UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549




Form
10-Q


(Mark
One)


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


SECURITIES EXCHANGE
ACT OF 1934







For
the quarterly period ended March 29, 2008





OR





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


SECURITIES EXCHANGE
ACT OF 1934


For the transition
period from __________ to __________


Commission file
number:  333-119902





Nortek,
      Inc.(exact name
      of registrant as specified in its charter)Delaware
            05-0314991(State or
      other jurisdiction of incorporation or organization)
            (IRS Employer
      Identification Number)50
      Kennedy Plaza
              Providence,
      Rhode Island
            02903-2360(Address of
      principal executive offices)
            (zip
      code)Registrant’s
      Telephone Number, Including Area Code:
              (401)
      751-1600Securities
      registered pursuant to Section 12(b) of the Act:  None











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





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





Large
      accelerated filer [_]
            Accelerated
      filer [_]
            Non-accelerated
      filer [X]
            Smaller
      reporting company [_]





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





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





The number of
shares of Common Stock outstanding as of May 9, 2008 was 3,000.





PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements





NORTEK,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEET


(Dollar
amounts in millions, except share data)







March 29,
              
              
              December
31,2008
              
              
              2007AssetsCurrent
    Assets:Unrestricted cash and cash
      equivalents
              
              $
              53.0
              
              
              $
              53.4Restricted
    cash
              
              
              1.0
              
              
              
              1.0Accounts receivable, less
      allowancesof $12.0 and
      $12.2
              
              
              327.7
              
              
              
              320.0Inventories:Raw
      materials
              
              
              105.8
              
              
              
              91.6Work in
      process
              
              
              35.7
              
              
              
              29.9Finished
      goods
              
              
              196.9
              
              
              
              187.1338.4
              
              
              
              308.6Prepaid
      expenses
              
              
              13.9
              
              
              
              11.7Other current
      assets
              
              
              21.9
              
              
              
              19.8Prepaid income
      taxes
              
              
              30.8
              
              
              
              28.9Total current
      assets
              
              
              786.7
              
              
              
              743.4Property and Equipment, at
      Cost:Land
              
              
              10.8
              
              
              
              10.4Buildings and
      improvements
              
              
              113.6
              
              
              
              110.1Machinery and
      equipment
              
              
              223.8
              
              
              
              217.1348.2
              
              
              
              337.6Less accumulated
      depreciation
              
              
              110.1
              
              
              
              99.7Total property and
      equipment, net
              
              
              238.1
              
              
              
              237.9Other
    Assets:Goodwill
              
              
              1,522.8
              
              
              
              1,528.9Intangible assets, less
      accumulated amortizationof $87.7 and
      $80.7
              
              
              157.0
              
              
              
              156.6Deferred debt
      expense
              
              
              26.0
              
              
              
              27.4Restricted investments and
      marketable securities
              
              
              2.3
              
              
              
              2.3Other
assets
              
              
              11.7
              
              
              
              10.31,719.8
              
              
              
              1,725.5Total
Assets
              
              $
              2,744.6
              
              
              $
              2,706.8Liabilities and Stockholder’s
      InvestmentCurrent
      Liabilities:Notes payable and other short-term
      obligations
              
              $
              77.8
              
              
              $
              64.0Current maturities of long-term
      debt
              
              
              32.7
              
              
              
              32.4Accounts
      payable
              
              
              239.1
              
              
              
              192.7Accrued expenses and taxes,
      net
              
              
              230.2
              
              
              
              247.1Total current
      liabilities
              
              
              579.8
              
              
              
              536.2Other
      Liabilities:Deferred income
      taxes
              
              
              34.6
              
              
              
              36.2Long-term payable to affiliate
      (see Note A)
              
              
              43.2
              
              
              
              43.2Other
              
              
              125.5
              
              
              
              123.5203.3
              
              
              
              202.9Notes, Mortgage Notes and
      ObligationsPayable,
      Less Current Maturities
              
              
              1,346.5
              
              
              
              1,349.0Commitments and Contingencies (see
      Note G)Stockholder’s
      Investment:Common stock, $0.01
      par value, authorized 3,000 shares; 3,000 issued and outstanding atMarch 29, 2008 and
      December 31, 2007
              
              
              ---
              
              
              
              ---Additional paid-in
      capital
              
              
              412.4
              
              
              
              412.4Retained
      earnings
              
              
              164.5
              
              
              
              168.6Accumulated other comprehensive
      income
              
              
              38.1
              
              
              
              37.7Total stockholder's
      investment
              
              
              615.0
              
              
              
              618.7Total Liabilities and
      Stockholder's Investment
              
              $
              2,744.6
              
              
              $
              2,706.8







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






NORTEK,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


For the first quarter
      endedMarch 29,
      2008
              
              
              March 31,
      2007(Dollar amounts in
      millions)Net
      Sales
              
              $
              540.2
              
              
              $
              552.5Costs and
      Expenses:Cost of products
      sold
              
              
              391.6
              
              
              
              384.6Selling, general and
      administrative expense, net (see Note D)
              
              
              118.5
              
              
              
              117.0Amortization of
      intangible assets
              
              
              6.7
              
              
              
              6.0516.8
              
              
              
              507.6Operating
      earnings
              
              
              23.4
              
              
              
              44.9Interest
      expense
              
              
              (27.4
              )
              
              
              (29.2
              )Investment
      income
              
              
              0.2
              
              
              
              0.4(Loss) earnings before provision
      for income taxes
              
              
              (3.8
              )
              
              
              16.1Provision for income
      taxes
              
              
              0.3
              
              
              
              6.9Net (loss)
      earnings
              
              $
              (4.1
              )
              
              $
              9.2





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






NORTEK,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS





For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Cash Flows from operating
      activities:Net (loss)
      earnings
              
              $
              (4.1
              )
              
              $
              9.2Adjustments to reconcile net
      (loss) earnings to net cashprovided by
      operating activities:Depreciation and amortization
      expense
              
              
              17.4
              
              
              
              14.6Non-cash interest expense,
      net
              
              
              1.4
              
              
              
              1.4Non-cash stock-based compensation
      expense
              
              
              ---
              
              
              
              0.1Deferred federal income tax
      (benefit) provision
              
              
              (3.4
              )
              
              
              1.3Changes in certain assets and
      liabilities, net ofeffects
      from acquisitions and dispositions:Accounts receivable,
      net
              
              
              (4.6
              )
              
              
              (7.0
              )Inventories
              
              
              (28.8
              )
              
              
              (30.1
              )Prepaids and other current
      assets
              
              
              (3.2
              )
              
              
              (1.1
              )Accounts
      payable
              
              
              43.4
              
              
              
              34.1Accrued expenses and
      taxes
              
              
              (19.5
              )
              
              
              (36.5
              )Long-term assets, liabilities and
      other, net
              
              
              1.9
              
              
              
              0.7Total adjustments to
      net (loss) earnings
              
              
              4.6
              
              
              
              (22.5
              )Net cash provided by
      (used in) operating activities
              
              
              0.5
              
              
              
              (13.3
              )Cash Flows from investing
      activities:Capital
      expenditures
              
              
              (7.3
              )
              
              
              (6.8
              )Net cash paid for businesses
      acquired
              
              
              ---
              
              
              
              (16.8
              )Proceeds from the sale of property
      and equipment
              
              
              0.1
              
              
              
              ---Change in restricted cash and
      marketable securities
              
              
              ---
              
              
              
              1.3Other, net
              
              
              (1.2
              )
              
              
              (0.3
              )Net cash used in
      investing activities
              
              
              (8.4
              )
              
              
              (22.6
              )Cash Flows from financing
      activities:Increase in
      borrowings
              
              
              33.2
              
              
              
              28.5Payment of
      borrowings
              
              
              (25.8
              )
              
              
              (6.8
              )Other, net
              
              
              0.1
              
              
              
              ---Net cash provided by financing
      activities
              
              
              7.5
              
              
              
              21.7Net change in unrestricted cash
      and cash equivalents
              
              
              (0.4
              )
              
              
              (14.2
              )Unrestricted cash and cash
      equivalents at the beginning of the period
              
              
              53.4
              
              
              
              57.4Unrestricted cash and cash
      equivalents at the end of the period
              
              $
              53.0
              
              
              $
              43.2Supplemental disclosure of cash
      flow information:Interest
    paid
              
              $
              35.7
              
              
              $
              45.1Income taxes paid,
      net
              
              $
              3.5
              
              
              $
              2.8




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






NORTEK,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT


FOR
THE FIRST QUARTER ENDED MARCH 31, 2007


(Dollar
amounts in millions)





AccumulatedAdditional
              
              
              
              
              
              OtherPaid-in
              
              
              Retained
              
              
              Comprehensive
              
              
              ComprehensiveCapital
              
              
              Earnings
              
              
              Income
              
              
              IncomeBalance, December 31,
      2006
              
              $
              412.1
              
              
              $
              139.4
              
              
              $
              11.6
              
              
              $
              ---Net
earnings
              
              
              ---
              
              
              
              9.2
              
              
              
              ---
              
              
              
              9.2Other comprehensive
      income:Currency translation
      adjustment
              
              
              ---
              
              
              
              ---
              
              
              
              1.4
              
              
              
              1.4Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              10.6Adoption of FIN 48 (see Note
      F)
              
              
              ---
              
              
              
              (3.2
              )
              
              
              ---Stock-based
      compensation
              
              
              0.1
              
              
              
              ---
              
              
              
              ---Balance, March 31,
      2007
              
              $
              412.2
              
              
              $
              145.4
              
              
              $
              13.0





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





NORTEK,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT


FOR
THE FIRST QUARTER ENDED MARCH 29, 2008


(Dollar
amounts in millions)





AccumulatedAdditional
              
              
              
              
              
              OtherPaid-in
              
              
              Retained
              
              
              Comprehensive
              
              
              ComprehensiveCapital
              
              
              Earnings
              
              
              Income
              
              
              Income
    (Loss)Balance, December 31,
      2007
              
              $
              412.4
              
              
              $
              168.6
              
              
              $
              37.7
              
              
              $
              ---Net loss
              
              
              ---
              
              
              
              (4.1
              )
              
              
              ---
              
              
              
              (4.1
              )Other comprehensive
      income:Currency translation
      adjustment
              
              
              ---
              
              
              
              ---
              
              
              
              0.4
              
              
              
              0.4Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (3.7
              )Balance, March 29,
      2008
              
              $
              412.4
              
              
              $
              164.5
              
              
              $
              38.1


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
 MARCH
29, 2008 AND MARCH 31, 2007


(A)
            The unaudited condensed
      consolidated financial statements presented herein (the “Unaudited
      Financial Statements”) reflect the financial position, results of
      operations and cash flows of Nortek, Inc. (the “Company” or “Nortek”) and
      all of its wholly-owned subsidiaries.  The Company is a
      wholly-owned subsidiary of Nortek Holdings, Inc., which is a wholly-owned
      subsidiary of NTK Holdings, Inc. (“NTK Holdings” or the “Parent
      Company”).  The Unaudited Financial Statements include the
      accounts of Nortek, as appropriate, and all of its wholly-owned
      subsidiaries, after elimination of intercompany accounts and transactions,
      without audit and, in the opinion of management, reflect all adjustments
      of a normal recurring nature necessary for a fair statement of the interim
      periods presented.  Although certain information and footnote
      disclosures normally included in financial statements prepared in
      accordance with U.S. generally accepted accounting principles have been
      omitted, the Company believes that the disclosures included are adequate
      to make the information presented not misleading.  Operating
      results from the first quarter ended March 29, 2008 are not necessarily
      indicative of the results that may be expected for other interim periods
      or for the year ending December 31, 2008.  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”).





Stock-Based Compensation of Employees,
Officers and Directors





The Company follows the
modified-prospective transition method of accounting for stock-based
compensationin accordance
with SFAS No. 123R.  Under the
modified-prospective transition method, the Company is required to recognize
compensation cost for share-based payments to employees based on their
grant-date fair value.  Measurement and attribution of compensation
cost for awards that were granted prior to, but not vested as of the date SFAS
No. 123R was adopted,are based on the same estimate of the
grant-date fair value and the same attribution method used previously under SFAS
No. 123.





At March 29, 2008, certain employees and
consultantsheldapproximately23,291C-1 units and approximately43,811C-2 units, which represent equity
interests in THL-Nortek Investors, LLC (“Investors LLC”), the parent of NTK
Holdings,that function
similar to stock awards.  The C-1 units vest pro rata on a quarterly
basis over a three-year period and approximately22,802and22,613were vested atMarch 29, 2008 andDecember 31, 2007, respectively.  The total
fair value of the C-1 units is approximately $1.1 millionand approximately $0.1million remains to be amortized atMarch 29, 2008.  The C-2 units only vest in
the event that certain performance-based criteria, as defined, are
met.AtMarch 29, 2008 andDecember 31, 2007, there was approximately $1.6 million
of unamortized stock-based employee compensation with respect to the C-2 units,
which will berecognizedin the event that it becomes probable
that the C-2 units or any portion thereof will vest.  The C-1 and C-2
units were valued using the Black-Scholes option pricing model to determine the
freely-traded call option value based upon information from comparable public
companies, which was then adjusted to reflect the discount period, the minority
interest factor and the lack of marketability factor to arrive at the final
valuations.





The Company recorded stock-based
compensation charges in selling, general and administrative expense, net of
approximately$0.1 millionforthe first quarter ended March 31,
2007in accordance with
SFAS No. 123R.





Goodwill
and Other Long-Live Assets





The following table
presents a summary of the activity in goodwill for the first quarter ended March
29, 2008:





(Amounts in
      millions)Balance
      as of December 31, 2007
            
            $
            1,528.9Purchase
      accounting adjustments
            
            
            (5.7
            )Impact of
      foreign currency translationand
      other
            
            
            (0.4
            )Balance
      as of March 29, 2008
            
            $
            1,522.8





At March 29, 2008,
the Company had an approximate carrying value of Goodwill as
follows:





(Amounts in
      millions)Segment:Residential
      Ventilation Products
            
            $
            794.5Home
      Technology Products
            
            
            413.7Air
      Conditioning and Heating Products *
            
            
            314.6$
            1,522.8





*
            Primarily
      relates to the Residential HVAC reporting
unit.





The Company has classified as goodwill
the cost in excess of fair value of the net assets (including tax attributes) of
companies acquired in purchase transactions (see NoteC).  Approximately
$47.3million of goodwill associated with
certain companies acquired during the yearended December 31, 2007will be deductible for income tax
purposes.Purchase accounting adjustments relate
principally to final revisions resulting from the completion of fair value
adjustments and adjustments to deferred income taxes that impact
goodwill.





The Company
accounts for acquired goodwill and intangible assets in accordance with
Statement of Financial Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS No. 141”), SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
No. 142”) and SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”) which involves judgment with respect to the
determination of the purchase price and the valuation of the acquired assets and
liabilities in order to determine the final amount of goodwill.  The
Company believes that the estimates that it has used to record its acquisitions
are reasonable and in accordance with SFAS No. 141 (see Note C).





Under SFAS No. 142,
goodwill determined to have an indefinite useful life is not
amortized.  Instead these assets are evaluated for impairment on an
annual basis, or more frequently when an event occurs or circumstances change
between annual tests that would more likely than not reduce the fair value of
the reporting unit below its carrying value, including, among others, a
significant adverse change in the business climate.  The Company has
set the annual evaluation date as of the first day of its fiscal fourth
quarter.  During 2007, the Company performed a second test as of
December 31, 2007 due to the continued weakness in the housing market which,
together with a difficult mortgage industry, resulted in the continued decline
in new housing activity and consumer spending on industry-wide home remodeling
and repair expenditures.  This second test in 2007 did not result in
an indication of impairment.





The Company
primarily utilizes a discounted cash flow approach in order to value the
Company’s reporting units required to be tested for impairment by SFAS No. 142,
which requires that the Company forecast future cash flows of the reporting
units and discount the cash flow stream based upon a weighted average cost of
capital that is derived from comparable companies within similar
industries.  The reporting units evaluated for goodwill impairment by
the Company have been determined to be the same as the Company’s operating
segments in accordance with the criteria in SFAS No. 142 for determining
reporting units (see Note E).  The discounted cash flow calculations
also include a terminal value calculation that is based upon an expected
long-term growth rate for the applicable reporting unit.  The Company
believes that its procedures for estimating gross future cash flows, including
the terminal valuation, are reasonable and consistent with market conditions at
the time of estimation.





Goodwill is
considered to be potentially impaired when the net book value of a reporting
unit exceeds its estimated fair value as determined in accordance with the
Company’s valuation procedures.  The Company believes that its
assumptions used to determine the fair value for the respective reporting units
are reasonable.  If different assumptions were to be used,
particularly with respect to estimating future cash flows, there could be the
potential that an impairment charge could result.  Actual operating
results and the related cash flows of the reporting units could differ from the
estimated operating results and related cash flows. The impact of reducing the
Company’s fair value estimates by 10% would have no impact on the Company’s
goodwill assessment for any of its reporting units, with the exception of the
Company’s residential heating, ventilating and air conditioning reporting unit
(“Residential HVAC”).  Assuming a 10% reduction in the Company’s fair
value estimates, the carrying value of Residential HVAC may exceed its fair
value, which could require the Company to perform additional testing under SFAS
No. 142 to determine if there was a goodwill impairment for Residential
HVAC.





In accordance with SFAS No. 144, the
Companyevaluatesthe realizability of non
indefinite-lived and non-goodwill long-lived assets, which primarily consist of
property and equipment and intangible assets (the “SFAS No. 144 Long-Lived
Assets”),on an annual
basis, or more frequently when events or business conditions warrant it,based on expectations of
non-discounted future cash flows for each subsidiary having a material amount of
SFAS No. 144 Long-Lived Assets.





The Company performs the evaluation as
of the first day of its fiscal fourth quarter and more frequently if impairment
indicators are identified, for the impairment of long-lived assets, other than
goodwill, based on expectations of non-discounted future cash flows compared to
the carrying value of the subsidiary in accordance with SFAS No.
144.If the sum
of the expected non-discounted future cash flows is less than the carrying
amount of the SFAS No. 144 Long-Lived Assets, the Company would recognize an
impairment loss.  The Company’s cash flow estimates are based upon
historical cash flows, as well as future projected cash flows received from
subsidiary management in connection with the annual Company wide planning
process, and include a terminal valuation for the applicable subsidiary based
upon a multiple of earnings before interest expense, net, depreciation and
amortization expense and income taxes (“EBITDA”).  The Company
estimates the EBITDA multiple by reviewing comparable company information and
other industry data.  The Company believes that its procedures for
estimating gross future cash flows, including the terminal valuation, are
reasonable and consistent with market conditions at the time of
estimation.





The Company’s
businesses are experiencing a difficult market environment, due primarily to
weak residential new construction, remodeling and residential air conditioning
markets and increased commodity costs, and expect these trends to continue in
2008.  The Company has evaluated the carrying value of reporting unit
goodwill and long-lived assets and has determined that despite the current
difficult market environment, no impairment existed at the time these financial
statements were completed.





Fair Value





In September 2006,
the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”)No. 157, “Fair Value Measurements” (“SFAS No.
157”).  SFAS No. 157 was effective for the Company beginning January
1, 2008, including interim periods within the year ending December 31,
2008.  SFAS No. 157 replaces multiple existing definitions of fair
value with a single definition, establishes a consistent framework for measuring
fair value and expands financial statement disclosures regarding fair value
measurements.  SFAS No. 157 applies only to fair value measurements
that already are required or permitted by other accounting standards and does
not require any new fair value measurements.





The adoption of SFAS No. 157 for the
Company’s financial assets and liabilities in the first quarter of 2008 did not
have a material impact on the Company’s financial position or results of
operations as the Company.  As of March 29, 2008, the Company did not
have any significant financial assets or liabilities carried at fair
value.





In February 2008,
the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive
Accounting Pronouncements That Address Leasing Transactions” (“FSP No. 157-1”),
and FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No.
157-2”).  FSP No. 157-1 removes leasing from the scope of SFAS No.
157, “Fair Value Measurements” (“SFAS No. 157”).  FSP No. 157-2 delays
the effective date of SFAS No. 157 from 2008 to 2009 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually).





The Company’s non-financial assets and
liabilities that meet the deferral criteria set forth in FSP No 157-2
include, among
others,goodwill,
intangible assets, property and equipment, net and other long-term
investments.  The Company does not expect that the adoption of SFAS
No. 157 for these non-financial assets and liabilities will have a material
impact on its financial position or results of operations.





The Company also adopted SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”) on January 1,
2008.  SFAS No. 159 permits entities to choose to measure eligible
assets and liabilities at fair value with changes in value recognized in
earnings.  Fair value treatment may be elected either upon initial
recognition of an eligible asset or liability or, for an existing asset or
liability, if an event triggers a new basis of accounting.  The
Company did not elect to re-measure any of its existing financial assets or
liabilities under the provisions of SFAS No. 159, therefore, the adoption
of SFAS No. 159 did not have a material impact on the Company’s financial
position or results of operations.





Long-term payable to
affiliate





At March 29, 2008
and December 31, 2007, the Company had approximately $43.2 million,
respectively, recorded on the accompanying unaudited condensed consolidated
balance sheet related to a long-term payable to affiliate.  This
payable primarily relates to deferred taxes related to NTK Holdings which have
been transferred to Nortek.





New Accounting
Pronouncements





In March 2008,the FASBissuedSFASNo. 161, “Disclosure about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No.
133(“SFAS No.
161”).SFAS No.
161 requiresadditionaldisclosures about an
entity’s derivative and hedging activities in order to improve the transparency
of financial reporting.SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged.The Company expects toadopt the provisions of
SFAS No. 161 on January 1, 2009and is currently evaluating the impact
of adopting SFAS No. 161 on itsconsolidated financial
statements.





In December 2007,
the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements - an amendment of ARB No. 51” (“SFAS No.
160”).  SFAS No. 160 requires that noncontrolling (or minority)
interests in subsidiaries be reported in the equity section of the company’s
balance sheet, rather than in a mezzanine section of the balance sheet between
liabilities and equity.  SFAS No. 160 also changes the manner in which
the net income of the subsidiary is reported and disclosed in the controlling
company’s income statement.  SFAS No. 160 also establishes guidelines
for accounting for changes in ownership percentages and for
deconsolidation.  SFAS No. 160 is effective for financial statements
for fiscal years beginning on or after December 1, 2008 and interim periods
within those years.  The Company expects to adopt SFAS No. 160
effective January 1, 2009 and does not believe that the adoption will have a
material impact on its financial position or results of operations.





In December 2007,
the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No.
141(R)”).  SFAS No. 141(R) replaces SFAS No. 141, “Business
Combinations”, but retains the requirement that the purchase method of
accounting for acquisitions be used for all business
combinations.  SFAS No. 141(R) expands on the disclosures previously
required by SFAS No. 141, better defines the acquirer and the acquisition date
in a business combination, and establishes principles for recognizing and
measuring the assets acquired (including goodwill), the liabilities assumed and
any noncontrolling interests in the acquired business.  SFAS No.
141(R) also requires an acquirer to record an adjustment to income tax expense
for changes in valuation allowances or uncertain tax positions related to
acquired businesses.  SFAS No. 141(R) is effective for all business
combinations with an acquisition date in the first annual period following
December 15, 2008; early adoption is not permitted.  The Company will
adopt this statement in fiscal year 2009.  Based upon current accounting
principles, approximately $14.1million of the Company’s unrecognized
tax benefits as of March 29, 2008, would reduce goodwill if
recognized.  This amount is expected to be approximately $10.0 million
atJanuary 1, 2009, the
date of adoption. Under the
provisions of SFAS No. 141(R), if these amounts are recognized after December
31, 2008, they would be recorded through the Company’s tax provision and reduce
the Company’seffective tax rate, rather than
goodwill.The
Company is currently evaluating the impact of adopting SFAS No. 141(R) on its
consolidated financial statements.





(B)
            In March
      2008, Moody’s downgraded the debt ratings for Nortek and its Parent
      Company, NTK Holdings, from “B2” to “B3” and issued a negative
      outlook.  Moody’s rating downgrade reflects the Company’s high
      leverage, reduced financial flexibility and the anticipated pressure of
      the difficult new home construction market and home values on the
      Company’s 2008 financial performance.  The negative ratings
      outlook reflects Moody’s concern that the market for the Company’s
      products will remain under significant pressure so long as new housing
      starts do not rebound and that the repair and remodeling market could
      contract meaningfully in 2008 and possibly in
      2009.  Additionally, Moody’s was concerned whether the Company’s
      cost cutting initiatives would be successful enough so as to offset
      pressure on the Company’s sales.





In April 2008,
Standard & Poor’s lowered its ratings for Nortek and its Parent Company, NTK
Holdings, from “B” to “B-” and issued a negative outlook.  Standard
& Poor’s rating downgrade reflects the Company’s weaker  overall
financial profile resulting from the challenging operating conditions in the
Company’s new residential construction and remodeling markets.  The
negative outlook reflects Standard & Poor’s concerns about the US economy,
difficult credit markets and cost inflation, and the anticipation that the
Company’s credit metrics will remain challenged for at least the next several
quarters.





As part of the
Company’s senior secured credit facility, the Company has a $200.0 million
revolving credit facility that matures in August 2010 and includes both a letter
of credit sub-facility and swing line loan sub-facility.  At March 29,
2008, the Company had approximately $45.0 million outstanding (of which
approximately $10.0 million was borrowed under the Company’s swing line loan
sub-facility and was subsequently repaid in early April 2008) and approximately
$112.0 million of available borrowing capacity under the U.S. revolving portion
of its senior secured credit facility, with approximately $33.0 million in
outstanding letters of credit.  Borrowings under the revolving portion
of the senior secured credit facility are used for general corporate purposes,
including borrowings to fund working capital requirements.  Under the
Canadian revolving portion of its senior secured credit facility, the Company
had no outstanding borrowings and approximately $10.0 million of available
borrowing capacity.  Letters of credit have been issued under the
Company’s revolving credit facility as additional security for (1) approximately
$17.2 million relating to certain of the Company’s insurance programs, (2)
approximately $3.4 million relating to leases outstanding for certain of the
Company’s manufacturing facilities and (3) approximately $12.4 million relating
to certain of the subsidiaries’ purchases and other
requirements.  Letters of credit reduce borrowing availability under
the Company’s revolving credit facility on a dollar for dollar
basis.





The Company’s
senior secured credit facility contains two financial maintenance covenants,
which become more restrictive over time, and the Company cannot assure that
these covenants will always be met particularly given the further deterioration
of the new residential construction and repair and remodeling industries, plus
the instability in the overall credit markets.  These two covenants
require that the Company maintain at the end of each quarter, calculated based
on the last twelve months, a Leverage Ratio and an Interest Coverage Ratio, each
as defined.  The Leverage Ratio must not exceed a defined ratio amount
and the Interest Coverage Ratio must not be less than a defined ratio
amount.  The Leverage Ratio is calculated by dividing the Company’s
total indebtedness, net of cash, (as defined) by EBITDA (as defined) and the
Interest Coverage Ratio is calculated by dividing EBITDA (as defined) by
interest expense, net (as defined).





At March 29, 2008,
the Company was required to maintain a Leverage Ratio not greater than 5.85:1
and an Interest Coverage Ratio of not less than 2.20:1.  The Leverage
Ratio requirement of 5.85:1 at March 29, 2008 tightens to 5.60:1 at the end of
the second quarter of 2008 and further tightens to 5.25:1 at December 31, 2008,
while the Interest Coverage Ratio requirement of 2.20:1 at March 29, 2008
remains the same through December 31, 2008, further tightening to 2.30:1 during
the first quarter of 2009.  Should the Company not satisfy either of
these covenants, the Company’s senior secured credit facility allows a cure,
whereby a subsequent cash equity investment equal to the EBITDA shortfall, will
be treated as EBITDA for purposes of the compliance calculations in the current
and future periods.  The senior secured credit facility allows for
such a cure to occur twice within a consecutive twelve-month
period.





In the first
quarter of 2008, the Company’s EBITDA for such quarter (as calculated in
accordance with the senior secured credit facility) was below the level
necessary to be in compliance with the Interest Coverage Ratio and the Leverage
Ratio covenants as of the end of such quarter by approximately $4.2
million.  The Company utilized the equity cure right under its senior
secured credit facility to avoid any default otherwise arising out of such
shortfall by receiving additional equity investments by certain investors of
approximately $4.2 million in the second quarter of 2008.  The
Company’s Leverage Ratio and Interest Coverage Ratio, after using the equity
cure right as noted above, was 5.80:1 and 2.20:1, respectively, at March 29,
2008.





The Company expects
that it may also encounter events of non-compliance with the Interest Coverage
Ratio and the Leverage Ratio covenants as of the end of the second quarter of
2008 and anticipates that it may seek to use the equity cure right again to
remedy any such non-compliance.  Subsequent to the second quarter of
2008, based upon the Company’s current forecast regarding its operating results
for the balance of 2008 and the first quarter of 2009, the Company does not
anticipate further events of non-compliance with the Interest Coverage Ratio and
Leverage Ratio covenants as of the end of the third and fourth quarters of 2008
and the first quarter of 2009.  To the extent the Company experiences
events of non-compliance with such covenants, which are not resolved through the
use of the equity cure feature or other alternatives, the Company would need to
seek waivers or amendments from the lenders under its senior secured credit
facility or refinance such facility.  Should an event of
non-compliance occur, the Company will not be permitted to borrow under its
credit facility until such time that a cure happens.  If these events
of non-compliance were to occur, and were not cured, an event of default would
exist under the Company’s senior secured credit facility and would allow the
lenders to accelerate the payment of indebtedness outstanding.  In
addition, an event of default under the credit facility would result in a cross
default under substantially all of the Company’s other senior and senior
subordinated indebtedness.  In light of the instability and
uncertainty that currently exists within the financial and credit markets and
the tightening of credit standards, the Company may not be able to obtain any
such waivers or amendments or any such refinancing on acceptable
terms.  In addition, any such waivers, amendments or refinancing may
involve terms which would have a further adverse effect on the future cash flows
of the Company.  Based upon the application of equity cures, other
potential equity investments and the Company’s forecast of its financial results
for 2008 and the first quarter of 2009, the Company has determined that it is
probable that it will be in compliance with the terms of its senior secured
credit facility through the first quarter of 2009 and as a result, the Company
has classified its long-term indebtedness as a long-term liability in its
consolidated balance sheet at March 29, 2008 and December 31, 2007,
respectively.





A breach of the
covenants under the indenture that governs the Company’s 8 1/2% senior
subordinated notes or under the agreement that governs the Company’s senior
secured credit facility could result in an event of default under the applicable
indebtedness.  Such default may allow the creditors to accelerate the
related debt and may result in the acceleration of any other debt to which a
cross-acceleration or cross-default provision applies.  In addition,
an event of default under the Company’s senior secured credit facility would
permit the lenders to terminate all commitments to extend further credit under
that facility.  Furthermore, if the Company was unable to repay the
amounts due and payable under its senior secured credit facility, those lenders
could proceed against the collateral granted to them to secure that
indebtedness.  In the event the Company’s lenders or noteholders
accelerate the repayment of their borrowings, the Company cannot assure that the
Company and its subsidiaries would have sufficient assets to repay such
indebtedness.  The Company’s future financing arrangements will likely
contain similar or more restrictive covenants.  As a result of these
restrictions, the Company may be:





·
            limited in
      how the Company conducts its
business,


·
            unable to
      raise additional debt or equity financing to operate during general
      economic or business downturns, or


·
            unable to
      compete effectively or to take advantage of new business
      opportunities.





Such restrictions if imposed, would
affect the Company’s ability to grow in accordance with its
plans.





At December 31,
2007, the Company’s Best subsidiary was not in compliance with a maintenance
covenant with respect to two loan agreements with two banks with aggregate
borrowings outstanding of approximately $9.4 million.  The Company’s
Best subsidiary obtained waivers from the two banks, which indicated that the
Company’s Best subsidiary was not required to comply with the maintenance
covenant as of December 31, 2007.  The next measurement date for the
maintenance covenant is for the year ended December 31, 2008 and the Company
believes that it is probable that its Best subsidiary will be in compliance with
the maintenance covenant when their assessment of the required calculation is
completed in the first quarter of 2009.  As a result, the Company has
classified the outstanding borrowings under such agreements as a long-term
liability in its consolidated balance sheet at March 29, 2008 and December 31,
2007, respectively.





The indentures and
other agreements governing the Company and its subsidiaries’ indebtedness
(including 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.





AtMarch 29, 2008, approximately $170.6millionwasavailable for the payment of cash
dividends, stock purchases or other restricted paymentsby the Company as definedunder the terms ofthe Company’smost restrictive loan agreement,the Company’ssenior secured credit
facility.





(C)
            On September
      18, 2007, the Company acquired all the capital stock of Stilpol SP. Zo.O.
      (“Stilpol”) and certain assets and liabilities of Metaltecnica S.r.l.
      (“Metaltecnica”) for approximately $7.9 million in cash and the assumption
      of indebtedness of approximately $4.1 million through its kitchen range
      hood subsidiaries, based in Italy and Poland (“Best
      Subsidiaries”).  The Company’s Best subsidiaries borrowed the
      cash portion of the purchase price from banks in Italy.  These
      acquisitions supply various fabricated material components and
      sub-assemblies used by the Company’s Best subsidiaries in the manufacture
      of kitchen range hoods.





On August 1, 2007,
the Company, through its wholly-owned subsidiary Jensen, Inc., acquired certain
assets of Solar of Michigan, Inc. (“Triangle”) for approximately $1.7 million of
cash.  Triangle is located in Coopersville, MI and manufactures,
markets and distributes bath cabinets and related products.





On July 27, 2007,
the Company acquired all of the ownership units of HomeLogic LLC (“HomeLogic”)
for approximately $5.1 million (utilizing approximately $3.1 million of cash and
issuing unsecured 6% subordinated notes totaling approximately $2.0 million due
July 2011) plus contingent consideration, which may be payable in future
years.  HomeLogic is located in Marblehead, MA and designs and sells
software and hardware that facilitates the control of third party residential
subsystems such as home theater, whole-house audio, climate control, lighting,
security and irrigation.





On July 23, 2007,
the Company, through its wholly-owned subsidiary, Linear LLC (“Linear”),
acquired the assets and certain liabilities of Aigis Mechtronics LLC (“Aigis”)
for approximately $2.8 million (utilizing approximately $2.2 million of cash and
issuing unsecured 6% subordinated notes totaling approximately $0.6 million due
July 2011).  Aigis is located in Winston-Salem, NC and manufactures
and sells equipment, such as camera housings, into the close-circuit television
portion of the global security market.





On June 25, 2007,
the Company, through Linear, acquired International Electronics, Inc. (“IEI”)
through a cash tender offer to purchase all of the outstanding shares of common
stock of IEI at a price of $6.65 per share.  The total purchase price
was approximately $13.8 million.  IEI is located in Canton, MA and
designs and sells security and access control components and systems for use in
residential and light commercial applications.





On April 10, 2007,
the Company, through Linear, acquired the assets and certain liabilities of c.p.
All Star Corporation (“All Star”) for approximately $2.8 million (utilizing
approximately $2.3 million of cash and issuing unsecured 6% subordinated notes
totaling $0.5 million due April 2009).  All Star is located in
Downington, PA and is a leading manufacturer and distributor of residential,
commercial and industrial gate operators, garage door openers, radio controls
and accessory products for the garage door and perimeter security
industry.





On March 26, 2007,
the Company, through its wholly-owned subsidiary, Advanced Bridging
Technologies, Inc. (“ABT”), acquired certain assets of Personal and Recreational
Products, Inc. (“Par Safe”) for future contingent consideration of approximately
$4.6 million that was earned in 2007 and was paid in April 2008.  Par
Safe designs and sells home safes and solar LED security lawn
signs.





On March 2, 2007,
the Company, through Linear, acquired the stock of LiteTouch, Inc. (“LiteTouch”)
for approximately $10.5 million (utilizing approximately $8.0 million of cash
and issuing unsecured 6% subordinated notes totaling $2.5 million due March
2009) plus contingent consideration, which may be payable in future
years.  LiteTouch is located in Salt Lake City, UT and designs,
manufactures and sells automated lighting controls for a variety of uses
including residential, commercial, new construction and retro-fit
applications.





On June 15, 2007,
the Company, through its wholly-owned subsidiary, Mammoth China Ltd. (“Mammoth
China”), increased its ownership interests in Mammoth (Zhejiang) EG Air
Conditioning Ltd. (“MEG”) and Shanghai Mammoth Air Conditioning Co., Ltd.
(“MSH”) to seventy-five percent.  Prior to June 15, 2007 and
subsequent to January 25, 2006, Mammoth China had a sixty-percent interest in
MEG and MSH.





Acquisitions
contributed approximately $11.2 million, $(1.2) million loss and $0.6 million to
net sales, operating earnings and depreciation and amortization expense,
respectively, for the first quarter ended March 29, 2008.  With the
exception of Stilpol, Metaltecnica and Triangle, which are included in the
Residential Ventilation Products segment, and MEG and MSH, which are included in
the Air Conditioning and Heating Products segment, all acquisitions are included
in the Home Technology Products segment in the Company’s segment reporting (see
Note E).





Contingent
consideration of approximately $32.7 million related to the acquisitions of Par
Safe, ABT and Magenta Research, Ltd., which was accrued for at March 29, 2008
and December 31, 2007, respectively, was paid in April 2008.  The
remaining estimated total maximum potential amount of contingent consideration
that may be paid in the future for all completed acquisitions is approximately
$62.0 million.





Acquisitions are
accounted for as purchases and accordingly have been included in the Company’s
consolidated results of operations since their acquisition date.  For
recent acquisitions, the Company has made preliminary estimates of the fair
value of the assets and liabilities of the acquired companies, including
intangible assets and property and equipment, as of the date of acquisition,
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 appraising the fair value of intangible assets and property and
equipment and finalizing the integration plans for certain of the acquired
companies, which are expected to be completed during 2008.





Pro forma results
related to these acquisitions have not been presented, as the effect is not
significant to the Company’s consolidated operating results.





(D)
            During the
      first quarter ended March 29, 2008 and March 31, 2007, the Company’s
      results of operations include the following expense items recorded in
      selling, general and administrative expense, net in the accompanying
      unaudited condensed consolidated statement of
  operations:






For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Amounts in
      millions)Charges related to the closure of
      the Company's NuTone, Inc.Cincinnati, OH
      facility (see Note H)
              
              $
              ---
              
              
              $
              0.6Legal and other professional fees
      and expenses incurred in connection withmatters related to
      certain subsidiaries based in Italy and Poland
              
              
              ---
              
              
              
              1.0Fees
      and expenses incurred in the HTP segment inconnection
      with
                a disputewith one of its suppliers
              
              
              0.2
              
              
              
              ---Reserve for amounts due from
      customers in the HVAC segment
              
              
              ---
              
              
              
              1.8Foreign exchange losses related to
      transactions, including intercompanydebt not indefinitely
      invested in the Company's subsidiaries
              
              
              0.1
              
              
              
              0.3$
              0.3
              
              
              $
              3.7




The Company has a
management agreement with an affiliate of Thomas H. Lee Partners, L.P. providing
for certain financial and strategic advisory and consultancy
services.  Nortek expensed approximately $0.5 million and $0.4 million
for the first quarter ended March 29, 2008 and March 31, 2007, respectively,
related to this management agreement in the accompanying Unaudited Condensed
Consolidated Statement of Operations.





(E) The Company is a
leading diversified manufacturer of innovative, branded residential and
commercial products, which is organized within three reporting segments: the
Residential Ventilation Products (“RVP”) segment, the Home Technology Products
(“HTP”) segment and the Air Conditioning and Heating Products (“HVAC”)
segment.  The HVAC segment combines the results of the Company’s
residential and commercial heating, ventilating and air conditioning
businesses.  In the tables below, Unallocated includes corporate
related items, intersegment eliminations and certain income and expense items
not allocated to reportable segments.





The Company
evaluates segment performance based on operating earnings before allocations of
corporate overhead costs.  Intersegment net sales and intersegment
eliminations were not material for any of the periods presented.  The
financial statement impact of all purchase accounting adjustments, including
intangible asset amortization and goodwill, is reflected in the applicable
operating segment, which are the Company’s reporting units.





Unaudited net
sales, operating earnings and pre-tax earnings for the Company’s reporting
segments for the first quarter ended March 29, 2008 and March 31, 2007 were as
follows:









For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Net sales:Residential ventilation
      products
              
              $
              188.2
              
              
              $
              208.7Home technology
      products
              
              
              124.1
              
              
              
              123.2Air conditioning and heating
      products
              
              
              227.9
              
              
              
              220.6Consolidated net
      sales
              
              $
              540.2
              
              
              $
              552.5Operating
      earnings:Residential ventilation products
      (1)
              
              $
              15.9
              
              
              $
              25.2Home technology products
      (2)
              
              
              10.3
              
              
              
              16.5Air conditioning and heating
      products (3)
              
              
              4.7
              
              
              
              9.8Subtotal
              
              
              30.9
              
              
              
              51.5Unallocated:Stock-based compensation
      charges
              
              
              ---
              
              
              
              (0.1
              )Foreign exchange gain on
      transactions,including intercompany
      debt
              
              
              0.1
              
              
              
              0.1Unallocated,
      net
              
              
              (7.6
              )
              
              
              (6.6
              )Consolidated
      operating earnings
              
              
              23.4
              
              
              
              44.9Interest
      expense
              
              
              (27.4
              )
              
              
              (29.2
              )Investment
      income
              
              
              0.2
              
              
              
              0.4(Loss) earnings
      before (benefit) provision for income taxes
              
              $
              (3.8
              )
              
              $
              16.1


(1)
            The operating
      results of the RVP segment for the first quarter ended March 29, 2008
      include net foreign exchange losses of approximately $0.5 million related
      to transactions, including intercompany debt not indefinitely invested in
      the Company’s subsidiaries.





The operating
results of the RVP segment for the first quarter ended March 31, 2007 include an
approximate $0.6 million charge related to the closure of the Company’s NuTone,
Inc. Cincinnati, Ohio facility, legal and other professional fees and expenses
incurred in connection with matters related to certain subsidiaries based in
Italy and Poland of approximately $1.0 million and net foreign exchange losses
of approximately $0.2 million related to transactions, including intercompany
debt not indefinitely invested in the Company’s subsidiaries.





(2)
            The operating
      results of the HTP segment for the first quarter ended March 29, 2008
      include approximately $0.2 million of fees and expenses incurred in
      connection with a dispute with a
supplier.





(3)
            The operating
      results of the HVAC segment for the first quarter ended March 29, 2008
      include net foreign exchange gains of approximately $0.3 million related
      to transactions, including intercompany debt not indefinitely invested in
      the Company’s subsidiaries.





The operating
results of the HVAC segment for the first quarter ended March 31, 2007 include a
charge of approximately $1.8 million related to reserves for amounts due from
customers and net foreign exchange losses of approximately $0.2 million related
to transactions, including intercompany debt not indefinitely invested in the
Company’s subsidiaries.




Unaudited
depreciation expense, amortization expense and capital expenditures for the
Company’s reporting segments for the first quarter ended March 29, 2008 and
March 31, 2007 were as follows:







For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Depreciation
      Expense:Residential ventilation
      products
              
              $
              4.2
              
              
              $
              3.0Home technology
      products
              
              
              1.6
              
              
              
              1.3Air conditioning and heating
      products
              
              
              4.7
              
              
              
              4.1Other
              
              
              0.2
              
              
              
              0.2Consolidated
      depreciation expense
              
              $
              10.7
              
              
              $
              8.6Amortization
      expense:Residential ventilation
      products
              
              $
              1.9
              
              
              $
              1.3Home technology
      products
              
              
              3.3
              
              
              
              2.7Air conditioning and heating
      products
              
              
              1.4
              
              
              
              1.9Other
              
              
              0.1
              
              
              
              0.1Consolidated
      amortization expense
              
              $
              6.7
              
              
              $
              6.0Capital
      Expenditures:Residential ventilation
      products
              
              $
              4.1
              
              
              $
              2.4Home technology
      products
              
              
              0.8
              
              
              
              1.2Air conditioning and heating
      products
              
              
              2.4
              
              
              
              3.2Consolidated capital
      expenditures
              
              $
              7.3
              
              
              $
              6.8


(F)
            The Company
      provided income taxes on an interim basis based upon the actual effective
      tax rate through March 29, 2008.  The following reconciles the
      federal statutory income tax rate to the actual effective tax rate of
      approximately (7.9)% and 42.9% for the first quarter ended March 29, 2008
      and March 31, 2007:





For the first quarter
  endedMarch 29, 2008
            
            March 31, 2007Income tax at
      the federal statutory rate
            
            
            35.0
            %
            
            
            35.0
            %Net change
      from federal statutory rate:Interest
      related to uncertain tax positions, net of federal income tax
      effect
            
            
            (14.8
            )
            
            
            3.1State income
      tax provision, net of federalincome tax
      effect
            
            
            (16.9
            )
            
            
            2.5Tax effect
      resulting from foreign activities
            
            
            (16.7
            )
            
            
            1.5Non-deductible
      expenses
            
            
            (7.7
            )
            
            
            0.6Other,
      net
            
            
            13.2
            
            
            
            0.2Income tax at
      actual effective rate
            
            
            (7.9
            )%
            
            
            42.9
            %





The Company adopted
the provisions of FIN 48 effective January 1, 2007.  As a result of
the adoption of this standard, the Company recorded a charge to retained
earnings of approximately $3.2 million and also increased goodwill related to
pre-acquisition tax uncertainties by approximately $3.8 million.





As of January 1,
2008, the Company has provided a liability of approximately $34.2 million for
unrecognized tax benefits related to various federal, foreign and state tax
income tax matters.  The amount of unrecognized tax benefits at March
29, 2008 was approximately $35.9 million.  The amount of unrecognized
tax benefits that impact the effective tax rate, if recognized, is approximately
$9.6 million.  The difference between the total amount of unrecognized
tax benefits and the amount that would impact the effective rate consists of
items that would adjust deferred tax assets and liabilities of approximately
$5.6 million, items that, if recognized prior to January 1, 2009 (see Note A for
SFAS No. 141(R) discussion), would result in adjustments to goodwill of
approximately $14.1 million and the federal benefit of state tax items of
approximately $6.6 million.





As of March 29,
2008, the Company has approximately $4.1 million in unrecognized benefits
relating to various state income tax issues, for which the statute of limitation
is expected to expire late in 2008.  Of this amount, approximately
$3.1 million will reduce goodwill if recognized.





The Company is
currently under audit by the Internal Revenue Service for the tax periods from
January 1, 2004 to August 27, 2004 and from August 28, 2004 to December 31, 2004
and for the year ended December 31, 2005.  The Company and its
subsidiaries federal, foreign and state income tax returns are generally subject
to audit for all tax periods beginning in 2003 through the present
year.





As of January 1,
2008, the Company has accrued approximately $6.1 million of interest related to
uncertain tax positions.  As of March 29, 2008, the total amount of
accrued interest related to uncertain tax positions is approximately $6.9
million. The Company accounts for interest and penalties related to uncertain
tax positions as part of its provision for federal and state taxes.





(G)
            At March 29,
      2008, the Company’s former subsidiary, Ply Gem, has guaranteed
      approximately $18.9 million of third party obligations relating to rental
      payments through June 30, 2016 under a facility leased by a former
      subsidiary, which was sold on September 21, 2001.  The Company
      has indemnified these guarantees in connection with the sale of Ply Gem on
      February 12, 2004 and has recorded an estimated liability related to this
      indemnified guarantee of approximately $0.8 million at March 29, 2008 in
      accordance with Interpretation No. 45, “Guarantor’s Accounting and
      Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others” (“FIN 45”).  The buyer of the former
      subsidiary has provided certain indemnifications and other rights to
      Nortek for any payments that it might be required to make pursuant to this
      guarantee.  Should the buyer of the former subsidiary cease
      making payments then the Company may be required to make payments on its
      indemnification.





The Company has
indemnified third parties for certain matters in a number of transactions
involving dispositions of former subsidiaries.  The Company has
recorded liabilities in relation to these indemnifications, including the
indemnified guarantee noted above, of approximately $11.1 million at March 29,
2008 and December 31, 2007, respectively.  Approximately $5.0 million
of short-term liabilities and approximately $6.1 million of long-term
liabilities are recorded in accrued expenses and other long-term liabilities,
respectively, in the accompanying unaudited condensed consolidated balance sheet
at March 29, 2008 related to these indemnifications.





The Company records insurance
liabilities and related expenses for health, workers compensation, product and
general liability losses and other insurance reserves and expenses in accordance
with either the contractual terms of its policies or, if self-insured, the total
liabilities that are estimable and probable as of the reporting
date.  Insurance liabilities are recorded as current liabilities to
the extentpayments are
expected to be madein the
succeeding yearby the
Companywith the remaining
requirements classified as long-term liabilities.  The accounting for
self-insured plans requires that significant judgments and estimates be made
both with respect to the future liabilities to be paid for known claims and
incurred but not reportedclaims as of the reporting
date.  The Company considers historical trends when determining the
appropriate insurance reserves to record in the consolidated balance
sheet.  In certain cases where partial insurance coverage exists, the
Company must estimate the portion of the liability that will be covered by
existing insurance policies to arrive at the net expected liability to the
Company.The
majority of the Company’s approximate $56.1 million of recorded insurance
liabilities at March 29, 2008 relate to product liability accruals of
approximately $35.8 million.





Changes in the Company’s combined
short-term and long-termproduct liability accrualsduring thefirst quarter ended March 29, 2008 and
March 31, 2007are as
follows:





For thefirst quarterendedMarch 29,
    2008
            
            
            March 31,
    2007(Amounts in
      millions)Balance, beginning of the
      period
            
            $
            35.0
            
            
            $
            27.8Provision during the
      period
            
            
            2.9
            
            
            
            3.3Payments made during the
      period
            
            
            (2.1
            )
            
            
            (1.6
            )Other
      adjustments
            
            
            ---
            
            
            
            0.1Balance, end of the
      period
            
            $
            35.8
            
            
            $
            29.6





The Company sells a
number of products and offers a number of warranties including in some
instances, extended warranties for which the Company receives
proceeds.  The specific terms and conditions of these warranties vary
depending on the product sold and the 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.  Deferred revenue from extended
warranties is recorded at the estimated fair value and is amortized over the
life of the warranty and reviewed to ensure that the amount recorded is equal to
or greater than 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 accruals during the first
quarter ended March 29, 2008 and March 31, 2007 are as follows:





For thefirst quarterendedMarch 29,
    2008
            
            
            March 31,
    2007(Amounts in
      millions)Balance, beginning of the
      period
            
            $
            47.3
            
            
            $
            41.2Warranties provided during the
      period
            
            
            7.3
            
            
            
            5.5Settlements made during the
      period
            
            
            (6.5
            )
            
            
            (5.6
            )Changes in liability estimate,
      including expirations and acquisitions
            
            
            0.6
            
            
            
            0.4Balance, end of the
      period
            
            $
            48.7
            
            
            $
            41.5





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 and adjustment or replacement of component parts of
units sold, which include product recalls.  Product liability,
environmental and other legal proceedings also include matters with respect to
businesses previously owned.  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.





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, results of operations or liquidity of the
Company.  It is possible, however, that future results of operations
for any particular future period could be materially affected by changes in the
Company’s assumptions or strategies related to these contingencies or changes
that are not within the Company’s control.


(H)
            The Company records restructuring
      costs primarily in connection with operations acquired or facility
      closings whichmanagement plans to eliminate in
      order to improve future operating results of the
      Company.





During the first
quarter ended March 31, 2007, the Company recorded liabilities and expensed into
selling, general and administrative expense, net approximately $0.6 million in
the accompanying unaudited condensed consolidated statement of operations
related to the closure of its NuTone Cincinnati, OH facility and the relocation
of such operations to certain other subsidiaries of the Company within the RVP
segment.  The NuTone facility was shutdown in the third quarter of
2007 and approximately 59 employees were terminated.  Prior to August
2006, this facility supported manufacturing, warehousing and distribution
activities for NuTone.  The Company does not anticipate recording any
further expenses associated with this shutdown during 2008.





During the second quarter of 2007, after
meeting and negotiating with the bargaining committee of the Teamsters Local
970, representing approximately 127 union employees of the Company’s
wholly-owned subsidiary Mammoth, Inc. (“Mammoth”) located in Chaska, Minnesota,
it was decided to shut down manufacturing operations at the Chaska plant and
relocate such operations to other manufacturing facilities within the Commercial
HVAC Group.  It is estimated that an additional approximate $0.8
million will be expensed in 2008 related to this shutdown, none of which was incurred during the
first quarter ended March 29, 2008.





On August 8, 2007, after negotiating
with the bargaining committee of the Steel, Paper House, Chemical Drivers and
Helpers, Local No. 578, which represented approximately 64 union employees
located at the Vernon, CA manufacturing facility of the Company’s wholly-owned
subsidiary Jensen, Inc. (“Jensen”), the decision was made to shut down
manufacturing operations and relocate such operations to other manufacturing
facilities within the RVP segment.  Additionally, on such date, Jensen
finalized its negotiations with the union over the severance benefits associated
with this shutdown.  The Company does not anticipate recording any
further expenses associated with this shutdown in 2008.





The following table sets forth
restructuring activity in accordance with SFAS No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities (“SFAS No. 146”) in the accompanying
consolidated statement of operations for the periods presented.  These
costs are included in cost of goods sold and selling, general and administrative
expense, net in the accompanying consolidated statement of operations of the
Company.





Employee
      Separation Expenses
            
            
            Other
            
            
            Total
              Restructuring
              Costs(Dollar
      amounts in millions)Balance
      at December 31, 2007
            
            $
            1.6
            
            
            $
            1.0
            
            
            $
            2.6Payments and
      asset write downs
            
            
            (1.1
            )
            
            
            (0.3
            )
            
            
            (1.4
            )Other
            
            
            (0.1
            )
            
            
            0.1
            
            
            
            ---Balance
      at March 29, 2008
            
            $
            0.4
            
            
            $
            0.8
            
            
            $
            1.2





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.





(I)
            The Company
      and its subsidiaries have various pension plans, supplemental retirement
      plans for certain officers, profit sharing and other post-retirement
      benefit plans requiring contributions to qualified trusts and union
      administered funds.





Pension and profit sharing expense
charged to operations aggregated approximately $1.6 million and $2.4 million for
the first quarter ended March 29, 2008 and March 31, 2007,
respectively.





The Company’s policy is to generally
fund currently at least the minimum required annual contribution of its various
qualified defined benefit plans.  At March 29, 2008, the Company
estimated that approximately $3.4 million would be contributed to the Company’s
defined benefit pension plans in 2008, of which approximately $0.3 million was
made in the first quarter of 2008.  The Company estimates that
approximately $1.2 million will be paid in the second quarter of 2008,
approximately $1.0 million will be paid in the third quarter of 2008 and
approximately $0.9 million will be paid in the fourth quarter of
2008.





The Company’s
unaudited net periodic benefit (income) cost for its defined benefit plans for
the first quarter ended March 29, 2008 and March 31, 2007 consists of the
following components:





For the first quarter endedMarch 29, 2008
            
            
            March 31, 2007(Dollar
      amounts in millions)Service
      cost
            
            $
            0.1
            
            
            $
            0.1Interest
      cost
            
            
            2.5
            
            
            
            2.4Expected
      return on plan assets
            
            
            (2.7
            )
            
            
            (2.5
            )Net periodic
      benefit income
            
            $
            (0.1
            )
            
            $
            ---





The Company’s
unaudited net periodic benefit cost for its subsidiary’s Post-Retirement Health
Benefit Plan for the first quarter ended March 29, 2008 and March 31, 2007
consists of the following components:





For the first quarter endedMarch 29, 2008
            
            
            March 31, 2007(Dollar
      amounts in millions)Interest
      cost
            
            $
            0.1
            
            
            $
            0.1Amortization
      of prior service cost
            
            
            (0.1
            )
            
            
            (0.1
            )Net periodic
      post-retirement health cost
            
            $
            ---
            
            
            $
            ---





(J)
            The Company’s
      8 1/2% Notes are guaranteed by all of the Company’s current and certain
      future domestic subsidiaries (the “Guarantors”), as defined, with the
      exception of certain domestic subsidiaries, as defined, which are excluded
      from the 8 1/2% Note guarantee. The Guarantors are wholly-owned either
      directly or indirectly by the Company and jointly and severally guarantee
      the Company’s obligations under the 8 1/2% Notes. None of the Company’s
      subsidiaries organized outside of the United States guarantee the 8 1/2%
      Notes.





Consolidating
balance sheets related to the Company, its guarantor subsidiaries and
non-guarantor subsidiaries as of March 29, 2008 and December 31, 2007 and the
related consolidating statements of operations and cash flows for the first
quarter ended March 29, 2008 and March 31, 2007 are reflected below in order to
comply with the reporting requirements for guarantor subsidiaries.






Unaudited Condensed Consolidating
Balance Sheet


As
of March 29, 2008







Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            Consolidated(Dollar amounts in
      millions)ASSETS:Current
    Assets:Unrestricted cash and cash
      equivalents
            
            $
            23.2
            
            
            $
            6.4
            
            
            $
            23.4
            
            
            $
            ---
            
            
            $
            53.0Restricted
    cash
            
            
            ---
            
            
            
            1.0
            
            
            
            ---
            
            
            
            ---
            
            
            
            1.0Accounts receivable, less
      allowances
            
            
            ---
            
            
            
            222.6
            
            
            
            105.1
            
            
            
            ---
            
            
            
            327.7Intercompany receivables
      (payables)
            
            
            0.8
            
            
            
            (0.1
            )
            
            
            (0.7
            )
            
            
            ---
            
            
            
            ---Inventories
            
            
            ---
            
            
            
            271.0
            
            
            
            67.4
            
            
            
            ---
            
            
            
            338.4Prepaid
      expenses
            
            
            0.9
            
            
            
            8.1
            
            
            
            4.9
            
            
            
            ---
            
            
            
            13.9Other current
      assets
            
            
            4.7
            
            
            
            5.8
            
            
            
            11.4
            
            
            
            ---
            
            
            
            21.9Prepaid income
      taxes
            
            
            (0.7
            )
            
            
            31.9
            
            
            
            (0.4
            )
            
            
            ---
            
            
            
            30.8Total
      current assets
            
            
            28.9
            
            
            
            546.7
            
            
            
            211.1
            
            
            
            ---
            
            
            
            786.7Property and Equipment, at
      Cost:Total property and equipment,
      net
            
            
            0.9
            
            
            
            142.8
            
            
            
            94.4
            
            
            
            ---
            
            
            
            238.1Other Long-term
      Assets:Investment in subsidiaries and
      long-termreceivable from
      (to) subsidiaries
            
            
            2,013.1
            
            
            
            (103.3
            )
            
            
            (59.7
            )
            
            
            (1,850.1
            )
            
            
            ---Goodwill
            
            
            ---
            
            
            
            1,489.5
            
            
            
            33.3
            
            
            
            ---
            
            
            
            1,522.8Intangible assets, less
      accumulated amortization
            
            
            0.2
            
            
            
            130.7
            
            
            
            26.1
            
            
            
            ---
            
            
            
            157.0Other
assets
            
            
            34.8
            
            
            
            2.8
            
            
            
            2.4
            
            
            
            ---
            
            
            
            40.0Total
      other long-term assets
            
            
            2,048.1
            
            
            
            1,519.7
            
            
            
            2.1
            
            
            
            (1,850.1
            )
            
            
            1,719.8Total
      assets
            
            $
            2,077.9
            
            
            $
            2,209.2
            
            
            $
            307.6
            
            
            $
            (1,850.1
            )
            
            $
            2,744.6LIABILITIES AND STOCKHOLDER'SINVESTMENT:Current
      Liabilities:Notes payable and other short-term
      obligations
            
            $
            45.0
            
            
            $
            ---
            
            
            $
            32.8
            
            
            $
            ---
            
            
            $
            77.8Current maturities of long-term
      debt
            
            
            9.5
            
            
            
            17.0
            
            
            
            6.2
            
            
            
            ---
            
            
            
            32.7Accounts
      payable
            
            
            1.0
            
            
            
            150.4
            
            
            
            87.7
            
            
            
            ---
            
            
            
            239.1Accrued expenses and taxes,
      net
            
            
            23.7
            
            
            
            155.4
            
            
            
            51.1
            
            
            
            ---
            
            
            
            230.2Total
      current liabilities
            
            
            79.2
            
            
            
            322.8
            
            
            
            177.8
            
            
            
            ---
            
            
            
            579.8Other
      Liabilities:Deferred income
      taxes
            
            
            (6.0
            )
            
            
            27.0
            
            
            
            13.6
            
            
            
            ---
            
            
            
            34.6Long-term payable to
      affiliate
            
            
            43.2
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            43.2Other long-term
      liabilities
            
            
            43.0
            
            
            
            72.2
            
            
            
            10.3
            
            
            
            ---
            
            
            
            125.580.2
            
            
            
            99.2
            
            
            
            23.9
            
            
            
            ---
            
            
            
            203.3Notes, Mortgage Notes and
      ObligationsPayable,
      Less Current Maturities
            
            
            1,303.5
            
            
            
            27.8
            
            
            
            15.2
            
            
            
            ---
            
            
            
            1,346.5Stockholder's
      investment
            
            
            615.0
            
            
            
            1,759.4
            
            
            
            90.7
            
            
            
            (1,850.1
            )
            
            
            615.0Total
      liabilities and stockholder's investment
            
            $
            2,077.9
            
            
            $
            2,209.2
            
            
            $
            307.6
            
            
            $
            (1,850.1
            )
            
            $
            2,744.6







Unaudited Condensed Consolidating
Balance Sheet


As
of December 31, 2007




Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedASSETS:Current
    Assets:Unrestricted cash and cash
      equivalents
            
            $
            20.5
            
            
            $
            8.9
            
            
            $
            24.0
            
            
            $
            ---
            
            
            $
            53.4Restricted
    cash
            
            
            ---
            
            
            
            1.0
            
            
            
            ---
            
            
            
            ---
            
            
            
            1.0Accounts receivable, less
      allowances
            
            
            ---
            
            
            
            214.5
            
            
            
            105.5
            
            
            
            ---
            
            
            
            320.0Intercompany receivables
      (payables)
            
            
            1.5
            
            
            
            (1.2
            )
            
            
            (0.3
            )
            
            
            ---
            
            
            
            ---Inventories
            
            
            ---
            
            
            
            242.4
            
            
            
            66.2
            
            
            
            ---
            
            
            
            308.6Prepaid
      expenses
            
            
            0.3
            
            
            
            7.8
            
            
            
            3.6
            
            
            
            ---
            
            
            
            11.7Other current
      assets
            
            
            4.8
            
            
            
            5.3
            
            
            
            9.7
            
            
            
            ---
            
            
            
            19.8Prepaid income
      taxes
            
            
            (0.7
            )
            
            
            30.0
            
            
            
            (0.4
            )
            
            
            ---
            
            
            
            28.9Total
      current assets
            
            
            26.4
            
            
            
            508.7
            
            
            
            208.3
            
            
            
            ---
            
            
            
            743.4Property and Equipment, at
      Cost:Total property and equipment,
      net
            
            
            1.0
            
            
            
            145.3
            
            
            
            91.6
            
            
            
            ---
            
            
            
            237.9Other Long-term
      Assets:Investment in subsidiaries and
      long-termreceivable from
      (to) subsidiaries
            
            
            2,019.2
            
            
            
            (122.1
            )
            
            
            (59.5
            )
            
            
            (1,837.6
            )
            
            
            ---Goodwill
            
            
            ---
            
            
            
            1,492.8
            
            
            
            36.1
            
            
            
            ---
            
            
            
            1,528.9Intangible assets, less
      accumulated amortization
            
            
            0.3
            
            
            
            134.1
            
            
            
            22.2
            
            
            
            ---
            
            
            
            156.6Other
assets
            
            
            35.5
            
            
            
            2.4
            
            
            
            2.1
            
            
            
            ---
            
            
            
            40.0Total
      other long-term assets
            
            
            2,055.0
            
            
            
            1,507.2
            
            
            
            0.9
            
            
            
            (1,837.6
            )
            
            
            1,725.5Total
      assets
            
            $
            2,082.4
            
            
            $
            2,161.2
            
            
            $
            300.8
            
            
            $
            (1,837.6
            )
            
            $
            2,706.8LIABILITIES AND STOCKHOLDER'SINVESTMENT:Current
      Liabilities:Notes payable and other short-term
      obligations
            
            $
            35.0
            
            
            
            ---
            
            
            $
            29.0
            
            
            $
            ---
            
            
            $
            64.0Current maturities of long-term
      debt
            
            
            9.5
            
            
            
            17.0
            
            
            
            5.9
            
            
            
            ---
            
            
            
            32.4Accounts
      payable
            
            
            3.3
            
            
            
            107.1
            
            
            
            82.3
            
            
            
            ---
            
            
            
            192.7Accrued expenses and taxes,
      net
            
            
            32.3
            
            
            
            161.2
            
            
            
            53.6
            
            
            
            ---
            
            
            
            247.1Total
      current liabilities
            
            
            80.1
            
            
            
            285.3
            
            
            
            170.8
            
            
            
            ---
            
            
            
            536.2Other
      Liabilities:Deferred income
      taxes
            
            
            (5.9
            )
            
            
            28.5
            
            
            
            13.6
            
            
            
            ---
            
            
            
            36.2Long-term payable to
      affiliate
            
            
            43.2
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            43.2Other long-term
      liabilities
            
            
            41.1
            
            
            
            72.0
            
            
            
            10.4
            
            
            
            ---
            
            
            
            123.578.4
            
            
            
            100.5
            
            
            
            24.0
            
            
            
            ---
            
            
            
            202.9Notes, Mortgage Notes and
      ObligationsPayable,
      Less Current Maturities
            
            
            1,305.2
            
            
            
            28.3
            
            
            
            15.5
            
            
            
            ---
            
            
            
            1,349.0Stockholder's
      investment
            
            
            618.7
            
            
            
            1,747.1
            
            
            
            90.5
            
            
            
            (1,837.6
            )
            
            
            618.7Total
      liabilities and stockholder's investment
            
            $
            2,082.4
            
            
            $
            2,161.2
            
            
            $
            300.8
            
            
            $
            (1,837.6
            )
            
            $
            2,706.8







Unaudited
Condensed Consolidating Statement of Operations


For
the first quarter ended March 29, 2008




Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            Consolidated(Dollar amounts in
      millions)Net Sales
            
            $
            ---
            
            
            $
            431.5
            
            
            $
            137.3
            
            
            $
            (28.6
            )
            
            $
            540.2Costs and
      expenses:Costs of products
      sold
            
            
            ---
            
            
            
            307.4
            
            
            
            112.8
            
            
            
            (28.6
            )
            
            
            391.6Selling, general and
      administrative expenses, net
            
            
            7.5
            
            
            
            88.9
            
            
            
            22.1
            
            
            
            ---
            
            
            
            118.5Amortization of
      intangible assets
            
            
            0.1
            
            
            
            5.8
            
            
            
            0.8
            
            
            
            ---
            
            
            
            6.77.6
            
            
            
            402.1
            
            
            
            135.7
            
            
            
            (28.6
            )
            
            
            516.8Operating (loss)
      earnings
            
            
            (7.6
            )
            
            
            29.4
            
            
            
            1.6
            
            
            
            ---
            
            
            
            23.4Interest
      expense
            
            
            (25.9
            )
            
            
            (0.7
            )
            
            
            (0.8
            )
            
            
            ---
            
            
            
            (27.4
            )Investment
      income
            
            
            0.1
            
            
            
            ---
            
            
            
            0.1
            
            
            
            ---
            
            
            
            0.2(Loss) income before charges and
      allocationsto subsidiaries and
      equity in subsidiaries' (loss)earnings before
      provision (benefit) for income taxes
            
            
            (33.4
            )
            
            
            28.7
            
            
            
            0.9
            
            
            
            ---
            
            
            
            (3.8
            )Charges and allocations to
      subsidiaries andequity in
      subsidiaries' (loss) earningsbefore provision
      (benefit) for income taxes
            
            
            29.6
            
            
            
            (11.1
            )
            
            
            0.6
            
            
            
            (19.1
            )
            
            
            ---(Loss) earnings before
      provision(benefit) for income
      taxes
            
            
            (3.8
            )
            
            
            17.6
            
            
            
            1.5
            
            
            
            (19.1
            )
            
            
            (3.8
            )Provision (benefit) for income
      taxes
            
            
            0.3
            
            
            
            7.2
            
            
            
            1.3
            
            
            
            (8.5
            )
            
            
            0.3Net (loss)
      earnings
            
            $
            (4.1
            )
            
            $
            10.4
            
            
            $
            0.2
            
            
            $
            (10.6
            )
            
            $
            (4.1
            )







Unaudited
Condensed Consolidating Statement of Operations


For
the first quarter ended March 31, 2007




Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            Consolidated(Dollar amounts in
      millions)Net Sales
            
            $
            ---
            
            
            $
            443.9
            
            
            $
            144.9
            
            
            $
            (36.3
            )
            
            $
            552.5Costs and
      expenses:Costs of products
      sold
            
            
            ---
            
            
            
            306.0
            
            
            
            114.9
            
            
            
            (36.3
            )
            
            
            384.6Selling, general and
      administrative expenses, net
            
            
            6.6
            
            
            
            90.0
            
            
            
            20.4
            
            
            
            ---
            
            
            
            117.0Amortization of
      intangible assets
            
            
            0.1
            
            
            
            5.3
            
            
            
            0.6
            
            
            
            ---
            
            
            
            6.06.7
            
            
            
            401.3
            
            
            
            135.9
            
            
            
            (36.3
            )
            
            
            507.6Operating (loss)
      earnings
            
            
            (6.7
            )
            
            
            42.6
            
            
            
            9.0
            
            
            
            ---
            
            
            
            44.9Interest
      expense
            
            
            (28.2
            )
            
            
            (0.6
            )
            
            
            (0.4
            )
            
            
            ---
            
            
            
            (29.2
            )Investment
      income
            
            
            0.2
            
            
            
            ---
            
            
            
            0.2
            
            
            
            ---
            
            
            
            0.4(Loss) income before charges and
      allocationsto subsidiaries and
      equity in subsidiaries' earnings(loss) before
      provision (benefit) for income taxes
            
            
            (34.7
            )
            
            
            42.0
            
            
            
            8.8
            
            
            
            ---
            
            
            
            16.1Charges and allocations to
      subsidiaries andequity in
      subsidiaries' earnings (loss)before provision
      (benefit) for income taxes
            
            
            50.8
            
            
            
            (12.1
            )
            
            
            0.4
            
            
            
            (39.1
            )
            
            
            ---Earnings (loss) before
      provision(benefit) for income
      taxes
            
            
            16.1
            
            
            
            29.9
            
            
            
            9.2
            
            
            
            (39.1
            )
            
            
            16.1Provision (benefit) for income
      taxes
            
            
            6.9
            
            
            
            11.1
            
            
            
            3.7
            
            
            
            (14.8
            )
            
            
            6.9Net earnings
      (loss)
            
            $
            9.2
            
            
            $
            18.8
            
            
            $
            5.5
            
            
            $
            (24.3
            )
            
            $
            9.2







Unaudited
Condensed Consolidating Cash Flow Statement


For
the first quarter ended March 29, 2008




Guarantor
            
            
            Non-Guarantor
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Consolidated(Dollar amounts in
      millions)Cash Flows from operating
      activities:Net cash (used in) provided by
      operating activities
            
            $
            (4.8
            )
            
            $
            3.0
            
            
            $
            2.3
            
            
            $
            0.5Cash Flows from investing
      activities:Capital
      expenditures
            
            
            ---
            
            
            
            (4.8
            )
            
            
            (2.5
            )
            
            
            (7.3
            )Proceeds from the sale of property
      and equipment
            
            
            ---
            
            
            
            0.1
            
            
            
            ---
            
            
            
            0.1Other, net
            
            
            (0.8
            )
            
            
            (0.3
            )
            
            
            (0.1
            )
            
            
            (1.2
            )Net
      cash used in investing activities
            
            
            (0.8
            )
            
            
            (5.0
            )
            
            
            (2.6
            )
            
            
            (8.4
            )Cash Flows from financing
      activities:Increase in
      borrowings
            
            
            30.0
            
            
            
            ---
            
            
            
            3.2
            
            
            
            33.2Payment of
      borrowings
            
            
            (21.8
            )
            
            
            (0.5
            )
            
            
            (3.5
            )
            
            
            (25.8
            )Other, net
            
            
            0.1
            
            
            
            ---
            
            
            
            ---
            
            
            
            0.1Net
      cash provided by (used in) financing activities
            
            
            8.3
            
            
            
            (0.5
            )
            
            
            (0.3
            )
            
            
            7.5Net change in unrestricted cash
      and cash equivalents
            
            
            2.7
            
            
            
            (2.5
            )
            
            
            (0.6
            )
            
            
            (0.4
            )Unrestricted cash and cash
      equivalents at the beginningof the
      period
            
            
            20.5
            
            
            
            8.9
            
            
            
            24.0
            
            
            
            53.4Unrestricted cash and cash
      equivalents at the endof the
      period
            
            $
            23.2
            
            
            $
            6.4
            
            
            $
            23.4
            
            
            $
            53.0







Unaudited
Condensed Consolidating Cash Flow Statement


For
the first quarter ended March 31, 2007







Guarantor
                
                
                Non-Guarantor
                
                
                NortekParent
                
                
                Subsidiaries
                
                
                Subsidiaries
                
                
                Consolidated(Dollar amounts in
      millions)Cash Flows from operating
      activities:Net cash (used in) provided by
      operating activities
                
                $
                (26.6
                )
                
                $
                8.0
                
                
                $
                5.3
                
                
                $
                (13.3
                )Cash Flows from investing
      activities:Capital
      expenditures
                
                
                ---
                
                
                
                (5.0
                )
                
                
                (1.8
                )
                
                
                (6.8
                )Net cash paid for businesses
      acquired
                
                
                ---
                
                
                
                (16.8
                )
                
                
                ---
                
                
                
                (16.8
                )Change in restricted cash and
      marketable securities
                
                
                ---
                
                
                
                1.3
                
                
                
                ---
                
                
                
                1.3Intercompany dividend received
      from (paid by) subsidiaries
                
                
                15.0
                
                
                
                ---
                
                
                
                (15.0
                )
                
                
                ---Other, net
                
                
                ---
                
                
                
                (0.3
                )
                
                
                ---
                
                
                
                (0.3
                )Net
      cash provided by (used in) investing activities
                
                
                15.0
                
                
                
                (20.8
                )
                
                
                (16.8
                )
                
                
                (22.6
                )Cash Flows from financing
      activities:Increase in
      borrowings
                
                
                24.0
                
                
                
                ---
                
                
                
                4.5
                
                
                
                28.5Payment of
      borrowings
                
                
                (1.8
                )
                
                
                (2.7
                )
                
                
                (2.3
                )
                
                
                (6.8
                )Long-term intercompany
      advance
                
                
                (16.8
                )
                
                
                16.8
                
                
                
                ---
                
                
                
                ---Net
      cash provided by financing activities
                
                
                5.4
                
                
                
                14.1
                
                
                
                2.2
                
                
                
                21.7Net change in unrestricted cash
      and cash equivalents
                
                
                (6.2
                )
                
                
                1.3
                
                
                
                (9.3
                )
                
                
                (14.2
                )Unrestricted cash and cash
      equivalents at the beginningof the
      period
                
                
                11.5
                
                
                
                5.1
                
                
                
                40.8
                
                
                
                57.4Unrestricted cash and cash
      equivalents at the endof the
      period
                
                $
                5.3
                
                
                $
                6.4
                
                
                $
                31.5
                
                
                $
                43.2




NORTEK, INC. AND
      SUBSIDIARIES
 MANAGEMENT’S
DISCUSSION AND ANALYSIS
 OF
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE FIRST QUARTER ENDED MARCH 29, 2008
 AND
THE FIRST QUARTER ENDED MARCH 31, 2007





Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





Nortek, Inc. and
its wholly-owned subsidiaries (individually and collectively the “Company” or
“Nortek”) are leading diversified global manufacturers of innovative, branded
residential and commercial products, operating within three reporting
segments:





·
            the
      Residential Ventilation Products, or RVP,
  segment,


·
            the Home
      Technology Products, or HTP, segment,
and


·
            the Air
      Conditioning and Heating Products, or HVAC,
  segment.





Through these
segments, the Company manufactures and sells, primarily in the United States,
Canada and Europe, a wide variety of products for the professional remodeling
and replacement markets, the residential and commercial construction markets,
the manufactured housing market and the do-it-yourself (“DIY”)
market.





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
Ventilation Products segment manufactures and sells room and whole house
ventilation products and other products primarily for the professional
remodeling and replacement markets, the residential new construction market and
the DIY market.  The principal products sold by this segment
include:





·
            kitchen range
      hoods,


·
            exhaust fans
      (such as bath fans and fan, heater and light combination units),
      and


·
            indoor air
      quality products.





The Home Technology
Products segment manufactures and sells a broad array of products designed to
provide convenience and security for residential and certain commercial
applications.  The principal products sold by this segment
include:





·
            audio / video
      distribution and control equipment,


·
            speakers and
      subwoofers,


·
            security and
      access control products,


·
            power
      conditioners and surge protectors,


·
            audio / video
      wall mounts and fixtures,


·
            lighting and
      home automation controls, and


·
            structured
      wiring.





The Air
Conditioning and Heating Products segment manufactures and sells heating,
ventilating and air conditioning systems for site-built residential and
manufactured housing structures, custom-designed commercial applications and
standard light commercial products.  The principal products sold by
this segment include:





·
            split system
      air conditioners and heat pumps,


·
            furnaces and
      related equipment,


·
            air handlers,
      and


·
            large custom
      roof top cooling and heating
products.





In the results of
operations presented below, Unallocated includes corporate related items,
intersegment eliminations and certain income and expense not allocated to its
segments.





Changes in Structure and
Ownership





Over the past
several years, the Company has undergone changes in its structure and ownership
that are useful to an understanding of the Company’s financial results over this
time period.





·
            Nortek had
      been a public company for over thirty-five years until November 2002 when
      the former Nortek Holdings was formed to become its holding company and
      successor public company.


·
            The former
      Nortek Holdings was then taken private in an acquisition by affiliates and
      designees of Kelso & Company L.P., together with members of the
      Company’s management, in January
2003.


·
            Affiliates of
      THL, together with members of the Company’s management, purchased the
      former Nortek Holdings from affiliates and designees of Kelso &
      Company L.P. in August 2004.  The former Nortek Holdings was
      merged out of existence and a newly formed acquisition subsidiary became
      the parent company of Nortek and was renamed Nortek
    Holdings.


·
            NTK Holdings,
      then a newly formed company, became the parent company of Nortek Holdings
      in February 2005 in order to facilitate a financing and related
      dividend.





In connection with
these transactions, the Company has incurred a significant amount of
indebtedness.  For further discussion, see “Liquidity and Capital
Resources”.





Financial
Statement Presentation





The unaudited condensed consolidated
financial statements presented herein (the “Unaudited Financial Statements”)
reflect the financial position, results of operations and cash flows of Nortek,
Inc. and all of its wholly-owned subsidiaries.





Acquisitions





The Company
accounts for acquisitions under the purchase method of accounting and
accordingly, the results of these acquisitions are included in the Company’s
consolidated results since the date of their acquisition.  The Company
has made the following acquisitions since January 1, 2007:





Acquired Company
            Date of Acquisition
            Primary Business of Acquired
      Company
            Reporting
              SegmentStilpol SP.
      Zo.O.
            September 18,
      2007
            Supply
      various fabricated material components and sub-assemblies used by the
      Company’s Best subsidiaries in the manufacture of kitchen range
      hoods.
            RVPMetaltecnica
      S.r.l.
            September 18,
      2007
            Supply
      various fabricated material components and sub-assemblies used by the
      Company’s Best subsidiaries in the manufacture of kitchen range
      hoods.
            RVPTriangle
            August 1,
      2007
            Manufacture,
      marketing and distribution of bath cabinets and related
      products.
            RVPHome Logic,
      LLC
            July 27,
      2007
            Design and
      sale of software and hardware that facilitates the control of third party
      residential subsystems such as home theater, whole-house audio, climate
      control, lighting, security and irrigation.
            HTPAigis
      Mechtronics, Inc.
            July 23,
      2007
            Manufacture
      and sale of equipment, such as camera housings, into the close-circuit
      television portion of the global security market.
            HTPInternational
      Electronics, Inc.
            June 25,
      2007
            Design and
      sale of security and access control components and systems for use in
      residential and light commercial applications.
            HTPc.p. All Star
      Corporation
            April 10,
      2007
            Manufacture
      and distribution of residential, commercial and industrial gate operators,
      garage door openers, radio controls and accessory products for the garage
      door and fence industry.
            HTPPar Safe /
      Litewatch
            March 26,
      2007
            Design and
      sale of home safes and solar LED security lawn signs.
            HTPLiteTouch,
      Inc.
            March 2,
      2007
            Design,
      manufacture and sale of automated lighting control for a variety of
      applications including residential, commercial, new construction and
      retro-fit.
            HTP




Critical
Accounting Policies





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, Accounts Receivable and Related
  Expenses


·
            Inventory
      Valuation


·
            Income
      Taxes


·
            Goodwill and
      Other Long-Lived Assets


·
            Pensions and
      Post-Retirement Health Benefits


·
            Warranty,
      Product Recalls and Safety Upgrades


·
            Insurance
      Liabilities, including Product Liability,
and


·
            Contingencies





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 following table
presents the financial information for the Company’s reporting segments for the
first quarter ended March 29, 2008 and March 31, 2007:









For the first quarter
      ended
              
              
              Net ChangeMarch 29,
    2008
              
              
              March 31,
    2007
              
              
              $
              
              
              
              %(Dollar amounts in
      millions)Net sales:Residential ventilation
      products
              
              $
              188.2
              
              
              $
              208.7
              
              
              $
              (20.5
              )
              
              
              (9.8
              )
      %Home technology
      products
              
              
              124.1
              
              
              
              123.2
              
              
              
              0.9
              
              
              
              0.7Air conditioning and heating
      products
              
              
              227.9
              
              
              
              220.6
              
              
              
              7.3
              
              
              
              3.3Consolidated net
      sales
              
              $
              540.2
              
              
              $
              552.5
              
              
              $
              (12.3
              )
              
              
              (2.2
              )
      %Operating
      earnings:Residential ventilation products
      (1)
              
              $
              15.9
              
              
              $
              25.2
              
              
              $
              (9.3
              )
              
              
              (36.9
              )
      %Home technology products
      (2)
              
              
              10.3
              
              
              
              16.5
              
              
              
              (6.2
              )
              
              
              (37.6
              )Air conditioning and heating
      products (3)
              
              
              4.7
              
              
              
              9.8
              
              
              
              (5.1
              )
              
              
              (52.0
              )Subtotal
              
              
              30.9
              
              
              
              51.5
              
              
              
              (20.6
              )
              
              
              (40.0
              )Unallocated:Stock-based compensation
      charges
              
              
              ---
              
              
              
              (0.1
              )
              
              
              0.1
              
              
              
              (100.0
              )Foreign exchange gain on
      transactions,including intercompany
      debt
              
              
              0.1
              
              
              
              0.1
              
              
              
              ---
              
              
              
              ---Unallocated,
      net
              
              
              (7.6
              )
              
              
              (6.6
              )
              
              
              (1.0
              )
              
              
              (15.2
              )Consolidated
      operating earnings
              
              $
              23.4
              
              
              $
              44.9
              
              
              $
              (21.5
              )
              
              
              (47.9
              )
      %Depreciation and amortization
      expense:Residential ventilation
      products
              
              $
              6.1
              
              
              $
              4.3
              
              
              $
              1.8
              
              
              
              41.9
              %Home technology
      products
              
              
              4.9
              
              
              
              4.0
              
              
              
              0.9
              
              
              
              22.5Air conditioning and heating
      products
              
              
              6.1
              
              
              
              6.0
              
              
              
              0.1
              
              
              
              1.7Unallocated
              
              
              0.3
              
              
              
              0.3
              
              
              
              ---
              
              
              
              ---$
              17.4
              
              
              $
              14.6
              
              
              $
              2.8
              
              
              
              19.2
              %Operating earnings
      margin:Residential ventilation products
      (1)
              
              
              8.4
              %
              
              
              12.1
              %Home technology products
      (2)
              
              
              8.3
              
              
              
              13.4Air conditioning and heating
      products (3)
              
              
              2.1
              
              
              
              4.4Consolidated
              
              
              4.3
              %
              
              
              8.1
              %Depreciation and amortizationexpense as
      a % of net sales:Residential ventilation
      products
              
              
              3.2
              %
              
              
              2.1
              %Home technology
      products
              
              
              3.9
              
              
              
              3.2Air conditioning and heating
      products
              
              
              2.7
              
              
              
              2.7Consolidated
              
              
              3.2
              %
              
              
              2.6
              %






(1)
            The operating
      results of the RVP segment for the first quarter ended March 29, 2008
      include net foreign exchange losses of approximately $0.5 million related
      to transactions, including intercompany debt not indefinitely invested in
      the Company’s subsidiaries.





The operating
results of the RVP segment for the first quarter ended March 31, 2007 include an
approximate $0.6 million charge related to the closure of the Company’s NuTone,
Inc. Cincinnati, Ohio facility, legal and other professional fees and expenses
incurred in connection with matters related to certain subsidiaries based in
Italy and Poland of approximately $1.0 million and net foreign exchange losses
of approximately $0.2 million related to transactions, including intercompany
debt not indefinitely invested in the Company’s subsidiaries.





(2)
            The operating
      results of the HTP segment for the first quarter ended March 29, 2008
      include approximately $0.2 million of fees and expenses incurred in
      connection with a dispute with a
supplier.





(3)
            The operating
      results of the HVAC segment for the first quarter ended March 29, 2008
      include net foreign exchange gains of approximately $0.3 million related
      to transactions, including intercompany debt not indefinitely invested in
      the Company’s subsidiaries.





The operating
results of the HVAC segment for the first quarter ended March 31, 2007 include a
charge of approximately $1.8 million related to reserves for amounts due from
customers and net foreign exchange losses of approximately $0.2 million related
to transactions, including intercompany debt not indefinitely invested in the
Company’s subsidiaries.




The following table
presents the financial information for the first quarter ended March 29, 2008
and March 31, 2007.  The results of operations for the first quarter
ended March 29, 2008 are not necessarily indicative of the results of operations
to be expected for any other interim period or the full year.




Change in earnings
      inthe first quarter of
      2008as compared to
      theFor the first quarter
      ended
              
              
              first quarter of
      2007March 29,
    2008
              
              
              March 31,
    2007
              
              
              $
              
              
              
              %(Dollar amounts in
      millions)Net sales
              
              $
              540.2
              
              
              $
              552.5
              
              
              $
              (12.3
              )
              
              
              (2.2
              )
      %Cost of products
      sold
              
              
              391.6
              
              
              
              384.6
              
              
              
              (7.0
              )
              
              
              (1.8
              )Selling, general and
      administrative expense, net (1)
              
              
              118.5
              
              
              
              117.0
              
              
              
              (1.5
              )
              
              
              (1.3
              )Amortization of intangible
      assets
              
              
              6.7
              
              
              
              6.0
              
              
              
              (0.7
              )
              
              
              (11.7
              )Operating
      earnings
              
              
              23.4
              
              
              
              44.9
              
              
              
              (21.5
              )
              
              
              (47.9
              )Interest
      expense
              
              
              (27.4
              )
              
              
              (29.2
              )
              
              
              1.8
              
              
              
              6.2Investment
      income
              
              
              0.2
              
              
              
              0.4
              
              
              
              (0.2
              )
              
              
              (50.0
              )(Loss) earnings before provision
      for income taxes
              
              
              (3.8
              )
              
              
              16.1
              
              
              
              (19.9
              )
              
              
              *Provision for income
      taxes
              
              
              0.3
              
              
              
              6.9
              
              
              
              6.6
              
              
              
              95.7Net (loss)
      earnings
              
              $
              (4.1
              )
              
              $
              9.2
              
              
              $
              (13.3
              )
              
              
              *
              %






Change in percentage
      forPercentage of net sales
      for
              
              
              the first quarter of
      2008the first quarter
      ended
              
              
              as compared to
      theMarch 29,
    2008
              
              
              March 31,
    2007
              
              
              first quarter of
      2007Net sales
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              ---
              %Cost of products
      sold
              
              
              72.5
              
              
              
              69.6
              
              
              
              (2.9
              )Selling, general and
      administrative expense, net (1)
              
              
              21.9
              
              
              
              21.2
              
              
              
              (0.7
              )Amortization of intangible
      assets
              
              
              1.3
              
              
              
              1.1
              
              
              
              (0.2
              )Operating
      earnings
              
              
              4.3
              
              
              
              8.1
              
              
              
              (3.8
              )Interest
      expense
              
              
              (5.1
              )
              
              
              (5.3
              )
              
              
              0.2Investment
      income
              
              
              0.1
              
              
              
              0.1
              
              
              
              ---(Loss) earnings before provision
      for income taxes
              
              
              (0.7
              )
              
              
              2.9
              
              
              
              (3.6
              )Provision for income
      taxes
              
              
              0.1
              
              
              
              1.2
              
              
              
              1.1Net (loss)
      earnings
              
              
              (0.8
              )
      %
              
              
              1.7
              %
              
              
              (2.5
              )
       %




(1)
            See Note D of
      the Notes to the Unaudited Financial Statements included elsewhere
      herein.





*
            not
      meaningful








The Company’s
reporting segments have a significant number of different products across a wide
range of price points and numerous distribution channels that do not always
allow meaningful quantitative analysis to be performed with respect to the
effect on net sales of changes in units sold or the price per unit
sold.  However, whenever the underlying causes of material increases
or decreases in consolidated net sales can be adequately analyzed and
quantified, the Company attempts to make appropriate disclosure of such reasons,
including changes in price, volume and the mix of products sold.





Excluding the
effect of acquisitions and foreign exchange, the operating results of the
Company were adversely impacted in the first quarter of 2008 by a decline in
sales volume in residential ventilation products as the housing market continued
to weaken.  The results of operations for the first quarter ended
March 29, 2008 are not necessarily indicative of the results of operations to be
expected for any other interim period or the full year.  The demand
for certain of the Company’s products is seasonal, particularly in the Northeast
and Midwest regions of the United States where inclement weather during winter
months usually reduces the level of building and remodeling activity in both
home improvement and new construction markets, thereby reducing the Company’s
sales levels during the first and fourth quarters.  Despite the
current volatile operating environment, the Company has certain new business
prospects for the balance of 2008 and expects such prospects will contribute
positively to earnings, as discussed further below.  An overall
decline in sales volume without a proportionate decline in overhead costs and
slightly higher material and transportation costs, which were partially offset
by continued strategic sourcing initiatives as well as sales price increases,
also adversely impacted the first quarter ended March 29, 2008.  The
Company believes that declines in existing home sales and the instability in the
troubled mortgage market will have a negative impact on consumer spending on
home remodeling and repair expenditures throughout 2008, which will have an
adverse effect on the Company’s operating results throughout the remainder of
2008.





Net
Sales.Consolidated net sales decreased approximately $12.3
million or 2.2% for the first quarter ended March 29, 2008 as compared to the
first quarter ended March 31, 2007 as discussed further in the following
paragraphs.  The effect of changes in foreign currency exchange rates
and acquisitions contributed approximately $12.0 million and $11.2 million,
respectively, to net sales for the first quarter ended March 29,
2008.





In the RVP segment,
net sales decreased approximately $20.5 million or 9.8% for the first quarter
ended March 29, 2008 as compared to the first quarter ended March 31,
2007.  Net sales in the RVP segment for the first quarter ended March
29, 2008 reflects an increase of approximately $8.8 million attributable to the
effect of changes in foreign currency exchange rates and approximately $1.0
million attributable to acquisitions.





Excluding the
effect of foreign exchange and acquisitions, net sales in the RVP segment
decreased approximately $30.3 million for the first quarter ended March 29, 2008
as compared to the first quarter ended March 31, 2007.  The decrease
in net sales in the RVP segment for the first quarter ended March 29, 2008 as
compared to the first quarter ended March 31, 2007 reflects lower sales volume
of bathroom exhaust fans and kitchen range hoods, primarily in the RVP segment’s
domestic subsidiaries, partially offset by higher average unit sales price of
bathroom exhaust fans.  The average unit sales price of kitchen range
hoods for the first quarter of 2008 was down slightly as compared to
2007.  Higher average unit sales price of bathroom exhaust fans
reflect, in part, the impact of the sale of new products with higher price
points and an increase in the relative percentage of products sold with higher
sales price points as compared to 2007.  Kitchen range hoods and
bathroom exhaust fans are the largest product category sold in the RVP segment,
accounting for approximately 80.5% of the total RVP segment’s gross sales for
the first quarter ended March 29, 2008.  Excluding the effect of
foreign currency exchange rates and acquisitions, sales of range hoods and
bathroom exhaust fans decreased approximately 17.2% and 11.0% in the first
quarter ended March 29, 2008 for the RVP segment’s domestic and foreign
subsidiaries, respectively.





In the HTP segment,
net sales increased approximately $0.9 million or 0.7% for the first quarter
ended March 29, 2008 as compared to the first quarter ended March 31,
2007.  Net sales in the HTP segment for the first quarter ended March
29, 2008 includes approximately $10.2 million attributable to
acquisitions.  Excluding the effect of acquisitions, net sales in the
HVP segment decreased by approximately $9.3 million.  This decrease is
due to decreased sales of audio and video distribution equipment and speakers,
partially offset by an increase in sales of certain security and access control
products.





In the HVAC
segment, net sales increased approximately $7.3 million or 3.3% for the first
quarter ended March 29, 2008 as compared to the first quarter ended March 31,
2007.  Net sales in the HVAC segment for the first quarter ended March
29, 2008 reflects an increase of approximately $3.2 million attributable to the
effect of changes in foreign currency exchange rates.  The remaining
increase in net sales in the HVAC segment for the first quarter ended March 29,
2008 as compared to the same period of 2007 includes higher sales volume of HVAC
products sold to residential site-built and manufactured housing customers, in
part, as a result of a sizeable new customer.  Increased sales volume
of HVAC products sold to residential site-built and manufacturing housing
customers was partially offset by a decrease in sales volume for commercial air
conditioning products, principally as a result of the completion and shipment of
a major job, which contributed approximately $14 million of net sales in
the first quarter of 2007, which did not occur in 2008.  Backlog for
commercial HVAC products was approximately $175.4 million at March 31, 2007,
approximately $172.7 million at December 31, 2007 and approximately $259.8
million at March 29, 2008.  This increase in backlog serving
commercial HVAC customers reflects a new order received in the first quarter of
2008 for approximately $74.8 million, which the Company expects will be shipped
and recorded over the balance of 2008.  The Company’s net sales to
customers serving the manufactured housing markets, principally consisting of
air conditioners and furnaces, constituted approximately 4.5% and 4.0% of the
Company’s consolidated net sales for the first quarter ended March 29, 2008 and
March 31, 2007, respectively.





Foreign net sales,
which are attributed based on the location of the Company’s subsidiary
responsible for the sale, were approximately 22.3% and 22.0% of consolidated net
sales for the first quarter ended March 29, 2008 and March 31, 2007,
respectively.  Net sales from the Company’s Canadian subsidiaries were
approximately 9.2% and 8.6% of consolidated net sales for the first quarter
ended March 29, 2008 and March 31, 2007, respectively.  Net sales from
the Company’s Canadian subsidiaries include net sales from the Company’s RVP and
HVAC segments.  Net sales from the Company’s European subsidiaries
were approximately 10.7% and 11.4% of consolidated net sales for the first
quarter ended March 29, 2008 and March 31, 2007, respectively.  Net
sales from the Company’s European subsidiaries include net sales primarily from
the Company’s RVP and HVAC segments and to a lesser extent the Company’s HTP
segment.





Cost of Products
Sold.Consolidated cost of products sold was approximately
$391.6 million for the first quarter ended March 29, 2008 as compared to
approximately $384.6 million for the first quarter ended March 31,
2007.  Cost of products sold, as a percentage of net sales, increased
from approximately 69.6% for the first quarter ended March 31, 2007 to
approximately 72.5% for the first quarter ended March 29, 2008 primarily as a
result of the factors described below.





The Company consistently reviews the
costs of its product lines and seeks opportunities to increase prices to help
offset the rising costs of raw materials and transportation.  The
Company did implement certain limited price increases in each of its three
segments in the first quarter of 2008 to help offset higher costs.  In
addition, the Company has several increases planned across all three of its
segments for the remainder of the year should its costs for raw material and
transportation continue to rise.  These price increases may not be
totally realized and may not totally offset the impact of higher
costs.





Overall,
consolidated material costs were approximately 46.9% and 45.0% of net sales for
the first quarter ended March 29, 2008 and March 31, 2007,
respectively.  As compared to the first quarter ended March 31, 2007,
the Company experienced higher material costs related primarily to purchases of
steel.  Cost increases during the first quarter ended March 29, 2008
as compared to the same period of 2007 were partially offset by continued
strategic sourcing initiatives and improvements in manufacturing
efficiency.





During the first
quarter ended March 29, 2008 the Company experienced increased freight costs
primarily due to increased fuel surcharges as compared to the first quarter of
2007.  These increases were partially offset by the Company’s
strategic sourcing initiatives and through other cost reduction
measures.  These cost reduction measures reduce the overall effect of
freight costs on cost of goods sold as a percentage of net sales.





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.





In the RVP segment,
cost of products sold for the first quarter ended March 29, 2008 was
approximately $139.5 million, or 74.1% as a percentage of the RVP segment’s net
sales, as compared to approximately $145.5 million, or 69.7% as a percentage of
the RVP segment’s net sales for the first quarter ended March 31,
2007.  Cost of products sold in the RVP segment for the first quarter
ended March 29, 2008 includes (1) an increase of approximately $7.1 million
related to the effect of changes in foreign currency exchange rates and (2) an
increase of approximately $0.7 million contributed by
acquisitions.  The increase in the percentage of cost of products sold
to net sales for the first quarter ended March 29, 2008 over the same period of
2007 in the RVP segment reflects the impact of the above items and a decline in
sales volume of kitchen range hoods and bathroom exhaust fans without a
proportionate decrease in overhead costs.





In the HTP segment,
cost of products sold for the first quarter ended March 29, 2008was approximately $67.7
million, or 54.6% as a percentage of the HTP segment’s net sales, as compared to
approximately $65.8 million, or 53.4% as a percentage of the HTP segment’s net
sales for the first quarter ended March 31, 2007.  Cost of products
sold in the HTP segment for the first quarter ended March 29, 2008 reflects
approximately $6.4 million of cost of products sold contributed by
acquisitions.  The increase in the percentage of cost of products sold
to net sales for the first quarter ended March 29, 2008 as compared to the same
period of 2007 is primarily as a result of increased material
costs.





In the HVAC
segment, cost of products sold for the first quarter ended March 29, 2008 was
approximately $184.4 million, or 80.9% as a percentage of the HVAC segment’s net
sales, as compared to approximately $173.3 million, or 78.6% as a percentage of
the HVAC segment’s net sales for the first quarter ended March 31,
2007.  Cost of products sold in the HVAC segment for the first quarter
ended March 29, 2008 includes an increase of approximately $2.5 million related
to the effect of changes in foreign currency exchange rates.  The
increase in cost of products sold as a percentage of net sales for the first
quarter ended March 29, 2008 as compared to the same period of 2007 reflects the
effect of a decline in sales volume for commercial air conditioning products
without a proportionate decrease in overhead costs, partially offset by a
decrease in material costs as a percentage of net sales for products sold to
both residential site-built and manufactured housing customers.





Selling, General and Administrative
Expense, Net.Consolidated selling, general and administrative
expense, net (“SG&A”) was approximately $118.5 million for the first quarter
ended March 29, 2008 as compared to approximately $117.0 million for the first
quarter ended March 31, 2007.  SG&A as a percentage of net sales
increased from approximately 21.2% for the first quarter ended March 31, 2007 to
approximately 21.9% for the first quarter ended March 29, 2008.





SG&A for the
first quarter ended March 29, 2008 and March 31, 2007 includes the following
(income) and expense items (see Note D of the Notes to the Consolidated
Financial Statements included elsewhere herein):





For the first quarter endedMarch 29, 2008
            
            
            March 31, 2007(Amounts
      in millions)(1
            )
            SG&A
      related to acquisitions
            
            $
            4.9
            
            
            $
            ---(2
            )
            Effect of
      changes in foreign currency exchange rates
            
            
            1.8
            
            
            
            ---(3
            )
            Charges
      related to the closure of the Company’s NuTone, Inc.Cincinnati,
      OH facility
            
            
            ---
            
            
            
            0.6(4
            )
            Legal and
      other professional fees and expenses incurred in connection with matters
      related to certain
              subsidiaries based in Italy and Poland
            
            
            ---
            
            
            
            1.0(5
            )
            Charges
      related to reserves for amounts due from customers in the HVAC
      segment
            
            
            ---
            
            
            
            1.8(6
            )
            Decrease in
      displays expense in the RVP segment
            
            
            (3.2
            )
            
            
            ---(7
            )
            Net foreign
      exchange losses related to transactions, including intercompany debt not
      indefinitely invested in the Company’s subsidiaries
            
            
            0.1
            
            
            
            0.3(8
            )
            Stock-based
      compensation expense
            
            
            ---
            
            
            
            0.1(9
            )
            Legal fees
      and expenses incurred in the HTP segment in connection with a dispute with
      a supplier
            
            
            0.2
            
            
            
            ---





Amortization of Intangible
Assets.Amortization of intangible assets increased
approximately $0.7 million from approximately $6.0 million for the first quarter
ended March 31, 2007 to approximately $6.7 million for the first quarter ended
March 29, 2008.  The increase in amortization of intangible assets is
principally due to the impact of acquisitions, which contributed approximately
$0.4 million to the increase for the first quarter ended March 29,
2008.





Depreciation
Expense.Depreciation expense increased approximately $2.1
million from approximately $8.6 million for the first quarter ended March 31,
2007 to approximately $10.7 million for the first quarter ended March 29,
2008.  This increase is primarily attributable to capital
expenditures, and to a lesser extent the impact of acquisitions, which
represented approximately $0.2 million of the increase.





Operating
Earnings.Consolidated operating earnings decreased by
approximately $21.5 million from approximately $44.9 million for the first
quarter ended March 31, 2007 to approximately $23.4 million for the first
quarter ended March 29, 2008.  The effect of changes in foreign
currency exchange rates contributed approximately $0.6 million to operating
earnings for the first quarter ended March 29, 2008, while the impact of
acquisitions decreased operating earnings by approximately $1.2
million.  The decrease in consolidated operating earnings is primarily
due to the factors discussed above and that follow.  Operating
earnings, as a percentage of net sales, decreased from approximately 8.1% for
the first quarter ended March 31, 2007 to approximately 4.3% for the first
quarter ended March 29, 2008.





Operating earnings
of the RVP segment for the first quarter ended March 29, 2008 were approximately
$15.9 million as compared to approximately $25.2 million for the first quarter
ended March 31, 2007.  Operating earnings in the RVP segment for the
first quarter ended March 29, 2008 and March 31, 2007 includes the following
increases (decreases) in operating earnings:





For the first quarter endedMarch 29, 2008
            
            
            March 31, 2007(Amounts
      in millions)(1
            )
            Decrease in
      displays expense in the RVP segment
            
            $
            3.2
            
            
            $
            ---(2
            )
            Legal and
      other professional fees and expenses incurred in connection with matters
      related to certain
              subsidiaries based in Italy and Poland
            
            
            ---
            
            
            
            (1.0
            )(3
            )
            Charges
      related to the closure of the Company’s NuTone, Inc. Cincinnati, OH
      facility
            
            
            ---
            
            
            
            (0.6
            )(4
            )
            Increased
      depreciation expense of property and equipment
            
            
            (1.2
            )
            
            
            ---(5
            )
            Net foreign
      exchange losses related to transactions, including intercompany debt not
      indefinitely
              invested in the Company’s subsidiaries
            
            
            (0.5
            )
            
            
            (0.2
            )(6
            )
            Increase in
      operating earnings related to effect of changes in foreign currency
      exchange rates
            
            
            0.5
            
            
            
            ---(7
            )
            Decrease in
      operating earnings related to acquisitions
            
            
            (0.3
            )
            
            
            ---(8
            )
            Increased
      amortization of intangible assets
            
            
            (0.6
            )
            
            
            ---





The remaining
decrease in operating earnings in the RVP segment for the first quarter ended
March 29, 2008 as compared to the same period in 2007 is a result of lower sales
volume of kitchen range hoods and bathroom exhaust fans without a proportionate
decline in overhead costs primarily in the United States market.





Operating earnings
of the HTP segment for the first quarter ended March 29, 2008 were approximately
$10.3 million as compared to approximately $16.5 million for the first quarter
ended March 31, 2007.  Operating earnings of the HTP segment for the
first quarter ended March 29, 2008 reflects (1) a decrease of approximately $0.9
million contributed by acquisitions, (2) approximately $0.3 million of increased
depreciation expense of property and equipment and approximately $0.6 million of
increased amortization of intangible assets, primarily attributable to
acquisitions, both of which are included in the impact of acquisitions noted
above and (3) approximately $0.2 million of fees and expenses incurred in
connection with a dispute with a supplier.





The remaining
decrease in operating earnings in the HTP segment for the first quarter ended
March 29, 2008 over the same period in 2007 is primarily a result of decreased
sales volume of audio and video distribution equipment and speakers and
increased material costs, partially offset by higher sales volume of certain
security and access control devices.





Operating earnings
of the HVAC segment were approximately $4.7 million for the first quarter ended
March 29, 2008 as compared to approximately $9.8 million for the first quarter
ended March 31, 2007.  Operating earnings of the HVAC segment for the
first quarter ended March 29, 2008 reflect (1) approximately $0.6 million of
increased depreciation expense of property and equipment and approximately $0.5
million of decreased amortization of intangible assets, (2) an increase in
earnings of approximately $0.1 million from the effect of foreign currency
exchange rates and (3) net foreign exchange gains of approximately $0.3 million
related to transactions, including intercompany debt not indefinitely invested
in the Company’s subsidiaries.





Operating earnings
of the HVAC segment for the first quarter ended March 31, 2007 reflects (1) a
charge of approximately $1.8 million related to reserves for amounts due from
customers and (2) net foreign exchange losses of approximately $0.2 million
related to transactions, including intercompany debt not indefinitely invested
in the Company’s subsidiaries.





The remaining
decrease in operating earnings in the HVAC segment for the first quarter ended
March 29, 2008 as compared to the same period in 2007 is primarily the result of
lower sales volume for products sold to commercial customers without a
proportionate decline in overhead costs, partially offset by higher sales volume
of products sold to both residential site-built and manufactured housing
customers.





Operating earnings
of foreign operations, consisting primarily of the results of operations of the
Company’s Canadian subsidiaries, were approximately 6.1% and 17.6% of operating
earnings (before unallocated and corporate expenses) for the first quarter ended
March 29, 2008 and March 31, 2007, respectively.  Net sales and
earnings derived from international markets are subject to, among others, the
risks of currency fluctuations.





Interest
Expense.  Interest expense decreased approximately $1.8 million or
approximately 6.2% during the first quarter ended March 29, 2008 as compared to
the first quarter ended March 31, 2007.  This decrease is primarily as
a result of decreased interest rates in the first quarter of 2007 as compared to
the same period of 2006 of approximately $2.5 million, partially offset by
approximately $0.7 million of additional interest expense from increased average
principle balances on the Company’s debt obligations.





Investment
Income.Investment income was approximately $0.2 million and
$0.4 million for the first quarter ended March 29, 2008 and March 31, 2007,
respectively.





Provision for Income
Taxes.The provision for income taxes was approximately $0.3
million and $6.9 million for the first quarter ended March 29, 2008 and March
31, 2007, respectively.  The effective income tax rates of (7.9)% and
42.9% for the first quarter ended March 29, 2008 and March 31, 2007,
respectively, differ from the expected United States federal statutory rate of
35% principally as a result of state income tax provisions, non-deductible
expenses, the effect of foreign operations and interest on uncertain tax
positions.  The decrease in the effective income tax rates between
2008 and 2007 is principally due to interest on uncertain tax positions (see
Note F of the Notes to the Unaudited Financial Statements included elsewhere
herein).





Net (Loss)
Earnings.  Consolidated net (loss) earnings decreased by
approximately $13.3 million from net earnings of approximately $9.2 million, or
1.7% as a percentage of net sales, for the first quarter ended March 31, 2007 to
a net loss of approximately $4.1 million for the first quarter ended March 29,
2008.  This decrease was primarily due to the factors discussed above,
which included a decrease of approximately $21.5 million in consolidated
operating earnings and a decrease in investment income of approximately $0.2
million, partially offset by a decrease of approximately $1.8 million in
interest expense and a decrease of approximately $6.6 million in the provision
for income taxes.




EBITDA.The
Company uses EBITDA as both an operating performance and liquidity
measure.  Operating performance measure disclosures with respect to
EBITDA are provided below.  Refer to the Liquidity and Capital
Resources section for liquidity measure disclosures with respect to EBITDA and a
reconciliation from net cash flows from operating activities to
EBITDA.





EBITDA is defined
as net earnings (loss) before interest, taxes, depreciation and amortization
expense.  EBITDA is not a measure of operating performance under U.S.
generally accepted accounting principles (“GAAP”) and should not be considered
as an alternative or substitute for GAAP profitability measures such as
operating earnings (loss) from continuing operations, discontinued operations,
extraordinary items and net earnings (loss).  EBITDA as an operating
performance measure has material limitations since it excludes, among other
things, the statement of operations impact of depreciation and amortization
expense, interest expense and the provision (benefit) for income taxes and
therefore does not necessarily represent an accurate measure of profitability,
particularly in situations where a company is highly leveraged or has a
disadvantageous tax structure.  The Company uses a significant amount
of capital assets and therefore, depreciation and amortization expense is a
necessary element of the Company’s costs and ability to generate revenue and
therefore its exclusion from EBITDA is a material limitation.  The
Company has a significant amount of debt and therefore, interest expense is a
necessary element of the Company’s costs and ability to generate revenue and
therefore its exclusion from EBITDA is a material limitation.  The
Company generally incurs significant U.S. federal, state and foreign income
taxes each year and the provision (benefit) for income taxes is a necessary
element of the Company’s costs and therefore its exclusion from EBITDA is a
material limitation.  As a result, EBITDA should be evaluated in
conjunction with net earnings (loss) for a more complete analysis of the
Company’s profitability, as net earnings (loss) includes the financial statement
impact of these items and is the most directly comparable GAAP operating
performance measure to EBITDA.  As EBITDA is not defined by GAAP, the
Company’s definition of EBITDA may differ from and therefore may not be
comparable to similarly titled measures used by other companies, thereby
limiting its usefulness as a comparative measure.  Because of the
limitations that EBITDA has as an analytical tool, investors should not consider
it in isolation, or as a substitute for analysis of the Company’s operating
results as reported under GAAP.





Company management
uses EBITDA as a supplementary non-GAAP operating performance measure to assist
with its overall evaluation of Company and subsidiary operating performance
(including the performance of subsidiary management) relative to outside peer
group companies.  In addition, the Company uses EBITDA as an operating
performance measure in financial presentations to the Company’s Board of
Directors, shareholders, various banks participating in Nortek’s Credit
Facility, note holders and Bond Rating agencies, among others, as a supplemental
non-GAAP operating measure to assist them in their evaluation of the Company’s
performance.  The Company is also active in mergers, acquisitions and
divestitures and uses EBITDA as an additional operating performance measure to
assess Company, subsidiary and potential acquisition target enterprise value and
to assist in the overall evaluation of Company, subsidiary and potential
acquisition target performance on an internal basis and relative to peer group
companies.  The Company uses EBITDA in conjunction with traditional
GAAP operating performance measures as part of its overall assessment of
potential valuation and relative performance and therefore does not place undue
reliance on EBITDA as its only measure of operating performance.





The Company
believes EBITDA is useful for both the Company and investors as it is a commonly
used analytical measurement for comparing company profitability, which
eliminates the effects of financing, differing valuations of fixed and
intangible assets and tax structure decisions.  The Company believes
that EBITDA is specifically relevant to the Company, due to the different
degrees of leverage among its competitors, the impact of purchase accounting
associated with acquisitions, which impacts comparability with its competitors
who may or may not have recently revalued their fixed and intangible assets, and
the differing tax structures and tax jurisdictions of certain of the Company’s
competitors.  The Company has included EBITDA as a supplemental
operating performance measure, which should be evaluated by investors in
conjunction with the traditional GAAP performance measures discussed earlier in
this Results of Operations section for a complete evaluation of the Company’s
operating performance.





The following table presents a
reconciliation from net(loss)earnings, which is
the most directly comparable GAAP operating performance measure, to EBITDA for
thefirst quarter ended
March 29, 2008 and March 31, 2007:









For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Net (loss) earnings (1),
      (2)
              
              $
              (4.1
              )
              
              $
              9.2Provision for income
      taxes
              
              
              0.3
              
              
              
              6.9Interest
      expense  (3)
              
              
              27.4
              
              
              
              29.2Investment
      income
              
              
              (0.2
              )
              
              
              (0.4
              )Depreciation
      expense
              
              
              10.7
              
              
              
              8.6Amortization
      expense
              
              
              6.7
              
              
              
              6.0EBITDA
              
              $
              40.8
              
              
              $
              59.5


(1)
            In the RVP
      segment, net loss for the first quarter ended March 29, 2008 includes net
      foreign exchange losses of approximately $0.5 million related to
      transactions, including intercompany debt not indefinitely invested in the
      Company’s subsidiaries.





In the HTP segment,
net loss for the first quarter ended March 29, 2008 includes approximately $0.2
million of fees and expenses incurred in connection with a dispute with a
supplier.





In the HVAC
segment, net loss for the first quarter ended March 29, 2008 includes net
foreign exchange gains of approximately $0.3 million related to transactions,
including intercompany debt not indefinitely invested in the Company’s
subsidiaries.





(2)
            In the RVP
      segment, net earnings for the first quarter ended March 31, 2007 include
      an approximate $0.6 million charge related to the closure of the Company’s
      NuTone, Inc. Cincinnati, Ohio facility, legal and other professional fees
      and expenses incurred in connection with matters related to certain
      subsidiaries based in Italy and Poland of approximately $1.0 million and
      net foreign exchange losses of approximately $0.2 million related to
      transactions, including intercompany debt not indefinitely invested in the
      Company’s subsidiaries.





In the HVAC
segment, net earnings for the first quarter ended March 31, 2007 include a
charge of approximately $1.8 million related to reserves for amounts due from
customers and net foreign exchange losses of approximately $0.2 million related
to transactions, including intercompany debt not indefinitely invested in the
Company’s subsidiaries.





(3)
            Interest
      expense for the first quarter ended March 29, 2008 includes cash interest
      of approximately $26.0 million and non-cash interest of approximately $1.4
      million.  Interest expense for the first quarter ended March 31,
      2007 includes cash interest of approximately $27.8 million and non-cash
      interest of approximately $1.4
million.





Liquidity
and Capital Resources





The Company’s
principal sources of liquidity are its cash flow from subsidiaries, its ability
to borrow under the terms of its revolving credit facility and its unrestricted
cash and cash equivalents.





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.  Critical factors in the level of the Company’s sales,
profitability and cash flows are the levels of residential remodeling and
replacement activity and new residential and non-residential construction
activity.  The level of new residential and non-residential
construction activity and, to a lesser extent, the level of residential
remodeling and replacement activity are affected by seasonality and cyclical
factors such as interest rates, inflation, consumer spending habits, employment
levels and other macroeconomic factors, over which the Company has no
control.  Any decline in economic activity as a result of these or
other factors typically results in a decline in new construction and, to a
lesser extent, residential remodeling and replacement purchases, which would
result in a decrease in the Company’s sales, profitability and cash
flows.  Reduced levels of home sales and housing starts and other
softening in the housing markets negatively affected the Company’s results of
operations and its cash flow in the first quarter of 2008 and these factors are
expected to continue to negatively affect the Company’s results of operations
and its cash flow throughout 2008.





In addition,
uncertainties due to the significant instability in the mortgage markets and the
resultant impact on the overall credit market could continue to adversely impact
the Company’s business.  The tightening of credit standards is
expected to result in a decline in consumer spending for home remodeling and
replacement projects which could adversely impact the Company’s operating
results and the cash flow from its subsidiaries.  Additionally,
increases in the cost of home mortgages and the difficulty in obtaining
financing for new homes could continue to materially impact the sales of the
Company’s products in the residential construction market.





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.





In March 2008,
Moody’s downgraded the debt ratings for Nortek and its Parent Company, NTK
Holdings, from “B2” to “B3” and issued a negative outlook.  Moody’s
rating downgrade reflects the Company’s high leverage, reduced financial
flexibility and the anticipated pressure of the difficult new home construction
market and home values on the Company’s 2008 financial
performance.  The negative ratings outlook reflects Moody’s concern
that the market for the Company’s products will remain under significant
pressure so long as new housing starts do not rebound and that the repair and
remodeling market could contract meaningfully in 2008 and possibly in
2009.  Additionally, Moody’s was concerned whether the Company’s cost
cutting initiatives would be successful enough so as to offset pressure on the
Company’s sales.





In April 2008,
Standard & Poor’s lowered its ratings for Nortek and its Parent Company, NTK
Holdings, from “B” to “B-” and issued a negative outlook.  Standard
& Poor’s rating downgrade reflects the Company’s weaker  overall
financial profile resulting from the challenging operating conditions in the
Company’s new residential construction and remodeling markets.  The
negative outlook reflects Standard & Poor’s concerns about the US economy,
difficult credit markets and cost inflation, and the anticipation that the
Company’s credit metrics will remain challenged for at least the next several
quarters.





The Company’s
senior secured credit facility contains two financial maintenance covenants,
which become more restrictive over time, and the Company cannot assure that
these covenants will always be met particularly given the further deterioration
of the new residential construction and repair and remodeling industries, plus
the instability in the overall credit markets.  These two covenants
require that the Company maintain at the end of each quarter, calculated based
on the last twelve months, a Leverage Ratio and an Interest Coverage Ratio, each
as defined.  The Leverage Ratio must not exceed a defined ratio amount
and the Interest Coverage Ratio must not be less than a defined ratio
amount.  The Leverage Ratio is calculated by dividing the Company’s
total indebtedness, net of cash, (as defined) by EBITDA (as defined) and the
Interest Coverage Ratio is calculated by dividing EBITDA (as defined) by
interest expense, net (as defined).





At March 29, 2008,
the Company was required to maintain a Leverage Ratio not greater than 5.85:1
and an Interest Coverage Ratio of not less than 2.20:1.  The Leverage
Ratio requirement of 5.85:1 at March 29, 2008 tightens to 5.60:1 at the end of
the second quarter of 2008 and further tightens to 5.25:1 at December 31, 2008,
while the Interest Coverage Ratio requirement of 2.20:1 at March 29, 2008
remains the same through December 31, 2008, further tightening to 2.30:1 at
March 28, 2009.  Should the Company not satisfy either of these
covenants, the Company’s senior secured credit facility allows a cure, whereby a
subsequent cash equity investment equal to the EBITDA shortfall, will be treated
as EBITDA for purposes of the compliance calculations in the current and future
periods.  The senior secured credit facility allows for such a cure to
occur twice within a consecutive twelve-month period.





In the first
quarter of 2008, the Company’s EBITDA for such quarter (as calculated in
accordance with the senior secured credit facility) was below the level
necessary to be in compliance with the Interest Coverage Ratio and the Leverage
Ratio covenants as of the end of such quarter by approximately $4.2
million.  The Company utilized the equity cure right under its senior
secured credit facility to avoid any default otherwise arising out of such
shortfall by receiving additional equity investments by certain investors of
approximately $4.2 million in the second quarter of 2008.  The
Company’s Leverage Ratio and Interest Coverage Ratio, after using the equity
cure right as noted above, was 5.80:1 and 2.20:1, respectively, at March 29,
2008.





The Company expects
that it may also encounter events of non-compliance with the Interest Coverage
Ratio and the Leverage Ratio covenants as of the end of the second quarter of
2008 and anticipates that it may seek to use the equity cure right again to
remedy any such non-compliance.  Subsequent to the second quarter of
2008, based upon the Company’s current forecast regarding its operating results
for the balance of 2008 and the first quarter of 2009, the Company does not
anticipate further events of non-compliance with the Interest Coverage Ratio and
Leverage Ratio covenants as of the end of the third and fourth quarters of 2008
and the first quarter of 2009.  To the extent the Company experiences
events of non-compliance with such covenants, which are not resolved through the
use of the equity cure feature or other alternatives, the Company would need to
seek waivers or amendments from the lenders under its senior secured credit
facility or refinance such facility.  Should an event of
non-compliance occur, the Company will not be permitted to borrow under its
credit facility until such time that a cure happens.  If these events
of non-compliance were to occur, and were not cured, an event of default would
exist under the Company’s senior secured credit facility and would allow the
lenders to accelerate the payment of indebtedness outstanding.  In
addition, an event of default under the credit facility would result in a cross
default under substantially all of the Company’s other senior and senior
subordinated indebtedness.  In light of the instability and
uncertainty that currently exists within the financial and credit markets and
the tightening of credit standards, the Company may not be able to obtain any
such waivers or amendments or any such refinancing on acceptable
terms.  In addition, any such waivers, amendments or refinancing may
involve terms which would have a further adverse effect on the future cash flows
of the Company.  Based upon the application of equity cures, other
potential equity investments and the Company’s forecast of its financial results
for 2008 and the first quarter of 2009, the Company has determined that it is
probable that it will be in compliance with the terms of its senior secured
credit facility through March 28, 2009 and as a result, the Company has
classified its long-term indebtedness as a long-term liability in its
consolidated balance sheet at March 29, 2008 and December 31, 2007,
respectively.





A breach of the
covenants under the indenture that governs the Company’s 8 1/2% senior
subordinated notes or under the agreement that governs the Company’s senior
secured credit facility could result in an event of default under the applicable
indebtedness.  Such default may allow the creditors to accelerate the
related debt and may result in the acceleration of any other debt to which a
cross-acceleration or cross-default provision applies.  In addition,
an event of default under the Company’s senior secured credit facility would
permit the lenders to terminate all commitments to extend further credit under
that facility.  Furthermore, if the Company was unable to repay the
amounts due and payable under its senior secured credit facility, those lenders
could proceed against the collateral granted to them to secure that
indebtedness.  In the event the Company’s lenders or noteholders
accelerate the repayment of their borrowings, the Company cannot assure that the
Company and its subsidiaries would have sufficient assets to repay such
indebtedness.  The Company’s future financing arrangements will likely
contain similar or more restrictive covenants.  As a result of these
restrictions, the Company may be:





·
            limited in
      how the Company conducts its
business,


·
            unable to
      raise additional debt or equity financing to operate during general
      economic or business downturns, or


·
            unable to
      compete effectively or to take advantage of new business
      opportunities.





Such restrictions if imposed, would
affect the Company’s ability to grow in accordance with its
plans.





At December 31,
2007, the Company’s Best subsidiary was not in compliance with a maintenance
covenant with respect to two loan agreements with two banks with aggregate
borrowings outstanding of approximately $9.4 million.  The Company’s
Best subsidiary obtained waivers from the two banks, which indicated that the
Company’s Best subsidiary was not required to comply with the maintenance
covenant as of December 31, 2007.  The next measurement date for the
maintenance covenant is for the year ended December 31, 2008 and the Company
believes that it is probable that its Best subsidiary will be in compliance with
the maintenance covenant when their assessment of the required calculation is
completed in the first quarter of 2009.  As a result, the Company has
classified the outstanding borrowings under such agreements as a long-term
liability in its consolidated balance sheet at March 29, 2008 and December 31,
2007, respectively.





The Company had
consolidated debt at March 29, 2008 of approximately $1,457.0 million consisting
of (i) $110.5 million (including borrowings of approximately $45.0 million under
the U.S. revolving portion of the Company’s senior secured credit facility) of
short-term borrowings and current maturities of long-term debt, (ii) $43.0
million of long-term notes, mortgage notes and other indebtedness, (iii) $10.0
million of the Company’s 9 7/8% Senior Subordinated Notes due 2011, (iv) $625.0
million of the Company’s 8 1/2% Senior Subordinated Notes due 2014 and (v)
$668.5 million of long-term debt outstanding under the Company’s senior secured
credit facility.





During the first
quarter ended March 29, 2008, the Company had a net increase in its consolidated
debt of approximately $11.6 million resulting from:





(Amounts
      in millions)Borrowings
      under the revolving portion of the Company’s senior secured credit
      facility, including its swing line loan sub-facility
            
            $
            30.0Payments made
      related to the revolving portion of the Company’s senior secured credit
      facility
            
            
            (20.0
            )Additional
      borrowings related primarily to the Company’s foreign
      subsidiaries
            
            
            3.2Foreign
      currency translation and other
            
            
            4.2Principal
      payments
            
            
            (5.8
            )Net change in
      consolidated debt
            
            $
            11.6





The Company’s debt
to equity ratio was approximately 2.4:1 at March 29, 2008 as compared to
approximately 2.3:1 at December 31, 2007.  The increase in the ratio
was as a result of an increase in indebtedness as noted above, as well as a
decrease in stockholder’s investment, primarily due to a net loss of
approximately $4.1 million for the first quarter ended March 29,
2008.


As part of the
Company’s senior secured credit facility, the Company has a $200.0 million
revolving credit facility that matures in August 2010 and includes both a letter
of credit sub-facility and swing line loan sub-facility.  At May 9,
2008, the Company had approximately $80.0 million outstanding and approximately
$76.8 million of available borrowing capacity under the U.S. revolving portion
of its senior secured credit facility, with approximately $33.2 million in
outstanding letters of credit.  Borrowings under the revolving portion
of the senior secured credit facility are used for general corporate purposes,
including borrowings to fund working capital requirements.  Under the
Canadian revolving portion of its senior secured credit facility, the Company
had no outstanding borrowings and approximately $10.0 million of available
borrowing capacity.  Letters of credit have been issued under the
Company’s revolving credit facility as additional security for (1) approximately
$17.2 million relating to certain of the Company’s insurance programs, (2)
approximately $3.4 million relating to leases outstanding for certain of the
Company’s manufacturing facilities and (3) approximately $12.6 million relating
to certain of the subsidiaries’ purchases and other
requirements.  Letters of credit reduce borrowing availability under
the Company’s revolving credit facility on a dollar for dollar
basis.





The indentures and
other agreements governing the Company and its subsidiaries’ indebtedness
(including 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 March 29, 2008,
approximately $170.6 million was available for the payment of cash dividends,
stock purchases or other restricted payments by the Company as defined under the
terms of the Company’s most restrictive loan agreement, the Company’s senior
secured credit facility.





The Company and its
subsidiaries, affiliates or significant shareholders may from time to time, in
their sole discretion, purchase, repay, refinance, redeem or retire any of the
Company’s outstanding debt (including publicly issued debt), in privately
negotiated or open market transactions, by tender offer or otherwise, which may
be subject to restricted payment limitations.





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.  Contingent consideration of
approximately $32.7 million related to the acquisitions of Par Safe, ABT and
Magenta Research, Ltd., which was accrued for at December 31, 2007, was paid in
April 2008.  The remaining estimated total maximum potential amount of
contingent consideration that may be paid in the future for all completed
acquisitions is approximately $62.0 million.





The Company expects
to meet its cash flow requirements for fiscal 2008, including debt repayments
and acquisitions, from cash from operations, existing cash and cash equivalents
and the use of its senior secured credit facility.





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, 2007.





The Company’s combined short-term and
long-term productliability
accrualsincreased from
approximately $35.0million at December 31, 2007to approximately $35.8million atMarch 29, 2008.Product liabilityexpense decreasedfrom approximately $3.3million for thefirst quarter ended March 31, 2007 to approximately $2.9
million for the first quarter ended March 29, 2008.  The decrease in
product liability expense for the first quarter ended March 29, 2008 as compared
to the first quarter ended March 31, 2007 is primarily as a result of a
reduction of approximately $0.5million in product liability accruals
being recorded in the first quarter of 2008 in the RVP segment.  The
Company records insurance liabilities and related expenses for product and
general liability losses in accordance with either the contractual
terms of its policies or, if self-insured, the total liabilities that are
estimable and probable as of the reporting date (see Note G of the Notes to the
Unaudited Financial Statements included elsewhere herein).





The Company’s
combined short-term and long-term warranty accruals increased from approximately
$47.3 million at December 31, 2007 to approximately $48.7 million at March 29,
2008.  Warranty expense increased from approximately $5.5 million for
the first quarter ended March 31, 2007 to approximately $7.3 million for the
first quarter ended March 29, 2008.  The increase in warranty expense
for the first quarter ended March 29, 2008 as compared to the same period of
2007 is primarily as a result of increased expense levels for residential HVAC
products due to higher sales volume in the first quarter of 2008 as compared to
the first quarter of 2007.  The Company provides for estimated
warranty liabilities at the time of sale and periodically assesses the adequacy
of its recorded warranty liabilities and adjusts the amounts as necessary (see
Note G of the Notes to the Unaudited Financial Statements included elsewhere
herein).





Unrestricted cash
and cash equivalents decreased from approximately $53.4 million at December 31,
2007 to approximately $53.0 million at March 29, 2008.  The Company
has classified as restricted, in the accompanying consolidated balance sheet,
certain cash and cash equivalents that are not fully available for use in its
operations.  At March 29, 2008, approximately $3.3 million (of which
approximately $2.3 million is included in long-term assets) of cash and cash
equivalents are held primarily as collateral to fund certain benefit obligations
relating to supplemental executive retirement plans.





Capital
expenditures were approximately $7.3 million for the first quarter ended March
29, 2008 as compared to approximately $6.8 million for the first quarter ended
March 31, 2007.  Capital expenditures were approximately $36.4 million
for the year ended December 31, 2007 and are expected to be between
approximately $30.0 million and $35.0 million in 2008.  Under Nortek’s
amended senior secured credit facility, capital expenditures are limited to
approximately $67.5 million in 2008.





The Company’s
working capital decreased from approximately $207.2 million at December 31, 2007
to approximately $206.9 million at March 29, 2008, while the current ratio
remained unchanged from December 31, 2007 to March 29, 2008 at
1.4:1.  This decrease in working capital for the first quarter ended
March 29, 2008 was primarily a result of increases in current debt obligations
and accounts payable, as described further below and previously, offset by
increases in inventories and accounts receivable and a decrease in accrued
expenses and taxes, net.  The decrease in cash from December 31, 2007
to March 29, 2008 was also a contributing factor to the decrease in working
capital.





Accounts receivable
increased approximately $7.7 million, or approximately 2.4%, between December
31, 2007 and March 29, 2008, while net sales decreased approximately $29.0
million, or approximately 5.1%, in the first quarter of 2008 as compared to the
fourth quarter of 2007.  This increase in accounts receivable is
primarily as a result of increased sales volume in the Company’s residential
HVAC products.  The effect of changes in foreign currency exchange
rates contributed approximately $2.7 million to the increase in accounts
receivable at March 29, 2008. 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 March 29, 2008
as compared to December 31, 2007.  Accounts receivable from customers
related to foreign operations increased approximately $1.0 million, or
approximately 0.9%, between December 31, 2007 and March 29, 2008.  The
Company did not experience any significant overall changes in credit terms,
collection efforts, credit utilization or delinquency in accounts receivable in
the first quarter of 2008.





Inventories
increased approximately $29.8 million, or approximately 9.7%, between December
31, 2007 and March 29, 2008 as a result of increased purchases in the HVAC
segment to support future sales levels.  The effect of changes in
foreign currency exchange rates contributed approximately $0.9 million to the
increase in inventories at March 29, 2008.





Accounts payable
increased approximately $46.4 million, or 24.1%, between December 31, 2007 and
March 29, 2008 due primarily to increased inventory levels and the timing of
payments.  The effect of changes in foreign currency exchange rates
contributed approximately $2.9 million to the increase in accounts payable at
March 29, 2008.





Accrued expenses
and taxes, net decreased approximately $16.9 million, or approximately 6.8%,
between December 31, 2007 and March 29, 2008 primarily as a result of lower
accrued interest relating to the difference in the timing of interest payments
during the first quarter of 2008 as compared to amounts accrued.





Changes in certain
working capital accounts, as noted above, between December 31, 2007 and March
29, 2008, differ from the changes reflected in the Company’s Unaudited Condensed
Consolidated Statement of Cash Flows for such period as a result of the specific
items mentioned in the four preceding paragraphs and from other non-cash items,
including among others, the effect of changes in foreign currency exchange
rates.





Net cash flows
provided by operating activities for the first quarter ended March 29, 2008
increased by approximately $13.8 million to approximately $0.5 million of net
cash provided by operating activities from approximately $13.3 million of net
cash used in operating activities for the first quarter ended March 31,
2007.  This increase is primarily due to a reduction in the level of
cash used for working capital needs, partially offset by a decrease in net
(loss) earnings of approximately $13.3 million.  Net cash flows used
in investing activities for the first quarter ended March 29, 2008 decreased by
approximately $14.2 million to net cash used in investing activities of
approximately $8.4 million from approximately $22.6 million for the first
quarter ended March 31, 2007, primarily due to a decrease of approximately $16.8
million in payments for acquisitions, partially offset by an increase in the
level of capital expenditures of approximately $0.5 million.  Net cash
flows provided by financing activities for the first quarter ended March 29,
2008 decreased by approximately $14.2 million to net cash provided by financing
activities of approximately $7.5 million from approximately $21.7 million for
the first quarter ended March 31, 2007 resulting primarily from a decline in net
borrowings of approximately $14.3 million.  As discussed earlier, the
Company generally uses cash flows from operations, and where necessary
borrowings, to finance its capital expenditures and strategic acquisitions, to
meet the service requirements of its existing indebtedness and for working
capital and other general corporate purposes.





Unrestricted cash
and cash equivalents decreased approximately $0.4 million and $14.2 million from
December 31, 2007 to March 29, 2008 and from December 31, 2006 to March 31,
2007, respectively, principally as a result of the following:






Condensed
      ConsolidatedCash Flows
    (1)For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Operating
      Activities:Cash flow from
      operations, net
              
              $
              11.3
              
              
              $
              26.6Change in accounts
      receivable, net
              
              
              (4.6
              )
              
              
              (7.0
              )Change in
      inventories
              
              
              (28.8
              )
              
              
              (30.1
              )Change in prepaids
      and other current assets
              
              
              (3.2
              )
              
              
              (1.1
              )Change in accounts
      payable
              
              
              43.4
              
              
              
              34.1Change in accrued
      expenses and taxes
              
              
              (19.5
              )
              
              
              (36.5
              )Investing
      Activities:Capital
      expenditures
              
              
              (7.3
              )
              
              
              (6.8
              )Net cash paid for
      businesses acquired
              
              
              ---
              
              
              
              (16.8
              )Proceeds from the
      sale of property and equipment
              
              
              0.1
              
              
              
              ---Change in restricted
      cash and marketable securities
              
              
              ---
              
              
              
              1.3Financing
      Activities:Change in borrowings,
      net
              
              
              7.4
              
              
              
              21.7Other, net
              
              
              0.8
              
              
              
              0.4$
              (0.4
              )
              
              $
              (14.2
              )







(1)
            Summarized
      from the Company’s Unaudited Condensed Consolidated Statement of Cash
      Flows for the first quarter ended March 29, 2008 and March 31, 2007 (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.




The Company uses
EBITDA as both a liquidity and an operating performance
measure.  Liquidity measure disclosures with respect to EBITDA are
provided below.  Refer to the Results of Operations section for
operating performance measure disclosures with respect to EBITDA and a
reconciliation from net earnings (loss) to EBITDA.





EBITDA is defined
as net earnings (loss) before interest, taxes, depreciation and amortization
expense.  EBITDA is not a measure of cash flow under U.S. generally
accepted accounting principles (“GAAP”) and should not be considered as an
alternative or substitute for GAAP cash flow measures such as cash flows from
operating, investing and financing activities.  EBITDA does not
necessarily represent an accurate measure of cash flow performance because it
excludes, among other things, capital expenditures, working capital
requirements, significant debt service for principal and interest payments,
income tax payments and other contractual obligations, which may have a
significant adverse impact on a company’s cash flow performance thereby limiting
its usefulness when evaluating the Company’s cash flow
performance.  The Company uses a significant amount of capital assets
and capital expenditures are a significant component of the Company’s annual
cash expenditures and therefore their exclusion from EBITDA is a material
limitation.   The Company has significant working capital
requirements during the year due to the seasonality of its business, which
require significant cash expenditures and therefore its exclusion from EBITDA is
a material limitation.  The Company has a significant amount of debt
and the Company has significant cash expenditures during the year related to
principal and interest payments and therefore their exclusion from EBITDA is a
material limitation.  The Company generally pays significant U.S.
federal, state and foreign income taxes each year and therefore its exclusion
from EBITDA is a material limitation.  As a result, EBITDA should be
evaluated in conjunction with net cash from operating, investing and financing
activities for a more complete analysis of the Company’s cash flow performance,
as they include the financial statement impact of these
items.  Although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to be replaced in the
future and EBITDA does not reflect any cash requirements for
replacements.  As EBITDA is not defined by GAAP, the Company’s
definition of EBITDA may differ from and therefore may not be comparable to
similarly titled measures used by other companies thereby limiting its
usefulness as a comparative measure.  Because of the limitations that
EBITDA has as an analytical tool, investors should not consider it in isolation,
or as a substitute for analysis of the Company’s cash flows as reported under
GAAP.





Company management
uses EBITDA as a supplementary non-GAAP liquidity measure to allow the Company
to evaluate its operating units’ cash-generating ability to fund income tax
payments, corporate overhead, debt service, capital expenditures and increases
in working capital.  EBITDA is also used by management to allocate
resources for growth among its businesses, to identify possible impairment
charges, to evaluate the Company’s ability to service its debt and to raise
capital for growth opportunities, including acquisitions.  In
addition, the Company uses EBITDA as a liquidity measure in financial
presentations to the Company’s Board of Directors, shareholders, various banks
participating in Nortek’s Credit Facility, note holders and Bond Rating
agencies, among others, as a supplemental non-GAAP liquidity measure to assist
them in their evaluation of the Company’s cash flow performance.  The
Company uses EBITDA in conjunction with traditional GAAP liquidity measures as
part of its overall assessment of cash flow ability and therefore does not place
undue reliance on EBITDA as its only measure of cash flow
performance.





The Company
believes EBITDA is useful for both the Company and investors as it is a commonly
used analytical measurement for assessing a company’s cash flow ability to
service and/or incur additional indebtedness, which eliminates the impact of
certain non-cash items such as depreciation and amortization.  The
Company believes that EBITDA is specifically relevant to the Company due to the
Company’s leveraged position as well as the common use of EBITDA as a liquidity
measure within the Company’s industries by lenders, investors, others in the
financial community and peer group companies.  The Company has
included EBITDA as a supplemental liquidity measure, which should be evaluated
by investors in conjunction with the traditional GAAP liquidity measures
discussed earlier in this Liquidity and Capital Resources section for a complete
evaluation of the Company’s cash flow performance.




The following table
presents a reconciliation from net cash provided by (used in) operating
activities, which is the most directly comparable GAAP liquidity measure, to
EBITDA for the first quarter ended March 29, 2008 and March 31,
2007:






For the first quarter
      endedMarch 29,
    2008
              
              
              March 31,
    2007(Dollar amounts in
      millions)Net cash provided by
      (used in) operating activities
              
              $
              0.5
              
              
              $
              (13.3
              )Cash used by working
      capital and other long-termasset and liability changes
              
              
              10.8
              
              
              
              39.9Deferred federal
      income tax benefit (provision)
              
              
              3.4
              
              
              
              (1.3
              )Non-cash interest
      expense, net
              
              
              (1.4
              )
              
              
              (1.4
              )Non-cash stock-based
      compensation expense
              
              
              ---
              
              
              
              (0.1
              )Provision for income
      taxes
              
              
              0.3
              
              
              
              6.9Interest expense
      (1)
              
              
              27.4
              
              
              
              29.2Investment
      income
              
              
              (0.2
              )
              
              
              (0.4
              )EBITDA (2),
    (3)
              
              $
              40.8
              
              
              $
              59.5




(1)
            Interest
      expense for the first quarter ended March 29, 2008 includes cash interest
      of approximately $26.0 million and non-cash interest of approximately $1.4
      million.  Interest expense for the first quarter ended March 31,
      2007 includes cash interest of approximately $27.8 million and non-cash
      interest of approximately $1.4
million.





(2)
            In the RVP
      segment, EBITDA for the first quarter ended March 29, 2008 includes net
      foreign exchange losses of approximately $0.5 million related to
      transactions, including intercompany debt not indefinitely invested in the
      Company’s subsidiaries.





In the HTP segment,
EBITDA for the first quarter ended March 29, 2008 includes approximately $0.2
million of fees and expenses incurred in connection with a dispute with a
supplier.





In the HVAC
segment, EBITDA for the first quarter ended March 29, 2008 includes net foreign
exchange gains of approximately $0.3 million related to transactions, including
intercompany debt not indefinitely invested in the Company’s
subsidiaries.




(3)
            In the RVP
      segment, EBITDA for the first quarter ended March 31, 2007 includes an
      approximate $0.6 million charge related to the closure of the Company’s
      NuTone, Inc. Cincinnati, Ohio facility, legal and other professional fees
      and expenses incurred in connection with matters related to certain
      subsidiaries based in Italy and Poland of approximately $1.0 million and
      net foreign exchange losses of approximately $0.2 million related to
      transactions, including intercompany debt not indefinitely invested in the
      Company’s subsidiaries.





In the HVAC
segment, EBITDA for the first quarter ended March 31, 2007 includes a charge of
approximately $1.8 million related to reserves for amounts due from customers
and net foreign exchange losses of approximately $0.2 million related to
transactions, including intercompany debt not indefinitely invested in the
Company’s subsidiaries.





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, credit availability, inflation, consumer confidence and
unemployment, among others.  The Company’s performance in the first
quarter of 2008 was adversely impacted as a result of the troubled housing
market together with a difficult mortgage industry that resulted in the
significant industry wide decline in new housing activity, as well as a negative
impact on consumer spending on home remodeling and repair.  In the
first quarter of 2008 the Company’s earnings continued to be challenged by
higher commodity costs which have only been partially offset by the Company’s
strategic cost reduction initiatives.  The Company expects these
industry and market trends to continue throughout 2008.





The Company has
recently experienced an increase in the level of product liability expense in
2008 and 2007, particularly in the RVP segment.  The Company is unable
to ascertain at this time whether this level of expense will continue at this
level, increase or decrease.





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.





The Company is
subject to the effects of changing prices and for the past several years, the
impact of inflation has had a significant adverse effect on its results of
operations for the periods presented.  In some circumstances, market
conditions or customer expectations may prevent the Company from increasing the
prices of its products to offset the inflationary pressures that may increase
costs in the future.  The Company continued to experience higher
material costs primarily related to purchases of steel in the first quarter of
2008.  Additionally, during the first quarter of 2008, the Company
experienced increased freight costs primarily due to increased fuel surcharges
as compared to the first quarter of 2007.  These cost increases were
partially offset by continued strategic sourcing initiatives and improvements in
manufacturing efficiency, as well as sales price increases.





As of March 29,
2008, approximately 6.6% of the Company’s workforce was subject to various
collective bargaining agreements.





A work stoppage at
one of the Company’s facilities that lasts for a significant period of time
could cause the Company to lose sales, incur increased costs and adversely
affect its ability to meet customers’ needs.  A plant shutdown or a
substantial modification to a collective bargaining agreement could result in
material gains or losses or the recognition of an asset
impairment.  As agreements expire and until negotiations are
completed, the Company does not know whether it will be able to negotiate
collective bargaining agreements on the same or more favorable terms as the
current agreements or at all and without production interruptions, including
labor stoppages.  See Note H of the Notes to the Unaudited Financial
Statements for further information surrounding work stoppages at the Company’s
facilities.





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
periodically mitigate certain economic exposures.  The Company does
not enter into derivative financial instruments or other financial instruments
for trading purposes.





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.  At March 29, 2008, the
fair value of the Company’s unrestricted and restricted investments and
marketable securities was not materially different from their cost
basis.





The Company manages
its borrowing exposure to changes in interest rates by optimizing the use of
fixed rate debt with extended maturities.  At March 29, 2008,
approximately 48.8% of the carrying values of the Company’s long-term debt was
at fixed interest rates.  The remaining portion of the Company’s
long-term debt is at variable interest rates.  Based upon interest
rates in effect at March 29, 2008, an overall unfavorable change in interest
rates of 100 basis points would result in an additional charge to interest
expense for the remaining nine months of 2008 of approximately $5.8
million.





B.           Foreign
Currency Risk





The Company’s
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of currencies in foreign markets primarily
related to changes in the Euro, the Canadian Dollar and the British
Pound.  In the first quarter of 2008, the net impact of foreign
currency changes was not material to the Company’s financial condition or
results of operations.  The impact of foreign currency changes related
to translation resulted in an increase in stockholder’s investment of
approximately $0.4 million for the first quarter ended March 29,
2008.  Additionally, the impact of foreign currency changes related to
transactions resulted in a decrease in foreign exchange losses recorded in
selling, general and administrative expense, net of approximately $0.2 million
for the first quarter ended March 29, 2008 as compared to the same period of
2007.  The Company manages its exposure to foreign currency exchange
risk principally by trying to minimize the Company’s net investment in foreign
assets, including, the use of strategic short and long-term borrowings at the
foreign subsidiary level.  Consistent with this strategy, notes
payable and other short- term obligations at March 29, 2008 consist primarily of
short-term borrowings by certain of the Company’s foreign
subsidiaries.  The Company generally does not enter into derivative
financial instruments to manage foreign currency exposure.  At March
29, 2008, 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, glass 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 March 29, 2008, the Company did not
have any material outstanding commodity forward contracts.





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 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
SEC.





Item
3. Quantitative and
Qualitative Disclosures about Market Risk





Quantitative and
qualitative disclosure about market risk is set forth in Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Market
Risk.





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
2. Unregistered Sales of
Equity Securities and Use of Proceeds





The Company and its
subsidiaries, affiliates or significant shareholders may from time to time, in
their sole discretion, purchase, repay, redeem or retire any of the Company’s
outstanding debt (including publicly issued debt), in privately negotiated or
open market transactions, by tender offer or otherwise.





Item
6. Exhibits





The items marked
with an asterisk are filed herewith.





*
            10.1
            THL-Nortek Investors, LLC Amended
      and Restated Limited Liability Company Agreement dated as of April 16,
      2008.*
            31.1
            Certificate
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
            31.2
            Certificate
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
            32
            Certificate
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002.








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.










NORTEK, INC.


(Registrant)














/s/ Almon C.
      Hall


Almon C.
Hall,


Vice President and
Chief


Financial
Officer

















May 12,
2008