|UNITED STATES                     
|----------------------------------
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            

__________

FORM 10-Q__________

|                                                         |  |                                                                                         
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|[X]                                                      |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                         |  |                                                                                         
|For the quarterly period ended July 5, 2003             
|                                                         |  |                                                                                         
|OR                                                      
|                                                         |  |                                                                                         
|[_]                                                      |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                         |  |                                                                                         
|For the transition period from ___________ to __________
|                                                         |  |                                                                                         
|1-6112                                                  
|(Commission File Number)                                
|__________                                              
|                                                         |  |                                                                                         
|NORTEK, INC.                                            
|(Exact name of registrant as specified in its charter)  
|__________                                              

|                                                     |  |                    
|---------------------------------------------------- |  | -------------------
|Delaware                                             |  | 05-0314991         
|(State or other jurisdiction of                      |  | (I.R.S. Employer   
|incorporation or organization)                       |  | Identification No.)
|                                                     |  |                    
|50 Kennedy Plaza, Providence, RI                     |  | 02903-2360         
|(Address of principal executive offices)             |  | (Zip Code)         
|                                                    
|(401) 751-1600                                      
|(Registrants telephone number, including area code)
|__________                                          

|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 [_]                                                                                                                                                                                                                                                                                                                                                                     

|Indicate by check
      mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
|------------------------------------------------------------------------------------------------------------------
|Yes [X]   No [_]                                                                                                  

|The number of shares of Common Stock outstanding as of August 8, 2003 was 100.
|------------------------------------------------------------------------------

|NORTEK,
INC. AND SUBSIDIARIES       
|------------------------------------
|CONDENSED CONSOLIDATED BALANCE SHEET

|                                                      | July 5, | Dec. 31,
|----------------------------------------------------- | ------- | --------
|
|(Amounts in thousands)                               
|(Unaudited)                                          
|
|Assets                                                |         |         
|Current Assets:                                       |         |         
|Unrestricted:                                         |         |         
|Cash and cash equivalents                             |         |         
|Marketable securities available for sale              |         |         
|Restricted:                                           |         |         
|Cash, investments and marketable securities at cost,  |         |         
|which approximates market                             |         |         
|Accounts receivable, less allowances                  |         |         
|of $13,941,000 and $13,132,000                        |         |         
|Inventories                                           |         |         
|Raw materials                                         |         |         
|Work in process                                       |         |         
|Finished goods                                        |         |         
|
|                                                      |         |         
|
|Prepaid expenses                                      |         |         
|Other current assets                                  |         |         
|Prepaid income taxes                                  |         |         
|
|Total current assets                                  |         |         
|
|
|Property and Equipment, at Cost:                      |         |         
|Land                                                  |         |         
|Buildings and improvements                            |         |         
|Machinery and equipment                               |         |         
|
|                                                      |         |         
|Less accumulated depreciation                         |         |         
|Total property and equipment, net                     |         |         
|
|
|Other Assets:                                         |         |         
|Goodwill                                              |         |         
|Intangible assets, less accumulated amortization      |         |         
|of $5,870,000 and $34,010,000                         |         |         
|Deferred debt expense                                 |         |         
|Restricted investments and marketable securities held |         |         
|by pension trusts                                     |         |         
|Other                                                 |         |         
|
|                                                      |         |         
|
|                                                      |         |         
|
|
|Liabilities and Stockholder's Investment              |         |         
|
|Current Liabilities:                                  |         |         
|Notes payable and other short-term obligations        |         |         
|Current maturities of long-term debt                  |         |         
|Accounts payable                                      |         |         
|Accrued expenses and taxes, net                       |         |         
|
|Total current liabilities                             |         |         
|
|
|Other Liabilities:                                    |         |         
|Deferred income taxes                                 |         |         
|Other                                                 |         |         
|
|                                                      |         |         
|
|
|Notes, Mortgage Notes and Obligations                 |         |         
|Payable, Less Current Maturities                      |         |         
|
|
|Stockholder's Investment:                             |         |         
|Common stock, $.01 par value; authorized 100 shares,  |         |         
|100 shares issued and outstanding at July 5, 2003 and |         |         
|December 31, 2002                                     |         |         
|Additional paid-in capital                            |         |         
|Retained earnings                                     |         |         
|Accumulated other comprehensive income (loss)         |         |         
|
|Total stockholder's investment                        |         |         
|
|                                                      |         |         
|

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

|NORTEK,
INC. AND SUBSIDIARIES                 
|----------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

|                                                       | For The
|------------------------------------------------------ | -------
|
|
|
|
|
|(Amounts in thousands)                                
|(Unaudited)                                           
|
|Net Sales                                              |        
|
|
|Costs and Expenses:                                    |        
|Cost of products sold                                  |        
|Selling, general and administrative expenses, net      |        
|Amortization of intangible assets                      |        
|Expenses and charges arising from the Recapitalization |        
|
|                                                       |        
|
|
|Operating earnings                                     |        
|Interest expense                                       |        
|Investment income                                      |        
|
|Earnings from continuing operations before provision   |        
|for income taxes                                       |        
|Provision for income taxes                             |        
|
|Earnings from continuing operations                    |        
|Earnings from discontinued operations                  |        
|
|Net earnings                                           |        
|

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

|NORTEK, INC. AND SUBSIDIARIES                 
|----------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

|                                            | For the Periods
|------------------------------------------- | ---------------
|
|
|
|
|(Amounts in thousands)                     
|(Unaudited)                                
|
|Net Sales                                   |                
|
|
|Costs and Expenses:                         |                
|Cost of products sold                       |                
|Selling, general and administrative expense |                
|Amortization of intangible assets           |                
|Expenses and charges arising from the       |                
|Recapitalization                            |                
|
|                                            |                
|
|
|Operating earnings (loss)                   |                
|Interest expense                            |                
|Investment income                           |                
|
|Earnings (loss) from continuing operations  |                
|before provision (benefit) for income taxes |                
|Provision (benefit) for income taxes        |                
|
|Earnings (loss) from continuing operations  |                
|Earnings from discontinued operations       |                
|
|Net earnings (loss)                         |                
|

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

|NORTEK,
INC. AND SUBSIDIARIES                 
|----------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                          | For the Periods
|--------------------------------------------------------- | ---------------
|
|
|
|
|(Amounts in thousands)                                   
|(Unaudited)                                              
|
|Cash Flows from operating activities:                     |                
|Net earnings (loss) from continuing operations            |                
|Earnings from discontinued operations                     |                
|
|Net earnings (loss)                                       |                
|
|
|Adjustments to reconcile net earnings (loss)              |                
|to cash:                                                  |                
|Depreciation and amortization expense                     |                
|Non-cash write-off of inventory                           |                
|Gain on the sale of a discontinued business               |                
|Non-cash interest expense, net (including $4,100,000 from |                
|post-recapitalization amortization of the Bridge Facility |                
|commitment fees and expenses)                             |                
|Deferred federal income tax provision (credit)            |                
|Effect of the Recapitalization, net                       |                
|Changes in certain assets and liabilities, net of         |                
|effects from acquisitions and dispositions:               |                
|Accounts receivable, net                                  |                
|Inventories                                               |                
|Prepaids and other current assets                         |                
|Net assets of discontinued operations                     |                
|Accounts payable                                          |                
|Accrued expenses and taxes                                |                
|Long-term assets, liabilities and other, net              |                
|
|Total adjustments to net earnings (loss)                  |                
|
|Net cash (used in) provided by operating activities       |                
|
|
|Cash Flows from investing activities:                     |                
|Capital expenditures                                      |                
|Net cash paid for a business acquired                     |                
|Purchase of investments and marketable securities         |                
|Proceeds from the sale of investments and                 |                
|marketable securities                                     |                
|Proceeds from the sale of a discontinued business         |                
|Change in restricted cash and investments                 |                
|Other, net                                                |                
|
|Net cash used in investing activities                     |                
|
|Cash Flows from financing activities:                     |                
|Change in borrowings, net                                 |                
|Dividend paid to Nortek Holdings                          |                
|Contribution of capital from Nortek Holdings              |                
|Net cash transfers to Nortek Holdings                     |                
|Other, net                                                |                
|
|Net cash used in financing activities                     |                
|
|Net decrease in unrestricted cash and                     |                
|cash equivalents                                          |                
|Unrestricted cash and cash equivalents at the             |                
|beginning of the period                                   |                
|
|Unrestricted cash and cash equivalents at the             |                
|end of the period                                         |                
|
|
|Supplemental disclosure of cash flow                      |                
|information:                                              |                
|
|Interest paid                                             |                
|
|
|Income taxes paid, net                                    |                
|

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

|NORTEK, INC. AND SUBSIDIARIES                               
|------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S INVESTMENT
|FOR THE THREE MONTHS ENDED JUNE 29, 2002                    

|                                      |  |  | Addi- |        |        | Accumulated |    
|------------------------------------- |  |  | ----- | ------ | ------ | ----------- | ---
|
|
|
|(Dollar amounts in thousands)        
|(Unaudited)                          
|
|Balance, March 30, 2002               |  |  | $     | 18,845 |        | $           | 813
|Net earnings                          |  |  |       | --     |        |             | -- 
|Other comprehensive income:           |  | 
|Currency translation adjustment       |  |  |       | --     |        |             | -- 
|Unrealized appreciation in the fair   |  | 
|value of marketable securities        |  |  |       | --     |        |             | -- 
|
|Comprehensive income                  |  |  |       | $      | 34,146 |            
|
|11,116 shares of special common stock |  | 
|converted into 11,116 shares          |  | 
|of common stock                       |  |  |       | 11     |        |             | (11
|13,380 shares of common stock         |  | 
|issued upon exercise of stock options |  |  |       | 14     |        |             | -- 
|
|Balance, June 29, 2002                |  |  | $     | 18,870 |        | $           | 802
|

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

|NORTEK, INC. AND SUBSIDIARIES                               
|------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S INVESTMENT
|FOR THE SIX MONTHS ENDED JUNE 29, 2002                      

|                                      |  |  | Addi- |        |        | Accumulated |    
|------------------------------------- |  |  | ----- | ------ | ------ | ----------- | ---
|
|
|
|(Dollar amounts in thousands)        
|(Unaudited)                          
|
|Balance, December 31, 2001            |  |  | $     | 18,829 |        | $           | 814
|Net earnings                          |  |  |       | --     |        |             | -- 
|Other comprehensive income (loss):    |  | 
|Currency translation adjustment       |  |  |       | --     |        |             | -- 
|Unrealized appreciation in the fair   |  | 
|value of marketable securities        |  |  |       | --     |        |             | -- 
|
|Comprehensive income                  |  |  |       | $      | 43,850 |            
|
|12,205 shares of special common stock |  | 
|converted into 12,205 shares          |  | 
|of common stock                       |  |  |       | 12     |        |             | (12
|28,213 shares of common stock         |  | 
|issued upon exercise of stock options |  |  |       | 29     |        |             | -- 
|33 shares of treasury stock acquired  |  |  |       | --     |        |             | -- 
|
|Balance, June 29, 2002                |  |  | $     | 18,870 |        | $           | 802
|

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

|NORTEK, INC. AND SUBSIDIARIES                               
|------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S INVESTMENT
|FOR THE PERIOD FROM JANUARY 1, 2003 TO JANUARY 9, 2003      

|                                                   |  | Addi- |   | Accumulated |        
|-------------------------------------------------- |  | ----- | - | ----------- | -------
|
|
|
|(Amounts in thousands)                            
|(Unaudited)                                       
|
|Balance, December 31, 2002                         |  |       | $ | --          |        
|Net loss                                           |  |       |   | --          |        
|Other comprehensive income:                        |  |      
|Currency translation adjustment                    |  |       |   | --          |        
|Minimum pension liability, net of                  |  |      
|tax of $9,906,000                                  |  |       |   | --          |        
|
|Comprehensive loss                                 |  |       |   | $           | (45,406
|
|Dividend to Nortek Holdings, Inc.                  |  |       |   | --          |        
|Contribution of capital from Nortek Holdings, Inc. |  |       |   | --          |        
|
|Subtotal                                           |  |       | $ | --          |        
|Effect of the Recapitalization                     |  |       |   | --          |        
|
|Balance, January 9, 2003                           |  |       | $ | --          |        
|

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

|NORTEK, INC. AND SUBSIDIARIES                               
|------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S INVESTMENT
|FOR THE THREE MONTHS ENDED JULY 5, 2003                     

|                                           |  |  |   | Accumulated | 
|------------------------------------------ |  |  | - | ----------- | 
|
|
|
|(Amounts in thousands)                    
|(Unaudited)                               
|
|Balance, April 5, 2003                     |  |  | $ | --          | 
|Net income                                 |  |  |   | --          | 
|Other comprehensive income:                |  | 
|Currency translation adjustment            |  |  |   | --          | 
|
|Comprehensive income                       |  |  | $ | 35,916      | 
|
|Amortization of compensatory stock options |  |  |   | --          | 
|
|Balance, July 5, 2003                      |  |  | $ | --          | 
|

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

|NORTEK, INC. AND SUBSIDIARIES                               
|------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S INVESTMENT
|FOR THE PERIOD FROM JANUARY 10, 2003 TO JULY 5, 2003        

|                                           |  |  |   | Accumulated | 
|------------------------------------------ |  |  | - | ----------- | 
|
|
|
|(Amounts in thousands)                    
|(Unaudited)                               
|
|Balance, January 9, 2003                   |  |  | $ | --          | 
|Net income                                 |  |  |   | --          | 
|Other comprehensive income:                |  | 
|Currency translation adjustment            |  |  |   | --          | 
|Unrealized appreciation in the fair value  |  | 
|of marketable securities                   |  |  |   | --          | 
|
|Comprehensive income                       |  |  | $ | 45,383      | 
|
|Amortization of compensatory stock options |  |  |   | --          | 
|
|Balance, July 5, 2003                      |  |  | $ | --          | 
|

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

|NORTEK, INC. AND SUBSIDIARIES            
|-----------------------------------------
|NOTES TO UNAUDITED CONDENSED CONSOLIDATED
|FINANCIAL STATEMENTS                     
|JULY 5, 2003 AND JUNE 29, 2002           

|(A) | The
unaudited  condensed  consolidated  financial  statements (the "Unaudited  Financial
Statements")  presented have been  prepared  by Nortek,  Inc.  and include  the
accounts  of Nortek,  Inc.,  and all of its  wholly-owned  subsidiaries  (the
"Company") after elimination of intercompany  accounts and  transactions,
without audit and, in the opinion of management,  reflect all  adjustments of a normal
recurring  nature  necessary for a fair statement of the interim  periods  presented.
Although certain  information and footnote  disclosures  normally included in financial
statements  prepared in accordance  with  accounting  principles  generally  accepted in
the United  States have been  omitted,  the Company  believes that the  disclosures
included are adequate to make the  information  presented not  misleading.  In 2002,  the
Company sold certain  subsidiaries of its  wholly-owned  subsidiary,  Ply Gem Industries,
Inc. ("Ply Gem").  The sale of these  subsidiaries and  their  related
operating  results have been  excluded  from earnings  from  continuing  operations  and
are  classified as  discontinued  operations for all periods  presented (see Note H).
Certain amounts in the prior year's  Unaudited  Financial  Statements  have been
reclassified  to conform to the current  year  presentation.  It is suggested  that these
Unaudited  Financial  Statements be read in  conjunction  with the  consolidated
financial  statements  and the notes included in the  Company's  latest annual report on
Form 10-K and its latest  Current  Reports on Form 8-K as filed with the  Securities and
Exchange Commission ("SEC") (see Note B).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 20, 2002,  the Company  reorganized  into a holding  company  structure and each
outstanding  share of capital  stock of the Company was converted into an identical share
of capital stock of Nortek Holdings,  Inc. ("Nortek  Holdings"),  a Delaware
corporation  formed in 2002, with Nortek  Holdings  becoming the successor  company and
the Company  becoming a  wholly-owned  subsidiary of Nortek Holdings (the "Nortek
Holdings  Reorganization").  On January 9, 2003,  Nortek Holdings,  the parent
company of Nortek,  was acquired by certain  affiliates  and  designees of Kelso & Company
L.P.  ("Kelso")  and  certain  members of the Company's  management  (the
"Management  Investors") in accordance  with the Agreement and Plan of
Recapitalization  by and among Nortek,  Inc.,  Nortek Holdings,  Inc. and K Holdings,
Inc. ("K Holdings") dated as of June  20, 2002, as amended, (the
"Recapitalization  Agreement") in a transaction valued at approximately $1.6
billion,  including  all of the Company's indebtedness (the
"Recapitalization") (see Note B).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
on January 9, 2003,  the  Company  and Nortek  Holdings  accounted  for the
Recapitalization  as a purchase  in  accordance with the provisions of Statement of
Financial  Accounting  Standards ("SFAS") No. 141,  "Business
Combinations"  ("SFAS No. 141"),  which resulted in a new valuation for the
assets and liabilities of Nortek Holdings and its  subsidiaries  based upon fair values
as of the date of the  Recapitalization.  As allowed  under SEC Staff  Accounting
Bulletin  No. 54,  "Push Down Basis of  Accounting  Required in Certain  Limited
Circumstances",  the Company has  reflected  all  applicable  purchase accounting
adjustments  recorded by Nortek Holdings in the Company's  Consolidated  Financial
Statements for all  SEC filings covering periods subsequent to the  Recapitalization
("Push Down Accounting").  Push Down Accounting  requires  the Company to
establish a new basis for its assets and  liabilities  based on the amount paid for its
ownership at January  9,  2003.  Accordingly,  Nortek  Holdings'  ownership  basis
(including  the fair  value  of  options  rolled  over by the  Management  Investors)  is
reflected  in Nortek's  Consolidated  Financial  Statements  beginning  upon  completion
of the  Recapitalization.  In order to apply Push Down Accounting,  Nortek Holdings'
purchase price of approximately  $468,737,000  was  allocated  to the assets and
liabilities  based on their  relative  fair values and  approximately  $440,837,000  was
reflected  in the  Company's  Stockholder's  Investment  as the value of Nortek
Holdings'  ownership  in the Company  upon  completion of the  Recapitalization.
Immediately prior to the  Recapitalization,  the Company's  Stockholder's  Investment
was approximately  $156,702,000.  Purchase price  allocations are subject to refinement
until all pertinent  information is  obtained.  As of January 10,  2003,  the Company
preliminarily  allocated  the excess  purchase  price over the net assets  acquired in
the Recapitalization based on its estimates of the fair value of assets and liabilities
as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | Excess purchase price of the
|----------------------------------------------- | ----------------------------
|
|
|Inventories                                     |                             
|Property, plant and equipment                   |                             
|Intangible assets                               |                             
|Goodwill                                        |                             
|Indebtedness                                    |                             
|Prepaid and deferred income taxes               |                             
|Pension and post retirement healthcare benefits |                             
|Other                                           |                             
|
|Total                                           |                             
|

| | During
the three  months  ended July  5, 2003 and the period from  January  10,  2003  to  July
5,  2003,  the  Company  reflected  approximately  $800,000  and  $6,000,000,
respectively,  of  excess  purchase  price  allocated  to  inventory as a  non-cash
charge  to cost  of  goods  sold,  approximately  $3,400,000 and  $6,300,000,
respectively,  of lower  depreciation  expense  in  cost  of  sales,  $1,500,000  and
$3,000,000,  respectively,  of  additional  amortization  expense of  intangible  assets
and  $1,400,000  and  $2,800,000,  respectively, of lower  interest  expense  from  the
amortization  of  premium  allocated  to  indebtedness  as compared to the  Company's
historical  basis  of  accounting  prior  to  the  Recapitalization.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has  estimated  the fair  value  of  its  assets  and  liabilities,  including
intangible  assets  and  property,  plant  and  equipment,  as  of  the
Recapitalization,  utilizing  information  available  at the  time  that  the  Company's
Unaudited Financial  Statements  were  prepared and these
estimates  are subject to refinement  until all pertinent  information has  been
obtained.  The  Company  is in  the  process  of  obtaining  outside  third  party
appraisals  of  its  intangible  assets  and  property,  plant and equipment.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
impact  of  these  fair  value  estimates has been  reflected in the  Company's
statement  of  operations  for the  periods  ended July 5, 2003.  Should  the  intangible
asset  or  property,  plant  and  equipment  appraisals  result in differences in  the
average  amortizable  or  depreciable  lives of  these  assets  or in the fair  value
amount of the  estimates,  the following  estimated  changes  in  annual  operating
earnings would occur:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Increase (decrease) in operating earnings
|------------------------------------ | -----------------------------------------
|
|
|
|If lives are one year greater        |                                          
|If lives are one year less           |                                          
|If fair value is $10,000,000 greater |                                          
|If fair value is $10,000,000 less    |                                          

| | The
combined periods from January 1, 2003 to January 9, 2003 and from January 10, 2003 to
July 5, 2003 contain  185 days while the first half of 2002 contained 180
days.  Accordingly,  operating  results for 2003 include  approximately  $1,000,000 of
additional  interest  expense as compared to 2002 since the Company  accrues  interest
expense based on the  number of days contained in each reporting period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | On
January 8, 2003, at a special  meeting of  stockholders  of Nortek  Holdings,  the
stockholders  approved the following  amendments to the certificate of incorporation (the
"Stockholder  Approval"),  which were required in order to complete the
Recapitalization:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A new class of common stock,  Class A Common Stock,  par value $1.00 per share,  of Nortek  Holdings was created
                    consisting of 19,000,000 authorized shares.At the time that the  amendment to the  certificate  of  incorporation  became  effective,  each share of common
                    stock,  par value  $1.00 per share  and  special  common  stock,  par  value  $1.00 per share  outstanding,  was
                    reclassified  into one share of a new class of mandatorily  redeemable  common stock,  Class B Common Stock, par
                    value $1.00 per share, of Nortek Holdings consisting of 14,000,000 authorized shares.Class B Common Stock was required to be  immediately  redeemed for $46 per share in cash upon  completion of the
                    Recapitalization.The  authorized  number of shares of Series B  Preference  Stock,  par value $1.00 per share,  was  increased to
                    19,000,000 authorized shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the Stockholder  Approval,  common stock and special common stock held by the Management
Investors were exchanged  for an equal  number of newly  created  shares of Series B
Preference  Stock.  In  addition,  certain  options to purchase  shares of common and
special  common stock held by the  Management  Investors  were  exchanged for fully
vested  options to  purchase  an equal  number  of shares of the  newly  created  Class A
Common  Stock.  The  remaining  outstanding  options,  including  some held by Management
Investors,  were  cancelled in exchange for the right to receive a single lump sum cash
payment  equal to the product of the number of shares of common  stock or special  common
stock  underlying  the option and  the amount by which the redemption price of $46 per
share exceeded the per share exercise price of the option.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 9, 2003, in connection  with the  Recapitalization,  Kelso  purchased newly
issued shares of Series B Preference  Stock for  approximately  $355,923,000 and
purchased  shares of Series B Preference Stock held by the Management  Investors  for
approximately  $18,077,000.  Newly issued Class A Common Stock of approximately
$3,262,000 was purchased by designated  third  parties.  Shares of Series B Preference
Stock held by the  Management  Investors  that were not  purchased by Kelso  were
converted into an equal number of shares of Class A Common Stock.  In addition,  the
Company  declared and distributed  to Nortek Holdings a dividend of approximately
$120,000,000 and distributed  approximately  $27,900,000 for  reimbursement  of fees and
expenses of Kelso,  which were paid out of the Company's  unrestricted  cash and cash
equivalents  on hand and  were permissible  under the most restrictive  covenants with
respect to the indentures of the Company's 8 7/8% Senior Notes  due 2008, 9 1/4% Senior
Notes due 2007,  9 1/8% Senior  Notes due 2007 and 9 7/8% Senior  Subordinated  Notes due
2011 (the  "Existing Notes").
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nortek
Holdings  used the proceeds  from the purchase by Kelso and  designated  third parties of
the newly issued Series B  Preference  Stock and Class A Common Stock and the dividend
from Nortek to redeem  Nortek  Holdings'  Class B Common Stock  and to cash out options
to  purchase  common and special  common  stock  totaling  approximately  $479,185,000.
Kelso also  purchased from certain Management Investors 392,978 shares of Series B
Preference Stock for approximately $18,077,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection  with the  Recapitalization,  K  Holdings  received  a bridge  financing
letter  from a lender for a senior  unsecured term loan facility not to exceed
$955,000,000  (the "Bridge  Facility").  The Bridge Facility was intended to be
used to  fund,  if  necessary,  any  change  in  control  offers  the  Company  might
have  made in  connection  with  the  Recapitalization.  The Company did not use this
Bridge  Facility  because the  structure  of the  Recapitalization  did not  require  the
Company to make any change of control  offers.  The  commitment  letter  expired on
January  31,  2003.  As a  result,  the  Company's  consolidated  interest  expense  for
the period from  January  10,  2003 to July 5, 2003  includes  approximately  $4,100,000
of interest  expense from the  amortization  of the Bridge  Facility  commitment fees and
related  expenses.  In the second  quarter  of 2003,  the  Company  did not incur any
additional  interest  expense  related to the  expiration of this commitment letter.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003,  Nortek Holdings filed for the  deregistration  of its shares of common and
special common stock under the  Securities  Exchange  Act of 1934.  Nortek  Holdings'
shares of common and  special  common  stock are no longer  publicly  traded.  The
Company will continue to file periodic  reports with the SEC as required by the
respective  indentures of the  Company's Existing Notes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of one of the Company's  supplemental  executive  retirement  plans
("SERP"),  the Company was required to  make  one-time  cash  payments  to
participants  in such plan in  satisfaction  of  obligations  under  that plan when the
Recapitalization  was  completed.  Accordingly,  the  Company  made a  distribution  of
approximately  $75,100,000  to the  participants  in the plan from funds  included  in
the  Company's  Consolidated  Balance  Sheet at  December  31,  2002 and  classified in
long-term assets in restricted  investments and marketable  securities held by pension
trusts and transferred  to one of the  participants a life insurance  policy with
approximately  $10,300,000 of cash surrender  value to satisfy a  portion of the SERP's
obligation to such  participant.  The  termination  and  settlement  of the  obligation
of this SERP  resulted in a curtailment loss on January 9, 2003 (see Note F).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total  amount  of  transaction  fees  and  related  costs  incurred  by the  Company  and
Kelso  associated  with the  Recapitalization was approximately  $47,348,000,  including
the $27,900,000 noted above, of which approximately $10,500,000  of advisory  fees and
expenses  was paid to Kelso. A portion of these fees and expenses was
recorded by the  Company  in  selling,  general  and  administrative  expense,  since
they were  obligations  of the  Company  prior to the  Recapitalization.  Approximately
$12,848,000  was  recorded  as expense on January 9, 2003 since  these fees and  expenses
became  obligations  of the Company upon  consummation  of the  Recapitalization (see Note F).
Approximately  $6,600,000 of expense was  previously  recorded by the Company in the year
ended  December 31, 2002,  of which  $5,200,000  was recorded in the second  quarter of
2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following reflects  the  pro forma  effect  of  the Recapitalization for  the  periods
presented  through  January 9, 2003:
| | -------------------------------------------------------------------------------------------------------------------------------

|                                           | For the Period | For the Three | For the Six | For the
|------------------------------------------ | -------------- | ------------- | ----------- | -------
|
|
|(Amounts in thousands)                    
|
|Net sales                                  |                |               | $           | 33,775 
|Operating earnings                         |                |               |             | 832    
|Earnings (loss) from continuing operations |                |               |             | (1,126 

| | The
unaudited  pro forma  condensed  consolidated  summary of  operations  for the periods
presented has been prepared by  adjusting the Company's  historical summary of operations
to give effect to the  Recapitalization  as if it had occurred on  January 1, 2002.
Fees,  expenses and charges  resulting from the  Recapitalization,  including the
$6,600,000  noted above  (see Note F),  have been  excluded  from the above pro forma
financial  data since this pro forma  data  assumes  that the  Recapitalization  occurred
on  January  1,  2002.  The  information  contained  in  this  unaudited  pro  forma
condensed  consolidated  summary of  operations  has been  prepared  utilizing
information  available at the time that the  Company's  Unaudited  Financial
Statements  were prepared and is subject to refinement  until all pertinent  information
has been  obtained.  The unaudited pro forma  condensed  consolidated  summary of
operations  reflects the Company's  estimate of the  effect of fair value  adjustments
for inventory,  property,  plant and equipment,  intangible  assets,  pension,  debt and
financing costs and their related  deferred tax attributes.  The excess of the purchase
price over the historical  basis of  net assets and these fair value  adjustments was
recorded as goodwill.  Property,  plant and equipment,  intangible  assets  and certain
other assets and  liabilities  and related tax  attributes  have been  adjusted to fair
value in the Company's  consolidated  balance sheet on July 5, 2003 based on Company
estimates.  Certain pertinent  information related to the fair  value of these  items
has not yet been  obtained  or  completed.  Pertinent  information  not yet  obtained  or
completed  includes,  among other items,  third party  appraisals  of intangible  assets
and  property,  plant and equipment and their  related deferred tax attributes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the third quarter of 2002,  the Company also incurred  approximately  $2,100,000 in
connection  with its re-audit of the  Company's consolidated financial statements for the
three years ended December 31, 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | SFAS
No. 143,  "Accounting for Asset Retirement  Obligations" ("SFAS No.
143") addresses financial accounting and reporting  for obligations  associated with
the retirement of tangible  long-lived  assets and the associated asset retirement
costs.  SFAS No. 143 requires  that the fair value of a liability  for an asset
retirement  obligation be recognized in the period  in which it is incurred if a
reasonable  estimate of fair value can be made.  The  associated  asset  retirement
costs are  capitalized as part of the carrying  amount of the  long-lived  asset.  SFAS
No. 143 is effective for financial  statements  issued for fiscal years  beginning after
June 15, 2002 with early adoption  permitted.  The Company adopted SFAS No. 143 on
January 1, 2003.  Adoption of this accounting standard was not material to the Company's
Unaudited Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No.  145,  "Rescission  of FASB  Statements  No.  4, 44 and 64,  Amendment  of FASB
Statement  No.  13 and  Technical  Corrections"  ("SFAS No. 145"),  was
issued in April 2002 and addresses  the reporting of gains and losses  resulting  from
the  extinguishment  of  debt,  accounting  for  sale-leaseback  transactions  and
rescinds  or  amends  other  existing  authoritative  pronouncements.  SFAS No. 145
requires  that any gain or loss on  extinguishment  of debt that does not meet  the
criteria of APB 30 for  classification  as an extraordinary  item shall not be classified
as extraordinary and shall be  included in earnings from continuing  operations.  The
provisions of this statement  related to the  extinguishment of debt  are  effective  for
financial  statements  issued in fiscal  years  beginning  after May 15,  2002 with early
application  encouraged.  The  Company  adopted  SFAS No.  145 on January  1, 2003 and
adoption  of this  accounting  standard  was not  material to the results presented in
the Unaudited Financial Statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2003,  the Company  adopted  SFAS No. 146,  "Accounting  for Costs
Associated  with Exit or Disposal  Activities"  ("SFAS No. 146"),  which
addresses the  accounting and reporting for costs  associated  with exit or disposal
activities,  nullifies  Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability  Recognition  for Certain  Employee  Termination  Benefits and Other
Costs to Exit an Activity  (including  Certain Costs Incurred in a  Restructuring)"
("EITF  94-3") and substantially  nullifies EITF Issue No. 88-10,  "Costs
Associated with Lease Modification or Termination" ("EITF  88-10").  SFAS
No. 146 requires  that a liability  for a cost  associated  with an exit or disposal
activity be recognized  when the  liability is incurred.  Under EITF 94-3, a liability
for an exit cost as defined in EITF 94-3 was  recognized at  the date of an entity's
commitment  to an exit plan.  The  provisions  of SFAS No. 146 are  effective for exit or
disposal  activities  that are  initiated  after  December 31, 2002.  The adoption of
SFAS No. 146 did not have a material  effect on  the Company's Unaudited Financial
Statements (see Note M).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148,  "Accounting for Stock-Based
Compensation - Transition and Disclosure"  ("SFAS No.  148").  SFAS No.
148 amends  SFAS No.  123,  "Accounting  for  Stock-Based  Compensation"
("SFAS No.  123") to  provide  alternative  methods of  transition  to SFAS No.
123's fair value method of accounting  for  stock-based  employee  compensation.  SFAS
No.  148 also  amends  the  disclosure  provisions  of SFAS No. 123 and APB  Opinion  No.
28,  "Interim  Financial  Reporting". The Company
accounts for  stock-based  compensation  in accordance with APB No. 25,  "Accounting
for Stock Issued to Employees"  ("APB No. 25"). The Company has provided
the required  disclosures  under SFAS  No. 148 (see Note K).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November  2002,  the FASB issued  Interpretation  No. 45,  "Guarantor's  Accounting
and  Disclosure  Requirements  for  Guarantees,  Including Indirect  Guarantees of
Indebtedness of Others" ("FIN 45"). Along with new disclosure
requirements,  FIN 45 requires  guarantors to recognize,  at the  inception of certain
guarantees,  a liability for the fair value of the  obligation  undertaken in issuing the
guarantee.  This differs from the current  practice to record a liability only when a
loss is probable and  reasonably  estimable.  The  recognition  and  measurement
provisions of FIN 45 are  applicable on a  prospective  basis to  guarantees  issued or
modified  after  December  31,  2002.  The  Company  adopted  the  disclosure  provisions
of FIN 45 as of December  31, 2002 and adopted the entire  interpretation  on January 1,
2003.  Adoption of FIN  45 was not material to the Company's Unaudited Financial
Statements (see Note L).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003, the FASB issued  Interpretation  No. 46,  "Consolidation of Variable
Interest Entities - an Interpretation  of ARB No. 51" ("FIN 46").  FIN 46
clarifies  the  application  of ARB No. 51,  "Consolidated  Financial
Statements,"  to  certain entities in which equity investors do not have the
characteristics  of a controlling  financial interest or do not  have sufficient equity
at risk for the entity to finance its activities without additional  subordinated
financial support  from other parties.  The  consolidation  requirements of FIN 46 apply
to the company immediately for variable  interest  entities  created  after
January 31, 2003 and for
existing  variable  interest  entities no later than the end of the first  annual
reporting  period  beginning  after  June 15,  2003.  The  Company  is  currently
evaluating  the  impact of  adopting  FIN 46 on its  consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April  2003,  the FASB  issued  SFAS No.  149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities"  ("SFAS No.  149"),
which  clarifies  the  financial  accounting  and  reporting  proscribed  by SFAS No.
133,  "Accounting  for Derivative  Instruments and Hedging  Activities"
("SFAS No. 133") for derivative  instruments,  including  certain derivative
instruments  embedded in other contracts.  Certain provisions of SFAS No. 149 related to
implementation  issues of SFAS No. 133 are already  effective and other provisions
related to forward purchases or sales are effective for  both existing  contracts and new
contracts  entered into after June 30, 2003. The Company has  previously  adopted SFAS
No.  133,  including the implementation  issues addressed in SFAS No. 149, and is
currently  evaluating what impact, if any, the  new provisions of SFAS No. 149 will have
on its consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS No. 150,  "Accounting for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity"  ("SFAS
No. 150"),  which  addresses the  accounting  and  reporting  for the
classification  and  measurement  of certain  financial  instruments  with
characteristics  of both  liabilities  and  equity.  SFAS No. 150 is  effective  for all
financial  instruments  entered  into or  modified  after May 31, 2003 and for all
existing  financial  instruments  beginning in the first  interim  period  after June 15,
2003,  except for  mandatorily  redeemable  financial  instruments  of nonpublic
entities,  which are subject to the  provisions  for the first  fiscal  period  beginning
after  December 15, 2003.  The Company plans to adopt SFAS No. 150 on July 1, 2003.
Adoption of this  accounting  standard is not  expected to be material to the results
presented in the Company's consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(D) | The
period from January 10, 2003 to July 5, 2003 includes  approximately  $4,100,000 of
interest  expense from the  amortization  of  the Bridge  Facility  commitment  entered
into as part of the  Recapitalization  (see Note B).  Interest  expense  for the  second
quarter and first half of 2002  includes a non-cash  reduction in interest  expense of
approximately  $350,000 and  $800,000,  respectively  related to the Company's  former
interest rate collar  agreement,  which was terminated in August  2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(E) | On
January 17, 2003, the Company acquired Elan Home Systems L.L.C.  ("Elan") for an aggregate purchase price of
approximately  $18,900,000 including a  $1,500,000  note  payable  to the  sellers.
Elan  manufactures  and sells  consumer  electronic  equipment  that  controls
whole-house  entertainment,  communication  and automation  systems for new residential
construction and retrofit markets.  For the year ended  December 31,  2002,  Elan
reported net sales of  approximately  $21,300,000  (unaudited).  On July 11,  2003, the
Company  acquired  SpeakerCraft,  Inc. ("SPC") for  approximately  $58,100,000
in cash. SPC is a leading designer  and supplier of  architectural  loudspeakers  and
audio  products used in  residential  custom  applications.  For the year  ended December
31, 2002, SPC reported net sales of  approximately  $34,800,000  (unaudited).  Pro forma
results  related to  these acquisitions have not been presented, as the effect is not
material.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Acquisitions
are accounted for as purchases and, accordingly,  have been included in the Company's
consolidated results of  operations  since the  acquisition  date.  Purchase  price
allocations  are  subject  to  refinement  until all  pertinent  information regarding
the acquisitions is obtained.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(F) | For
the nine days ended January 9, 2003, the Company incurred certain charges in connection
with the Recapitalization.  These charges  were as follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|Curtailment loss upon termination of a SERP  |  |  | $ | 70,142,000 | 
|-------------------------------------------- |  |  | - | ---------- | 
|Recapitalization fees, expenses and other    |  |  |   | 12,848,000 | 
|Compensation expense from the settlement and |  | 
|cancellation of stock options                |  |  |   | 4,710,000  | 
|                                            
|                                             |  |  | $ | 87,700,000 | 
|                                            

| | The
operating  results of the Air  Conditioning  and Heating  Products  Segment for the three
months ended July 5, 2003 and  the period from January 10, 2003 to July 5, 2003 include
approximately  $1,400,000 of severance and other costs associated  with the closure of
certain  manufacturing  facilities.  The operating  results of the Windows,  Doors and
Siding  Products  Segment  for the  three  months  ended  July  5,  2003  and the  period
from  January  10,  2003 to July 5,  2003  include  approximately  $100,000  and
$600,000,  respectively  of  severance  and other  costs  associated  with the  closure
of a  manufacturing  facility (see Note M).  The  operating  results of the  Windows,  Doors and
Siding  Products  segment for the period from  January 10, 2003 to July 5, 2003 also
include  approximately  $1,300,000  of costs and  expenses for expanded  distribution
including new customers.  There were no additional  costs and expenses  incurred  related
to this expanded  distribution in  the second quarter of 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the second  quarter and first half of 2002,  a $4,400,000  charge to operating  earnings
was recorded and is included in  selling,  general and  administrative  expenses relating
to an incentive earned by certain of the Company's  officers under  the  Company's  1999
Equity  Performance  Plan. In addition,  as discussed in Note B, the Company has recorded
expenses of  approximately  $5,200,000  in selling,  general and  administrative
expenses in the second  quarter and first half of 2002  related to fees and expenses
associated with the Recapitalization of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(G) | At
August 8, 2003,  there was approximately $4,350,000 available for the payment of cash dividends,
stock purchases or other restricted  payments as defined under the terms of the Company's
most restrictive debt covenant related to such payments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(H) | On
April 2, 2002,  Ply Gem sold the capital stock of its  subsidiary  Hoover Treated Wood
Products,  Inc.  ("Hoover").  On  November 22, 2002, Ply Gem sold the capital
stock of its subsidiary  Richwood Building  Products,  Inc.  ("Richwood").  The
sale of these  subsidiaries  and their  related  operating  results  have  been  excluded
from  earnings  from  continuing  operations and are classified as discontinued
operations for all periods presented.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following is a summary of the results of discontinued operations for the three and six
months ended June 29, 2002:
| | ----------------------------------------------------------------------------------------------------------------------

|                                             | Three Months | Six Months
|-------------------------------------------- | ------------ | ----------
|
|
|(Amounts in thousands)                      
|(Unaudited)                                 
|
|Net Sales                                    |              |           
|
|
|Earnings before income taxes                 |              |           
|Provision for income taxes                   |              |           
|
|Earnings from discontinued operations        |              |           
|Gain on sale of discontinued operations, net |              |           
|of provision for income taxes of $1,200,000  |              |           
|
|Earnings from discontinued operations        |              |           
|
|
|Depreciation and amortization expense        |              |           
|

|(I) | The
Company  has  three  reportable  segments:  the  Residential  Building  Products
Segment;  the  Air  Conditioning  and  Heating  Products  Segment;  and  the  Windows,
Doors  and  Siding  Products  Segment.  In  the  tables  below,  Other  includes
corporate  related  items,  intersegment  eliminations  and  certain  income  and
expense  items  not  allocated  to  reportable  segments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On  April
2,  2002,  the  Company  sold  the  capital  stock  of  Hoover.  On
November  22,  2002,  the  Company  sold  the  capital  stock  of  Richwood. The  results  of
Richwood,  which  were  previously  part  of the  Windows,  Doors  and  Siding  Products
Segment  and  Hoover,  which  were  previously  part  of the  Other  Segment,  have  been
excluded  from  earnings  from  continuing  operations  and  classified  separately  as
discontinued  operations  for  all  periods  presented  (see  Note  H).  Accordingly  the
segment  information  presented  below  excludes  Richwood  and  Hoover  for  all
periods.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  evaluates  segment  performance  based  on  operating  earnings  before
allocations  of  corporate  overhead  costs.  The  income  statement  impact  of  all
purchase  accounting  adjustments,  including  goodwill  and  intangible  asset
amortization,  is  included  in  the  operating  earnings  of  the  applicable  segment.
Intersegment  net  sales  and  eliminations  were  not  material  for  any  of  the
periods  presented.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Summarized
financial  information  for  the  Company's  reportable  segments  is  presented  in  the
tables  that  follow  for  the  three  months  ended  July  5,  2003 and  June  29,  2002:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | Three Months Ended
|------------------------------------------------------ | ------------------
|
|
|
|(Amounts in thousands)                                
|(Unaudited)                                           
|
|Net sales:                                             |                   
|Residential building products                          |                   
|Air conditioning and heating products                  |                   
|Windows, doors and siding products                     |                   
|
|Consolidated net sales                                 |                   
|
|
|Operating earnings *:                                  |                   
|Residential building products                          |                   
|Air conditioning and heating products                  |                   
|Windows, doors and siding products                     |                   
|
|Subtotal                                               |                   
|Unallocated:                                           |                   
|Expenses and charges arising from the Recapitalization |                   
|1999 equity performance plan incentive                 |                   
|Strategic sourcing expense                             |                   
|Other, net                                             |                   
|
|Consolidated operating earnings                        |                   
|Interest expense                                       |                   
|Investment income                                      |                   
|
|Earnings before provision for income taxes             |                   
|
|
|Depreciation and Amortization Expense:                 |                   
|Residential Building Products                          |                   
|Air Conditioning and Heating Products                  |                   
|Windows, Doors and Siding Products                     |                   
|Other                                                  |                   
|
|Consolidated depreciation and amortization expense     |                   
|
|
|Capital Expenditures:                                  |                   
|Residential Building Products                          |                   
|Air Conditioning and Heating Products                  |                   
|Windows, Doors and Siding Products                     |                   
|Other                                                  |                   
|
|Consolidated capital expenditures                      |                   
|

| | * | During
the three months ended July 5, 2003, the Company  reflected  approximately  $1,000,000 of
excess  purchase price  allocated to inventory  as a non-cash  charge to cost of products
sold.  Approximately  $900,000 was  allocated to the  Residential  Building  Products
Segment and  approximately  $100,000 was  allocated  to the Windows,  Doors and Siding
Products Segment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Summarized
financial  information  for the  Company's  reportable  segments is presented in the
tables that follow for the  periods presented:
| | ----------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | For the Periods
|------------------------------------------------------ | ---------------
|
|
|
|
|(Amounts in thousands)                                
|(Unaudited)                                           
|
|Net sales:                                             |                
|Residential building products                          |                
|Air conditioning and heating products                  |                
|Windows, doors and siding products                     |                
|
|Consolidated net sales                                 |                
|
|
|Operating earnings (loss) *:                           |                
|Residential building products                          |                
|Air conditioning and heating products                  |                
|Windows, doors and siding products                     |                
|
|Subtotal                                               |                
|Unallocated:                                           |                
|Expenses and charges arising from the Recapitalization |                
|1999 equity performance plan incentive                 |                
|Strategic sourcing expense                             |                
|Other, net                                             |                
|
|Consolidated operating earnings (loss)                 |                
|Interest expense                                       |                
|Investment income                                      |                
|
|Earnings (loss) before provision (benefit)             |                
|for income taxes                                       |                
|
|
|Depreciation and Amortization Expense:                 |                
|Residential Building Products                          |                
|Air Conditioning and Heating Products                  |                
|Windows, Doors and Siding Products                     |                
|Other                                                  |                
|
|Consolidated depreciation and amortization expense     |                
|
|
|Capital Expenditures:                                  |                
|Residential Building Products                          |                
|Air Conditioning and Heating Products                  |                
|Windows, Doors and Siding Products                     |                
|Other                                                  |                
|
|Consolidated capital expenditures                      |                
|

| | * | During
the period  from  January  10,  2003 to July  5,  2003,  the  Company  reflected
approximately  $6,400,000  of  excess  purchase  price  allocated  to inventory as  a
non-cash  charge  to  cost  of  products  sold.  Approximately  $4,300,000  was
allocated to the  Residential  Building  Products  Segment,  approximately  $600,000  was
allocated  to  the  Air  Conditioning  and  Heating  Products  Segment  and
approximately  $1,500,000  was  allocated to the  Windows,  Doors  and Siding Products
Segment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(J) | The
Company  provides  income taxes on  an  interim  basis  based  upon  the  estimated
annual effective income tax  rate.  The  following  reconciles  the  federal  statutory
income tax rate to  the  estimated  effective  tax rate of  approximately  39.7%,  27.1%
and 39.7%  for the periods presented:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | For the Periods
|-------------------------------------------------- | ---------------
|
|
|
|
|
|Income tax provision (benefit) at the federal      |                
|statutory rate                                     |                
|Net change from federal statutory rate:            |                
|State income tax provision,  net of federal income |                
|tax effect                                         |                
|Change in tax reserves, net                        |                
|Tax effect resulting from foreign activities       |                
|Tax effect of the Recapitalization                 |                
|Other, net                                         |                
|
|Income tax provision (benefit) at estimated        |                
|effective rate                                     |                
|

|(K) | The
Company  accounts for stock options  granted to employees  using the intrinsic  value
method pursuant to the provisions  of APB Opinion No. 25, under which no compensation
cost has been  recognized  since the options were granted with exercise  prices  equal to
the fair market  value of the common  stock at the date of grant.  Accordingly,  the
table below  presents  pro forma  information  as if the fair
value  method of SFAS No. 123 had been  applied for each of  those  periods.  The
Company  estimates  the  fair  value of each  option  grant as of the  date of the  grant
using  the  Black-Scholes option-pricing model based upon the indicated assumptions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon
completion  of the  Recapitalization  on January 9, 2003, all existing  options became
fully vested  and all options for  shares of common stock and special common stock of
Nortek  Holdings,  that were  rolled-over  by the Management  Investors,  were  exchanged
for stock  options  to purchase an equal number of shares of Class A Common Stock of
Nortek  Holdings at the  same price per share.  Accordingly,  the period from January 1,
2003 to January 9, 2003  in the table that follows  includes  the pro forma employee
stock  compensation  expense,  net of tax,  associated  with the  accelerated  vesting of
all of the  existing unvested  options in connection with the Recapitalization.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
pro  forma  employee  stock  compensation  expense,  net of tax, for the period from
January  10, 2003 to July 5, 2003 in  the table that follows  represents  the pro forma
impact of  approximately  434,000 Class A stock options  issued by Nortek  Holdings
during the  period in accordance with the assumptions  indicated  therein.  Approximately
828,000 of  Class B stock  options  issued by Nortek  Holdings  during  the  period  have
not been  included  in the  calculation  as the  vesting  is  performance-based and it is
uncertain  when, if ever, these options will vest.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | For the Three Months Ended
|------------------------------------------ | --------------------------
|
|
|(Amounts in thousands except percentages) 
|(Unaudited)                               
|
|Pro forma had SFAS No. 123                 |                           
|been applied:                              |                           
|Net earnings from continuing               |                           
|operations, as reported                    |                           
|Pro forma employee stock                   |                           
|compensation, net of tax                   |                           
|
|Pro forma net earnings from                |                           
|continuing operations                      |                           
|
|
|Net earnings, as reported                  |                           
|Pro forma employee stock                   |                           
|compensation, net of tax                   |                           
|
|Pro forma net earnings                     |                           
|
|Pro forma weighted average                 |                           
|fair value of options as of the grant date |                           
|
|
|Assumptions for options entered into       |                           
|during the period:                         |                           
|Risk-free interest rate                    |                           
|Expected life                              |                           
|Expected volatility                        |                           
|Expected dividend yield                    |                           

|                                           | For the Periods
|------------------------------------------ | ---------------
|
|
|
|
|(Amounts in thousands except percentages) 
|(Unaudited)                               
|
|Pro forma had SFAS No. 123                 |                
|been applied:                              |                
|Net earnings (loss) from continuing        |                
|operations, as reported                    |                
|Pro forma employee stock                   |                
|compensation, net of tax                   |                
|
|Pro forma net earnings (loss) from         |                
|continuing operations                      |                
|
|
|Net earnings (loss), as reported           |                
|Pro forma employee stock                   |                
|compensation, net of tax                   |                
|
|Pro forma net earnings (loss)              |                
|
|Pro forma weighted average                 |                
|fair value of options as of the grant date |                
|Assumptions for options entered into       |                
|during the period:                         |                
|Risk-free interest rate                    |                
|                                           |                
|Expected life                              |                
|Expected volatility                        |                
|Expected dividend yield                    |                

|(L) | The
Company  and  its  subsidiaries  have  guaranteed  certain  obligations  of  various
third  parties  that  aggregate  approximately  $35,800,000 at July 5, 2003.
Approximately  $28,700,000  relates to Ply Gem's  guarantee of rental payments  through
June 30, 2016 under a facility  leased by SNE  Enterprises,  Inc.  ("SNE"),
which was sold on September  21, 2001.  The buyer of SNE has  provided  certain
indemnifications  and other  rights to Ply Gem for any  payments  that it might be
required to make  pursuant to this  guarantee.  Should the buyer of SNE cease making
payments then Ply Gem may be required  to make payments on its  guarantee.  Approximately
$2,800,000  relates to Ply Gem's  guarantee of lease  payments  through  approximately
March 18, 2008 for truck and  equipment  leases  entered  into by SNE.  Should the buyer
of SNE cease making  payments on this lease,  Ply Gem may be required to make payments on
its  guarantee.  Approximately  $4,300,000  relates to  guarantees of the remaining
principal and interest  balances of mortgages of a third-party  on certain  buildings,
one of  which houses the Company's  corporate  headquarters.  These  guarantees  expire
on December 31, 2020 and are payable in the  event of non-payment of the mortgage.  These
guarantees are  collateralized  by the buildings to which the mortgages relate  and any
liability to the Company would first be reduced by the Company's  pro-rata  share of
proceeds  received on the sale  of the  buildings.  The Company does not  anticipate
incurring any loss under these  guarantees  and  accordingly  has not  recorded any
liabilities at July 5, 2003 in the accompanying  unaudited condensed  consolidated
balance sheet in accordance  with accounting principles generally accepted in the United
States.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has  indemnified  third  parties for certain  matters in a number of
transactions  involving  dispositions  of  former  subsidiaries.  The  Company  has
recorded  liabilities  related  to these  indemnifications  of  approximately
$25,100,000 at July 5, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  sells a  number  of  products  and  offers a number  of  warranties  including
in some  instances,  extended  warranties.  The  specific  terms and  conditions  of
these  warranties  vary  depending on the product sold and country in  which the product
is sold. The Company  estimates the costs that may be incurred under its  warranties,
with the exception  of extended  warranties,  and records a  liability  for such costs at
the time of sale.  Proceeds  received  from  extended  warranties  are amortized  over
the life of the warranty and reviewed to ensure that the liability  recorded is equal to
or  greater than the  estimated  future  costs.  Factors that affect the  Company's
warranty  liability  include the number of  units  sold,  historical  and  anticipated
rates of warranty  claims,  cost per claim and new  product  introduction.  The  Company
periodically  assesses the adequacy of its recorded warranty claims and adjusts the
amounts as necessary.  Changes  in the Company's combined short-term and long-term
warranty liabilities during the periods presented are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | For the Three Months Ended
|--------------------------------- | --------------------------
|
|
|(Amounts in thousands)           
|(Unaudited)                      
|
|Balance, beginning of period      |                           
|Warranties provided during period |                           
|Settlements made during period    |                           
|Changes in liability estimates,   |                           
|including expirations             |                           
|
|Balance, end of period            |                           
|

|                                  | For the Periods
|--------------------------------- | ---------------
|
|
|
|
|(Amounts in thousands)           
|(Unaudited)                      
|
|Balance, beginning of period      |                
|Warranties provided during period |                
|Settlements made during period    |                
|Changes in liability estimates,   |                
|including expirations             |                
|
|Balance, end of period            |                
|

| | The
Company is subject to other  contingencies,  including legal  proceedings and claims
arising out of its businesses that  cover a wide range of matters,  including,  among
others,  environmental  matters,  contract and employment claims, product  liability,
warranty and  modification,  adjustment or replacement  of component  parts of units
sold.  Product  liability,  environmental  and other legal  proceedings  also include
matters with respect to businesses  previously  owned,  including  litigation  concerning
a commercial  airline fatal  accident.  The Company has used various  substances in its
products and  manufacturing  operations  which have been or may be deemed to be hazardous
or  dangerous,  and the extent of its potential  liability, if any, under environmental,
product liability and workers' compensation statutes,  rules, regulations and case  law
is unclear.  Further,  due to the lack of adequate  information and the potential impact
of present regulations and any  future regulations, there are certain circumstances in
which no range of potential exposure may be reasonably estimated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
former  subsidiary of the Company is a defendant in a number of lawsuits  alleging
damage  caused by alleged  defects in  certain  pressure  treated wood products.  A
subsidiary of the Company has indemnified  the buyer of the former  subsidiary  for all
known  liabilities  and  future  claims  relating  to such  matters  and  retained  the
rights  to all  potential  reimbursements  related to insurance  coverage.  Many of the
lawsuits have been  resolved by dismissal or  settlement  with  amounts  being paid out
of  insurance  proceeds  or other  third party  recoveries.  The Company and the former
subsidiary  continue to vigorously  defend the remaining  suits.  Certain  defense and
indemnity  costs are being paid out of insurance  proceeds and proceeds from a settlement
with  suppliers of material used in the  production of the treated wood  products.  The
Company and the former  subsidiary have engaged in coverage  litigation with certain
insurers and have settled coverage  claims with several of the  insurers.  The Company
believes  that the  remaining  coverage  disputes will be resolved on a  satisfactory
basis and additional  coverage will be available.  In reaching this belief,  the Company
analyzed  insurance  coverage  and the status of the  coverage  litigation,  considered
the  history of  settlements  with  primary  and excess  insurers and consulted with
counsel.  The Company has recorded  liabilities of  approximately  $8,931,000 and
$8,440,000 at  July 5, 2003 and December 31, 2002,  respectively,  for the  estimated
costs to resolve  these  outstanding  matters.  The  Company has also recorded
receivables at July 5, 2003 and December 31, 2002 of  approximately  $5,916,000 and
$5,011,000,  respectively,  for the  estimated  recoveries  which are deemed  probable of
collection  related  primarily  to  insurance  litigation matters discussed above.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | While
it is impossible to ascertain the ultimate  legal and  financial  liability  with respect
to contingent  liabilities,  including  lawsuits,  the Company  believes that the
aggregate  amount of such  liabilities,  if any, in excess of amounts  provided  or
covered by  insurance,  will not have a material  adverse  effect on the  consolidated
financial  position or  results of  operations of the Company.  It is possible,  however,
that future  results of  operations  for any  particular  future period could be
materially  affected by changes in our assumptions or strategies  related to these
contingencies or  changes out of the Company's control.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(M) | The
Company  records  restructuring  costs  primarily in connection  with  operations
acquired or facility  closings which  management  plans to eliminate in order to improve
future  operating  results of the Company.  During the fourth quarter of  2002, the
Company provided  approximately  $1,000,000 for liabilities related to restructuring and
closing costs of certain  subsidiaries  within its Residential  Building Products
Segment.  During the period from January 10, 2003 to July 5, 2003,  the Company
recognized  restructuring  charges primarily associated with plant closings in the Air
Conditioning and Heating  Products and Windows, Doors and Siding
Products Segments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Within the Air Conditioning
and Heating Products Segment, the Company,
in the second quarter of 2003, initiated restructuring activities related
to the closure of two facilities in St. Louis, Missouri, in order to relocate the operations to other facilities
by the end of the first quarter of 2004.  The restructuring is expected to result in the termination of
approximately 500 employees at the two facilities which will be closed.  The facilities currently support
manufacturing, warehousing and distribution activities of the segments residential HVAC products.  No employees
have been terminated to date.  During the second quarter and first six months of 2003, the Company provided approximately $1,400,000
in cost of goods sold related to liabilities incurred as a result of the restructuring and expects to provide an
additional estimated $7,200,000 of costs through early 2004.  The facilities closed are owned by the Company and
are expected to be sold in 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Within
the Windows,  Doors and Siding Products Segment,  the Company incurred approximately $100,000 in the
second quarter of 2003 and approximately $600,000 in the first six months of 2003 and expects to incur additional
future restructuring costs  of  approximately  $650,000  related to  restructuring  plans
which began to be implemented  in the first quarter of 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table sets forth restructuring  activity in the accompanying  unaudited
condensed  consolidated  statement of  operations  for the  periods  presented.  These
costs are  included  in cost of goods sold and  selling,  general  and  administrative  expenses
in the accompanying unaudited condensed consolidated statement of operations of the
Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Employee |  | Total
|------------------------------ | -------- |  | -----
|
|
|(Amounts in thousands)        
|(Unaudited)                   
|
|Balance at December 31, 2001   |          |  | $    
|Payments and asset write downs |          |  |      
|
|Balance at March 30, 2002      |          |  | $    
|Other adjustments              |          |  |      
|
|Balance at June 29, 2002       |          |  | $    
|
|
|Balance at December 31, 2002   |          |  | $    
|Other adjustments              |          |  |      
|
|Balance at January 9, 2003     |          |  | $    
|Provision                      |          |  |      
|Payments and asset write downs |          |  |      
|
|Balance at April 5, 2003       |          |  | $    
|Provision                      |          |  |      
|Payments and asset write downs |          |  |      
|
|Balance at July 5, 2003        |          |  | $    
|

| | Employee
separation  expenses are comprised of severance,  vacation,  outplacement  and retention
bonus  payments.  Other  restructuring  costs  include  expenses  associated  with
terminating  other  contractual  arrangements,  costs to prepare  facilities
for closure, costs to move equipment and products to other facilities
and write-offs  related to equipment  sales and disposals  attributable  to a
restructuring  which  occurred prior to December 31, 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NORTEK,
INC. AND SUBSIDIARIES                                  
|---------------------------------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS                           
|OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS   
|FOR THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JULY
5, 2003 
|AND THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JUNE 29, 2002

| | The
Company is a diversified  manufacturer of residential and commercial building products,
operating within three  principal segments:  the Residential  Building Products Segment,
the Air Conditioning and Heating Products Segment  and the Windows,  Doors and Siding
Products Segment.  In the results of operations  presented below, Other includes
corporate  related  items,  intersegment  eliminations  and certain  income and expense
not allocated to reportable  segments.  Through its principal  segments,  the Company
manufactures  and sells,  primarily in the United States,  Canada and Europe,  a wide
variety of products  for the  residential  and  commercial  construction,  manufactured
housing and the  do-it-yourself  ("DIY") and  professional  remodeling  and
renovation  markets.  (As used in this  report,  the terms  "Company"  and
"Nortek"  refer to Nortek,  Inc.,  together  with its  subsidiaries,  unless
the  context  indicates  otherwise.  Such terms as  "Company"  and
"Nortek"  are used for  convenience  only and are not  intended as a precise
description of any of the separate corporations, each of which manages its own affairs.)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Residential  Building  Products  Segment  manufactures  and  distributes  built-in
products  primarily for the  residential new construction and DIY and professional
remodeling and renovation  markets.  The principal  products  sold by the segment
include  kitchen  range hoods,  built-in  exhaust fans (such as bath fans and fan,
heater and  light  combination  units) and indoor air quality  products.  The Air
Conditioning  and Heating  Products  Segment  manufactures and sells heating,
ventilating and air conditioning  systems ("HVAC") for custom-designed
commercial  applications and for  residential,  light commercial and  manufactured
structures.  The Windows,  Doors and Siding  Products Segment,  principally manufactures
and distributes:  (i) vinyl siding,  skirting,  soffit and accessories,  (ii) vinyl and
aluminum clad windows,  (iii) vinyl patio and steel entry doors and  sunrooms,  (iv)
vinyl  fencing,  railing and decking,  (v) composite  decking and railing and (vi)
aluminum trim coil,  soffit and  accessories  for  use in the residential construction
and DIY and professional renovation markets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 20, 2002,  the Company  reorganized  into a holding  company  structure and each
outstanding  share of  capital  stock of the Company was  converted  into an identical
share of capital  stock of Nortek  Holdings,  Inc.  ("Nortek  Holdings"),  a
Delaware  corporation  formed in 2002, with Nortek Holdings becoming the successor
company  and the Company becoming a wholly-owned  subsidiary of Nortek Holdings (the
"Nortek Holdings  Reorganization").  On  January 9, 2003, Nortek Holdings,  the
parent company of Nortek,  was acquired by certain  affiliates and designees  of Kelso & Company
L.P. ("Kelso") and certain members of the Company's  management (the
"Management  Investors") in  accordance with the Agreement and Plan of
Recapitalization by and among Nortek,  Inc., Nortek Holdings,  Inc. and K  Holdings,
Inc. ("K  Holdings")  dated as of June 20, 2002, as amended,  (the
"Recapitalization  Agreement")  in a  transaction  valued  at  approximately
$1.6  billion,  including  all  of  the  Company's  indebtedness  (the
"Recapitalization").  (See  Liquidity  and Capital  Resources  and Note B of
the Notes to the  unaudited  condensed  consolidated financial statements (the
"Unaudited Financial Statements") included elsewhere herein.)
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
on January 9, 2003, the Company and Nortek Holdings accounted for the  Recapitalization
as a purchase in  accordance  with the  provisions  of Statement  of  Financial
Accounting  Standards  ("SFAS")  No. 141,  "Business  Combinations"
("SFAS No.  141"),  which  resulted in a new  valuation  for the  assets  and
liabilities  of Nortek  Holdings  and its  subsidiaries  based upon fair values as of the
date of the  Recapitalization.  As allowed  under  SEC Staff Accounting  Bulletin No. 54,
"Push Down Basis of Accounting  Required in Certain Limited  Circumstances",
the Company has  reflected  all  applicable  purchase  accounting  adjustments  recorded
by Nortek  Holdings in the  Company's  Consolidated  Financial  Statements  for  all  SEC
filings  covering  periods  subsequent  to  the  Recapitalization  ("Push Down
Accounting").  Push Down  Accounting  requires  the Company to establish a new basis
for its assets  and  liabilities  based on the  amount  paid for its  ownership  at
January 9, 2003.  Accordingly,  Nortek Holdings'  ownership basis (including the fair
value of options rolled over by the Management  Investors) is  reflected in Nortek's
Consolidated  Financial  Statements  beginning upon completion of the  Recapitalization.
In  order to apply Push Down Accounting,  Nortek Holdings'  purchase price of
approximately  $468,737,000 was allocated  to the assets and liabilities based on their
relative fair values and  approximately  $440,837,000 was reflected in  the Company's
Stockholder's  Investment as the value of Nortek Holdings'  ownership in the Company upon
completion  of the Recapitalization.  Immediately prior to the  Recapitalization,  the
Company's  Stockholder's  Investment was  approximately  $156,702,000.  Purchase price
allocations are subject to refinement until all pertinent  information  is obtained.  As
of January 10, 2003, the Company  preliminarily  allocated the excess  purchase price
over the net  assets  acquired in the  Recapitalization  based on its  estimates of the
fair value of assets and  liabilities  as  follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Excess purchase price of the
|------------------------------------------------ | ----------------------------
|
|Inventories                                      |                             
|Property, plant and equipment                    |                             
|Intangible assets                                |                             
|Goodwill                                         |                             
|Indebtedness                                     |                             
|Prepaid and deferred income taxes                |                             
|Pension and post retirement health care benefits |                             
|Other                                            |                             
|
|Total                                            |                             
|

| | During
the three  months  ended July 5, 2003 and the period  from  January  10,  2003 to July 5,
2003,  the Company  reflected approximately  $800,000 and $6,000,000,  respectively,
of excess purchase price allocated to inventory  as a non-cash  charge to cost of goods
sold,  approximately  $3,400,000  and  $6,300,000,  respectively,  of lower  depreciation
expense  in cost of sales,  $1,500,000  and  $3,000,000,  respectively,  of  additional
amortization  expense of intangible  assets and  $1,400,000 and  $2,800,000,
respectively,  of lower interest  expense from the  amortization  of premium  allocated
to  indebtedness  as compared to the Company's  historical  basis of accounting  prior to
the Recapitalization.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has estimated the fair value of its assets and liabilities,  including
intangible assets and property,  plant and equipment,  as of the  Recapitalization,
utilizing  information available at the time that the Company's  Unaudited Financial Statements were prepared and these estimates are subject to
refinement  until all  pertinent  information  has been  obtained.  The Company is in the
process of  obtaining  outside  third  party appraisals of its intangible assets and
property, plant and equipment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
impact of these fair value  estimates  has been  reflected in the  Company's  statement
of  operations  for the  periods ended July 5, 2003.  Should the  intangible  asset or
property,  plant and  equipment  appraisals  result in  differences  in the average
amortizable  or  depreciable  lives of these assets or in the fair value amount of the
estimates, the following estimated changes in annual operating earnings would occur:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Increase (decrease) in operating earnings
|------------------------------------ | -----------------------------------------
|
|
|
|If lives are one year greater        |                                          
|If lives are one year less           |                                          
|If fair value is $10,000,000 greater |                                          
|If fair value is $10,000,000 less    |                                          

| | The combined
periods from January 1, 2003 to January 9, 2003 and from  January 10, 2003 to
July 5, 2003,  contain  185 days  while  the first  half of 2002  contained
180 days.  Accordingly,  operating  results  for 2003  include  approximately  $1,000,000
of  additional  interest  expense as compared to 2002 since the Company  accrues
interest expense based on the number of days contained in each reporting period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 17,  2003,  the Company  acquired  Elan Home Systems L.L.C.  ("Elan").
On July  11,  2003,  the  Company  acquired  SpeakerCraft,  Inc.  ("SPC").  The
acquisitions  of  Elan  and  SPC  have  been  accounted  for under the purchase  method
of  accounting.  Accordingly,  the  results  of  Elan and SPC are  included in the
Company's  consolidated  results  since  the  date  of  their  acquisitions.  (See  Note
E  of  the  Notes to the Unaudited Financial  Statements  included elsewhere herein.)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April  2,  2002,  the  Company's  wholly-owned  subsidiary,  Ply  Gem  Industries,  Inc.
("Ply  Gem")  sold  the  capital  stock  of  its  subsidiary  Hoover  Treated
Wood Products,  Inc.  ("Hoover") and  on  November  22,  2002,  Ply Gem  sold
the  capital  stock  of its  subsidiary  Richwood  Building Products,  Inc.
("Richwood").  The  results of Richwood,  which were  previously  part  of  the
Windows,  Doors  and  Siding  Products  Segment  and  Hoover,  which  were  previously
part of the Other Segment,  have  been excluded from earnings from  continuing
operations  and  classified  separately  as  discontinued  operations  for  all  periods
presented.  Accordingly  the  segment  information that follows  excludes  Richwood  and
Hoover for all  periods.  (See Note H of  the  Notes  to  the  Unaudited  Financial
Statements included elsewhere herein.)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  discussion  and  analysis of  its  financial  condition  and  results  of
operations  are  based  upon  the  Company's  Unaudited Financial  Statements,  which
have  been prepared in accordance  with accounting  principles  generally accepted in the
United  States.  Certain  of  the  Company's  accounting  policies require the
application  of judgment  in  selecting  the  appropriate  assumptions  for  calculating
financial  estimates.  By  their  nature,  these  judgments are subject to an inherent
degree  of  uncertainty.  The  Company  periodically  evaluates the  judgments and
estimates  used  for  its  critical  accounting  policies  to  ensure  that such
judgments  and  estimates  are  reasonable for its interim and year-end  reporting
requirements.  These  judgments  and  estimates  are  based on the  Company's  historical
experience,  current  trends and  information  available  from other  sources,  as
appropriate.  If  different  conditions  result  from those  assumptions  used in the
Company's  judgments,  the results  could be  materially  different  from  the  Company's
estimates.  The  Company's  critical  accounting policies include:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue Recognition and Related ExpensesInventory ValuationPrepaid Income Tax Assets and Deferred Tax LiabilitiesGoodwillPensions and Post Retirement Health BenefitsInsurance LiabilitiesContingencies
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Further
detail  regarding  the  Company's  critical  accounting  policies  can be found  in  the
consolidated  financial  statements  and  the  notes  included  in the  Company's  latest
annual  report on Form 10-K as filed  with the Securities and Exchange  Commission
("SEC").
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
"Results of  Operations"  and "Liquidity  and  Capital  Resources"
sections  which  follow  contain  various  tables  that  are  intended  to  assist  the
reader  in  reconciling  current  results with the prior  period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Results
of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The  tables  that  follow  present
the  unaudited  net  sales  from continuing  operations,  operating  earnings  from  continuing  operations and
depreciation and  amortization  expense  from  continuing  operations  for  the
Company's  principal  segments for the second  quarter  ended July  5,  2003  and  June
29,  2002,  the  dollar  amount  and  percentage  change  of  such  results as compared
to the prior  comparable  period  and the  percentage  to net sales of  operating
earnings  and  depreciation  and  amortization  expense for the second quarter  ended
July  5,  2003  and  June 29, 2002:

|                                                       | Second Quarter Ended | Changes in Earnings in the
|------------------------------------------------------ | -------------------- | --------------------------
|
|
|
|(Dollar amounts in thousands)                         
|
|Net sales:                                             |                      |                           
|Residential Building Products                          |                      |                           
|Air Conditioning and Heating Products                  |                      |                           
|Windows, Doors and Siding Products                     |                      |                           
|
|Consolidated net sales                                 |                      |                           
|
|Operating earnings **:                                 |                      |                           
|Residential Building Products                          |                      |                           
|Air Conditioning and Heating Products **               |                      |                           
|Windows, Doors and Siding Products **                  |                      |                           
|
|Subtotal                                               |                      |                           
|Unallocated:                                           |                      |                           
|Expenses and charges arising from the Recapitalization |                      |                           
|1999 equity incentive plan                             |                      |                           
|Strategic sourcing expense                             |                      |                           
|Other, net                                             |                      |                           
|
|Consolidated operating earnings                        |                      |                           
|
|Depreciation and amortization expense:                 |                      |                           
|Residential Building Products                          |                      |                           
|Air Conditioning and Heating Products                  |                      |                           
|Windows, Doors and Siding Products                     |                      |                           
|Other                                                  |                      |                           
|
|                                                       |                      |                           
|
|Operating earnings margin:                             |                      |                           
|Residential Building Products                          |                      |                           
|Air Conditioning and Heating Products                  |                      |                           
|Windows, Doors and Siding Products                     |                      |                           
|Consolidated                                           |                      |                           
|Depreciation and amortization                          |                      |                           
|expense as a % of net sales:                           |                      |                           
|Residential Building Products                          |                      |                           
|Air Conditioning and Heating Products                  |                      |                           
|Windows, Doors and Siding Products                     |                      |                           
|Consolidated                                           |                      |                           

| | * | not
meaningful
| | - | --------------

| | ** | During
the three months ended July 5, 2003, the Company reflected approximately  $1,000,000 of
excess  purchase price allocated to inventory as a non-cash charge to cost  of products
sold.  Approximately  $900,000 was allocated to the Residential Building  Products
Segment and approximately $100,000 was  allocated to the Windows, Doors and  Siding
Products Segment.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
combined  first six months 2003 pre- and  post-Recapitalization  periods  have been
compared to the first six  months 2002 for purposes of  management's  discussion  and
analysis of the results of operations.  Any  references,  below,  to the first six months
of 2003 shall refer to the combined  periods.  Material  fluctuations in operations
resulting from the effect of purchase accounting have been highlighted.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Pre-Recapitalization | Post-Recapitalization | Combined Six
|-------------------------------------- | -------------------- | --------------------- | ------------
|
|
|(Dollar amounts in thousands)         
|
|Net sales:                             |                      |                       |             
|Residential Building Products          |                      |                       | $           
|Air Conditioning and Heating Products  |                      |                       |             
|Windows, Doors and Siding Products     |                      |                       |             
|
|Consolidated net sales                 |                      |                       | $           
|
|
|Operating earnings (loss) *:           |                      |                      
|Residential Building Products          |                      |                       | $           
|Air Conditioning and Heating Products  |                      |                       |             
|Windows, Doors and Siding Products     |                      |                       |             
|
|Subtotal                               |                      |                       | $           
|Unallocated:                           |                      |                      
|Expenses and charges arising from the  |                      |                      
|Recapitalization                       |                      |                       |             
|Strategic sourcing expense             |                      |                       |             
|Other, net                             |                      |                       |             
|
|Consolidated operating earnings (loss) |                      |                       | $           
|
|
|Depreciation and amortization          |                      |                      
|expense:                               |                      |                      
|Residential Building Products          |                      |                       | $           
|Air Conditioning and Heating Products  |                      |                       |             
|Windows, Doors and Siding Products     |                      |                       |             
|Other                                  |                      |                       |             
|
|                                       |                      |                       | $           
|
|
|Operating earnings (loss) margin:      |                      |                      
|Residential Building Products          |                      |                       |             
|Air Conditioning and Heating Products  |                      |                       |             
|Windows, Doors and Siding Products     |                      |                       |             
|Consolidated                           |                      |                       |             
|
|Depreciation and amortization          |                      |                      
|expense as a % of net sales:           |                      |                      
|Residential Building Products          |                      |                       |             
|Air Conditioning and Heating Products  |                      |                       |             
|Windows, Doors and Siding Products     |                      |                       |             
|Consolidated                           |                      |                       |             

|* | During
the period from  January 10, 2003 to July 5, 2003,  the Company  reflected  approximately
$6,400,000  of  excess  purchase  price  allocated  to inventory as a non-cash  charge to
cost of products  sold.  Approximately  $4,300,000 was allocated to the Residential
Building Products Segment,  approximately  $600,000 was allocated to  the Air
Conditioning and Heating  Products  Segment and  approximately  $1,500,000 was allocated
to the Windows,  Doors and Siding Products Segment.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
tables  that follow  present the  unaudited  net sales from  continuing  operations,
operating  earnings  from  continuing  operations and  depreciation  and  amortization
expense from  continuing  operations for the Company's  principal  segments for the
combined  period ended July 5, 2003 and the six months ended June 29, 2002,  the dollar
amount and percentage  change of such results as compared to the prior comparable  period
and the percentage to net  sales of operating  earnings and depreciation  and
amortization  expense for the combined period ended July 5, 2003  and the six months
ended June 29, 2002:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |  | Changes in Earnings in the
|-------------------------------------- |  | --------------------------
|
|
|
|(Dollar amounts in thousands)         
|
|Net sales:                             |  |                           
|Residential Building Products          |  |                           
|Air Conditioning and Heating Products  |  |                           
|Windows, Doors and Siding Products     |  |                           
|
|Consolidated net sales                 |  |                           
|
|
|Operating earnings:                    |  |                           
|Residential Building Products          |  |                           
|Air Conditioning and Heating Products  |  |                           
|Windows, Doors and Siding Products     |  |                           
|
|Subtotal                               |  |                           
|Unallocated:                           |  |                           
|Expenses and charges arising from the  |  |                           
|Recapitalization                       |  |                           
|1999 equity incentive plan             |  |                           
|Strategic sourcing expense             |  |                           
|Other, net                             |  |                           
|
|Consolidated operating earnings        |  |                           
|
|
|Depreciation and amortization expense: |  |                           
|Residential Building Products          |  |                           
|Air Conditioning and Heating Products  |  |                           
|Windows, Doors and Siding Products     |  |                           
|Other                                  |  |                           
|
|                                       |  |                           
|
|
|Operating earnings margin:             |  |                           
|Residential Building Products          |  |                           
|Air Conditioning and Heating Products  |  |                           
|Windows, Doors and Siding Products     |  |                           
|Consolidated                           |  |                           
|
|Depreciation and amortization          |  |                           
|expense as a % of net sales:           |  |                           
|Residential Building Products          |  |                           
|Air Conditioning and Heating Products  |  |                           
|Windows, Doors and Siding Products     |  |                           
|Consolidated                           |  |                           

|(1) | The
six month period ended July 5, 2003  represents  the combined pre- and
post-Recapitalization  periods  of January 1, 2003 through January 9, 2003 and January
10, 2003 through July 5, 2003, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | not
meaningful
|- | --------------

| | The
tables  that  follow set forth,  for the  periods  presented,  (a)  certain  unaudited
consolidated  operating  results,  (b)  the  change  in the  amount  and  the  percentage
change of such  results as  compared  to the  prior comparable  period, (c) the
percentage  which such  results  bear to net sales,  and  (d)  the  change  of  such
percentages  as  compared  to the  prior  comparable  period.  The  results  of
operations  for the second  quarter  ended  July  5,  2003  are  not  necessarily
indicative  of the  results  of  operations  to be  expected  for  any  other  interim
period or the full year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Second Quarter Ended | Changes in
|---------------------------------------------- | -------------------- | ----------
|
|
|
|(Dollar amounts in millions)                  
|
|Net sales                                      |                      |           
|Cost of products sold                          |                      |           
|Selling, general and administrative expense    |                      |           
|Amortization of goodwill and intangible assets |                      |           
|Expenses and charges arising from the          |                      |           
|Recapitalization                               |                      |           
|
|Operating earnings                             |                      |           
|Interest expense                               |                      |           
|Investment income                              |                      |           
|
|Earnings from continuing operations before     |                      |           
|provision for income taxes                     |                      |           
|Provision for income taxes                     |                      |           
|
|Earnings from continuing operations            |                      |           
|Earnings from discontinued operations          |                      |           
|
|Net earnings                                   |                      |           
|

|                                               | Percentage of Net Sales | Change in
|---------------------------------------------- | ----------------------- | ---------
|
|
|
|
|
|Net sales                                      |                         |          
|Cost of products sold                          |                         |          
|Selling, general and administrative expense    |                         |          
|Amortization of goodwill and intangible assets |                         |          
|Expenses and charges arising from the          |                         |          
|Recapitalization                               |                         |          
|
|Operating earnings                             |                         |          
|Interest expense                               |                         |          
|Investment income                              |                         |          
|
|Earnings from continuing operations before     |                         |          
|provision for income taxes                     |                         |          
|Provision for income taxes                     |                         |          
|
|Earnings from continuing operations            |                         |          
|Earnings from discontinued operations          |                         |          
|
|Net earnings                                   |                         |          
|

| | The
combined  first six months 2003 pre- and  post-Recapitalization  periods  have been
compared to the first six  months 2002 for purposes of  management's  discussion  and
analysis of the results of operations.  Any  references,  below,  to the first six months
of 2003 shall refer to the combined  periods.  Material  fluctuations in operations
resulting from the effect of purchase accounting have been highlighted.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  | Pre- | Post- |  
|------------------------------------------------- | ---- | ----- | -
|
|
|
|(Dollar amounts in millions)                     
|
|Net sales                                         |      |       | $
|Cost of products sold                             |      |       |  
|Selling, general and administrative expenses, net |      |       |  
|Amortization of intangible assets                 |      |       |  
|Expenses and charges arising from the             |      |      
|Recapitalization                                  |      |       |  
|
|Operating earnings (loss)                         |      |       |  
|Interest expense                                  |      |       |  
|Investment income                                 |      |       |  
|
|Earnings (loss) before provision (benefit) for    |      |      
|income taxes                                      |      |       |  
|Provision (benefit) for income taxes              |      |       |  
|
|Net earnings (loss)                               |      |       | $
|

|                                                  | Percentage of net sales
|------------------------------------------------- | -----------------------
|
|
|
|
|
|Net sales                                         |                        
|Cost of products sold                             |                        
|Selling, general and administrative expenses, net |                        
|Amortization of intangible assets                 |                        
|Expenses and charges arising from the             |                        
|Recapitalization                                  |                        
|
|Operating earnings (loss)                         |                        
|Interest expense                                  |                        
|Investment income                                 |                        
|
|Earnings (loss) before provision (benefit) for    |                        
|income taxes                                      |                        
|Provision (benefit) for income taxes              |                        
|
|Earnings (loss)                                   |                        
|

| | The
tables  that  follow set forth,  for the  periods  presented,  (a)  certain  unaudited
consolidated  operating  results,  (b) the  change  in the  amount  and the  percentage
change of such  results  as  compared  to the prior  comparable  period,  (c) the
percentage  which  such  results  bear to net  sales,  and  (d)  the  change  of such
percentages as compared to the prior  comparable  period.  The results of operations for
the first six months ended  July 5, 2003 are not  necessarily  indicative  of the results
of  operations  to be expected for any other  interim  period or the full year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  |  | Change in Earnings in the
|------------------------------------------------- |  | -------------------------
|
|
|
|(Dollar amounts in millions)                     
|
|Net sales                                         |  |                          
|Cost of products sold                             |  |                          
|Selling, general and administrative expenses, net |  |                          
|Amortization of intangible assets                 |  |                          
|Expenses and charges arising from the             |  |                          
|Recapitalization                                  |  |                          
|
|Operating earnings                                |  |                          
|Interest expense                                  |  |                          
|Investment income                                 |  |                          
|
|Earnings (loss) from continuing operations        |  |                          
|before provision (benefit) for income taxes       |  |                          
|Provision (benefit) for income taxes              |  |                          
|
|Earnings (loss) from continuing operations        |  |                          
|Earnings from discontinued operations             |  |                          
|
|Net earnings (loss)                               |  |                          
|

|                                                  | Percentage of Net Sales | Change in Percentage
|------------------------------------------------- | ----------------------- | --------------------
|
|
|
|
|Net sales                                         |                         |                     
|Cost of products sold                             |                         |                     
|Selling, general and administrative expenses, net |                         |                     
|Amortization of intangible assets                 |                         |                     
|Expense and charges arising from the              |                         |                     
|Recapitalization                                  |                         |                     
|
|Operating earnings                                |                         |                     
|Interest expense                                  |                         |                     
|Investment income                                 |                         |                     
|
|Earnings (loss) from continuing operations        |                         |                     
|before provision (benefit) for income taxes       |                         |                     
|Provision (benefit) for income taxes              |                         |                     
|
|Earnings (loss) from continuing operations        |                         |                     
|Earnings from discontinued operations             |                         |                     
|
|Net earnings (loss)                               |                         |                     
|

| | (1) | The
six month period ended July 5, 2003 represents the combined pre- and
post-Recapitalization periods of  January 1, 2003 through January 9, 2003 and January 10,
2003 through July 5, 2003, respectively.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * | not
meaningful
| | - | --------------

| | Combined
consolidated  net sales  increased  approximately  $24,800,000  or 4.8% for the second
quarter of 2003 as  compared to the second  quarter of 2002 and increased  approximately
$66,600,000  or 7.0% for the first six months  of 2003 as  compared  to the first six
months of 2002.  The effect of changes in foreign  currency  exchange  rates  accounted
for  approximately  $11,100,000  of the  increase  in net  sales  in the  second  quarter
of  2003  and  approximately  $19,400,000  of the increase in net sales in the first six
months of 2003.  Net sales  increased for  the second quarter of 2003 as compared to the
second quarter of 2002 as a result of  the acquisition of Elan, price increases  and higher net
sales volume.  The acquisition of Elan in January of 2003 contributed  approximately
$6,300,000 and  $11,100,000 of the total  increase in net sales for the second quarter
and first six months of 2003,  respectively,  as compared to 2002.  Excluding  the effect
of the  acquisition of Elan  and changes in foreign  currency  exchange  rates,  consolidated
net sales increased  approximately  $7,400,000 or 1.4% from the second quarter of 2003 as
compared to  the second quarter of 2002 as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Second Quarter net sales
|---------------------------------------------------- | ------------------------
|
|
|Net sales for the second quarter 2003                |                         
|Net sales for the second quarter 2002                |                         
|
|Net increase                                         |                         
|Effect of changes in foreign currency exchange rates |                         
|Effect of the acquisition of Elan                    |                         
|
|Increase                                             |                         
|

| | This
increase is summarized by segment as follows:
| | --------------------------------------------------

|                                      | Increase (decrease) in net sales
|------------------------------------- | --------------------------------
|
|
|
|
|Residential Building Products         |                                 
|Air Conditioning and Heating Products |                                 
|Windows, Doors and Siding Products    |                                 
|
|                                      |                                 
|

| | Net
sales  increased  for the first six months of 2003 as  compared  to the first six months
of 2002 as a result of  the acquisition of Elan,  price  increases and higher net sales volume.
Excluding the effect of the  acquisition  of Elan and changes  in foreign currency  exchange
rates,  consolidated net sales increased  approximately  $36,100,000 or 3.8% from the
first six months of 2003 as compared to the first six months of 2002 as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | First Six months
|------------------------------------------------------ | ----------------
|
|
|
|
|Net sales for the period Jan. 1, 2003 to Jan. 9, 2003  |                 
|Net sales for the period Jan. 10, 2003 to July 5, 2003 |                 
|
|Total combined net sales                               |                 
|Net sales for the period Jan. 1, 2002 to June 29, 2002 |                 
|
|Net increase                                           |                 
|Effect of changes in foreign currency exchange rates   |                 
|Effect of the acquisition of Elan                      |                 
|
|Increase                                               |                 
|

| | This
increase is summarized by segment as follows:
| | --------------------------------------------------

|                                      | Increase in net sales in
|------------------------------------- | ------------------------
|
|
|
|Residential Building Products         |                         
|Air Conditioning and Heating Products |                         
|Windows, Doors and Siding Products    |                         
|
|                                      |                         
|

| | Overall,
increases  in sales  levels in the  second  quarter  and first six  months of 2003
reflect  the  ongoing  stability of the housing  construction and remodeling  markets and
our expanded  branding effort in our line of air  conditioning and heating products,
partially offset by adverse weather  conditions in the first quarter of 2003 in  the
Northeast and Midwest,  the general  slowdown in commercial  construction  activity and
the continued  softness  in the  manufactured  housing  market.  The six months
ended July 5, 2003  includes 185 days while the six  months  ended June 29,  2002
includes  180 days.  For the  second  quarter  ended July 5, 2003 and the second  quarter
ended June 29, 2002,  the  Company's  net sales to customers  serving the  manufactured
housing  markets,  principally  consisting  of air  conditioners,  furnaces  and  vinyl
siding  and  skirting  products,  constituted  approximately  7.1% and 8.7%,
respectively,  of the Company's  consolidated net sales and for the first six months
ended July 5, 2003 and the first six months ended June 29, 2002,  the Company's net sales
to customers  serving the  manufactured  housing  markets,  constituted  approximately
7.3%  and  8.9%,  respectively,  of  the  Company's  consolidated  net sales . The
decrease in net sales volume in the  Residential  Building  Products  Segment in the
second  quarter of 2003 as compared to the second  quarter of 2002 was, in part,  due to slightly
 lower sales  volume of range hoods partially offset by increased sales of garage door openers.
The increase in net sales volume in the
Residential  Building  Products Segment in the first six months of 2003 as compared to
the first six months of 2002  was, in part, the result of new products and the ongoing
stability in the  residential  housing  construction  and  remodeling  markets.
Increased sales volume of bathroom  exhaust fans and garage door openers was also a
factor in  the  increase in this segment in the first six months of 2003.  The  increase
in net sales in the Air  Conditioning  and  Heating  Products  Segment  in the  second
quarter  and first  six  months  of 2003 as  compared  to 2002 was   due to
continued  growth  principally from this  segment's  brand-name  strategy  resulting in
increased  sales volume of HVAC  products to the  residential  site built market.  In the
second quarter and first half of 2003,  the Segment  benefited from the recent  introduction of our
Westinghouse ® and Maytag ® brands and increased sales levels of the Gibson® brand.
  These increases were partially  offset by the
general  slowdown in commercial  construction  activity,  which reduced the level of
shipments of the  Company's  commercial  HVAC  products  and  lower  sales to the
manufactured  housing  market in this  segment  as  continued  softness is being
experienced  by this  industry.  The trend of lower levels of orders and shipments of
commercial  HVAC  products is  expected to continue  throughout  2003.  The  increase in
net sales in the second quarter and first half of 2003 as compared to 2002 in the  Windows,
 Doors and Siding Products  Segment was principally due to
continued  stability in new residential  construction and  remodeling  activity,
increased sales prices of vinyl siding products, increased volume of vinyl fence,
decking and railing products  and increased volume of
windows  by the Segment's  Canadian  operations.  These  increases were  partially
offset by lower sales volume of domestic  window  products and approximately $1,200,000 of charges to net sales related to
expanded distribution, including new customers, that occurred in the first quarter of 2003
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cost
of products sold, as a percentage of net sales,  increased from approximately  70.5% in
the second quarter of  2002 to approximately  72.4% in the second quarter of 2003 and
increased from approximately  71.8% in the first six  months of 2002 to  approximately
73.0% in the  first six  months of 2003.  Cost of  products  sold for the  second
quarter of 2003  includes  approximately  $3,400,000  of cost of products  sold from the
acquisition  of Elan,  an  increase  of  approximately  $8,800,000  related to the effect
of changes in foreign  currency  exchange  rates,  a  non-cash  charge of  approximately
$1,000,000,  related to the  amortization of excess purchase price allocated to
inventory and approximately  $3,400,000 of lower  depreciation  expense as a result of
the fair value adjustment to  property,  plant and  equipment.  Excluding  the  effect of
the  acquisition  of Elan (which has a lower cost of sales as a  percentage of net sales than the
overall group of businesses  owned prior to the  acquisition),  changes in foreign
currency  exchange  rates,  the write-off  of excess  purchase  price  allocated to
inventory  and lower  depreciation  expense as a result of the fair value  adjustment  to
property,  plant and  equipment,  cost of products  sold was  approximately  $384,600,000
or  approximately  72.9% as a percentage of net sales during the second quarter of 2003
as compared to 70.5% in the second quarter of 2002 as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                      | Second Quarter
|--------------------------------------------------------------------- | --------------
|
|
|
|Cost of products sold for the second quarter 2003                     |               
|Effect of the acquisition of Elan                                     |               
|Effect of changes in foreign currency exchange rates                  |               
|Effect of excess purchase price allocated to inventory                |               
|Effect of the  reduction  in  depreciation  expense on  property  and |               
|equipment resulting from fair value adjustments                       |               
|
|                                                                      |               
|

| | Cost
of products sold for the first six months of 2003 includes  approximately  $6,000,000 of
cost of products sold  from the  acquisition  of Elan,  an  increase  of  approximately
$15,600,000  related  to the effect of changes in  foreign  currency  exchange rates, a
non-cash charge of  approximately  $6,400,000,  related to the amortization of  excess
purchase  price  allocated to inventory and  approximately  $6,300,000 of lower
depreciation  expense as a  result of the fair value  adjustment to property,  plant and
equipment.  Excluding  the effect of the  acquisition of Elan (which has a lower cost of sales
as a percentage of net sales than the overall  group of businesses  owned prior to  the
acquisition),  changes in foreign currency exchange rates, the write-off of excess
purchase price allocated to  inventory  and  lower  depreciation  expense  as a result
of the fair  value  adjustment  to  property,  plant and  equipment,  cost of products
sold was  approximately  $718,700,000  or  approximately  73.1% as a percentage of net
sales during the first six months of 2003 as compared to 71.8% in the first six months of
2002 as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                 | First Six months
|-------------------------------------------------------------------------------- | ----------------
|
|
|
|
|Cost of products sold for the period Jan. 1, 2003 to Jan. 9, 2003                |                 
|Cost of products sold for the period Jan. 10, 2003 to July 5, 2003               |                 
|
|Total combined cost of products sold                                             |                 
|Effect of the acquisition of Elan                                                |                 
|Effect of changes in foreign currency exchange rates                             |                 
|Effect of the write-off of excess purchase price for inventory                   |                 
|Effect of the  reduction  in  depreciation  expense on  property  and  equipment |                 
|resulting from fair value adjustments                                            |                 
|
|                                                                                 |                 
|

| | Material
costs  were  approximately  46.2% and 43.7% of net sales for the second quarter of
2003 compared to  the second quarter of 2002,  respectively,  and approximately 45.4% and
43.8% of net sales for the first six months  of 2003  compared  to the  first  six
months  of 2002,  respectively.  Material  costs as a  percent  of net sales  increased
in the second  quarter and first six months of 2003  compared to the second  quarter and
first six months  of 2002  primarily  due to the  increase in the cost of PVC resin and
steel  beginning  in the second half of 2002 and were the major factor contributing to the
overall increase in the percentage of cost of products sold to net sales for both periods.  PVC resin costs have
increased  since the second half of 2002. Continued strength in the new home construction
and remodeling markets has increased the demand for PVC resin.
 A  number of manufacturers  of other products  (including
building  products that the Company does not manufacture or  sell)  compete with the
Company for the  available  supply of PVC resin.  The  manufacturing  process for PVC
resin  suppliers,  utilizes  ethylene,  which is refined  from  either oil or natural
gas. As a result of these and other  factors,  the price of PVC resin is subject to
volatility. PVC resin
is used by the Company primarily in the Windows, Doors and Siding Products Segment.   The Company  also  realized  slightly  higher
prices on steel  products for the second  quarter  and first six  months of 2003 as
compared  to the  second  quarter  and first six  months of 2002.  These  increases were
partially  offset by reductions  realized in the cost of certain  purchased  materials
and component  parts, in part, due to strategic  sourcing  initiatives and manufacturing
cost reduction  measures  implemented in  2002 and the first six months of 2003.  Lower sales without a proportionate
 decrease in cost of HVAC
commericial products in the Air Conditioning and Heating Products Segment was an additional factor
in the increase in the percentage of cost of products sold to net sales in both periods. Increased  sales  volume
of HVAC  products to  residential  site built  customers  in the Air  Conditioning and
Heating Products  Segment,  without a proportionate  increase in cost partially offset the effect of these increases in both periods.
In the second quarter and first six months of 2003, approximately $1,400,000 of severance and other costs
associated with the closure of certain manufacturing facilities within the Air Conditioning and Heating Products
Segment are included in cost of products sold.
Overall,  changes in the cost of products  sold as a  percentage  of net sales for one
period as  compared to another  period  may reflect a number of factors  including
changes in the relative mix of products  sold, the effect of changes in  sales prices,
material costs and changes in productivity levels.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Selling,
general  and  administrative  expense  ("SG&A") was  $81,300,000  in the  second
quarter  of  2003  and  $85,400,000 in the second quarter of 2002.  SG&A as a percentage
of net sales  decreased from  approximately  16.4%  in the second  quarter of 2002 to
approximately  14.9% in the second  quarter of 2003.  SG&A in the second quarter  of 2003
includes  approximately  $300,000 of direct  expenses and third party fees  associated
with the Company's  strategic  sourcing  initiative,  approximately  $2,000,000 of SG&A from
the acquisition of Elan and an increase of  approximately  $1,800,000  related to the
effect of changes in foreign currency  exchange rates. SG&A in the second  quarter of
2002 includes a $4,400,000  charge relating to an incentive earned by certain of the
Company's  officers  under the Company's 1999 Equity  Performance  Plan. The direct
expenses and third party fees  associated  with the  Company's  strategic  sourcing
initiative  are set forth  separately in the segment data.  Excluding the effect of  (a)
expenses  related to the  Company's  strategic  sourcing  initiative  in the second
quarter of 2003,  (b) the  acquisition  of Elan  (which has a higher  level of SG&A as a
percentage  of net sales than the  overall  group of  businesses  owned prior to the
acquisition),  (c) the $4,400,000  charge relating to an incentive earned by certain  of
the Company's  officers under the Company's 1999 Equity  Performance  Plan in 2002 and
(d) the effect of changes  in  foreign  currency  exchange  rates in the  second  quarter
of  2003,  SG&A was  approximately  $77,200,000  or  approximately  14.6% as a percentage
of net sales during the second  quarter of 2003 as compared to  approximately
$81,000,000 or approximately 15.6% in the second quarter of 2002 as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | Three Months Ended
|----------------------------------------------- | ------------------
|
|
|
|
|
|SG&A                                            |                   
|Strategic sourcing initiative fees and expenses |                   
|Effect of the acquisition of Elan               |                   
|Effect of  1999 Equity Performance Plan         |                   
|Effect of changes in foreign currency           |                   
|exchange rates                                  |                   
|
|                                                |                   
|

| | Combined
SG&A was  approximately  $165,100,000  in the first six months of 2003 as compared to
$160,600,000 in the  first six months of 2002.  SG&A as a percentage of net sales
decreased from  approximately  16.9% in the first six  months  of 2002 to  approximately
16.3% in the  first six  months  of 2003.  SG&A in the first six  months of 2003
includes  approximately  $1,800,000 of direct expenses and third party fees associated
with the Company's strategic  sourcing  initiative,  approximately  $3,600,000  of  SG&A
from  the  acquisition  of  Elan  and  an  increase  of  approximately  $3,100,000
related to the effect of changes in foreign currency  exchange rates.  SG&A in the
first  six months of 2002  includes a  $4,400,000  charge  relating  to an  incentive
earned by certain of the  Company's  officers under the Company's 1999 Equity
Performance  Plan.  The direct  expenses and third party fees  associated  with the
Company's  strategic  sourcing  initiative  are set forth  separately  in the segment
data.  Excluding the  effect of (a) expenses  related to the Company's  strategic
sourcing  initiative in the first six months of 2003, (b)  the  acquisition  of Elan (which
has a higher level of SG&A as a percentage  of net sales than the overall group of
businesses owned prior to the  acquisition),  (c) the $4,400,000  charge relating to an
incentive earned by certain  of the  Company's  officers  under the  Company's  1999
Equity  Performance  Plan in 2002 and (d) the effect of  changes in foreign  currency
exchange rates in the first six months of 2003, SG&A was  approximately  $156,600,000 or
approximately  15.9% as a  percentage  of net sales  during the six  months of 2003 as
compared  to  approximately  $156,200,000 or approximately 16.5% in the first six months
of 2002 as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | For the Periods Ended
|---------------------------------------------- | ---------------------
|
|
|
|
|SG & A for the Pre-Recapitalization Period     |                      
|SG&A for the Post-Recapitalization Period      |                      
|
|Total combined SG&A                            |                      
|Strategic sourcing initiative fees and         |                      
|expenses                                       |                      
|Effect of the acquisition of Elan              |                      
|Effect of 1999 Equity Performance Plan         |                      
|Effect of changes in foreign currency exchange |                      
|rates                                          |                      
|
|                                               |                      
|

| | The
decrease in the percentage for both periods is principally due, in part, to lower  compensation  and benefit  expenses
of certain members of  management subsequent to the Recapitalization and higher sales without a proportionate increase
in expense in the Residential Building Products and Windows, Doors and Siding Segments, partially offset by increased expense
levels associated with the Companys brand name strategy and higher sales volume of HVAC products to the
Residential site built market. In the second quarter and first six months of 2003, approximately $100,000 and $600,000, respectively, of
severance and other costs associated with the closure of a manufacturing facility within the Windows, Doors and
Siding Products Segment are included in selling, general and administrative expense.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization
of intangible  assets, as a percentage of net sales,  increased from  approximately 0.3%
in the second  quarter of 2002 to approximately  0.6% in the second quarter of 2003 and
increased from  approximately  0.3% in the  first  six  months  of 2002 to  approximately
0.6% in the first  six  months  of 2003  principally  as a result of  approximately
$1,500,000 and $3,000,000 of increased  amortization  in relation to the increase from
the estimated  amount of fair value adjustments to intangible  assets arising from the
Recapitalization  in the second quarter and  first six months of 2003, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Expenses
and charges  arising from the  Recapitalization,  as a  percentage  of net sales were 1.0% in the
second  quarter of  2002 and were 8.7% and 0.6% in the first six months of 2003
and 2002,  respectively.  See  Liquidity  and  Capital  Resources  and Notes B, F and I
of the Notes to the  Unaudited  Financial  Statements  included  elsewhere  herein, for
further discussion of these expenses and charges.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
operating  earnings  increased by  approximately  $4,500,000  from  approximately
$61,200,000 in the  second quarter of 2002 to  approximately  $65,700,000 in the second
quarter of 2003 and decreased by  approximately  $84,600,000  from  approximately
$98,900,000 in the first six months of 2002 to  approximately  $14,300,000 in the  first
six months of 2003 as a result of the factors discussed above.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
operating  earnings  have  been  reduced  by  depreciation  and  amortization  expense
(other  than  amortization  of deferred debt expense and debt premium and discount) of
approximately  $9,676,000 and $10,853,000  for the second quarter of 2003 and 2002,
respectively,  and  approximately  $19,605,000  and  $21,947,000  for the  first six
months of 2003 and 2002,  respectively.  Consolidated  operating  earnings  for the
second  quarter  and  first six months of 2003 includes  approximately  $1,500,000 and
$3,000,000 of additional  amortization  expense of  intangible assets in the second
quarter and first six months of 2003,  respectively,  approximately  $1,000,000 and
$6,400,000  of  write-off of excess  purchase  price  allocated  to  inventory in the
second  quarter and first six  months of 2003,  respectively,  and $3,400,000 and
$6,300,000 of lower depreciation expense of property,  plant and  equipment as a result
of the fair value  adjustments  arising from the  Recapitalization  in the second quarter
and  first six months of 2003, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Excluding
the  effect  of (a)  approximately  $5,200,000  of fees  and  expenses  in the  second
quarter  of 2002  associated  with the  Recapitalization  of the Company,  (b) the effect
of the  incentive  earned by certain of the  Company's  officers  under the  Company's
1999 Equity  Performance  Plan,  approximately  $4,400,000 in the second  quarter of
2002, (c)  approximately  $300,000 of direct expenses and third party fees associated
with the Company's  strategic  sourcing  initiative  incurred in the second  quarter of
2003, (d)  approximately  $900,000 of operating  earnings  contributed by the acquisition
of Elan in 2003, (e) $3,400,000 of lower depreciation  expense as a result  of the fair
value  adjustment  to  property,  plant and  equipment,  (f)  approximately  $1,500,000
of  increased  amortization  from the estimated amount of fair value adjustment to
intangible  assets,  (g) the non-cash charge of  approximately  $1,000,000  related to
the  write-off  of excess  purchase  price  allocated to  inventory,  and (h)
approximately  $400,000 of increased  operating  earnings from the effect of changes in
foreign  currency  exchange  rates in the second quarter of 2003,  operating  earnings
decreased  approximately  $7,000,000 from  approximately  $70,800,000 in the second
quarter of 2002 to $63,800,000 in the second quarter of 2003 as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                      | Three Months Ended
|--------------------------------------------------------------------- | ------------------
|
|
|
|
|Operating Earnings for the second quarter of 2003                     |                   
|Fees and expenses arising from the Recapitalization                   |                   
|Effect of 1999 Equity Performance Plan                                |                   
|Strategic sourcing initiative fees and expenses                       |                   
|Effect of the acquisition of Elan                                     |                   
|Effect of the  reduction  in  depreciation  expense on  property  and |                   
|equipment resulting from fair value adjustments                       |                   
|Amortization expense on fair value of intangible assets               |                   
|Effect of the write-off of excess purchase price for inventory        |                   
|Effect of changes in foreign currency exchange rates                  |                   
|
|                                                                      |                   
|Operating earnings for the second quarter of 2002                     |                   
|
|Decrease                                                              |                   
|

| | This
decrease is summarized by segment as follows:
| | --------------------------------------------------

|                                      | Increase (decrease) in
|------------------------------------- | ----------------------
|
|
|
|Residential Building Products         |                       
|Air Conditioning and Heating Products |                       
|Windows, Doors and Siding Products    |                       
|
|Subtotal                              |                       
|Other                                 |                       
|
|                                      |                       
|

| | Excluding
the effect of (a)  approximately  $87,700,000 of fees and expenses  associated with the
Recapitalization  of the Company in the first six months of 2003 and  approximately
$5,200,000 of fees and expenses in the first six  months of 2002  associated  with the
Recapitalization  of the Company,  (b) the effect of the incentive  earned by  certain of
the Company's officers under the Company's 1999 Equity Performance Plan of  approximately
$4,400,000 in  the second quarter of 2002, (c)  approximately  $1,800,000 of direct
expenses and third party fees associated with  the Company's  strategic sourcing
initiative  incurred in the first half of 2003, (d) approximately  $1,600,000 of
operating  earnings  contributed  by the  acquisition  of Elan in 2003,  (e) the non-cash
charge of  approximately  $6,400,000  related to the  write-off of excess  purchase
price  allocated to inventory,  (f)  $6,300,000 of lower  depreciation expense as a
result of the fair value adjustment to property,  plant and equipment,  (g) approximately
$3,000,000 of increased  amortization  from the estimated amount of fair value adjustment
to intangible  assets and  (h)  approximately  $700,000  of  increased  operating
earnings  from the effect of  changes  in foreign  currency  exchange  rates in the first
six  months of 2003,  operating  earnings  decreased  approximately  $3,900,000  from
approximately  $108,500,000  in the first six  months of 2002 to  $104,600,000  in the
first six  months of 2003 as  follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 | For the Periods Ended
|---------------------------------------------------------------- | ---------------------
|
|
|Operating earnings for the Pre-Recapitalization Period           |                      
|Operating earnings for the Post-Recapitalization Period          |                      
|
|Total combined operating earnings                                |                      
|Fees and expenses arising from the Recapitalization              |                      
|Effect of 1999 Equity Performance Plan                           |                      
|Strategic sourcing initiative fees and expenses                  |                      
|Effect of the acquisition of Elan                                |                      
|Effect of the write-off of excess purchase price for inventory   |                      
|Effect of the  reduction  in  depreciation  expense on  property |                      
|and  equipment resulting from fair value adjustments             |                      
|Amortization expense on fair value of intangible assets          |                      
|Effect of changes in foreign currency exchange rates             |                      
|
|                                                                 |                      
|Operating earnings for the period Jan. 1, 2002 to June 29, 2002  |                      
|
|Decrease                                                         |                      
|

| | This
decrease is summarized by segment as follows:
| | --------------------------------------------------

|                                      | Increase (decrease) in
|------------------------------------- | ----------------------
|
|
|
|Residential Building Products         |                       
|Air Conditioning and Heating Products |                       
|Windows, Doors and Siding Products    |                       
|
|Subtotal                              |                       
|Other                                 |                       
|
|                                      |                       
|

| | The
increase in operating  earnings in the Residential  Building  Products  Segment in the
first six months of 2003  was  primarily as a result of increased  sales volume,
principally  bathroom  exhaust  fans,  due to the continued  stability of new home
construction  and remodeling  markets and increased  sales of garage door
openers,  partially offset by decreased sales volume of range hoods and exhaust fans
  in the second  quarter of 2003.  The decrease in operating  earnings in the Air  Conditioning  and Heating
Products  Segment in the second quarter and first six months of 2003 was principally due
to a decrease  in operating  earnings of certain  product lines due to the general
slowdown in the  commercial  construction  and  manufactured  housing  markets,
partially  offset by increased sales volume of HVAC products to customers  serving  the
residential  site built market without a proportionate  increase in costs and expenses.
The operating  results  of the Air  Conditioning  and Heating  Products Segment for the
second quarter and first six months of 2003 include  approximately  $1,400,000  of
severance  and other  costs  associated  with the  closure of certain  manufacturing
facilities.  The decrease in operating  earnings in the Windows,  Doors and Siding
Products  Segment in the second  quarter and first half of 2003 was  primarily  as a
result of an increase in raw  materials,  primarily  PVC resin,  partially  offset by
higher sales prices of vinyl siding  products,  as compared to 2002. The operating
results of  this Segment for the second  quarter and first six months of 2003  include
approximately  $100,000  and  $600,000,  respectively of severance and other costs
associated with the closure of a manufacturing  facility.  The operating  results of the
Windows,  Doors and Siding  Products  segment also include  approximately  $1,300,000  of
charges and  expenses  for  expanded  distribution  including  new  customers  in the first
six  months of 2003.  There  were no  additional costs and expenses incurred related to
this expanded distribution in the second quarter of 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Operating
earnings of foreign  operations,  consisting  primarily of the results of  operations  of
the  Company's  Canadian and European  subsidiaries,  were  approximately  6.1% and 6.0%
of operating  earnings  (before  corporate  overhead)  in the second  quarter of 2003 and
2002,  respectively,  and  approximately  5.7% and 6.9% of  operating  earnings (before
corporate  overhead) in the first six months of 2003 and 2002,  respectively.  Sales and
earnings  derived from international markets are subject to, among others, the risks of
currency fluctuations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
expense in the  second  quarter of 2003  decreased  approximately  $1,600,000  or
approximately  6.6% as  compared to the second quarter of 2002 and increased
approximately  $2,100,000 or approximately  4.3% in the first  six months of 2003 as
compared to the first six months of 2002.  The increase in interest  expense in the first
six  months of 2003 is primarily  due to  approximately  $4,100,000  of interest  expense
from the  amortization  of the  Bridge  Facility  commitment  fees and  related
expenses.  Interest  expense in the second  quarter  and first six  months of 2002
includes a  non-cash  reduction  in  interest  expense  of  approximately  $350,000  and
$800,000,  respectively,  related to the Company's  interest rate collar  agreement,
which was terminated in August 2002. The  period  from  January 1, 2003 to January 9,
2003 and the period from  January  10,  2003 to July 5, 2003  combined,  contain  185
days while the first  half of 2002  contained  180 days,  accordingly,  operating
results for 2003  include  approximately  $1,000,000 of  additional  interest  expense as
compared to 2002 since the Company  accrues  interest  expense  based on the number of
days  contained  in each  reporting  period.  The  increase  in  interest  expense was
partially  offset by  approximately  $1,400,000  and  $2,800,000  in the second  quarter
and first six  months of 2003,  respectively,  of lower interest  expense from the
amortization  of premium arising from the fair  value  adjustment  on the date of the
Recapitalization  allocated  to  indebtedness  as compared to the  Company's  historical
basis of accounting prior to the  Recapitalization  and reflects the effect of a net
reduction in debt.  In the  second  quarter  and first  six  months of 2002,  interest
expense  included  approximately  $850,000  and  $1,700,000,  respectively,  of non-cash
amortization  of deferred debt expense and original issue  discount.  (See  Notes A, B
and D of the Notes to the Unaudited Financial Statements included elsewhere herein.)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment
income  decreased  approximately  $1,500,000 or 78.9% in the second  quarter of 2003 as
compared to the  second  quarter  of 2002 and  decreased  approximately  $2,800,000  or
75.7% in the  first  six  months  of 2003 as  compared  to the first  six  months  of
2002  primarily  as a result of lower  average  invested  balances  in 2003  primarily
as a result  of the  funds  utilized  in the  Recapitalization.  Included  in  investment
income in the  second  quarter  and first six  months  of 2002 was  approximately
$650,000  and  $1,300,000,  respectively,  related to restricted  investments  and
marketable  securities  held by pension  trusts  (including  related party  amounts)
which funds were distributed to participants on the date of the Recapitalization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
income tax provision from continuing  operations was  approximately  $17,300,000 for the
second quarter of 2003  as compared to approximately  $15,600,000  for the second quarter
of 2002, and the income tax benefit from continuing  operations  was  approximately
$2,800,000 the first six months of 2003 compared to a income tax provision from
continuing  operations  of  approximately  $21,500,000  for the first six  months of
2002.  The income tax rates in  both 2002 and 2003 differed from the United States Federal
statutory rate of 35%  principally as a result of the effect of  non-deductible
expenses,  foreign income tax on foreign source income,  state income tax  provisions,
and in 2003  due to the  Recapitalization.  (See Notes A, B and J of the Notes to the
Unaudited  Financial  Statements  included  elsewhere herein.)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Earnings
from  discontinued  operations  for the  second  quarter  and first six months  ended
June 29,  2002 were  approximately  $4,400,000  and  $5,600,000,  respectively.  The
table  that  follows  presents  a  summary  of the  operating  results of  discontinued
operations for the second  quarter and first six months ended June 29, 2002.  (See  Note H of
the Notes to the Unaudited Financial Statements included elsewhere herein.)
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Three Months Ended | Six Months Ended
|-------------------------------------------- | ------------------ | ----------------
|
|(Amounts in thousands)                      
|(Unaudited)                                 
|
|Net Sales                                    |                    |                 
|
|
|Earnings before income taxes                 |                    |                 
|Provision for income taxes                   |                    |                 
|
|Earnings from discontinued operations        |                    |                 
|Gain on sale of discontinued operations, net |                    |                 
|of provision for income taxes of $1,200,000  |                    |                 
|
|Earnings from discontinued operations        |                    |                 
|
|
|Depreciation and amortization expense        |                    |                 
|

| | SFAS
No. 143,  "Accounting for Asset Retirement  Obligations" ("SFAS No.
143") addresses  financial  accounting and  reporting for obligations  associated
with the retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be  recognized  in the  period  in which it is  incurred  if a  reasonable
estimate  of fair  value  can be made.  The  associated  asset  retirement  costs are
capitalized as part of the carrying amount of the long-lived  asset.  SFAS  No. 143 is
effective  for financial  statements  issued for fiscal years  beginning  after June 15,
2002 with early  adoption  permitted.  The Company  adopted SFAS No. 143 on January 1,
2003.  Adoption of this  accounting  standard  was not material to the Company's
Unaudited Financial Statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 145,  "Rescission of FASB  Statements  No. 4, 44 and 64,  Amendment of FASB
Statement No. 13 and Technical  Corrections"  ("SFAS No. 145"),  was
issued in April 2002 and addresses the reporting of gains and losses resulting  from the
extinguishment of debt,  accounting for sale-leaseback  transactions and rescinds or
amends other existing  authoritative  pronouncements.  SFAS No. 145  requires  that any
gain or loss on  extinguishment  of debt that does  not  meet  the  criteria  of APB 30
for  classification  as an  extraordinary  item  shall  not be  classified  as
extraordinary  and shall be included in earnings from  continuing  operations.  The
provisions  of this  statement  related to the  extinguishment  of debt are  effective
for financial  statements  issued in fiscal years  beginning  after May 15,  2002 with
early  application  encouraged.  The Company  adopted  SFAS No. 145 on January 1, 2003
and  adoption of this  accounting  standard  was not  material  to the  results
presented  in the  Unaudited  Financial  Statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2003,  the  Company  adopted  SFAS No. 146,  "Accounting  for Costs
Associated  with Exit or  Disposal  Activities"  ("SFAS No. 146"),  which
addresses the accounting and reporting for costs  associated  with  exit or disposal
activities,  nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability  Recognition  for Certain Employee  Termination  Benefits and Other Costs
to Exit an Activity  (including  Certain Costs Incurred  in a Restructuring)"
("EITF 94-3") and substantially  nullifies EITF Issue No. 88-10, "Costs
Associated with Lease  Modification  or  Termination"  ("EITF  88-10").
SFAS No. 146 requires that a liability for a cost associated with  an exit or disposal
activity be  recognized  when the  liability is incurred.  Under EITF 94-3, a liability
for an  exit cost as  defined in EITF 94-3 was  recognized  at the date of an  entity's
commitment  to an exit  plan.  The  provisions of SFAS No. 146 are  effective for exit or
disposal  activities  that are initiated  after  December 31,  2002.  The  adoption  of
SFAS  No.  146  did not  have a  material  effect  on the  Company's  Unaudited
Financial  Statements (see Note M of the Notes to the Unaudited Financial Statements
included elsewhere herein).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2002, the Financial  Accounting  Standards  Board  ("FASB")
issued SFAS No. 148,  "Accounting  for  Stock-Based  Compensation  -  Transition
and  Disclosure"  ("SFAS No.  148").  SFAS No. 148 amends  SFAS No.  123,
"Accounting for Stock-Based  Compensation"  ("SFAS No. 123") to
provide  alternative  methods of transition to SFAS  No. 123's fair value method of
accounting  for  stock-based  employee  compensation.  SFAS No. 148 also amends the
disclosure  provisions  of SFAS No.  123 and APB  Opinion  No.  28,  "Interim
Financial  Reporting".  The  Company  accounts for stock-based  compensation  in
accordance  with APB No. 25,  "Accounting for Stock Issued to Employees"
("APB No. 25").  The Company has provided the required  disclosures  under SFAS
No. 148 (see Note K of the Notes to  the Unaudited Financial Statements included
elsewhere herein).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued  Interpretation No. 45, "Guarantor's  Accounting and
Disclosure  Requirements for  Guarantees,  Including  Indirect  Guarantees  of
Indebtedness  of Others"  ("FIN 45").  Along with new  disclosure
requirements,  FIN 45 requires  guarantors to recognize,  at the inception of certain
guarantees,  a liability for  the fair value of the  obligation  undertaken in issuing
the guarantee.  This differs from the current  practice to  record a  liability  only
when a loss is  probable  and  reasonably  estimable.  The  recognition  and  measurement
provisions of FIN 45 are  applicable on a prospective  basis to guarantees  issued or
modified  after  December 31,  2002.  The  Company  adopted the  disclosure  provisions
of FIN 45 as of December  31, 2002 and adopted the entire  interpretation  on January 1,
2003.  Adoption  of FIN 45 was not  material  to the  Company's  Unaudited  Financial
Statements (see Note L of the Notes to the Unaudited Financial Statements included
elsewhere herein).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities - an  Interpretation  of ARB  No.  51"  ("FIN
46").  FIN 46  clarifies  the  application  of ARB No.  51,  "Consolidated
Financial  Statements,"  to  certain  entities  in which  equity  investors  do not
have the  characteristics  of a  controlling  financial  interest or do not have
sufficient  equity at risk for the entity to finance its activities  without  additional
subordinated  financial support from other parties.  The consolidation  requirements of
FIN 46  apply to the Company  immediately for variable  interest  entities created after January 31, 2003
and for existing variable interest  entities no later than the end of the first annual
reporting  period  beginning  after June 15, 2003.  The Company  is currently evaluating
the impact of adopting FIN 46 on its consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities"  ("SFAS No. 149"), which
clarifies the financial  accounting and reporting  proscribed by SFAS No. 133,
"Accounting  for  Derivative  Instruments  and Hedging  Activities"
("SFAS No. 133") for  derivative  instruments,  including certain derivative
instruments  embedded in other contracts.  Certain provisions of SFAS No. 149 related  to
implementation  issues of SFAS No. 133 are already  effective and other provisions
related to forward purchases  or sales are  effective  for both  existing  contracts  and
new  contracts  entered into after June 30,  2003.  The  Company has previously  adopted
SFAS No. 133,  including the  implementation  issues addressed in SFAS No. 149, and  is
currently  evaluating  what  impact,  if any,  the new  provisions  of SFAS No. 149 will
have on its  consolidated  financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of  Both Liabilities and Equity" ("SFAS No.
150"), which addresses the accounting and reporting for the  classification and
measurement of certain financial instruments with characteristics of both liabilities and
equity.  SFAS No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003 and  for all existing financial instruments beginning in the first
interim period after June 15, 2003, except for  mandatorily redeemable financial
instruments of nonpublic entities, which are subject to the provisions for the  first
fiscal period beginning after December 15, 2003.  The Company plans to adopt SFAS No. 150
on July 1, 2003.  Adoption of this accounting standard is not expected to be material to
the results presented in the Company's  consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Liquidity
and Capital Resources
| | -------------------------------

| | On
January 8, 2003,  at a special  meeting of  stockholders  of Nortek  Holdings,  the
stockholders  approved  the  following  amendments to the certificate of  incorporation
(the  "Stockholder  Approval"),  which were required in  order to complete the
Recapitalization:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A new class of common stock,  Class A Common  Stock,  par value $1.00 per share,  of Nortek  Holdings
              was created consisting of 19,000,000 authorized shares.At the time that the amendment to the certificate of incorporation  became  effective,  each share of
              common  stock,  par value  $1.00  per  share and  special  common  stock,  par value  $1.00 per share
              outstanding,  was reclassified into one share of a new class of mandatorily  redeemable common stock,
              Class B Common  Stock,  par value  $1.00 per  share,  of Nortek  Holdings  consisting  of  14,000,000
              authorized shares.Class B Common  Stock  was  required  to be  immediately  redeemed  for $46 per  share  in cash  upon
              completion of the Recapitalization.The  authorized  number of shares  of Series B  Preference  Stock,  par value  $1.00 per  share,  was
              increased to 19,000,000 authorized shares.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the  Stockholder  Approval,  common stock and special common stock held by the Management
Investors were  exchanged for an equal number of newly created shares of Series B
Preference  Stock.  In addition,  certain options  to purchase  shares of common and
special  common stock held by the  Management  Investors were exchanged for fully  vested
options to purchase an equal number of shares of the newly  created  Class A Common
Stock.  The  remaining  outstanding  options,  including  some held by Management
Investors,  were  cancelled in exchange for the right to  receive a single  lump sum cash
payment  equal to the  product of the number of shares of common  stock or special
common stock  underlying the option and the amount by which the redemption  price of $46
per share exceeded the per  share exercise price of the option.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 9, 2003,  in  connection  with the  Recapitalization,  Kelso  purchased  newly
issued shares of Series B  Preference  Stock for  approximately  $355,923,000  and
purchased  shares of Series B Preference  Stock held by the  Management  Investors  for
approximately  $18,077,000.  Newly  issued  Class  A  Common  Stock  of  approximately
$3,262,000 was purchased by designated  third parties.  Shares of Series B Preference
Stock held by the Management  Investors  that  were not  purchased  by Kelso  were
converted  into an equal  number  of shares of Class A Common  Stock.  In  addition,  the
Company  declared  and  distributed  to Nortek  Holdings  a dividend  of  approximately
$120,000,000  and distributed  approximately  $27,900,000 for  reimbursement  of fees and
expenses of Kelso,  which  were paid out of the Company's  unrestricted  cash and cash
equivalents on hand and were permissible under the most  restrictive  covenants  with
respect to the indentures of the Company's 8 7/8% Senior Notes due 2008, 9 1/4% Senior
Notes due 2007, 9 1/8% Senior Notes due 2007 and 9 7/8% Senior Subordinated Notes due
2011 (the "Existing Notes").
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nortek
Holdings  used the proceeds  from the purchase by Kelso and  designated  third  parties
of the newly issued  Series B Preference  Stock and Class A Common Stock and the dividend
from Nortek to redeem Nortek  Holdings'  Class  B Common  Stock and to cash out  options
to  purchase  common  and  special  common  stock  totaling  approximately  $479,185,000.
Kelso also purchased from certain  Management  Investors 392,978 shares of Series B
Preference Stock  for approximately $18,077,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the  Recapitalization,  K Holdings received a bridge financing letter
from a lender for a senior  unsecured  term loan  facility  not to exceed  $955,000,000
(the  "Bridge  Facility").  The  Bridge  Facility  was  intended to be used to
fund, if necessary,  any change in control  offers the Company might have made in
connection  with  the  Recapitalization.  The  Company  did  not  use  this  Bridge
Facility  because  the  structure  of  the  Recapitalization  did not require the Company
to make any change of control offers.  The commitment  letter expired  on January 31,
2003.  As a result,  the  Company's  consolidated  interest  expense for the period from
January 10,  2003 to July 5, 2003 includes  approximately  $4,100,000 of interest
expense from the  amortization  of the Bridge  Facility  commitment  fees and  related
expenses.  In the second  quarter of 2003,  the  Company did not incur any  additional
interest expense related to the expiration of this commitment letter.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003,  Nortek  Holdings  filed for the  deregistration  of its shares of common
and special common stock  under the  Securities  Exchange  Act of 1934.  Nortek
Holdings'  shares of common and special  common stock are no  longer  publicly  traded.
The Company  will  continue  to file  periodic  reports  with the SEC as required by the
respective indentures of the Company's Existing Notes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the  terms of one of the  Company's  supplemental  executive  retirement  plans
("SERP"),  the  Company  was  required to make one-time cash payments to
participants  in such plan in  satisfaction  of obligations  under that  plan when the
Recapitalization  was  completed.  Accordingly,  the Company made a  distribution  of
approximately  $75,100,000  to the  participants  in the plan from funds included in the
Company's  Consolidated  Balance Sheet at  December 31, 2002 and classified in long-term
assets in restricted  investments and marketable  securities held by  pension trusts and
transferred to one of the  participants a life insurance policy with  approximately
$10,300,000  of cash surrender  value to satisfy a portion of the SERP's  obligation to
such  participant.  The  termination and  settlement of the  obligation of this SERP
resulted in a curtailment  loss on January 9, 2003.  (See Notes B and F  of the Notes to
the Unaudited Financial Statements included elsewhere herein.)
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total  amount of  transaction  fees and related  costs  incurred by the Company and Kelso
associated  with the  Recapitalization  was  approximately  $47,348,000,  including the
$27,900,000  noted above, of which  approximately  $10,500,000  of advisory  fees and
expenses  was paid to Kelso & Company L.P. A portion of these fees and expenses  was
recorded by the Company in selling,  general and  administrative  expense,  since they
were  obligations of the  Company  prior to the  Recapitalization.  Approximately
$12,848,000  was  recorded  as  expense on January 9, 2003  since  these fees and
expenses  became  obligations  of the Company  upon  consummation  of the
Recapitalization.  Approximately  $6,600,000 of expense was  previously  recorded by the
Company in the year ended  December 31, 2002,  of which  $5,200,000 was recorded in the
second  quarter of 2002.  (See Notes B and F of the Notes to the Unaudited  Financial
Statements included elsewhere herein.)
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is highly  leveraged and expects to continue to be highly  leveraged for the
foreseeable  future.  The  Company  had  consolidated  debt  at  July  5,  2003,  of
approximately  $1,008,180,000  (including  approximately  $12,013,000  of  unamortized
debt premium)  consisting of (i)  $8,661,000  of  short-term  borrowings  and current
maturities  of  long-term  debt,  (ii)  $42,506,000  of  notes,  mortgage  notes  and
other  indebtedness,  (iii)  $212,926,000  of 8 7/8% Senior Notes due 2008 ("8 7/8%
Notes"),  (iv)  $314,945,000 of 9 1/8% Senior Notes due 2007  ("9 1/8%
Notes"),  (v)  $178,541,000  of 9 1/4% Senior Notes due 2007 ("9 1/4%
Notes") and (vi)  $250,601,000  of 9  7/8% Senior Subordinated Notes due 2011
("9 7/8% Notes").
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
indentures  and other  agreements  governing the Company and its  subsidiaries'
indebtedness  (including  the  indentures for the 8 7/8% Notes, the 9 1/8% Notes, the 9
1/4% Notes and the  9 7/8%  Notes,  as well  as,  the  credit  agreement  for the  Senior
Secured  Credit  Facility)  contain  certain  restrictive  financial and operating
covenants  including  covenants  that restrict the ability of the Company and  its
subsidiaries to complete acquisitions,  pay dividends,  incur indebtedness,  make
investments,  sell assets and  take certain other corporate actions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
August  8,  2003,  there  was  approximately  $4,350,000  available  for  the  payment
of  cash  dividends,  stock  purchases  or other  restricted  payments  as  defined
under  the  terms  of  the  Company's  most  restrictive  debt covenant related to such payments.  (See  Note  G  of
the  Notes  to  the  Unaudited  Financial  Statements included  elsewhere herein.)
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
July 5, 2003, the Company had  consolidated  unrestricted  cash, cash  equivalents and
marketable  securities of  approximately  $109,838,000  as compared to  approximately
$294,804,000  at December  31,  2002.  The  decrease in  unrestricted  cash was
primarily  due to the  dividend  and  payment  of fees  and  expenses  associated  with
the  Recapitalization  (see Note B of the Notes to the Unaudited  Financial  Statements
included  elsewhere herein) and  seasonal  increases in working  capital.  The  Company's
debt to equity ratio was  approximately  2.1:1 at July 5,  2003 as compared to
approximately  3.1:1 at December 31,  2002.  The change in the ratio was  primarily  due
to an  increase  in  stockholder's  investment,  primarily  as  a  result  of  the
Recapitalization,  which  contributed  approximately  $284,135,000  to equity  and was
partially  offset by a fair  market  value  adjustment  with a net  increase in
indebtedness of approximately $18,000,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  ability to pay  interest  on or to  refinance  its  indebtedness  depends on
the  Company's  future  performance,  working  capital  levels and  capital  structure
which are subject to general  economic,  financial,  competitive,  legislative,
regulatory  and  other  factors  which  may be  beyond  its  control.  There  can be no
assurance  that the Company will  generate  sufficient  cash flow from the  operation of
its  subsidiaries  or that  future  financings will be available on acceptable terms or
in amounts  sufficient to enable the Company to service  or refinance its indebtedness,
or to make necessary capital expenditures.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has  evaluated  and expects to continue to evaluate  possible  acquisition
transactions  and  possible  dispositions  of certain of its  businesses on an ongoing
basis and at any given time may be engaged in discussions  or negotiations with respect
to possible acquisitions or dispositions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EBITDA
from operations is operating  earnings (loss) from continuing  operations plus
depreciation and amortization  expense  (other than  amortization  of deferred  debt
expense and debt  premium  and  discount)  and the  non-cash  write-off of the portion of
the excess purchase price from  acquisitions  allocated to  inventories.  For the three
months  ended July 5, 2003 and June 29, 2002 the Company had  consolidated  earnings
(loss)  before  depreciation,  amortization,  non-cash  write-off  of the portion of the
excess  purchase  price from  acquisitions  allocated  to  inventories,  interest,  net
and  income  taxes  ("EBITDA")  of  approximately  $76,362,000  and
$72,039,000,  respectively.  For the periods January 1, 2003 through  January 9, 2003,
January 10, 2003 through July 5, 2003 and  the six  months  ended  June 29,  2002,  the
Company  had  consolidated  EBITDA  of  approximately  $(85,865,000),  $126,141,000,  and
$120,881,000,  respectively.  Adjusted  EBITDA  excludes  expenses and charges arising
from the  Recapitalization.  For the three months ended July 5, 2003 and June 29,  2002,
the Company had Adjusted  EBITDA of  approximately  $76,362,000 and  $77,239,000,
respectively. For the periods January 1, 2003 through January 9, 2003,  January 10, 2003
through July 5, 2003 and the six months  ended June 29, 2002,  the Company had Adjusted
EBITDA of  approximately  $1,835,000,  $126,141,000,  and  $126,081,000,  respectively.
EBITDA is presented as it is a common  analytical  measurement  utilized by investors to
assess the Company's  performance.  The Company's common stock is  no longer  publicly
traded.  In accordance  with the indentures of the Company's  Existing  Notes,  the
Company is  required to continue to file  periodic  reports with the SEC.  Numerous
covenants  contained in the  indentures to  the Existing Notes require  financial
measurements  involving a cash flow measure similar to EBITDA.  In addition,  EBITDA is
presented as it allows  noteholders  to assess the Company's  ability to service and
incur  indebtedness.  We also believe that EBITDA,  when  considered  with other
information,  is useful to investors to analyze current  results since it reflects
operating  results before  depreciation,  amortization  and other non-cash items,  which
items are based on  historical  cost and varying  depreciable  lives.  Since each of the
Company's  segments,  its  competitors  and other  investment  opportunities  available
to  noteholders  all have  differing  historical  cost  structures,  EBITDA is another
measurement  available to investors,  particularly  noteholders,  to make investment
decisions.  EBITDA should not be considered as an alternative to earnings  (loss) from
continuing  operations,  net  earnings  (loss) or cash flow measures as determined in
accordance with accounting  principles  generally  accepted  in the United States.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following  table  presents a  reconciliation  from net earnings  (loss) to EBITDA and
Adjusted  EBITDA for the  periods presented:
| | --------------------------------------------------------------------------------------------------------------------------------------

|                                                       | Three Months Ended
|------------------------------------------------------ | ------------------
|
|
|(Amounts in thousands)                                
|(Unaudited)                                           
|
|Net earnings                                           |                   
|Earnings from discontinued operations                  |                   
|Provision for income taxes                             |                   
|Investment income                                      |                   
|Interest expense                                       |                   
|
|Operating earnings                                     |                   
|Depreciation expense                                   |                   
|Amortization of intangible assets                      |                   
|Non cash charge of purchase price                      |                   
|allocated to inventory                                 |                   
|
|EBITDA                                                 |                   
|Expenses and charges arising from the Recapitalization |                   
|
|Adjusted EBITDA                                        |                   
|

|                                               | For the Periods
|---------------------------------------------- | ---------------
|
|
|
|
|(Amounts in thousands)                        
|(Unaudited)                                   
|
|Net earnings (loss)                            |                
|Earnings from discontinued operations          |                
|Provision (benefit) for income taxes           |                
|Investment income                              |                
|Interest expense                               |                
|
|Operating earnings (loss)                      |                
|Depreciation expense                           |                
|Amortization of intangible assets              |                
|Non cash charge of purchase price allocated to |                
|inventory                                      |                
|
|EBITDA                                         |                
|Expenses and charges arising from the          |                
|Recapitalization                               |                
|
|Adjusted EBITDA                                |                
|

| | The
Company expects to meet  its  cash  flow  requirements  through  fiscal  2003  from
cash  generated  from  operations,  existing  cash  and  cash  equivalents,  and,  if
necessary,  the  utilization  of  the  Company's  Senior  Secured  Credit  Facility  and
mortgage,  capital  lease  or other  financings.  As  of  July  5,  2003,  approximately
$28,548,000  of  letters  of  credit  had  been issued as  additional  security  for
approximately  $27,600,000  of industrial  revenue  bonds  and  capital  leases
outstanding  (included in notes, mortgage  notes  and  obligations  payable  in  the
accompanying  condensed  consolidated  balance sheet at July 5, 2003),  relating  to
several  of  the  Company's  manufacturing  facilities  and  approximately  $2,786,000
of  letters of  credit  have been  issued  as  additional  security  for  certain of the  Company's
insurance  programs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection  with the provisions of SFAS No. 141 and Push Down  Accounting,  the Company
has recorded all pension  liabilities for the Companies defined benefit retirement plans,
at their fair values based upon the  accumulated
projected  benefit  obligations  determined by third  party actuarial  consultants. As a result, on
January 9, 2003, the amount of the Company accumulated projected benefit obligation was increased
by approximately $6,804,000 as compared to the amount recorded in its consolidated balance sheet prior to the
Recapitalization.  In
addition,  as discussed  previously,  the Company settled all obligations related  to the
Company's SERP in connection  with the  Recapitalization.  Accordingly,  as of January
10, 2003, the Company  has recorded  accrued pension  liabilities of  approximately  $60,000,000,
  which represent the estimated  combined  under funding of the Company's
various  pension plans.  The Company's  policy is to make annual  contributions  to  the
various  pension  plans  in  such  amounts  and at such  times  so as to meet at  least
the  minimum  funding  requirements  of the Employee  Retirement  Income  Security Act of
1974. The amount of under funding will change in  future periods for a variety of factors
including,  among others,  the actual  performance of the various  pension  plan's
investments  and changes,  if any, in actuarial  assumptions  resulting  from  changing
external  economic  conditions.  Consistent  with many pension plans in the United
States,  the Company's  various  pension plans have  been negatively impacted by the
performance of the United States equity markets over the past several years and the decline
in yields available in fixed income markets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection  with the  provisions  of SFAS No. 141 and Push Down  Accounting,  the Company
has recorded all post  retirement  health  benefit plan  liabilities  at their fair
values based upon the  accumulated  projected  benefit  obligations  determined by third
party  actuarial  consultants. As a result, on January 9, 2003, the amount of the Comapnys accumulated projected benefit
obligation was increased by approximately $17,231,000 as compared to the amount recorded in its consolidated balance sheet
prior to the Recapitalization. Accordingly,  as of January 10, 2003,  the Company  has
recorded  accrued post  retirement  health  liabilities  of  approximately  $35,000,000,
which  represents the  current  discounted  amount of the  remaining  estimated  amounts
to be paid out under the  Company's  various post  retirement  health  benefit  plans.
The  Company's  policy is to fund the costs  associated  with its various post
retirement  health benefit plans as they become due and there are no investments  or
other assets  associated  with  these plans.  Consistent  with many post  retirement
health  benefit  plans in the United  States,  the  Company's  liabilities under these
plans have been negatively impacted by rising medical costs in the United States and the decline
in yields available in fixed income markets.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  and its  subsidiaries  have  entered into a number of operating  lease
obligations,  purchase  obligations  and  have  guaranteed  certain  obligations of
various  third  parties.  No  significant  changes  in  these  obligations  have
occurred  since  December 31,  2002.  See  the Company's  annual report on Form 10-K, as filed with the SEC,  at
December  31,  2002  for  amounts  outstanding at December 31, 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Unrestricted
cash and  cash  equivalents  decreased  from  approximately  $294,804,000  at  December
31,  2002  to  approximately  $89,770,000  at  July  5,  2003.  At  July  5,  2003
marketable  securities  available  for  sale  were  approximately  $20,068,000  which
consisted  primarily  of  federal  agency  discount  notes,  commercial  paper,  treasury
bills  and  money  market  instruments.  On July 11, 2003, the Company used
approximately $58,100,000
of cash for the acquistion of SpeakerCraft. The Company  has  classified  as
restricted  in  the  accompanying  condensed  consolidated  balance  sheet  certain
investments  and  marketable  securities that are not fully  available for use in its
operations.  At  July 5,  2003,  approximately  $5,640,000  (of  which  $4,348,000  is
included  in  current assets) of cash,  investments and  marketable  securities is held
primarily  as  collateral  for  insurance and letter  of credit requirements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Capital
expenditures were  approximately  $12,188,000  in the  first  half  of 2003  compared to
approximately  $10,144,000 in  the  first  half  of  2002.  Capital  expenditures  were
approximately  $28,500,000  for the year ended  December  31,  2002 and are  expected to
be between  $40,000,000 and $50,000,000 in 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  working  capital  and  current  ratio  decreased  from  approximately
$451,085,000  and  2.5:1,  respectively,  at  December  31,  2002 to  approximately
$372,877,000  and  2.1:1,  respectively,  at  July  5,  2003  principally  as a result
of the  factors  described below.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts
receivable  increased  approximately  $69,093,000  or  approximately  30.6%,  between
December  31,  2002 and  July 5,  2003,  while  net  sales  increased  approximately
$107,725,000  or  approximately  24.7% in  the second  quarter  of 2003 as  compared  to
the  fourth  quarter  of  2002.  The  acquisition  of Elan in the first quarter  of  2003
contributed  $2,785,000  and  $6,255,000  to the  increase  in accounts  receivable  and
net sales,  respectively.  The  rate  of  change  in  accounts  receivable  in  certain
periods  may  be  different  than  the  rate of  change  in  sales in such periods
principally due to  the  timing of net  sales.  Increases  or  decreases  in net  sales
near the end of  any  period  generally  result  in  significant  changes  in  the
amount  of  accounts  receivable  on the  date of the  balance  sheet at the end of such
period,  as was the  situation  on July 5, 2003 as  compared  to  December  31,  2002.
The  Company  has  not  experienced  any  significant  overall  changes  in  credit
terms,  collection  efforts,  credit  utilization  or  delinquency  in accounts
receivable in 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories
increased  approximately  $37,511,000  or  approximately  21.3%,  between  December  31,
2002  and July 5,  2003.  Approximately  $7,216,000  of  the  increase  was  as a  result
of  the  net  remaining  fair market  value  adjustment  of  inventories  at July 5, 2003
arising  from  the  Recapitalization.  In addition, the  acquisition  of  Elan  contributed
  approximately $5,169,000 to the  increase in inventories.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts
payable increased  approximately  $24,288,000  or  approximately  19.2%,  between
December  31,  2002  and July 5,  2003.  The  acquisition  of  Elan  contributed
approximately  $908,000  to  this increase.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Changes
in  certain  working  capital  accounts,  as  noted  above,  between  December  31,  2002
and  July  5,  2003,  differ from the changes  reflected in the  Company's  Condensed
Consolidated  Statement  of Cash Flows for such  period  as  a  result  of  the  specific
items  mentioned  in  the  three  preceding  paragraphs  and  from  other  non-cash
items,  including  among  others,  the  effect of  changes  in  foreign  currency
exchange rates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Unrestricted
cash and  cash  equivalents  decreased  approximately  $154,501,000  from  December  31,
2002 to  January  9,  2003  and  decreased  approximately  $50,533,000  from  January
10,  2003  to  July 5, 2003,  principally as a result of  the following:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  | Condensed Consolidated Cash Flows (*)
|------------------------------------------------- | -------------------------------------
|
|
|                                                 
|Operating Activities:                             |                                      
|Cash flow from operations, net                    |                                      
|(Increase) decrease in accounts receivable, net   |                                      
|Increase in inventories                           |                                      
|Decrease in prepaids and other current assets     |                                      
|Increase in accounts payable                      |                                      
|(Decrease) increase in accrued expenses and taxes |                                      
|Investing Activities:                             |                                      
|Purchases of marketable securities, net of sales  |                                      
|Net cash paid for Elan                            |                                      
|Capital expenditures                              |                                      
|Increase in restricted cash and investments       |                                      
|Financing Activities:                             |                                      
|Increase (decrease) in borrowings, net            |                                      
|Dividend paid and transfers to Nortek Holdings    |                                      
|net of capital contributed                        |                                      
|Other, net                                        |                                      
|                                                 
|                                                  |                                      
|                                                 

| | (*) | Summarized
from the Company's Condensed  Consolidated  Statement of Cash Flows for the period
January 1, 2003  to  January  9,  2003  and the  period  January  10,  2003 to July 5,
2003.  (See  the  Unaudited  Financial  Statements included elsewhere herein.)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Inflation,
Trends and General Considerations
| | --------------------------------------------

| | The
Company has evaluated and expects to continue to evaluate  possible  acquisition
transactions and the possible  dispositions  of certain of its  businesses on an ongoing
basis and at any given time may be engaged in discussions  or negotiations with respect
to possible acquisitions or dispositions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  performance is dependent to a significant  extent upon the levels of new
residential  construction,  residential  replacement  and  remodeling  and
non-residential  construction,  all of which are  affected  by such  factors as interest
rates, inflation, consumer confidence and unemployment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
demand for the  Company's  products is  seasonal,  particularly  in the  Northeast  and
Midwest  regions of the  United  States  where  inclement  weather  during the winter
months  usually  reduces  the level of  building  and  remodeling  activity in both the
home  improvement and new construction  markets.  The Company's lower sales levels
usually  occur  during  the first and fourth  quarters.  Since a high  percentage  of the
Company's  manufacturing  overhead and operating  expenses are relatively fixed
throughout the year,  operating income and net earnings tend  to be lower in quarters
with lower sales levels.  In addition,  the demand for cash to fund the working  capital
of  the Company's subsidiaries is greater from late in the first quarter until early in
the fourth quarter.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Market
Risk
| | -----------

| | As
discussed  more  specifically  below,  the  Company is exposed to market  risks  related
to changes in interest  rates,  foreign  currencies  and commodity  pricing.  The Company
does not use  derivative  financial  instruments,  except on a limited  basis,  to hedge
certain  economic  exposures.  The  Company  does not enter into  derivative  financial
instruments or other financial instruments for trading purposes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
have been no  significant  changes in market  risk from the  December  31, 2002
disclosures  included in the  Company's annual report on Form 10-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|A. | Interest
Rate Risk
|-- | ------------------

| | The
Company is exposed to market  risk from  changes  in  interest  rates  primarily  through
its  investing  and  borrowing  activities.  In addition,  the  Company's  ability to
finance  future  acquisition  transactions  may be  impacted if the Company is unable to
obtain appropriate financing at acceptable interest rates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company's  investing  strategy,  to manage  interest rate exposure,  is to invest in
short-term,  highly liquid  investments  and  marketable  securities.  Short-term
investments  primarily  consist of federal  agency  discount  notes, treasury bills and
bank issued money market instruments with original maturities of 90 days or less.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  manages its borrowing  exposure to changes in interest  rates by optimizing the
use of fixed rate debt  with  extended  maturities.  There have been no  significant
changes in interest  rate risk from the  December 31,  2002 disclosures included in the
Company's annual report on Form 10-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|B. | Foreign
Currency Risk
|-- | ---------------------

| | Sales
and earnings derived from international  markets and net assets within international
markets are subject to,  among others,  the risks of currency  fluctuations  primarily
related to changes in the Euro, the Canadian  Dollar  and the British Pound.  In the
first half of 2003, the net impact of foreign  currency  changes was not material  to
the Company's  financial  condition or results of operations,  but may not be indicative
of future results.  The  impact of foreign  currency changes related to translation
resulted in an increase in stockholder's  investment of  approximately  $1,096,000 and
$12,953,000  for the periods January 1, 2003 to January 9, 2003 and January 10, 2003  to
July 5, 2003,  respectively.  The Company manages its exposure to foreign currency
exchange risk principally by  trying to  minimize  the  Company's  net  investment  in
foreign  assets  through  the use of  strategic  short and  long-term  borrowings  at the
foreign  subsidiary  level.  The  Company  generally  does not enter into  derivative
financial  instruments  to  manage  foreign  currency  exposure.  At July 5,  2003,  the
Company  did not have any  significant outstanding foreign currency hedging contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|C. | Commodity
Pricing Risk
|-- | ----------------------

| | The
Company is subject to  significant  market risk with  respect to the pricing of its
principal  raw  materials,  which include,  among others,  steel, copper,  packaging
material,  plastics,  resins, glass, wood and aluminum. If  prices of these raw materials
were to increase  dramatically,  the Company may not be able to pass such  increases  on
to its  customers  and,  as a result,  gross  margins  could  decline  significantly.
The  Company  manages its  exposure to commodity  pricing risk by  continuing  to
diversify  its product mix,  strategic  buying  programs and  vendor partnering.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company generally does not enter into derivative financial  instruments to manage
commodity pricing  exposure.  At July 5, 2003, the Company did not have any material
outstanding commodity forward contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 5, 2002, the United States  government  imposed  tariffs and quotas on a wide range
of steel imports for a  three-year  period.  Many of the  Company's  products  are made
from  steel or contain  steel  parts and the import  tariffs  impact  certain  of  these
purchases  made by the  Company.  While  the  Company  enters  into  contracts
periodically  which set the price of steel  purchases,  not all purchases are covered by
contract and the contracts  do not extend  through the period the quotas and tariffs are
imposed.  Price changes  resulting from the imposition  of these quotas and tariffs began
to have an  unfavorable  impact on gross  profit,  net earnings and cash flows of  the
Company over the second half of 2002.  (See  discussion  in Results of  Operations - Cost
of products  sold and  operating earnings contained elsewhere herein.)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Forward-Looking
Statements
| | --------------------------

| | This
document contains  forward-looking  statements within the meaning of the Private
Securities  Litigation Reform  Act of 1995.  When used in this  discussion  and
throughout  this  document,  words,  such as "intends",  "plans",
"estimates",  "believes",  "anticipates"  and
"expects"  or  similar  expressions  are  intended  to  identify
forward-looking  statements.  These  statements  are based on the  Company's  current
plans and  expectations  and  involve risks and uncertainties,  over which the Company
has no control,  that could cause actual future activities  and results of  operations
to be  materially  different  from those set forth in the  forward-looking  statements.
Important  factors  that  could  cause  actual  future  activities  and  operating
results to differ  include  the  availability and cost of certain raw materials,
(including,  among others,  steel,  copper,  packaging  materials,  plastics,  resins,
glass,  wood and  aluminum)  and  purchased  components,  the  level of  domestic  and
foreign  construction and remodeling  activity affecting  residential and commercial
markets,  interest rates,  employment,  inflation,  foreign currency  fluctuations,
consumer spending levels,  exposure to foreign economies,  the rate of  sales growth,
price, and product and warranty liability claims.  Readers are cautioned not to place
undue reliance  on  these  forward-looking  statements,  which  speak  only  as of the
date  hereof.  The  Company  undertakes  no  obligation  to update  publicly any
forward-looking  statements,  whether as a result of new  information,  future  events or
otherwise.  All subsequent  written and oral  forward-looking  statements  attributable
to the Company or  persons acting on its behalf are expressly  qualified in their
entirety by these  cautionary  statements.  Readers  are also urged to carefully review
and consider the various disclosures made by the Company,  in this document,  as  well as
the  Company's  periodic  reports on Forms  10-K,  10-Q and 8-K,  filed with the
Securities  and  Exchange  Commission ("SEC").
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 4. | Controls
and Procedures
|------- | -----------------------

| | As
of the end of the period covered by this report, the Company carried out an evaluation,  under the
supervision and with the participation of the Companys  management, including the
Companys Chairman and Chief Executive Officer  along with the Companys Vice
President and Chief Financial Officer and the  Companys Corporate Disclosure and
Controls Committee, of the effectiveness  of the Companys disclosure controls and
procedures as defined in Rule  13a15e and 15d-15e under the Securities Exchange Act
of 1934, as amended.  Based upon that evaluation, the Companys Chairman and Chief
Executive  Officer along with the Companys Vice President and Chief Financial
Officer  concluded that as of the end of such period, the Companys disclosure
controls and procedures are effective to ensure that information relating to the  Company
(including its consolidated subsidiaries) required to be disclosed in  the Companys
periodic SEC filings is recorded, processed, summarized and  reported within the time
periods specified by the SECs rules and forms.  There have been no significant
changes in the Companys internal control  over financial reporting that occurred
during the period covered by this report  that have materially affected, or that are
reasonably likely to materially  affect the Companys internal control over
financial reporting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART
II. OTHER INFORMATION
|--------------------------

|Item 6. Exhibits and Reports on Form 8-K
|----------------------------------------
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|SIGNATURE                                                                                   
|--------------------------------------------------------------------------------------------
|                                                                                            
|                                                                                            
|                                                                                            
|Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
|caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
|                                                                                            
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|August 18, 2003                                                                             
|(Date)