executive~~agreements ~~would~~and ~~trigger~~arrangements ~~the~~in ~~imposition~~effect ofas ~~an excise tax under Section 4999~~ of ~~the Code~~December 31, then all payments would be reduced to the extent necessary so that such excise tax will not be imposed unless the amount of such reduction would equal or exceed 110% of the excise tax that would be imposed on such amounts2009.

(2) Pursuant to Mr. Carroll’s employment agreement, he is entitled to continue participating in our group health plans until he reaches age 65 or, if later, his qualifying age under Medicare, provided that he pays 100% of the cost of premiums that would have been payable under COBRA, less a 2% administrative surcharge.


	Severance upon qualifying termination and change in control vesting
Name	Trigger (1)	Salary		Bonus		Pro-rated annual bonus		Medical benefits		Change in control vesting (2)		Total
David L. Swift	Termination	$	1,900,000	$	1,805,000	$	2,651,995	$	—	$	464,710	$	6,821,705
Lawrence M. Blackburn	Termination		928,400		696,300		1,102,474		—		267,673		2,994,847
Ben D. Campbell	Termination		375,450		281,588		891,696		—		92,943		1,641,677
Donald R. King	Termination		339,200		254,400		805,600		—		92,943		1,492,143
William L. Topper	Termination		385,670		289,253		915,968		—		92,943		1,683,834

(31) ~~The~~A ~~amounts~~“qualifying intermination” ~~this~~of ~~column~~employment ~~reflect~~is ~~the~~a ~~accelerated~~termination ~~vesting~~by ofus ~~all~~without ~~unvested~~“cause” ~~time-vested~~(other ~~options~~than ~~and~~due ~~performance-vested~~to ~~options~~disability) ~~held~~or resignation by ~~Messrs.~~the ~~Swift,~~executive ~~Carroll,~~for ~~Blackburn,~~“good ~~Campbell,~~reason.” ~~King~~In ~~and~~the ~~Topper~~event ~~upon~~that aany ~~change~~payment ofor ~~control,~~benefit asto ifbe areceived ~~change~~by inthe ~~control~~executive ~~had~~would ~~occurred~~trigger ~~and~~ the ~~options~~imposition ~~had~~of ~~vested~~an asexcise oftax ~~December~~under ~~31,~~Section ~~2008,~~4999 ~~calculated~~of ~~based~~the ~~upon~~Internal ~~the~~Revenue ~~positive~~Code, ~~difference~~then ~~between~~all ~~Parent’s~~payments ~~stock~~would ~~price~~be atreduced ~~year-end~~to ~~(which~~the weextent ~~currently~~necessary ~~believe~~so isthat ~~$10.01~~such ~~per~~excise ~~share)~~tax ~~and~~will ~~the~~not ~~exercise~~be ~~price~~imposed ofunless the ~~options.~~amount ~~These~~of ~~benefits~~such reduction would ~~not~~equal beor ~~payable~~exceed in110% ~~the event~~ of athe ~~“qualifying~~excise ~~termination”~~tax ofthat ~~employment~~would ~~absent~~be aimposed ~~change~~on insuch ~~control~~amounts.

(2)

The amounts in this column reflect the accelerated vesting of all unvested time-vested options and performance-vested options held by Messrs. Swift, Blackburn, Campbell, King and Topper upon a change in control, as if a change in control had occurred and the options had vested as of December 31, 2009, calculated based upon the positive difference between our stock price at year-end (which we believed was $10.40 per share at such time) and the exercise price of the options. These benefits would not be payable in the event of a “qualifying termination” of employment absent a change in control.

We have used substantially similar definitions for the terms “cause”, “good reason” and “change in control” in all of the employment and severance agreements with our NEOs, as follows:

•

“Cause” has generally been defined to mean an executive’s willful failure to perform his duties, his commission of a felony or other crime involving moral turpitude, unlawful drug use, or fraud, embezzlement, breach of fiduciary duty or similar misconduct.

•

“Good Reason” has generally been defined to mean our failure to continue the executive’s position, duties or authority, our material breach of our agreement with the executive, including our failure to pay or provide benefits under the agreement, or relocation of the executive outside of a 75-mile radius of his current place of employment.

•

“Change in Control” has generally been defined as:

(i1) a sale or disposition of all or substantially all of our assets;

(ii2) a transaction or series of transactions where a person or related group acquires more than 50% of the voting power of ~~Parent’s~~Goodman ~~stock~~Global Group, Inc., or more stock than is owned by our initial investors; or

(~~iii~~3) approval of our complete liquidation or dissolution.

~~Compensation~~55 ~~Committee Interlocks and Insider Participation~~

Compensation decisions are made by the board of directors and Compensation Committee of Chill Holdings, Inc., our parent. Parent’s board has appointed Messrs. Henske and Ragatz, who are also members of our Board of Directors, to serve on Parent’s compensation committee. None of our executive officers has served as a member of the compensation committee (or other committee serving an equivalent function) of any other entity, whose executive officers served as a director of our company or members of our compensation committee.

Index to Financial Statements

Messrs. Henske and Ragatz are managing directors of Hellman & Friedman LLC. As of December 31, 2008, affiliates of Hellman & Friedman LLC control approximately 87% of the outstanding common stock of Chill Holdings, Inc. See “Certain Relationships and Related Party Transactions.”

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We are a wholly owned subsidiary of ~~Chill~~Goodman ~~Holdings~~Global Group, Inc., which we refer to as Parent, which indirectly owns all of our issued and outstanding capital stock through its direct ownership of all of the issued and outstanding capital stock of Chill Intermediate Holdings, Inc. All of Parent’s issued and outstanding capital stock is owned by funds affiliated with Hellman & Friedman LLC, investment funds affiliated with GSO ~~(the~~Capital ~~GSO Equity Entities)~~Partners, investment funds affiliated with Farallon Capital Partners, L.P. (the Farallon Equity Entities) and investment funds affiliated with AlpInvest Partners ~~(AlpInvest)~~, along with certain other investors ~~that~~to whom the GSO ~~Equity~~Capital ~~Entities~~Partners funds syndicated their investments to, ~~which~~whom we collectively refer to as the Investors, and certain members of our management, whom we refer to as the Management Participants. See Item 13, “Certain Relationships and Related Transactions, and Director Independence.”

The Investors are able to control all actions by the ~~board~~Board of ~~directors~~Directors of Parent by virtue of their being able to appoint a majority of the directors and their rights under the stockholders agreement to which they and Parent are parties. In addition, as a result of the voting and transfer provisions of the stockholders agreement, the Investors may be deemed to constitute a group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934. Accordingly, each of the members of this group may be deemed to beneficially own all of the shares of Parent common stock held by the Investors and the Management Participants. Each of the Investors disclaims any beneficial ownership of shares of Parent common stock held by the other Investors and the Management ~~participants~~Participants. ~~See “Certain Relationships and Related Party Transactions.”~~

All of our issued and outstanding shares of capital stock have been pledged as collateral to the lenders under our senior secured term credit facilities. If we were to default on our senior secured credit facilities, the lenders could foreclose on these shares of our common stock, which would result in a change of control.

~~The~~56 following table sets forth as of December 31, 2008 certain information regarding the beneficial ownership of the voting securities of Parent by each person who beneficially owns more than five percent of Parent common stock, and by the directors of us and Parent and the executive officers named in the “Summary Compensation Table” on page 51, individually, and by the directors and executive officers of us and Parent as a group.

Name of Beneficial Owner	Number ofShares	Percentage
5% Stockholders:
Funds affiliated with Hellman & Friedman LLC(1)	111,465,213	86.9
Farallon Equity Entities (2)	10,000,000	7.8
Directors and Executive Officers:
David L. Swift(3)(4)	234,599	*
Lawrence M. Blackburn(3)(5)	1,101,540	*
Ben D. Campbell(3)(6)	451,053	*
Donald R. King(3)(7)	446,153	*
William L. Topper(3)(8)	317,953	*
Charles A. Carroll(3)(9)	1,130,209	*
Philip U. Hammarskjold(1)(11)	111,465,213	86.9
Robert B. Henske(1)	111,465,213	86.9
Erik Ragatz(1)	111,465,213	86.9
Saloni K. Saraiya(1)	111,465,213	86.9
All directors and officers as a group(17 individuals)(10)	116,472,634	89.9

Index to Financial Statements

The following table sets forth as of December 31, 2009 certain information regarding the beneficial ownership of the voting securities of Parent by each person who beneficially owns more than five percent of Parent common stock, and by the directors of us and Parent and the executive officers named in the “Summary compensation table” on page 51, individually, and by the directors and executive officers of us and Parent as a group.


	Shares of common stock beneficially owned
Name and address of owner	Number	Percent

5% Stockholders:
Hellman & Friedman LLC(1)	111,465,213	86.9	%
Farallon Equity Entities(2)	10,000,000	7.8	%

Directors and Executive Officers:
David L. Swift(3)	621,847	*
Lawrence M. Blackburn(4)	1,324,600	1.0	%
Ben D. Campbell(5)	528,504	*
Donald R. King(6)	523,604	*
William L. Topper(7)	395,404	*
Charles A. Carroll(8)	1,260,417	*
Robert B. Henske(1)	—	*
Erik Ragatz(1)	—	*
Saloni Saraiya Multani(1)	—	*
All directors and officers as a group(16 individuals)(9)	6,400,267	4.9	%

*	Indicates ownership of less than 1%.

(1)

Common stock consists of 62,365,698 shares held by Hellman & Friedman Capital Partners VI, L.P. (“HFCP VI”), 32,555,251 shares held by H&F Chill Partners, L.P. (“H&F Chill”), 16,287,805 shares held by Hellman & Friedman Capital Partners VI (Parallel), L.P. (“HFCP VI (Parallel)”), 230,418 shares held by Hellman & Friedman Capital Executives VI, LP (“HFCE VI”), and 26,041 shares held by Hellman & Friedman Capital Associates VI, LP (“HFCA VI,” and together with HFCP VI, H&F Chill, HFCP VI (Parallel) HFCE VI and HFCA VI, the “H&F Entities”). Hellman & Friedman Investors VI, L.P. (“H&F VI”) is the general partner of HFCP VI, HFCP VI (Parallel), HFCE VI and HFCA VI, and the managing member of H&F Chill GP LLC, which is the general partner of H&F Chill. Hellman & Friedman LLC is the general partner of H&F VI. An investment committee of Hellman & Friedman LLC, acting by majority vote, has sole voting and dispositive control over the shares of Goodman Global Group, Inc. held by the H&F Entities. The investment committee is comprised of F. Warren Hellman, Brian M. Powers, Philip U. Hammarskjold, Patrick J. Healy and Thomas F. Steyer; provided, however, that Mr. Steyer has no authority or voting rights with respect to investment committee decisions relating to Goodman Global Group, Inc. Messrs. Henske and Ragatz are Managing Directors of Hellman & Friedman LLC but neither of them serve on the investment committee. Ms. Multani is a principal of Hellman & Friedman LLC. Each of the members of the investment committee, as well as Messrs. Henske and Ragatz and Ms. Multani, disclaim beneficial ownership of the shares in Goodman Global Group, Inc, or Goodman Global, Inc. except to the extent of their respective pecuniary interest therein. The address for the H&F Entities, Messrs. Henske and Ragatz and Ms. Multani is c/o Hellman and Friedman LLC, One Maritime Plaza, 12th Floor, San Francisco, California 94111.

(2)

Consists of 3,975,000 shares held by Farallon Capital Partners, L.P., 4,950,000 held by Farallon Capital Institutional Partners, L.P., 550,000 shares held by Farallon Capital Institutional Partners II, L.P., 350,000 shares held by Farallon Capital Institutional Partners III, L.P. and 175,000 shares held by Tinicum Partners, L.P. The address for the Farallon Equity Entities is One Maritime Plaza, Suite 2100, San Francisco, California 94111.

(3)	Includes 521,957 shares subject to options that are exercisable within 60 days of December 31, 2009.

(4)	Includes 452,780 shares subject to options that are exercisable within 60 days of December 31, 2009.

(5)	Includes 154,903 shares subject to options that are exercisable within 60 days of December 31, 2009.

(6)	Includes 154,903 shares subject to options that are exercisable within 60 days of December 31, 2009.

(7)	Includes 154,903 shares subject to options that are exercisable within 60 days of December 31, 2009.

(8)	Includes 260,417 shares subject to options that are exercisable within 60 days of December 31, 2009.

(9)	Includes 2,670,856 shares subject to options that are exercisable within 60 days of December 31, 2009.

Index to Financial Statements

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

Agreements related to the 2008 Acquisition

Stockholders agreement

In connection with the 2008 Acquisition, Parent, Merger Sub, and each of the following: the Hellman & Friedman Investors, funds affiliated with GSO Capital Partners, the Farallon Equity Entities, funds affiliated with AlpInvest Partners, along with certain other investors to whom the GSO Capital Partner funds syndicated their investments (collectively, the Co-Investors) and the Management Participants, entered into a stockholders agreement that generally contains the following provisions:

Board of Directors. The stockholders agreement provides board nomination rights to the Hellman & Friedman Investors and their affiliates. See “Item 10, “Directors, Executive Officers and Corporate Governance – Management-Board Composition and Governance.”

Indemnification. We generally are required to indemnify and hold harmless each of the stockholders that is party to the stockholders agreement, together with its partners, stockholders, members, affiliates, directors, officers, fiduciaries, controlling persons, employees and agents from any losses arising out of either of the following, subject to limited exceptions:

•

the stockholder’s or its affiliate’s ownership of share equivalents or other equity securities of Goodman Global Group, Inc. or its ability to control or influence Goodman Global Group, Inc., or

•

the business, operations, properties, assets or other rights or liabilities of Goodman Global Group, Inc. or any of its subsidiaries.

Transfer restrictions. Under the stockholders agreement, the consent of the Hellman & Friedman Investors is required for all transfers of share equivalents by the Co-Investors other than specified exceptions including, but not limited to, transfers to permitted transferees (i.e., certain affiliates), or in connection with a tag-along or drag-along sale (see below). This transfer restriction continues until the twelve month anniversary of an initial public offering or, if earlier, until the equity ownership of the Hellman & Friedman Investors or the Co-Investors falls below specified levels.

Tag-along rights. Under the stockholders agreement, in connection with any sale of share equivalents by a Hellman & Friedman Investor, subject to exceptions, the Co-Investors, including the Hellman & Friedman Investors, will have “tag-along” rights that allow them to sell a proportionate amount of their share equivalents in such sale. These tag-along rights expire when the transfer restrictions on the Co-Investors expire.

Drag-along rights. Under the stockholders agreement, subject to certain exceptions, the Hellman & Friedman Investors have “drag-along” rights that allow them to cause the Co-Investors to participate in a transaction or transactions involving the transfer of not less than 50% of the outstanding share equivalents of Parent. The drag-along right may only be exercised prior to the twelve month anniversary of an initial public offering, and to exercise the drag-along, either (x) the Hellman & Friedman Investors must own at least 25% of the outstanding shares, or (y) holders of at least 50% of the outstanding shares must have approved the drag-along transaction. This drag-along right expires one year after the completion of an initial public offering.

Registration rights. The stockholders agreement grants the Hellman & Friedman Investors and Co-Investors rights with respect to the registration of shares under the Securities Act. These rights include demand registration rights, shelf registration rights and piggyback registration rights, as well as customary indemnification. All fees, costs and expenses related to registrations will be borne by us; provided, however, that we are not required to pay stock transfer taxes or underwriters’ discounts or selling commissions.

Demand registration rights. The stockholders agreement grants the Hellman & Friedman Investors demand registration rights. Under the terms of the stockholders agreement, subject to certain exceptions, we will be required, upon the written request of the holders of 25% or more of the shares held by the Hellman & Friedman Investors, to use our reasonable best efforts to effect registration of shares requested to be registered by the Hellman & Friedman Investors and the Co-Investors as soon as practicable. We are not required to effect more than four such demand registrations, which include marketed shelf registrations, in any twelve month period. We are not required to effect

Index to Financial Statements

~~(1)~~ a ~~Consists~~demand ofregistration ~~62,365,698~~on ~~shares~~Form ~~held~~S-1 byafter ~~Hellman~~we &have ~~Friedman~~effected ~~Capital~~three ~~Partners~~such ~~VI,~~demand Lregistrations.P. ~~(“HFCP~~We ~~VI”),~~are ~~32,555,251~~not ~~shares~~required ~~held~~to bycomply ~~H&F~~with ~~Chill~~any ~~Partners,~~registration ~~L.P.~~demand (“H&F Chill”), 16,287,805 shares held by Hellman & Friedman Capital Partners VI (Parallel), L.P. (“HFCP VI (Parallel)”), 230,418 shares held by Hellman & Friedman Capital Executives VI, LP (“HFCE VI”), and 26,041 shares held by Hellman & Friedman Capital Associates VI, LP (“HFCA VI,” and together with ~~HFCP~~a ~~VI,~~reasonably ~~H&F~~anticipated ~~Chill,~~net ~~HFCP~~aggregate offering VIprice (~~Parallel)~~after ~~HFCE~~deduction ~~VI and HFCA VI, the “H&F Entities”). Hellman & Friedman Investors VI, L.P. (“H&F VI”) is the general partner~~ of ~~HFCP~~underwriter ~~VI,~~commissions ~~HFCP~~and VIoffering ~~(Parallel~~expenses), ~~HFCE VI and HFCA VI, and the managing member~~ of ~~H&F~~less ~~Chill~~than GP$10 ~~LLC, which is the general partner of H&F Chill~~million. Hellman & Friedman LLC is the general partner of H&F VI. The investment decisions of each of the H&F Entities are made by the investment committee of Hellman & Friedman LLC, which exercises voting and dispositive power over these shares. Messrs. Hammarskjold, Henske and Ragatz are managing directors and Ms. Saraiya is a principal of H&F VI. Messrs. Hammarskjold, Henske and Ragatz and Ms. Saraiya disclaim beneficial ownership of these shares except to the extent of their individual pecuniary interest in these entities. The address for the H&F Entities, Messrs. Hammarskjold, Henske and Ragatz and Ms. Saraiya is One Maritime Plaza, 12th Floor, San Francisco, California 94111.

~~(2)~~Shelf registration ~~Consists~~rights. The ofstockholders ~~3,975,000~~agreement ~~shares~~grants ~~held~~the byHellman & ~~Farallon~~Friedman ~~Capital~~Investors ~~Partners,~~and Lthe Co-Investors shelf registration rights.~~P.,~~ ~~4,950,000~~Under ~~held~~the byterms ~~Farallon~~of ~~Capital~~the ~~Institutional~~stockholders ~~Partners~~agreement, ~~L.P.,~~holders ~~550,000~~of 25% or more of shares held by ~~Farallon~~the Hellman & ~~Capital~~Friedman ~~Institutional~~Investors ~~Partners~~may ~~II,~~demand Lthat the Company file a shelf registration statement with respect to those shares.~~P.,~~ ~~350~~Upon such demand,~~000~~ ~~shares~~we ~~held~~are byrequired ~~Farallon~~to ~~Capital~~use ~~Institutional~~our ~~Partners~~reasonable ~~III,~~best Lefforts to effect such registration.P. Notice of the shelf registration will be provided to the Co-Investors and ~~175~~any other parties with piggyback rights,~~000~~ ~~shares~~and ~~held~~they bywill ~~Tinicum~~have ~~Partners~~the right to include their registrable securities in the registration statement and participate in any offering thereunder, ~~L.P.~~subject ~~The~~to various ~~address~~exceptions, including for non-marketed shelf offerings by the ~~Farallon~~Hellman & ~~Equity~~Friedman ~~Entities~~Investors. isWe ~~One~~are ~~Maritime~~not ~~Plaza,~~required ~~Suite~~to ~~2100~~effect more than four demand registrations, ~~San~~which ~~Francisco~~include marketed shelf registrations, ~~California~~in ~~94111~~any twelve month period.

~~(3)~~Piggyback registration rights. The ~~address~~stockholders agreement grants the Hellman & Friedman Investors and the Co-Investors piggyback registration rights. If we register any of ~~this~~Parent’s ~~individual~~securities iseither ~~c/o~~for ~~Goodman~~our ~~Global~~own account or for the account of other security holders, ~~Inc~~the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions, ~~5151~~we ~~San~~may ~~Felipe~~limit the number of shares included in the underwritten offering if the underwriters believe that marketing factors, ~~Houston~~including an adverse effect on the per share offering price, ~~Texas~~require a limit on the number of shares to be underwritten. Unless otherwise agreed by the Hellman & Friedman Investors, ~~77056~~these piggyback rights do not apply until one year after an initial public offering, except with respect to registrations in which the Hellman & Friedman Investors participate.

~~(4)~~Participation ~~Includes~~rights. ~~134~~Subject to specified exceptions,~~698~~ ~~shares~~until ~~subject~~an initial public offering, Goodman Global Group, Inc. may not issue equity securities, and Goodman Global Group, Inc. and its subsidiaries may not issue debt securities to ~~options~~the ~~that~~Hellman & ~~are~~Friedman ~~exercisable~~Investors ~~within~~or 60their ~~days~~affiliates, without permitting each Co-Investor and each Hellman & Friedman Investor the opportunity to purchase a pro rata share of ~~December~~the 31securities being issued, ~~2008~~based on its respective ownership of share equivalents in Goodman Global Group, Inc. at that time.

~~(5)~~Management ~~Includes~~stockholders ~~229,720~~agreement ~~shares subject to options that are exercisable within 60 days of December 31, 2008.~~

~~(6)~~The ~~Includes~~Goodman 77Global Group,~~452~~ ~~shares~~Inc. ~~subject~~common tostock and options ~~that~~issued ~~are~~to ~~exercisable~~the ~~within~~initial 60Management ~~days~~Participants, each of ~~December~~whom 31entered into an equity contribution agreement, ~~2008.~~are subject to a management stockholders agreement, which generally contains the following provisions:

~~(7)~~• ~~Includes~~transfer 77restrictions,~~452~~ ~~shares~~including rights of first refusal in favor of Goodman Global Group, Inc. and the Hellman & Friedman Investors or their designees, subject to ~~options~~certain ~~that~~exceptions, ~~are~~including ~~exercisable~~transfers ~~within~~to 60family ~~days~~members and affiliates or in connection with a tag-along or drag-along sale; these transfer restrictions expire on the six month anniversary of ~~December~~an 31initial public offering or, ~~2008.~~if later, the expiration of the lock-up agreements between the Hellman & Friedman Investors and the underwriters,

~~(8)~~• ~~Includes~~repurchase ~~77,452~~rights ~~shares~~in ~~subject~~favor toof ~~options~~Goodman ~~that~~Global ~~are~~Group, ~~exercisable~~Inc. ~~within~~or 60its ~~days of December 31~~designee, ~~2008.~~

~~(9)~~• ~~Includes~~put ~~130,209~~rights ~~shares~~in ~~subject~~favor ~~to options that are exercisable within 60 days~~ of ~~December~~the ~~31,~~Management ~~2008.~~Participants,

~~(10)~~• ~~Includes~~piggyback ~~1,278,010~~registration ~~shares~~rights ~~subject~~in tofavor ~~options that are exercisable within 60 days~~ of ~~December~~the 31Management Participants, ~~2008.~~and

~~(11)~~• ~~Mr.~~tag-along ~~Hammarskjold~~rights ~~will~~in ~~resign~~favor ~~from~~of ~~our~~the ~~and~~Management ~~Parent’s~~Participants ~~Boards~~with ~~effective~~respect ~~immediately~~to ~~after~~certain ~~the~~non-public ~~filing~~sales ~~with~~by the ~~Securities~~Hellman & Friedman Investors that exceed 10% of our outstanding shares (excluding restricted shares and ~~Exchange~~assuming ~~Commission~~exercise and conversion of ~~this~~certain ~~Annual~~stock ~~Report~~options onand ~~Form~~convertible ~~10-K~~securities, if any).

~~ITEM~~Exchange ~~13.~~and ~~Certain~~registration ~~Relationships~~rights ~~and~~agreement ~~Related~~related ~~Transactions~~to ~~and~~senior ~~Director~~subordinated ~~Independence~~notes

~~Agreements~~In ~~Related~~connection towith the 2008 Acquisition, Goodman Global, Inc. entered into a registration rights agreement with the funds affiliated with GSO Capital Partners, funds affiliated with Farallon Partners, funds affiliated with AlpInvest Partners and funds affiliated with the Co-Investors that purchased the senior subordinated notes (the Purchasers), pursuant to which Goodman Global, Inc. filed a registration statement and delivered to the Purchasers registered notes in exchange for the initial notes tendered by the Purchasers. Under the agreement, Goodman Global, Inc. and each guarantor, jointly and severally, agreed to indemnify and hold harmless each holder and controlling person against any losses, claims, damages, liabilities, costs and reasonable expenses (Losses), if any Losses are based upon any untrue statement of material fact in any registration statement, prospectus or in any amendment or supplement thereto, in any preliminary prospectus or any free-writing prospectus or “issuer

Goodman Global, Inc. and Chill Acquisition, Inc., or Merger Sub, entered into several related party agreements in contemplation of the 2008 Acquisition, to which we succeeded by operation of law as a result of the 2008 Acquisition. As a part of the 2008 Acquisition, the Company paid $8.1 million to Hellman & Freidman LLC in reimbursement for third party transaction related expenses.

Merger Agreement

As a result of the merger, certain members of senior management received transaction bonuses equal to 75% of their current base salary, totaling not more than $3,202,110 in the aggregate. The transaction bonuses paid to our named executive officers are set forth in the table below. In addition, certain members of senior management were given a “rollover” incentive bonus payment equal to 100% of their current base salary, totaling not more than $4,269,480 in the aggregate. The rollover incentive bonuses paid to our named executive officers are also set forth in the table below.

	Transaction Bonus Paid UponConsummation of the Merger		Equity Rollover Incentive PaidUpon Consummation of theMerger
Executive Officers:
Charles A. Carroll	$	805,425	$	1,073,900
Lawrence M. Blackburn		335,100		446,800
Ben D. Campbell		271,013		361,350
Donald R. King		244,875		326,500
William L. Topper		278,378		371,170

Index to Financial Statements

~~Stockholders~~ information” ~~Agreement~~filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading.

InIndemnification ~~connection with the closing~~ of ~~the~~directors ~~2008 Acquisition, Chill Holdings, Inc. (our Parent), Merger Sub,~~ and ~~each~~officers of the following: funds affiliated with Hellman & Friedman LLC, which we refer to as the Hellman & Friedman Investors, funds affiliated with GSO Capital Partners, which we refer to as the GSO Equity Entities, funds affiliated with Farallon Partners, which we refer to as the Farallon Equity Entities, funds affiliated with AlpInvest Partners which we refer to as AlpInvest along with certain other investors that the GSO Equity Entities syndicated their investments to (collectively, the Fund Co-Investors) (collectively, the Investors) and certain members of our management, whom we refer to as the Management Participants, entered into a stockholders agreement that generally contains the following provisions:

~~Board~~Pursuant to the closing of ~~Directors~~the 2008 Acquisition, Goodman Global, Inc. ~~The~~entered ~~stockholders~~into ~~agreement~~indemnification ~~requires~~agreements ~~that~~with our officers, ~~until~~Messrs. Alexander, anBikman, ~~initial~~Blackburn, ~~public~~Campbell, ~~offering~~Carroll, ofClark, ~~shares~~King, Mishler, Smith, Toppe and Topper. We agreed that we will indemnify each of ~~Parent’s~~the ~~common~~directors ~~stock,~~and officers of Predecessor to the fullest extent permitted by Delaware law against claims arising ~~parties~~out of or pertaining to the fact that ~~beneficially~~the ~~own~~person ~~shares~~was an officer or director of ~~Parent’s~~Predecessor ~~common~~or ~~stock~~any ~~will~~of ~~vote~~our ~~those~~subsidiaries ~~shares~~prior to ~~elect~~the a2008 ~~board~~Acquisition or is an officer or director of ~~directors~~us or any of ~~Parent~~our ~~comprised~~subsidiaries. Our certificate of incorporation provides that we will indemnify each of our directors and officers to the ~~following~~fullest ~~persons:~~extent permitted by law for claims arising by reason of the fact that he or she is a director, officer or employee of us, or of any of our subsidiaries. On March 6, 2008, we entered into indemnification agreements with our directors, Messrs. Henske and Ragatz and Ms. Multani, with similar terms as described above.

•Employment ~~the~~and ~~chief~~severance ~~executive~~agreements ~~officer of Parent and~~

•In connection with the ~~remaining~~closing ~~board~~of ~~members~~the 2008 ~~designated~~Acquisition, byGoodman ~~the~~Global, ~~Hellman~~Inc. &entered ~~Friedman~~into ~~Investors,~~a new employment agreement with atCharles ~~least~~Carroll ~~one~~on February 13, 2008, under which Mr. Carroll would continue as the Chief Executive Officer of ~~such~~Goodman ~~designees~~Global, ~~being~~Inc. ~~designated~~until byJune 30, 2008 ~~Hellman~~or, &if ~~Friedman~~earlier, ~~Capital~~the ~~Executives~~date VIon which his replacement commenced employment. Mr. Carroll retired as our President and Chief Executive Officer and our new President and Chief Executive Officer, LDavid Swift, joined us on April 21, 2008.P On February 13, 2008, Goodman Global, Inc. ~~for~~also soentered ~~long~~into a new employment agreement with Lawrence Blackburn pursuant to which Mr. Blackburn continues to serve as itour ~~owns~~Chief ~~any~~Financial ~~share~~Officer. ~~equivalents~~In connection with the closing, Goodman Global, Inc. also entered into individual severance agreements with our other executive officers. See Item 11, Executive Compensation—Employment agreements and Executive Compensation—Severance agreements.

~~After~~Agreements anwith ~~initial~~our ~~public~~president ~~offering of Parent’s common stock, the Hellman & Friedman Investors~~ and ~~their~~chief ~~affiliates~~executive ~~will~~officer have the right to nominate the number of individuals for election to the board of directors that is equal to the product of the percentage of Parent’s share equivalents held by the Hellman & Friedman Investors and their affiliates, multiplied by the number of directors then on the board, rounded up to the nearest whole number.

~~For~~Employment asagreement long as the Hellman & Friedman Investors are entitled to nominate an individual for election to the board of directors, Parent is required to nominate such individual for election as a director as part of the slate that is included in the proxy statement or consent solicitation relating to such election and provide the highest level of support for the election of such individual as it provides to any other individual standing for election as part of Parent’s slate.

~~Indemnification~~Mr. Swift ~~We generally~~entered ~~are~~into ~~required~~an toemployment ~~indemnify~~agreement ~~and~~with ~~hold~~us, ~~harmless~~effective ~~each~~as of ~~the~~April 21, ~~stockholders~~2008, ~~that~~pursuant isto ~~party~~which tohe ~~the~~commenced ~~stockholders~~serving ~~agreement,~~as ~~together~~President ~~with~~and ~~its~~Chief ~~partners,~~Executive ~~stockholders,~~Officer ~~members,~~and ~~affiliates,~~as ~~directors,~~a ~~officers,~~member ~~fiduciaries,~~of ~~controlling~~the ~~persons, employees~~Board ~~and~~of ~~agents~~Directors ~~from~~of ~~any~~Goodman ~~losses~~Global Group, ~~arising~~Inc. ~~out~~and ofGoodman ~~either~~Global, ofInc. ~~the~~See ~~following~~Item 11, ~~subject~~Executive tocompensation—Employment ~~limited~~agreements. ~~exceptions:~~

•Indemnification agreement ~~the stockholder’s or its affiliate’s ownership of share equivalents or other equity securities of Parent or its ability to control or influence Parent, or~~

•Mr. Swift also entered into an Indemnification Agreement with us on substantially the ~~business~~same terms as those of the Indemnification Agreements between Goodman Global, ~~operations~~Inc. and the directors and officers described above. The Indemnification Agreement by and between Goodman Global, ~~properties~~Inc. and Mr. Swift does not supersede, ~~assets~~limit or ~~other~~alter ~~rights~~any orof ~~liabilities~~the rights and obligations of ~~Parent~~either orparty as set forth in the Mr. Swift’s employment agreement and any ofequity ~~its~~agreements ~~subsidiaries~~between Goodman Global, Inc. and Mr. Swift.

~~Participation~~Joinder ~~Rights. Subject~~ to ~~specified exceptions, until an initial public offering, Parent may not issue securities or debt securities, a post closing issuance, without permitting each Investor~~ the ~~opportunity~~management tostockholders ~~purchase~~agreement ~~a pro rata share of the securities being issued, based on the Investor’s respective ownership of share equivalents at that time.~~

~~Transfer~~Mr. Swift ~~Provisions~~ and Goodman ~~Registration~~Global ~~Rights~~Group, Inc. ~~The~~each ~~stockholders~~executed ~~agreement~~a ~~also~~joinder ~~contains~~ (1the Joinder) ~~transfer~~, ~~restrictions applicable~~ to the ~~share equivalents~~Management ~~held~~Stockholders ~~by Parent~~Agreement, ~~the~~described ~~Investors~~above ~~and~~under the heading “Management ~~Participants,~~stockholders ~~(2) tag-along~~agreement.” ~~rights~~Pursuant into ~~favor of~~ the ~~Hellman & Friedman Investors and each eligible tag-along Investor~~Joinder, ~~(3)~~Mr. ~~drag-along~~Swift ~~rights~~will inshare ~~favor of~~ the ~~Hellman &~~ ~~Friedman Investors, and (4) certain registration~~ same rights ~~(including customary indemnification)~~ and ~~Rule~~obligations ~~144~~as ~~sale~~the ~~provisions~~Initial ~~applicable~~Management ~~to the~~ Investors, ~~and~~as ~~their~~defined ~~affiliates~~in ~~and~~ the Management ~~Participants~~Stockholders Agreement.

Resignation of Mr. Carroll as Chairman of our Board of Directors

In connection with Mr. Carroll’s resignation from his position as Chairman of our Board of Directors in March 2009, Goodman Global Group, Inc., Goodman Global, Inc. and Mr. Carroll entered into a letter agreement confirming that this change did not constitute termination of Mr. Carroll’s employment or result in the termination of Mr. Carroll’s option agreement with us, as he will continue to offer valuable services to us as one of our directors and as a non-executive employee.

Other relationships

Kronos Inc. (Kronos), a portfolio company of H&F and its affiliates, provides certain software and related services for our time and attendance reporting. In 2009, we paid Kronos $0.1 million.

Index to Financial Statements

~~Management~~Policies ~~Stockholders~~and ~~Agreement~~procedures for review and approval of related party transactions

~~The~~We ~~common~~currently ~~stock~~have certain policies and ~~options~~procedures into ~~Parent~~address ~~issued~~transactions towith ~~the~~related ~~initial~~persons, ~~Management~~including ~~Participants~~any executive officer, ~~each~~director, ofnominee ~~whom~~for ~~entered~~election ~~into~~as ana ~~equity~~director, ~~contribution~~greater ~~agreement~~than 5% holder of our common stock, or immediate family member of any of the foregoing. Our Board of Directors has adopted a written policy that all transactions with related persons are subject to aapproval ~~management~~or ~~stockholders~~ratification ~~agreement,~~by ~~which~~the ~~generally~~Audit ~~contains~~Committee ~~the~~(other ~~following~~than ~~provisions:~~certain transactions exempted under our certification of incorporation).

•In ~~transfer~~determining ~~restrictions~~whether to approve or ratify an interested transaction, ~~including~~the ~~rights~~Audit Committee may take into account, among other factors that it deems appropriate, whether the interested transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party under the same or similar circumstances, as well as the extent of ~~first~~the ~~refusal~~related person’s interest in ~~favor~~the oftransaction. ~~Parent~~If oran ~~its~~interested ~~designee~~transaction is ongoing, the Audit Committee may establish guidelines for our management to monitor the Company’s ongoing dealings with the related person. Thereafter, the Audit Committee will assess such ongoing relationships on an annual basis.

•The ~~repurchase~~Board ~~rights~~of Directors has delegated to the Chairman of the Audit Committee the authority to pre-approve or ratify (as applicable) any interested transaction in ~~favor~~which the amount involved is expected to be less than $250,000. In addition, the following transactions are deemed to be pre-approved by the Audit Committee for purposes of ~~Parent~~our related-person policies and procedures, even if the amount involved exceeds $100,000: (1) employment of executive officers and related compensation, (2) director compensation, (3) transactions with another company if the related person is an employee (other than an executive officer) of that company and the aggregate amount involved does not exceed $1 million or ~~its~~2 ~~designee~~percent of that company’s revenues, and (4) transactions in which the related person’s interest arises solely from ownership of our common stock and all holders of our common stock receive the same benefit on a pro rata basis.

•Director ~~put rights in favor of the Management Participants,~~independence

•Because ~~piggyback~~we ~~registration~~are ~~rights~~a inprivately-held ~~favor~~company and not subject to applicable listing standards, we have not determined whether members of our Board of Directors or Audit Committee are “independent” under any such standards. The terms of the ~~Management~~stockholders ~~Participants,~~agreement described above require that certain members of our Board of Directors be comprised of persons affiliated with our company.

•ITEM ~~tag-along~~14. ~~rights~~Principal inAccounting ~~favor~~Fees ~~of the Management Participants with respect to sales by the Hellman & Friedman Investors,~~ and Services

•The ~~drag-along~~following ~~rights~~summarized inthe ~~favor~~fees ofbilled ~~the~~to ~~Hellman~~us and our subsidiaries by Ernst & ~~Friedman~~Young ~~Investors~~LLP for professional services rendered in 2009 and 2008.

Subscription Agreement


	Year ended December 31,
	2009				2008
Fee Category	Amount		Percent		Amount		Percent
Audit Fees	$	1,370,900	83.8	%	$	880,250	92.0	%
Audit-Related Fees		249,100	15.2			64,000	6.7
Tax Fees		16,300	1.0			12,000	1.3
All Other Fees		—	—			—	—

Total Fees	$	1,636,300	100.0	%	$	956,250	100.0	%

~~In connection~~Fees for audit services include fees associated with the ~~2008~~annual ~~Acquisition~~audit, ~~Parent~~our ~~entered~~annual ~~into~~report aon ~~subscription~~Form ~~agreement~~10-K ~~with~~and the ~~each~~reviews of ~~the~~our ~~following:~~quarterly ~~funds~~reports ~~affiliated~~on ~~with~~Form ~~the~~10-Q, ~~Hellman &~~services ~~Friedman~~that ~~Investors,~~are ~~GSO~~normally ~~Equity~~provided ~~Entities,~~by ~~Farallon~~the ~~Equity~~independent ~~Entities,~~auditor ~~AlpInvest,~~in connection with statutory and ~~the~~regulatory ~~Fund Co-Investors,~~filings ~~each~~or aengagements ~~“Subscriber,”~~and ~~which~~services ~~set~~that ~~forth~~generally only the ~~terms~~independent ofauditors ~~the~~can provide. ~~sale~~Audit-related ~~and~~fees ~~purchase~~include reviews of ~~the~~SEC ~~subscription~~comment ~~securities~~letters and debt offerings. ~~Under~~All ~~the~~other ~~subscription~~fees ~~agreement,~~include ~~the~~due ~~Subscribers~~diligence ~~were~~in ~~also~~connection ~~required~~with toacquisitions ~~enter~~and ~~into~~accounting ~~the~~consultations. ~~stockholders~~Tax ~~agreement,~~fees ~~described~~include tax compliance and limited consulting ~~above~~services.

~~Exchange~~Policy on pre-approval of audit and ~~Registration~~permissible ~~Rights~~non-audit ~~Agreement~~services of independent auditors

~~Merger~~All ~~Sub,~~audit ~~prior~~and topermissible ~~the~~non-audit ~~2008~~services ~~Acquisition,~~provided ~~entered~~by ~~into~~the aindependent ~~registration~~auditors ~~rights~~are ~~agreement~~pre-approved ~~with~~by ~~funds~~the ~~affiliated~~Audit Committee. ~~with~~These ~~GSO~~services ~~Capital~~may ~~Partners,~~include ~~funds~~audit ~~affiliated with~~services, ~~Farallon~~audit-related ~~Partners~~services, ~~funds~~tax ~~affiliated~~services ~~with AlpInvest Partners~~ and ~~funds~~other ~~affiliated~~services. ~~with the Fund Co~~Pre-~~Investors~~approval ~~(the~~is ~~Purchasers),~~generally ~~pursuant~~provided tofor ~~which~~up ~~the we were required~~ to ~~file~~one ayear ~~registration statement~~ and ~~deliver~~any topre-approval ~~the~~is ~~Purchasers~~detailed ~~the~~as ~~exchange notes~~to ~~registered hereunder, in exchange for~~ the ~~initial~~particular ~~notes~~service ~~tendered~~or bycategory ~~the~~of services ~~Purchasers. Under the agreement, Goodman Global, Inc.~~ and ~~each~~is ~~guarantor,~~generally ~~jointly~~subject ~~and severally, agreed~~ to ~~indemnify~~a ~~and~~specific ~~hold~~budget. ~~harmless~~The ~~each~~independent ~~holder~~auditors and ~~controlling~~management ~~person against~~are ~~any~~required ~~losses,~~to ~~claims,~~periodically ~~damages,~~report ~~liabilities,~~to ~~costs~~the ~~and~~Audit ~~reasonable~~Committee ~~expenses~~regarding ~~(Losses),~~the ifextent ~~any Losses are based upon any untrue statement~~ of ~~material~~services ~~fact~~provided inby ~~any~~the ~~registration~~independent ~~statement,~~auditors ~~prospectus or~~ in ~~any~~accordance ~~amendment~~with ~~or supplement thereto, in any~~this ~~preliminary prospectus or any free~~pre-~~writing~~approval, ~~prospectus~~and orthe ~~“issuer~~fees ~~information”~~for ~~filed~~the orservices ~~required~~performed to bedate. ~~filed~~The ~~pursuant~~Audit toCommittee ~~Rule~~may ~~433(d)~~also ~~under~~pre-approve ~~the~~particular ~~Securities~~services ~~Act,~~on ~~or any omission or alleged omission to state therein~~ a ~~material~~case-by-case ~~fact required to be stated or necessary to make the statements therein not misleading~~basis.

Indemnification of Directors and Officers

Pursuant to the closing of the 2008 Acquisition, Parent entered into indemnification agreements with Messrs. Alexander, Bikman, Blackburn, Campbell, Carroll, Clark, King, Mishler, Smith, Toppe and Topper. Parent agreed that it will indemnify each of the directors and officers of our predecessor to the fullest extent permitted by Delaware law against claims arising out of or pertaining to the fact that the person was an officer or director of our predecessor or any of our subsidiaries prior to the 2008 Acquisition or is an officer or director of us or any of our subsidiaries. The certificate of incorporation of the surviving corporation provides that we will indemnify each of our directors and officers to the fullest extent permitted by law for claims arising by reason of the fact that he or she is a director, officer or employee of us, or of any of our subsidiaries. On March 6, 2008, we entered into indemnification agreements with our directors, Messrs. Hammarskjold, Henske and Ragatz and Ms. Saraiya, with similar terms as described above.

Index to Financial Statements

~~Employment~~PART ~~and~~IV ~~Severance Agreements~~

InITEM ~~connection with the closing of the 2008 Acquisition, Merger Sub entered into a new employment agreement with Charles Carroll on February 13, 2008, under which Mr~~15. ~~Carroll~~ ~~would~~Exhibits ~~continue as the Chief Executive Officer of Goodman Global, Inc. until June 30, 2008 or, if earlier, the date on which his replacement commenced employment. Mr. Carroll retired as our President~~ and Chief Executive Officer and our new President and Chief Executive Officer, David Swift, joined us on April 21, 2008. On February 13, 2008, Merger Sub also entered into a new employment agreement with Lawrence Blackburn pursuant to which Mr. Blackburn continues to serve as our Chief Financial ~~Officer.~~Statement In connection with the closing, Merger Sub also entered into individual severance agreements with our other executive officers. See “Executive Compensation—New Employment Agreements” and “Executive Compensation—New Severance Agreements.” Schedules

~~Equity~~(a) ~~Contribution~~1. ~~Agreements~~ Financial Statements and reports on internal control over financial reporting:

Certain members of senior management, including our named executive officers, have entered into equity contribution agreements with Parent. Pursuant to the equity contribution agreements, at the effective time of the 2008 Acquisition, each executive contributed to Parent a portion of the shares of Goodman Global, Inc. common stock he then held in exchange for shares of Parent common stock having an equivalent value based on the price per share our current controlling shareholders paid for their shares of Parent common stock. To the extent that an executive did not hold a sufficient number of shares of Goodman Global, Inc. common stock at the effective time of the 2008 Acquisition to contribute the specific value described in his equity contribution agreement, he contributed a sufficient number of vested options to purchase shares of Goodman Global, Inc. common stock in exchange for vested options for Parent stock so that the total value of the shares of Goodman Global, Inc. common stock and vested options to purchase shares of Goodman Global, Inc. common stock contributed to Parent was equal to the value the executive agreed to contribute in his equity contribution agreement. These options were contributed pursuant to the terms of option rollover agreements dated as of February 13, 2008. The aggregate value of Goodman (predecessor) stock contributed for common stock of Chill Holdings, Inc. by all members of senior management, including our named executive officers pursuant to the equity contribution agreements, was $36.1 million. See “Executive Compensation—Compensation Discussion and Analysis—Equity Contribution and Share Subscription Agreements.”


		Page
Management’s report on internal control over financial reporting		69

Reports of Independent Registered Public Accounting Firm		70

Consolidated balance sheets		72

Consolidated statements of income		73

Consolidated statements of shareholders’ equity		74

Consolidated statements of cash flows		75

Notes to consolidated financial statements		76

		Page

~~In addition, Messrs~~2. ~~Blackburn,~~Financial ~~Clark,~~statement Mishler, Smith and Toppe entered into option rollover agreements to “roll” options over Goodman Global, Inc. common stock in exchange for new Parent options to purchase shares of Parent equity, at an exercise price per share calculated on the basis of a ratio of the price paid for each share of Goodman Global, Inc. common stock in the 2008 Acquisition over the price per share of Parent common stock paid by our current controlling stockholders. Although the intrinsic value of the shares rolled varied for each executive, the terms of these option rollover agreements are identical to the terms summarized at “Executive Compensation—Compensation Discussion and Analysis—Equity Contribution and Share Subscription Agreements.” Each member of senior management who contributed his existing equity for new equity in Parent or invested in additional equity in Parent was required to become a party to a management stockholders’ agreement, the terms of which are summarized above under “Management Stockholders Agreement.” schedules

~~Agreements~~Valuation ~~with~~and ~~our~~Qualifying ~~New~~Accounts ~~President~~disclosures ~~and~~have ~~Chief~~been ~~Executive Officer~~incorporated in the notes to consolidated financial statements.

Employment Agreement

Mr. Swift entered into an employment agreement with us (the Employment Agreement), effective as of April 21, 2008, pursuant to which Mr. Swift commenced serving as our and our Parent’s President and Chief Executive Officer, and as a member of our and our Parent’s Board of Directors. See “Executive Compensation—New Employment Agreements.”

Index to Financial Statements

~~Indemnification~~3. ~~Agreement~~ Exhibits

Mr. Swift also entered into an Indemnification Agreement with us on substantially the same terms as those of the Indemnification Agreements between our Parent and the directors and officers described above. The Indemnification Agreement by and between Goodman and Mr. Swift does not supersede, limit or alter any of the rights and obligations of either party as set forth in the Employment Agreement and any equity agreements between our Parent and Mr. Swift.


Exhibit No.		Description

2.1		Asset Purchase Agreement, dated November 18, 2004, by and among Goodman Global Holdings, Inc., Frio Holdings, Inc. and Frio, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global Holdings, Inc.’s Form S-4, filed with the SEC on September 21, 2005, File No. 333-128462).

2.2		Agreement and Plan of Merger, dated as of October 21, 2007, by and among Chill Holdings, Inc., Chill Acquisition, Inc. and Goodman Global, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global, Inc.’s Form 8-K, filed with the SEC on October 25, 2007).

2.3		Amendment No. 1 to Agreement and Plan of Merger, dated as of January 3, 2008, by and among Chill Holdings, Inc., Chill Acquisition, Inc. and Goodman Global, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global, Inc.’s Form 8-K, filed with the SEC on January 4, 2008).

3.1		Amended and Restated Certificate of Incorporation of Goodman Global, Inc. (incorporated by reference to Exhibit 3.1 on Goodman Global, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 13, 2009).

3.2		Amended and Restated Bylaws of Goodman Global, Inc. (incorporated by reference to Exhibit 3.7 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).

4.1		Indenture, dated as of February 13, 2008, by and between Chill Acquisition, Inc., to be merged with and into Goodman Global, Inc., and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

4.2		Guarantor Supplemental Indenture, dated as of February 13, 2008, among the Guaranteeing Subsidiaries of Goodman Global, Inc., as identified therein, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

4.3		Form of Exchange Note (incorporated by reference to Exhibit 4.3 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

4.4		Form of 13.50%/14.00% Note (incorporated by reference to Exhibit 4.4 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

4.5		Exchange and Registration Rights Agreement, dated February 13, 2008, by and among Chill Acquisition, Inc., GSO Domestic Capital Funding LLC, GSO COF Facility LLC, GSO Origination Funding Partners LP, Farallon Funding, L.L.C., AlpInvest Partners Mezzanine 2007 C.V., KKR Financial Holdings III, LLC and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 4.5 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

4.6		Joinder and Assumption Agreement, dated February 13, 2008, among Goodman Global, Inc., the Initial Guarantors listed therein, GSO Domestic Capital Funding LLC, GSO COF Facility LLC, GSO Origination Funding Partners LP, Farallon Funding, L.L.C., AlpInvest Partners Mezzanine 2007 C.V., KKR Financial Holdings III, LLC and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 4.6 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.1		$800,000,000 Credit Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., Chill Acquisition Inc., which merged with and into Goodman Global, Inc., and Barclays Capital, the investment banking division of Barclays Bank Plc and Calyon New York Branch, as Joint Lead Arrangers, and Barclays Capital, the investment banking division of Barclays Bank Plc, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, and General Electric Capital Corporation, as the Administrative and Collateral Agent (incorporated by reference to Exhibit 10.1 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

Joinder to the Management Stockholders Agreement

Mr. Swift and Goodman each executed a joinder (the Joinder), to the Management Stockholders Agreement, described above under the heading “Management Stockholders Agreement.” Pursuant to the Joinder, Mr. Swift will share the same rights and obligations as the Initial Management Investors, as defined in the Management Stockholders Agreement.

Changes to our and Parent’s Boards of Directors

Mr. Carroll informed our and Parent’s Boards of his intention to resign as Chairman of our and Parent’s Boards and to remain as a director on both Boards. Both Boards accepted his resignation as Chairman effective immediately after the filing of this annual report on Form 10-K with the SEC. In connection with this change, we, Parent and Mr. Carroll entered into a letter agreement, dated March 13, 2009, which will be effective immediately after filing of this annual report on Form 10-K with the SEC, confirming that this change will not constitute termination of Mr. Carroll’s employment or result in the termination of Mr. Carroll’s option agreement with us, as he will continue to offer valuable service to us and our Parent as one of our and Parent’s directors and as a non-executive employee.

On March 13, 2009, Mr. Hammarskjold submitted to our and Parent’s Boards a letter of resignation from our and Parent’s Boards, which will be effective immediately after filing of this 10-K with the SEC. In connection with these changes, our and Parent’s Boards appointed Mr. Ragatz as Chairman of our and Parent’s Board, which will be effective immediately after filing of this annual report on Form 10-K with the SEC.

Policies and Procedures for Review and Approval of Related Party Transactions

We currently have certain policies and procedures to address transactions with related persons, including any executive officer, director, nominee for election as a director, greater than 5% holder of our common stock, or immediate family member of any of the foregoing. Our Board of Directors has adopted a policy that all transactions with related persons are subject to approval or ratification by the Audit Committee (other than certain transactions exempted under our certification of incorporation).

In determining whether to approve or ratify an interested transaction, the Audit Committee may take into account, among other factors that it deems appropriate, whether the interested transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party under the same or similar circumstances, as well as the extent of the related person’s interest in the transaction. If an interested transaction is ongoing, the Audit Committee may establish guidelines for our management to monitor the Company’s ongoing dealings with the related person. Thereafter, the Audit Committee will assess such ongoing relationships on an annual basis.

The Board of Directors has delegated to the Chairman of the Audit Committee the authority to pre-approve or ratify (as applicable) any interested transaction in which the amount involved is expected to be less than $250,000. In addition, the following transactions are deemed to be pre-approved by the Audit Committee for purposes of our related-person policies and procedures, even if the amount involved exceeds $100,000: (1) employment of executive officers and related compensation, (2) director compensation, (3) transactions with another company if the related person is an employee (other than an executive officer) of that company and the aggregate amount involved does not exceed $1 million or 2 percent of that company’s revenues, and (4) transactions in which the related person’s interest arises solely from ownership of our common stock and all holders of our common stock receive the same benefit on a pro rata basis.

Index to Financial Statements

Director Independence


10.2†		First Amendment to Term Loan Credit Agreement, dated as of December 7, 2009, among Goodman Global, Inc., Chill Intermediate Holdings, Inc., each other Guarantor, each Lender party thereto and General Electric Capital Corporation, as administrative agent.

10.3		Revolving Credit Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., Chill Acquisition Inc., which merged with and into Goodman Global, Inc., and Barclays Capital, the investment banking division of Barclays Bank Plc and General Electric Capital Corporation, as Joint Lead Arrangers, Barclays Capital, the investment banking division of Barclays Bank Plc, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, General Electric Capital Corporation, as the Administrative, Collateral Agent, Swingline Lender and Letter of Credit Issuer (incorporated by reference to Exhibit 10.2 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.4†		First Amendment to Revolving Credit Agreement, dated as of December 7, 2009, among Goodman Global, Inc., Chill Intermediate Holdings, Inc., each other Guarantor, each Lender party thereto and General Electric Capital Corporation, as administrative agent.

10.5		Intercreditor Agreement, dated February 13, 2008, between General Electric Capital Corporation, as collateral agent for the Term Loan Secured Parties and the Revolving Secured Parties referred to therein and acknowledged by Chill Holdings, Inc., Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and certain subsidiaries of Goodman Global, Inc. (incorporated by reference to Exhibit 10.3 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.6		Term Loan Security Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.4 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.7		Revolving Security Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.5 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.8		Term Loan Guarantee, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.6 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.9		Revolving Guarantee, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.7 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.10		Term Loan Pledge Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.8 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.11		Revolving Pledge Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.9 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.12*		Chill Holdings, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).

None of the members of our board of directors, audit committee or compensation committee is “independent.” Our board of directors is not comprised of a majority of independent directors, and its committees are not comprised solely of independent directors, because we are a privately-held company and not subject to applicable listing standards. The terms of the stockholders agreement described above require that certain members of our board of directors be comprised of persons affiliated with our company.

ITEM 14. Principal Accountant Fees and Services

The following summarized the fees billed to us and our subsidiaries by Ernst & Young LLP for professional services rendered in 2008 and 2007.

	Year ended December 31,
	2008				2007
Fee Category	Amount		Percent		Amount		Percent
Audit Fees	$	880,250	92.0	%	$	1,573,500	95.4	%
Audit-Related Fees		64,000	6.7			63,500	3.9
Tax Fees		12,000	1.3			12,000	0.7
All Other Fees		—	—			—	—
Total Fees	$	956,250	100	%	$	1,649,000	100	%

Fees for audit services include fees associated with the annual audit, our annual report on Form 10-K and the reviews of our quarterly reports on Form 10-Q, services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements and services that generally only the independent auditors can provide. Audit-related fees include reviews of SEC comment letters and debt offerings. All other fees include due diligence in connection with acquisitions and accounting consultations. Tax fees include tax compliance and limited consulting services.

Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

All audit and permissible non-audit services provided by the independent auditors are pre-approved by the Audit Committee. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

Index to Financial Statements

PART IV


10.13*		Amended and Restated Chill Holdings, Inc. 2008 Annual Incentive Compensation Plan and form of award agreement thereunder (incorporated by reference to Exhibit 10.11 on Goodman Global, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 13, 2009).

10.14*		Employment Agreement, dated February 13, 2008, between Chill Acquisition, Inc. and Charles A. Carroll (incorporated by reference to Exhibit 10.12 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.15*		Employment Agreement, dated February 13, 2008, between Chill Acquisition, Inc. and Lawrence M. Blackburn (incorporated by reference to Exhibit 10.13 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.16		Stockholders Agreement, dated February 13, 2008 by and among Chill Holdings, Inc., Chill Acquisition, Inc., Hellman & Friedman Capital Partners VI, L.P., Hellman & Friedman Capital Partners VI (Parallel), L.P., Hellman & Friedman Capital Associates VI, L.P., Hellman & Friedman Capital Executive VI, L.P., H&F Chill Partners, L.P., GSO Special Situations Fund LP, GSO Origination Funding Partners LP, GSO COF Facility LLC, Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P., AlpInvest Partners Mezzanine 2007 C.V. and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 10.14 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.17*		Management Stockholders Agreement, dated February 13, 2008 by and among Chill Holdings, Inc., Chill Acquisition, Inc., Hellman & Friedman Capital Partners VI, L.P., Hellman & Friedman Capital Partners VI (Parallel), L.P., Hellman & Friedman Capital Associates VI, L.P., Hellman & Friedman Capital Executives VI, L.P., and H&F Chill Partners, L.P. and each of the Management Stockholder identified therein (incorporated by reference to Exhibit 10.15 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.18		Lease Agreement, dated December 1, 1994, between the Daniel Childrens 1991 Trust, the Lucy Hughes Abell 1991 Trust, the Sam Houston Abell 1991 Trust, the JBG Childrens 1991 Trust, the Hutton Gregory Goodman 1990 Trust, the Hannah Jane Goodman 1990 Trust, the Mary Jane Goodman 1990 Trust and the Harold Viterbo Goodman, II 1990 Trust and Goodman Manufacturing Company, L.P. (incorporated by reference to Exhibit 10.35 on Goodman Global, Inc.’s Amendment No. 1 to Form S-1, filed with the SEC on March 13, 2006, File No. 333-131597).

10.19*		Charles A. Carroll Form of Option Agreement (incorporated by reference to Exhibit 10.17 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.20*		Form of Equity Contribution Agreement (incorporated by reference to Exhibit 10.18 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.21*		Form of Option Roll Over Agreement (incorporated by reference to Exhibit 10.19 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.22*		Form of Severance Agreement (incorporated by reference to Exhibit 10.20 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.23*		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.21 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.24*		Form of Time-Vested Option Agreement (incorporated by reference to Exhibit 10.22 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

10.25*		Form of Performance-Vested Option Agreement, as amended (incorporated by reference to Exhibit 10.23 on Goodman Global, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 13, 2009).

10.26*		Employment Agreement, dated April 17, 2008 between Goodman Global, Inc. and David L. Swift (incorporated by reference to Exhibit 10.24 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).

ITEM 15. Exhibits and Financial Statement Schedules

(a)	1.	Financial Statements:
		Report of independent registered public accounting firm	71
		Consolidated balance sheets at December 31, 2008 and 2007	72
		For the period February 14 to December 31, 2008, the period January 1 to February 13, 2008 and for each of the years ended December 31, 2007 and 2006:
		Consolidated income statements	73
		Consolidated statements of stockholders’ equity and comprehensive income	74
		Consolidated statements of cash flows	75
		Notes to consolidated financial statements	76
	2.	Financial statement schedules
		Valuation and Qualifying Accounts disclosures have been incorporated in the Notes to consolidated financial statements.
	3.	Exhibits

Exhibit No.		Description
2.1		Asset Purchase Agreement, dated November 18, 2004, by and among Goodman Global Holdings, Inc., Frio Holdings, Inc. and Frio, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global Holdings, Inc.’s Form S-4, filed with the SEC on September 21, 2005, File No. 333-128462).
2.2		Agreement and Plan of Merger, dated as of October 21, 2007, by and among Chill Holdings, Inc., Chill Acquisition, Inc. and Goodman Global, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global, Inc.’s Form 8-K, filed with the SEC on October 25, 2007).
2.3		Amendment No. 1 to Agreement and Plan of Merger, dated as of January 3, 2008, by and among Chill Holdings, Inc., Chill Acquisition, Inc. and Goodman Global, Inc. (incorporated by reference to Exhibit 2.1 on Goodman Global, Inc.’sForm 8-K, filed with the SEC on January 4, 2008).
3.1†		Amended and Restated Certificate of Incorporation of Goodman Global, Inc..
3.2		Amended and Restated Bylaws of Goodman Global, Inc. (incorporated by reference to Exhibit 3.7 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).
4.1		Indenture, dated as of February 13, 2008, by and between Chill Acquisition, Inc., to be merged with and into Goodman Global, Inc., and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
4.2		Guarantor Supplemental Indenture, dated as of February 13, 2008, among the Guaranteeing Subsidiaries of Goodman Global, Inc., as identified therein, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

Index to Financial Statements

4.3		Form of Exchange Note (incorporated by reference to Exhibit 4.3 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.27*		Amendment Number One to Employment Agreement dated February 13, 2008 between Chill Acquisition, Inc. and Charles A. Carroll (incorporated by reference to Exhibit 10.25 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).
4.4		Form of 13.50%/14.00% Note (incorporated by reference to Exhibit 4.4 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.28*		Letter Agreement among Goodman Global, Inc., Chill Holdings, Inc. and Charles A. Carroll dated March 13, 2009 (incorporated by reference to Exhibit 10.26 on Goodman Global, Inc.’s Annual Report on Form 10-K, filed with the SEC on March 13, 2009)
4.5		Exchange and Registration Rights Agreement, dated February 13, 2008, by and among Chill Acquisition, Inc., GSO Domestic Capital Funding LLC, GSO COF Facility LLC, GSO Origination Funding Partners LP, Farallon Funding, L.L.C., AlpInvest Partners Mezzanine 2007 C.V., KKR Financial Holdings III, LLC and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 4.5 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
12.1†		Statement of Computation of Ratio of Earnings to Fixed Charges
4.6		Joinder and Assumption Agreement, dated February 13, 2008, among Goodman Global, Inc., the Initial Guarantors listed therein, GSO Domestic Capital Funding LLC, GSO COF Facility LLC, GSO Origination Funding Partners LP, Farallon Funding, L.L.C., AlpInvest Partners Mezzanine 2007 C.V., KKR Financial Holdings III, LLC and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 4.6 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
21.1†		Subsidiaries of the Registrant
10.1		$800,000,000 Credit Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., Chill Acquisition Inc., which merged with and into Goodman Global, Inc., and Barclays Capital, the investment banking division of Barclays Bank Plc and Calyon New York Branch, as Joint Lead Arrangers, and Barclays Capital, the investment banking division of Barclays Bank Plc, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, and General Electric Capital Corporation, as the Administrative and Collateral Agent (incorporated by reference to Exhibit 10.1 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
31.1†		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.2		Revolving Credit Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., Chill Acquisition Inc., which merged with and into Goodman Global, Inc., and Barclays Capital, the investment banking division of Barclays Bank Plc and General Electric Capital Corporation, as Joint Lead Arrangers, Barclays Capital, the investment banking division of Barclays Bank Plc, Calyon New York Branch and General Electric Capital Corporation, as joint bookrunners, General Electric Capital Corporation, as the Administrative, Collateral Agent, Swingline Lender and Letter of Credit Issuer (incorporated by reference to Exhibit 10.2 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
31.2†		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.3		Intercreditor Agreement, dated February 13, 2008, between General Electric Capital Corporation, as collateral agent for the Term Loan Secured Parties and the Revolving Secured Parties referred to therein and acknowledged by Chill Holdings, Inc., Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and certain subsidiaries of Goodman Global, Inc. (incorporated by reference to Exhibit 10.3 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
32.1†		Section 1350 Certification of Annual Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.4		Term Loan Security Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.4 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.5		Revolving Security Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.5 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.6		Term Loan Guarantee, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.6 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

†	Filed herewith.

*	Management contract or compensatory plan or arrangement

Index to Financial Statements

10.7		Revolving Guarantee, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.7 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.8		Term Loan Pledge Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.8 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.9		Revolving Pledge Agreement, dated as of February 13, 2008, among Chill Intermediate Holdings, Inc., each of the Subsidiary Guarantors listed therein of Chill Acquisition, Inc., which merged with and into Goodman Global, Inc. and General Electric Capital Corporation, as collateral agent for the Secured Parties as defined therein (incorporated by reference to Exhibit 10.9 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.10*		Chill Holdings, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 on Goodman Global, Inc.’s Amendment No. 1 to the Registration Statement on Form S-4, filed with the SEC on May 30, 2008).
10.11*†		Amended and Restated Chill Holdings, Inc. 2008 Annual Incentive Compensation Plan and form of award agreement thereunder.
10.12*		Employment Agreement, dated February 13, 2008, between Chill Acquisition, Inc. and Charles A. Carroll (incorporated by reference to Exhibit 10.12 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.13*		Employment Agreement, dated February 13, 2008, between Chill Acquisition, Inc. and Lawrence M. Blackburn (incorporated by reference to Exhibit 10.13 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.14		Stockholders Agreement, dated February 13, 2008 by and among Chill Holdings, Inc., Chill Acquisition, Inc., Hellman & Friedman Capital Partners VI, L.P., Hellman & Friedman Capital Partners VI (Parallel), L.P., Hellman & Friedman Capital Associates VI, L.P., Hellman & Friedman Capital Executive VI, L.P., H&F Chill Partners, L.P., GSO Special Situations Fund LP, GSO Origination Funding Partners LP, GSO COF Facility LLC, Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P., AlpInvest Partners Mezzanine 2007 C.V. and CMP II Initial Holdings, L.L.C. (incorporated by reference to Exhibit 10.14 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).
10.15*		Management Stockholders Agreement, dated February 13, 2008 by and among Chill Holdings, Inc., Chill Acquisition, Inc., Hellman & Friedman Capital Partners VI, L.P., Hellman & Friedman Capital Partners VI (Parallel), L.P., Hellman & Friedman Capital Associates VI, L.P., Hellman & Friedman Capital Executives VI, L.P., and H&F Chill Partners, L.P. and each of the Management Stockholder identified therein (incorporated by reference to Exhibit 10.15 on Goodman Global, Inc.’s Registration Statement on Form S-4, filed with the SEC on April 15, 2008).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GOODMAN GLOBAL, INC.

Date: March 12, 2010	By:	/S/ LAWRENCE M. BLACKBURN
		Lawrence M. Blackburn Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


Signature	Title	Date

/S/ DAVID L. SWIFT David L. Swift	President, Chief Executive Officer and Director	March 12, 2010

/S/ LAWRENCE M. BLACKBURN Lawrence M. Blackburn	Executive Vice President, Chief Financial Officer and Director	March 12, 2010

/S/ MARK M. DOLAN Mark M. Dolan	Vice President, Corporate Controller and Treasurer	March 12, 2010

/S/ ERIK RAGATZ Erik Ragatz	Chairman of the Board of Directors	March 12, 2010

/S/ CHARLES A. CARROLL Charles A. Carroll	Director	March 12, 2010

/S/ ROBERT B. HENSKE Robert B. Henske	Director	March 12, 2010

/S/ SALONI SARAIYA MULTANI Saloni Saraiya Multani	Director	March 12, 2010

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10.16

Lease Agreement, dated December 1, 1994, between the Daniel Childrens 1991 Trust, the Lucy Hughes Abell 1991 Trust, the Sam Houston Abell 1991 Trust, the JBG Childrens 1991 Trust, the Hutton Gregory Goodman 1990 Trust, the Hannah

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