**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 September 30, 2006**





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)
                751-1600**Securities
                registered pursuant to Section 12(b) of the Act:**None**











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





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





Large
                accelerated filer [_]
            Accelerated
                Filer [_]
            Non-accelerated
                filer [X]





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





The
      aggregate market value of voting stock held by non-affiliates is
      zero.





The
      number of shares of Common Stock outstanding as of October 27, 2006 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)*




**September
                    30,**2006
              
              **December
                    31,**2005**Assets****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              56.2
              
              $
              77.2Restricted
                  cash
              
              
              0.1
              
              
              ---Accounts
                      receivable, less allowances of $6.9 and $6.6
              
              
              346.6
              
              
              272.2Inventories:Raw materials
              
              
              88.5
              
              
              75.2Work in process
              
              
              42.1
              
              
              21.4Finished goods
              
              
              165.5
              
              
              145.7296.1
              
              
              242.3Prepaid
                  expenses
              
              
              15.4
              
              
              10.5Other
                  current
                  assets
              
              
              25.2
              
              
              26.3Prepaid
                  income taxes
              
              
              19.3
              
              
              20.7Total current assets
              
              
              758.9
              
              
              649.2**Property
                  and Equipment, at Cost:**Land
              
              
              10.7
              
              
              8.8Buildings
                  and
                  improvements
              
              
              97.3
              
              
              84.3Machinery
                  and
                  equipment
              
              
              163.9
              
              
              141.1271.9
              
              
              234.2Less
                  accumulated depreciation
              
              
              49.6
              
              
              28.7Total property and equipment, net
              
              
              222.3
              
              
              205.5**Other
                  Assets:**Goodwill
              
              
              1,404.4
              
              
              1,381.3Intangible
                      assets, less accumulated amortization of $43.7 and
                      $27.3
              
              
              139.3
              
              
              114.5Deferred
                  debt
                  expense
              
              
              34.5
              
              
              36.9Long-term
                  portion of receivable from affiliate
              
              
              ---
              
              
              17.5Restricted
                  investments and marketable securities
              
              
              3.5
              
              
              4.0Other
                  assets
              
              
              7.8
              
              
              7.71,589.5
              
              
              1,561.9**Total
                Assets**
              
              $
              2,570.7
              
              $
              2,416.6**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable
                  and other short-term obligations
              
              $
              44.9
              
              $
              4.9Current
                  maturities of long-term debt
              
              
              24.2
              
              
              14.8Accounts
                  payable
              
              
              187.6
              
              
              159.0Accrued
                  expenses and taxes, net
              
              
              213.2
              
              
              196.7Total current liabilities
              
              
              469.9
              
              
              375.4**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              31.6
              
              
              20.4Long-term
                  payable to affiliate
              
              
              17.3
              
              
              ---Other
              
              
              128.6
              
              
              166.4177.5
              
              
              186.8**Notes,
                      Mortgage Notes and Obligations**Payable, Less Current
                      Maturities
              
              
              1,357.9
              
              
              1,354.1**Stockholder’s
                  Investment:**Common
                      stock,
                      $0.01 par value, authorized 3,000 shares; 3,000 issuedand outstanding at September 30, 2006 and
                  December
                  31, 2005
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              412.1
              
              
              415.0Retained
                  earnings
              
              
              139.1
              
              
              77.8Accumulated
                  other comprehensive income
              
              
              14.2
              
              
              7.5Total stockholder's investment
              
              
              565.4
              
              
              500.3**Total
                  Liabilities and Stockholder's Investment**
              
              $
              2,570.7
              
              $
              2,416.6




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






**NORTEK,
      INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**





**For
                  the third quarter ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              579.0
              
              $
              522.9**Costs
                  and Expenses:**Cost of products sold
              
              
              404.2
              
              
              361.3Selling, general and administrative expense, net
              
              
              100.9
              
              
              89.6Amortization of intangible assets
              
              
              6.2
              
              
              4.4511.3
              
              
              455.3Operating
                  earnings
              
              
              67.7
              
              
              67.6Interest
                  expense
              
              
              (29.9
              )
              
              (26.6
              )Investment
                  income
              
              
              0.4
              
              
              0.3Earnings
                  before provision for income taxes
              
              
              38.2
              
              
              41.3Provision
                  for
                  income taxes
              
              
              15.1
              
              
              16.3**Net
                  earnings**
              
              $
              23.1
              
              $
              25.0




*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 nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              1,677.3
              
              $
              1,455.8**Costs
                  and Expenses:**Cost of products sold
              
              
              1,168.4
              
              
              1,021.1Selling, general and administrative expense, net
              
              
              299.2
              
              
              254.1Amortization of intangible assets
              
              
              16.2
              
              
              13.1Gain from curtailment of post-retirement medical benefits
              
              
              (35.9
              )
              
              ---1,447.9
              
              
              1,288.3Operating
                  earnings
              
              
              229.4
              
              
              167.5Interest
                  expense
              
              
              (85.9
              )
              
              (76.0
              )Investment
                  income
              
              
              1.6
              
              
              1.1Earnings
                  before provision for income taxes
              
              
              145.1
              
              
              92.6Provision
                  for
                  income taxes
              
              
              55.7
              
              
              35.6**Net
                  earnings**
              
              $
              89.4
              
              $
              57.0




*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 nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Cash
                  Flows from operating activities:**Net
                  earnings
              
              $
              89.4
              
              $
              57.0**Adjustments
                      to reconcile net earnings to net cash**provided by operating
                      activities:Depreciation
                      and amortization expense, including amortization of purchase
                      price
                      allocated to inventory
              
              
              44.2
              
              
              34.3Non-cash
                  interest expense, net
              
              
              3.9
              
              
              4.1Non-cash
                  stock-based compensation expense
              
              
              0.3
              
              
              0.3Gain
                  from
                  curtailment of post-retirement medical benefits
              
              
              (35.9
              )
              
              ---Loss
                  (gain)
                  on property and equipment
              
              
              1.4
              
              
              (0.2
              )Deferred
                  federal income tax provision
              
              
              10.0
              
              
              22.7**Changes
                      in certain assets and liabilities, net of**effects from
                      acquisitions and dispositions:Accounts
                  receivable, net
              
              
              (43.4
              )
              
              (64.5
              )Inventories
              
              
              (37.9
              )
              
              (11.6
              )Prepaids
                  and
                  other current assets
              
              
              5.1
              
              
              (8.2
              )Accounts
                  payable
              
              
              9.2
              
              
              32.9Accrued
                  expenses and taxes
              
              
              31.7
              
              
              (3.1
              )Long-term
                  assets, liabilities and other, net
              
              
              (4.7
              )
              
              (3.9
              )Total adjustments to net earnings
              
              
              (16.1
              )
              
              2.8Net cash provided by operating activities
              
              
              73.3
              
              
              59.8**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              
              (33.0
              )
              
              (15.0
              )Net
                  cash paid
                  for businesses acquired
              
              
              (67.0
              )
              
              (88.8
              )Payment
                of IPO expenses for NTK Holdings
              
              
              (2.4
              )
              
              ---Proceeds
                  from
                  the sale of property and equipment
              
              
              3.4
              
              
              6.1Change
                  in
                  restricted cash and marketable securities
              
              
              0.4
              
              
              (2.1
              )Other,
                  net
              
              
              (3.1
              )
              
              (1.5
              )Net cash used in investing activities
              
              
              (101.7
              )
              
              (101.3
              )**Cash
                  Flows from financing activities:**Increase
                  in
                  borrowings
              
              
              83.9
              
              
              31.2Payment
                  of
                  borrowings
              
              
              (46.8
              )
              
              (37.5
              )Dividends
              
              
              (28.1
              )
              
              ---Other,
                  net
              
              
              (1.6
              )
              
              (0.2
              )Net cash provided by (used in) financing activities
              
              
              7.4
              
              
              (6.5
              )Net
                  decrease
                  in unrestricted cash and cash equivalents
              
              
              (21.0
              )
              
              (48.0
              )Unrestricted
                  cash and cash equivalents at the beginning of the period
              
              
              77.2
              
              
              95.0Unrestricted
                  cash and cash equivalents at the end of the period
              
              $
              56.2
              
              $
              47.0**Supplemental
                  disclosure of cash flow information:**Interest
                  paid
              
              $
              90.9
              
              $
              85.7Income
                  taxes
                  paid, net
              
              $
              17.1
              
              $
              9.3




*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 THREE MONTHS ENDED OCTOBER 1, 2005**


*(Dollar
      amounts in millions)*


**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income**
              
              **Income****Balance,
                  July 2, 2005**
              
              $
              414.3
              
              $
              29.3
              
              $
              2.5
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              25.0
              
              
              ---
              
              
              25.0Other
                  comprehensive income:Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              5.0
              
              
              5.0Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              30.0Capital
                  contribution from parent
              
              
              0.3
              
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.1
              
              
              ---
              
              
              ---**Balance,
                  October 1, 2005**
              
              $
              414.7
              
              $
              54.3
              
              $
              7.5




*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 NINE MONTHS ENDED OCTOBER 1, 2005**


*(Dollar
      amounts in millions)*


**(Accumulated**
              
              **Accumulated****Additional**
              
              **Deficit)**
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2004**
              
              $
              410.6
              
              $
              (2.7
              )
              $
              9.1
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              57.0
              
              
              ---
              
              
              57.0Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (1.6
              )
              
              (1.6
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              55.4Capital
                  contribution from parent
              
              
              3.8
              
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.3
              
              
              ---
              
              
              ---**Balance,
                  October 1, 2005**
              
              $
              414.7
              
              $
              54.3
              
              $
              7.5


*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 THREE MONTHS ENDED SEPTEMBER 30, 2006**


*(Dollar
      amounts in millions)*


**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  July 1, 2006**
              
              $
              412.0
              
              $
              116.0
              
              $
              14.4
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              23.1
              
              
              ---
              
              
              23.1Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (0.2
              )
              
              (0.2
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              22.9Stock-based
                  compensation
              
              
              0.1
              
              
              ---
              
              
              ---**Balance,
                  September 30, 2006**
              
              $
              412.1
              
              $
              139.1
              
              $
              14.2




*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 NINE MONTHS ENDED SEPTEMBER 30, 2006**


*(Dollar
      amounts in millions)*


**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income**
              
              **Income****Balance,
                  December 31, 2005**
              
              $
              415.0
              
              $
              77.8
              
              $
              7.5
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              89.4
              
              
              ---
              
              
              89.4Other
                  comprehensive income:Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              6.7
              
              
              6.7Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              96.1Capital
                  contribution from (dividend to) parent
              
              
              1.7
              
              
              (28.1
              )
              
              ---Adjustment
                  of
                  carryover basis of continuingmanagement investors in the THL Transaction
              
              
              (4.9
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.3
              
              
              ---
              
              
              ---**Balance,
                  September 30, 2006**
              
              $
              412.1
              
              $
              139.1
              
              $
              14.2


*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**
 **SEPTEMBER
        30, 2006 AND OCTOBER 1, 2005**






(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 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. 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”).





On
      May
      5, 2006, NTK Holdings, Inc. (“NTK Holdings”) filed a registration statement on
      Form S-1 (most recently amended on September 15, 2006) with the SEC for an
      initial public offering of shares of its common stock (the “Offering”). NTK
      Holdings, the ultimate parent of the Company, owns all of the capital stock
      of
      Nortek Holdings, Inc. (“Nortek Holdings”), which owns all of the capital stock
      of the Company.





**Stock-Based
      Compensation of Employees, Officers and Directors**





In
      connection with the acquisition of Nortek, Inc. by affiliates of Thomas H.
      Lee
      Partners, L.P. (the “THL Transaction”) on August 27, 2004, certain employees and
      consultants received approximately 21,184 C-1 units and approximately 42,368
      C-2
      units, which represent equity interests in THL-Nortek Investors, LLC (“Investors
      LLC”) that function similar to stock awards. Since the initial distribution of
      the C-1 and C-2 Units on August 27, 2004, approximately 1,916 and 3,548
      additional C-1 Units and C-2 Units, respectively, have been granted to certain
      of the Company’s officers and employees, net of forfeitures. The C-1 units vest
      pro rata on a quarterly basis over a three-year period and approximately 14,807
      and 9,065 were vested at September 30, 2006 and December 31, 2005, respectively.
      The total fair value of the C-1 units is approximately $1.1 million.
      Approximately $0.4 million remains to be amortized at September 30, 2006. The
      C-2 units only vest in the event that certain performance-based criteria, as
      defined, are met. As of September 30, 2006 and December 31, 2005, there was
      approximately $1.6 million of unamortized stock-based employee compensation
      with
      respect to the C-2 units, which will be amortized in 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.





Prior
      to January 1, 2006, the Company used the fair value method of accounting for
      stock-based employee compensation in accordance with Statement of Financial
      Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.
      123”). On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123R”).





The
      Company adopted SFAS No. 123R and followed the modified-prospective transition
      method of accounting for stock-based compensation. 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 beginning January 1, 2006. 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.





The
      adoption of SFAS No. 123R did not have a material impact on the Company’s
      financial position or results of operations.





The
      Company recorded stock-based compensation charges in selling, general and
      administrative expense of approximately $0.1 million for each of the third
      quarters ended September 30, 2006 and October 1, 2005, respectively and
      approximately $0.3 million for each of the nine months ended September 30,
      2006
      and October 1, 2005, respectively, in accordance with SFAS No. 123 and SFAS
      No.
      123R.





**Deferred
      Compensation**





Prior
      to the THL Transaction on August 27, 2004, certain members of the Company’s
      management, including certain of the Company’s executive officers, held stock
      options to purchase shares of common stock of the former Nortek Holdings, Inc.
      issued to them under the former Nortek Holdings 2002 Stock Option Plan. These
      members of the Company’s management, who would have been entitled to receive
      cash payments upon consummation of the Acquisition in respect to these options,
      instead sold a portion of those options to THL Buildco, Inc. and surrendered
      the
      remainder of these options held by them for cancellation without immediate
      payment. In consideration for option cancellations without immediate payment,
      these option holders received an equity interest in Investors LLC and Nortek
      Holdings established a deferred compensation plan and credited for the account
      of each of these management participants under the plan a number of notional
      Class A units of Investors LLC equal in value to the value of the old stock
      options so cancelled.





On
      February 18, 2005, Nortek Holdings made a distribution to the participants
      of
      its deferred compensation plan in the amount of approximately $57.7 million,
      which resulted in additional interest expense of approximately $8.2 million.





On
      May
      10, 2006, NTK Holdings borrowed an aggregate principal amount of $205.0 million
      under a senior unsecured loan facility. A portion of these proceeds was used
      to
      contribute capital of approximately $25.9 million to Nortek Holdings, which
      was
      used by Nortek Holdings, together with a dividend of approximately $28.1 million
      from Nortek to make a distribution of approximately $54.0 million to
      participants under the 2004 Nortek Holdings, Inc. Deferred Compensation Plan
      (including certain of the Company’s executive officers). This second
      distribution resulted in additional interest expense of approximately $3.9
      million recorded by Nortek Holdings and consequently the participants in the
      deferred compensation plan are not entitled to any further distributions.





In
      connection with accounting for the purchase price for the Acquisition, the
      Company recorded a deferred tax benefit of approximately $32.6 million
      representing the tax benefit related to the deferred compensation plan of Nortek
      Holdings. At December 31, 2005, the remaining deferred tax benefit was
      approximately $17.5 million, which is included in deferred income taxes in
      the
      accompanying unaudited condensed consolidated balance sheet. At September 30,
      2006, there was no remaining deferred tax benefit as the second distribution
      noted above is deductible for income tax purposes upon payment.





**Goodwill**





The
      following table presents a summary of the activity in goodwill for the first
      nine months ended September 30, 2006 and for the year ended December 31,
      2005:





*(Amounts in millions)***Balance
                as of December 31, 2004**
            **$**
            **1,295.1**Acquisitions
                during the year endedDecember
                31, 2005
            
            91.9Purchase
                accounting adjustments
            
            (4.8
            )Impact
                of foreign currency translation
            
            (0.9
            )**Balance
                as of December 31, 2005**
            
            **1,381.3**Acquisitions
                during the first nine monthsended
                September 30, 2006
            
            33.3Purchase
                accounting adjustments
            
            (7.0
            )Adjustment
                of carryover basis of continuingmanagement
                investors in the THL Transaction
            
            (4.9
            )Impact
                of foreign currency translation
            
            1.7**Balance
                as of September 30, 2006**
            **$**
            **1,404.4**





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 Note C). Approximately $32.2 million and $56.1 million of goodwill
      associated with certain companies acquired during the first nine months ended
      September 30, 2006 and the year ended December 31, 2005, respectively, will
      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
      $4.9 million non-cash “Adjustment of carryover basis of continuing management
      investors in the THL Transaction” for the first nine months ended September 30,
      2006 as noted in the table above, represents a correction to the original 2004
      purchase accounting for the Acquisition resulting in a reduction of goodwill
      with a corresponding reduction in Stockholder’s Investment. The $4.9 million
      adjustment has not been reflected in the consolidated financial statements
      for
      prior periods as the Company has determined that the adjustment is not material
      to the prior period consolidated financial statements.





**Intangible
      Assets**





Intangible
      assets increased approximately $24.8 million from approximately $114.5 million
      at December 31, 2005 to approximately $139.3 million at September 30, 2006.
      This
      increase is primarily as a result of intangible assets acquired as a result
      of
      business acquisitions made during the first nine months of 2006 (see Note C),
      partially offset by intangible asset amortization of approximately $16.2 million
      for the first nine months ended September 30, 2006.





**Long-term
      payable to affiliate**





At
      September 30, 2006, the Company had approximately $17.3 million 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
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (an
      interpretation of FASB Statement No. 109)”, (“FIN 48”) which is effective for
      fiscal years beginning after December 15, 2006 with earlier adoption encouraged.
      FIN 48 was issued to clarify the accounting for uncertainty in income taxes
      recognized in an entity's financial statements in accordance with FASB Statement
      No. 109. FIN 48 prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. FIN 48 also provides guidance on financial
      reporting and classification of differences between tax positions taken in
      a tax
      return and amounts recognized in the financial statements. The Company is
      currently evaluating the impact of adopting FIN 48 on its consolidated financial
      statements.




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157
      defines fair value, establishes a framework for measuring fair value in
      accordance with U.S. generally accepted accounting principles, and expands
      disclosures about fair value measuremen ts.
      The
      provisions of SFAS No. 157 are effective for the Company beginning January
      1,
      2008, including interim periods within the year ending December 31, 2008.
      Earlier adoption is encouraged. The Company is currently evaluating the impact
      of adopting SFAS No. 157 on its consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer
      to recognize the over-funded or under-funded status of a defined benefit
      post-retirement plan (other than a multi-employer plan) as an asset or liability
      in its statement of financial position and to recognize changes in the funded
      status in the year in which the changes occur through comprehensive income.
      The
      Company will be required to initially recognize the funded status of a defined
      benefit plan and to provide the required disclosures for the fiscal year ended
      December 31, 2006. SFAS No. 158 also requires an employer to measure the funded
      status of a plan as of the date of its year-end statement of financial position,
      with limited exceptions. The requirement to measure plan assets and benefit
      obligations as of the date of the employer’s fiscal year-end statement of
      financial position is effective for the Company for the fiscal year ended
      December 31, 2008. The Company is currently evaluating the impact of adopting
      SFAS No. 158 on its consolidated financial statements.




(B) On
      April 3, 2006, Nortek amended and restated the credit agreement for its senior
      secured credit facility, expanding its $100.0 million revolving credit facility
      to $200.0 million and modifying certain covenants. The amendment provides Nortek
      with additional liquidity and covenant flexibility. The revolving credit
      facility matures in August 2010 and includes both a letter of credit
      sub-facility and swing line loan sub-facility. At September 30, 2006, there
      was
      approximately $35.0 million of outstanding borrowings under the U.S. revolving
      portion of its senior secured credit facility.





As
      of
      September 30, 2006, approximately $147.1 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.





(C)
            On
                July 18, 2006, the Company, through its wholly-owned subsidiary,
                Linear
                LLC (“Linear”), acquired the stock of Magenta Research, Ltd. (“Magenta”)
                for approximately $14.4 million (utilizing approximately $11.9 million
                of
                cash, of which approximately $10.0 million was borrowed under Nortek’s
                revolving credit facility, and issuing unsecured 6% subordinated
                notes
                totaling $2.5 million due July 2008) plus contingent consideration,
                which
                may be payable in future years. Magenta is located in New Milford,
                CT and
                designs and sells products that distribute audio and video signals
                over
                Category 5 and fiber optic cable to multiple display
                screens.





On
      June
      26, 2006, the Company, through Linear, acquired the stock of Secure Wireless,
      Inc. (“Secure Wireless”) and Advanced Bridging Technologies, Inc. (“ABT”)
      through two mergers, for approximately $10.5 million, of which approximately
      $10.0 million was borrowed under Nortek’s revolving credit facility, plus
      contingent consideration, which may be payable in future years. Secure Wireless
      designs and sells wireless security products for the residential and commercial
      markets while ABT designs and sells innovative radio frequency control products
      and accessories. Both Secure Wireless and ABT are located in Carlsbad,
      CA.





On
      April 14, 2006, the Company, through two newly formed subsidiaries of its Air
      Conditioning and Heating Products Segment, acquired the assets and certain
      liabilities of Huntair, Inc. (“Huntair”) and Cleanpak International, LLC
      (“Cleanpak”), for approximately $48.4 million (utilizing approximately $40.0
      million of cash which was borrowed under Nortek’s revolving credit facility,
      including approximately $1.6 million to fund a portion of Huntair and Cleanpak’s
      initial working capital needs, and issuing unsecured 6% subordinated notes
      totaling $10.0 million due April 2008) plus contingent consideration, which
      may
      be payable in future years. Both Huntair and Cleanpak are located near Portland,
      OR and manufacture, market and distribute custom air handlers and related
      products for commercial and cleanroom applications.





On
      February 22, 2006, the Company, through Linear, acquired the assets and certain
      liabilities of Furman Sound, Inc. (“Furman”) for approximately $3.3 million.
      Furman is located in Petaluma, CA and designs and sells audio and video signal
      processors and innovative power conditioning and surge protection
      products.





On
      January 25, 2006, 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 sixty-percent for approximately $2.4 million.
      The majority ownership transaction relating to MSH was finalized with the
      Chinese authorities in May 2006. Prior to January 25, 2006, Mammoth China had
      a
      forty-percent minority interest in MEG and a fifty-percent interest in
      MSH.





On
      December 9, 2005, the Company, through Linear, acquired the stock of GTO, Inc.
      (“GTO”) through a merger for approximately $28.2 million in cash, plus
      contingent consideration of approximately $0.2 million which was paid in the
      first quarter of 2006. GTO is located in Tallahassee, FL and designs,
      manufactures and sells automatic electric gate openers and access control
      devices to enhance the security and convenience of both residential and
      commercial property fences.





On
      August 26, 2005, the Company, through its wholly-owned subsidiary, Elan Home
      Systems, LLC (“Elan”), acquired the assets and certain liabilities of Sunfire
      Corporation (“Sunfire”) for approximately $4.0 million (utilizing approximately
      $3.5 million of cash and issuing an unsecured subordinated promissory note
      in
      the amount of approximately $0.5 million) plus contingent consideration, which
      may be payable in future years. Sunfire is located in Snohomish, WA and
      manufactures, sells and designs home audio and home cinema amplifiers, receivers
      and subwoofers.





On
      August 8, 2005, the Company, through its wholly-owned subsidiary, Nortek (UK)
      Limited, acquired the stock of Imerge Limited (“Imerge”) for approximately $6.1
      million in cash plus contingent consideration, which may be payable in future
      years. Imerge is located in Cambridge, United Kingdom and designs and sells
      hard
      disk media players and multi-room audio servers.





On
      July
      15, 2005, the Company, through Linear, acquired the assets and certain
      liabilities of Niles Audio Corporation (“Niles”) for approximately $77.7
      million. In connection with the acquisition of Niles, the Company utilized
      approximately $67.7 million of cash and issued an unsecured promissory note
      in
      the amount of approximately $10.0 million. Niles is located in Miami, FL and
      manufactures, sells and designs products that provide customers with innovative
      solutions for whole-house distribution and integration of audio and video
      systems, including speakers, receivers, amplifiers, automation devices, controls
      and accessories.





On
      June
      13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc.
      (“Nordyne”), acquired the assets and certain liabilities of International
      Marketing Supply, Inc. (“IMS”) for approximately $4.6 million, utilizing
      approximately $4.1 million of cash and issuing an unsecured promissory note
      in
      the amount of approximately $0.5 million. IMS is located in Miami, FL and sells
      heating, ventilation and air conditioning equipment to customers in Latin
      America and the Caribbean.





On
      April 26, 2005, the Company, through Linear, acquired the stock of Panamax
      for
      approximately $11.8 million (utilizing approximately $9.5 million of cash and
      issuing an unsecured promissory note in the amount of approximately $2.3
      million) plus contingent consideration of approximately $4.5 million which
      was
      paid in the first quarter of 2006. Panamax is located in Petaluma, CA and sells
      and designs innovative power conditioning and surge protection products that
      prevent loss or damage of home and small business equipment due to power
      disturbances.





Acquisitions
      contributed approximately $66.9 million, $11.6 million and $2.8 million to
      net
      sales, operating earnings and depreciation and amortization expense,
      respectively, for the third quarter ended September 30, 2006 and contributed
      approximately $149.5 million, $14.3 million and $6.6 million to net sales,
      operating earnings and depreciation and amortization expense, respectively,
      for
      the first nine months ended September 30, 2006. Huntair, Cleanpak, MEG, MSH
      and
      IMS are included in the Air Conditioning and Heating Products Segment in the
      Company’s segment reporting, while all remaining acquisitions are included in
      the Home Technology Products Segment in the Company’s segment reporting (see
      Note E).





During
      the third quarter and first nine months ended September 30, 2006, the Company
      recorded approximately $0.7 million and $2.9 million, respectively, of
      amortization of excess purchase price allocated to inventory related to the
      acquisitions noted above as a non-cash charge to cost of goods sold. During
      the
      first nine months ended October 1, 2005, the Company recorded approximately
      $0.1
      million of amortization of excess purchase price allocated to inventory related
      to the acquisitions noted above as a non-cash charge to cost of goods
      sold.





Acquisitions
      are accounted for as purchases and accordingly have been included in the
      Company’s consolidated results of operations since the 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 obtaining appraisals of intangible assets and property and equipment and
      finalizing the integration plans for certain of the acquired companies, which
      are expected to be completed by the end of 2006.





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





The
      estimated total potential amount of contingent consideration that may be paid
      in
      the future for these acquisitions is approximately $116.8 million.





(D) Operating
      results for the third quarter and first nine months ended September 30, 2006
      include non-cash foreign exchange gains of approximately $0.1 million and $0.4
      million, respectively. Operating results for the third quarter ended October
      1,
      2005 include a non-cash foreign exchange gain of approximately $0.1 million
      and
      include a non-cash foreign exchange loss of approximately $1.3 million for
      the
      first nine months ended October 1, 2005 related to intercompany debt not
      indefinitely invested in the Company’s subsidiaries. A portion of this expense
      has been allocated to the Company’s reporting segments for the third quarter and
      first nine months ended October 1, 2005 (see Note E).





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      third quarter and first nine months ended September 30, 2006 include an
      approximate $1.2 million gain and $1.6 million gain, respectively, related
      to
      the favorable settlement of litigation. Operating results for the first nine
      months ended October 1, 2005 include a gain of approximately $1.4 million from
      the settlement of certain obligations of former subsidiaries (see Note
      G).





The
      Company recorded stock-based compensation charges in selling, general and
      administrative expense of approximately $0.1 million for each of the third
      quarters ended September 30, 2006 and October 1, 2005, respectively and
      approximately $0.3 million for each of the nine months ended September 30,
      2006 and October 1, 2005, respectively, in accordance with SFAS No. 123 and
      SFAS
      No. 123R (see Note A).





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 $0.6 million and $1.8 million for the
      third quarter and first nine months ended September 30, 2006, respectively,
      and
      expensed approximately $0.5 million and $1.5 million for the third quarter
      and first nine months ended October 1, 2005, 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 ventilation and home technology convenience and security
      products, which is organized within three reporting segments: the Residential
      Ventilation Products Segment, the Home Technology Products Segment and the
      Air
      Conditioning and Heating Products Segment. The Air Conditioning and Heating
      Products Segment combines the results of the Company’s residential and
      commercial heating, ventilating and air conditioning (“HVAC”) 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.





During
      2005, the Company changed the composition of its reporting segments to reflect
      the Home Technology Products Segment separately. In accordance with SFAS No.
      131, “Disclosures about Segments of an Enterprise and Related Information”, the
      Company has restated prior period segment disclosures to conform to the new
      composition.





Unaudited
      net sales, operating earnings and pre-tax earnings for the Company’s segments
      for the third quarter ended September 30, 2006 and October 1, 2005 were as
      follows:







**For
                  the third quarter ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              200.4
              
              $
              198.4Home
                  technology products
              
              
              127.4
              
              
              100.6Air
                  conditioning and heating products
              
              
              251.2
              
              
              223.9Consolidated net sales
              
              $
              579.0
              
              $
              522.9**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              30.7
              
              $
              30.8Home
                  technology products
              
              
              24.1
              
              
              20.6Air
                  conditioning and heating products (2)
              
              
              19.1
              
              
              22.2Subtotal
              
              
              73.9
              
              
              73.6**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.1
              )
              
              (0.1
              )Foreign
                  exchange gain on intercompany debt
              
              
              0.1
              
              
              ---Unallocated,
                  net
              
              
              (6.2
              )
              
              (5.9
              )Consolidated operating earnings
              
              
              67.7
              
              
              67.6Interest
                  expense
              
              
              (29.9
              )
              
              (26.6
              )Investment
                  income
              
              
              0.4
              
              
              0.3Earnings before provision for income taxes
              
              $
              38.2
              
              $
              41.3


(1)
            The
                operating results of the Residential Ventilation Products Segment
                for the
                third quarter ended September 30, 2006 include an approximate pre-tax
                $0.3
                million charge related to
              the
                planned closure of the Company’s NuTone, Inc. Cincinnati, Ohio facility
                (see Note I).




(2) The
        operating results of the Air Conditioning and Heating Products Segment for
        the
        third quarter ended September 30, 2006 include an approximate $1.2 million
        gain
        related to the favorable settlement of litigation. The operating results
        of the
        Air Conditioning and Heating Products Segment for the third quarter ended
        October 1, 2005 include a non-cash foreign exchange gain of approximately
        $0.1
        million related to intercompany debt not indefinitely invested in the Company’s
        subsidiaries.






Unaudited
      net
      sales, operating earnings and pre-tax earnings for the Company’s segments for
      the first nine months ended September 30, 2006 and October 1, 2005 were as
      follows:






**For
                  the first nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              619.3
              
              $
              598.1Home
                  technology products
              
              
              350.0
              
              
              240.9Air
                  conditioning and heating products
              
              
              708.0
              
              
              616.8Consolidated net sales
              
              $
              1,677.3
              
              $
              1,455.8**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              136.6
              
              $
              88.6Home
                  technology products (2)
              
              
              55.8
              
              
              46.4Air
                  conditioning and heating products (3)
              
              
              56.3
              
              
              49.9Subtotal
              
              
              248.7
              
              
              184.9**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.3
              )
              
              (0.3
              )Foreign
                  exchange gain (loss) on intercompany debt
              
              
              0.4
              
              
              (0.3
              )Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4Unallocated,
                  net
              
              
              (19.4
              )
              
              (18.2
              )Consolidated operating earnings
              
              
              229.4
              
              
              167.5Interest
                  expense
              
              
              (85.9
              )
              
              (76.0
              )Investment
                  income
              
              
              1.6
              
              
              1.1Earnings before provision for income taxes
              
              $
              145.1
              
              $
              92.6


(1)
            The
                operating results of the Residential Ventilation Products Segment
                for the
                first nine months ended September 30, 2006 include an approximate
                pre-tax
                $35.9 million curtailment gain related to post-retirement medical
                and life
                insurance benefits and an approximate pre-tax $4.1 million charge
                related
                to the planned closure of the Company’s NuTone, Inc. Cincinnati, Ohio
                facility (see Note I).The
                operating results of the Residential Ventilation Products Segment
                for the
                first nine months ended October 1, 2005 include a non-cash foreign
                exchange loss of approximately $1.0 million related to intercompany
                debt
                not indefinitely invested in the Company’s subsidiaries.





(2)
            The
                operating results of the Home Technology Products Segment for the
                first
                nine months ended September 30, 2006 include an increase in warranty
                expense of approximately $4.0 million related to a product safety
                upgrade.





(3)
            The
                operating results of the Air Conditioning and Heating Products Segment
                for
                the first nine months ended September 30, 2006 include an approximate
                $1.6
                million gain related to the favorable settlement of
                litigation.





Unaudited
      depreciation expense, amortization expense and capital expenditures for the
      Company’s segments for the third quarter ended September 30, 2006 and October 1,
      2005 were as follows:





**For
                  the third quarter ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Depreciation
                  Expense:**Residential
                  ventilation products
              
              $
              3.2
              
              $
              2.8Home
                  technology products
              
              
              1.1
              
              
              0.6Air
                  conditioning and heating products
              
              
              4.2
              
              
              3.2Other
              
              
              0.2
              
              
              0.2Consolidated depreciation expense
              
              $
              8.7
              
              $
              6.8**Amortization
                  expense:**Residential
                  ventilation products (1)
              
              $
              1.8
              
              $
              2.3Home
                  technology products
              
              
              2.5
              
              
              1.5Air
                  conditioning and heating products (2)
              
              
              2.8
              
              
              0.8Other
              
              
              0.1
              
              
              0.2Consolidated amortization expense
              
              $
              7.2
              
              $
              4.8**Capital
                  Expenditures (3):**Residential
                  ventilation products
              
              $
              5.3
              
              $
              1.8Home
                  technology products
              
              
              1.8
              
              
              0.5Air
                  conditioning and heating products
              
              
              3.2
              
              
              4.3Other
              
              
              ---
              
              
              0.3Consolidated capital expenditures
              
              $
              10.3
              
              $
              6.9


(1)
            Includes
                amortization of approximately $0.3 million and $0.4 million for the
                third
                quarter ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.





(2)
            Includes
                amortization of approximately $0.7 million for the third quarter
                ended
                September 30, 2006 of excess purchase price allocated to inventory
                recorded as a non-cash charge to cost of products sold.





(3)
            Includes
                capital expenditures financed under capital leases of approximately
                $1.1
                million for the third quarter ended October 1,
                2005.






Unaudited
      depreciation expense, amortization expense and capital expenditures for the
      Company’s segments for the first nine months ended September 30, 2006 and
      October 1, 2005 were as follows:







**For
                  the first nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Depreciation
                  Expense:**Residential
                  ventilation products
              
              $
              9.7
              
              $
              8.6Home
                  technology products
              
              
              2.9
              
              
              1.6Air
                  conditioning and heating products
              
              
              11.7
              
              
              9.6Other
              
              
              0.5
              
              
              0.6Consolidated depreciation expense
              
              $
              24.8
              
              $
              20.4**Amortization
                  expense:**Residential
                  ventilation products (1)
              
              $
              4.8
              
              $
              6.2Home
                  technology products (2)
              
              
              6.9
              
              
              4.9Air
                  conditioning and heating products (3)
              
              
              7.3
              
              
              2.4Other
              
              
              0.4
              
              
              0.4Consolidated amortization expense
              
              $
              19.4
              
              $
              13.9**Capital
                  Expenditures (4):**Residential
                  ventilation products
              
              $
              14.7
              
              $
              5.6Home
                  technology products
              
              
              5.2
              
              
              1.5Air
                  conditioning and heating products
              
              
              13.0
              
              
              12.0Other
              
              
              0.1
              
              
              0.5Consolidated capital expenditures
              
              $
              33.0
              
              $
              19.6


(1)
            Includes
                amortization of approximately $0.3 million and $0.4 million for the
                first
                nine months ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.





(2)
            Includes
                amortization of approximately $0.1 million and $0.4 million for the
                first
                nine months ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.





(3)
            Includes
                amortization of approximately $2.8 million for the first nine months
                ended
                September 30, 2006 of excess purchase price allocated to inventory
                recorded as a non-cash charge to cost of products sold.





(4)
            Includes
                capital expenditures financed under capital leases of approximately
                $4.6
                million for the first nine months ended October 1,
                2005.






(F)
            The
                Company provides income taxes on an interim basis based upon the
                estimated
                annual effective income tax rate. The following reconciles the federal
                statutory income tax rate to the estimated effective tax rate of
                approximately 38.4% for each of the nine months ended September 30,
                2006 and October 1, 2005:






**For
                the first nine months ended****September
                30, 2006**
            
            **October
                1, 2005**Income
                tax provision at the federal statutory rate
            
            
            35.0
            %
            
            35.0
            %Net
                change from federal statutory rate:State
                income
                tax provision, net of federal income tax effect
            
            
            1.6
            
            
            2.3Tax
                effect resulting from foreign activities
            
            
            1.0
            
            
            0.8Non-deductible
                expenses
            
            
            0.5
            
            
            0.3Other,
                net
            
            
            0.3
            
            
            ---Income
                tax provision at estimated effective rate
            
            
            38.4
            %
            
            38.4
            %






(G) As
      of
      September 30, 2006, the Company’s former subsidiary, Ply Gem Industries, Inc.
      (“Ply Gem”), has guaranteed approximately $22.1 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 $0.9 million at September 30, 2006 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 $12.1 million and $12.5
      million at September 30, 2006 and December 31, 2005, respectively. Approximately
      $5.6 million of short-term liabilities and approximately $6.5 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 September 30, 2006 related to these indemnifications. In
      February 2005, the Company settled a portion of these obligations with a lump
      sum cash payment resulting in a reduction of approximately $1.4 million in
      such
      liabilities, which was recorded as income in the Company’s unaudited condensed
      consolidated statement of operations for the first nine months ended October
      1,
      2005 (see Note D).





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 country in which the product is sold. The Company estimates
      the
      costs that may be incurred under its warranties, with the exception of extended
      warranties, and records a liability for such costs at the time of sale. Proceeds
      received from extended warranties are amortized over the life of the warranty
      and reviewed to ensure that the liability recorded is equal to or greater than
      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 unaudited combined short-term and long-term warranty
      liabilities during the third quarter ended September 30, 2006 and October 1,
      2005 were as follows:







**For
                the third quarter ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Balance,
                beginning of period
            
            $
            43.4
            
            $
            32.0Warranties
                provided during period
            
            
            5.0
            
            
            5.9Settlements
                made during period
            
            
            (6.9
            )
            
            (5.7
            )Changes
                in liability estimate, including acquisitions
            
            
            0.2
            
            
            0.3Balance,
                end of period
            
            $
            41.7
            
            $
            32.5





Changes
      in the Company’s unaudited combined short-term and long-term warranty
      liabilities during the first nine months ended September 30, 2006 and October
      1,
      2005 were as follows:





**For
                the first nine months ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Balance,
                beginning of period
            
            $
            34.8
            
            $
            30.3Warranties
                provided during period
            
            
            22.5
            
            
            16.3Settlements
                made during period
            
            
            (16.9
            )
            
            (14.8
            )Changes
                in liability estimate, including acquisitions
            
            
            1.3
            
            
            0.7Balance,
                end of period
            
            $
            41.7
            
            $
            32.5







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
      out of the Company’s control.





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





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 unaudited condensed consolidated statement of
      operations for the periods presented. These costs are included in cost of goods
      sold and selling, general and administrative expenses in the accompanying
      unaudited condensed consolidated statement of operations of the
      Company.







**Employee**
              **Separation**
              **Expenses**
            
            **Other**
            
            **Total**
              **Restructuring**
              **Costs***(Dollar
                amounts in millions)***Balance
                at December 31, 2004**
            
            **$**
            **3.2**
            
            **$**
            **---**
            
            **$**
            **3.2**Payments
                and asset write downs
            
            
            (0.5
            )
            
            ---
            
            
            (0.5
            )**Balance
                at April 2, 2005**
            
            
            **2.7**
            
            
            **---**
            
            
            **2.7**Payments
                and asset write downs
            
            
            (0.4
            )
            
            ---
            
            
            (0.4
            )**Balance
                at July 2, 2005**
            
            
            **2.3**
            
            
            **---**
            
            
            **2.3**Payments
                and asset write downs
            
            
            (0.8
            )
            
            ---
            
            
            (0.8
            )**Balance
                at October 1, 2005**
            
            **$**
            **1.5**
            
            **$**
            **---**
            
            **$**
            **1.5****Balance
                at December 31, 2005**
            
            **$**
            **1.0**
            
            **$**
            **0.3**
            
            **$**
            **1.3**Payments
                and asset write downs
            
            
            (0.4
            )
            
            (0.2
            )
            
            (0.6
            )Other
            
            
            ---
            
            
            (0.1
            )
            
            (0.1
            )**Balance
                at April 1, 2006**
            
            
            **0.6**
            
            
            **---**
            
            
            **0.6**Provision
            
            
            ---
            
            
            0.5
            
            
            0.5Payments
                and asset write downs
            
            
            (0.4
            )
            
            (0.3
            )
            
            (0.7
            )**Balance
                at July 1, 2006**
            
            
            **0.2**
            
            
            **0.2**
            
            
            **0.4**Payments
                and asset write downs
            
            
            (0.2
            )
            
            (0.1
            )
            
            (0.3
            )**Balance
                at September 30, 2006**
            
            **$**
            **---**
            
            **$**
            **0.1**
            
            **$**
            **0.1**







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, 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 $2.4
      million and $3.1 million for the third quarter ended September 30, 2006 and
      October 1, 2005, respectively, and aggregated approximately $7.9 million and
      $9.9 million for the first nine months ended September 30, 2006 and October
      1,
      2005, 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 December 31, 2005, the Company expected to contribute
      approximately $13.3 million to its defined benefit pension plans in 2006. During
      the third quarter 2006, the Company revised its total expected contributions
      to
      approximately $12.1 million. As of September 30, 2006, approximately $10.6
      million of contributions have been made and it is estimated that approximately
      $1.5 million will be paid in the fourth quarter of 2006.





The
      Company’s unaudited net periodic benefit cost for its defined benefit plans for
      the third quarter ended September 30, 2006 and October 1, 2005 consists of
      the
      following components:





**For
                the third quarter ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.2
            
            $
            0.3Interest
                cost
            
            
            2.3
            
            
            2.2Expected
                return on plan assets
            
            
            (2.3
            )
            
            (2.1
            )Net
                periodic benefit cost
            
            $
            0.2
            
            $
            0.4





The
      Company’s unaudited net periodic benefit cost for its defined benefit plans for
      the first nine months ended September 30, 2006 and October 1, 2005 consists
      of
      the following components:





**For
                the first nine months ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.8
            
            $
            1.0Interest
                cost
            
            
            6.8
            
            
            6.7Expected
                return on plan assets
            
            
            (6.8
            )
            
            (6.4
            )Net
                periodic benefit cost
            
            $
            0.8
            
            $
            1.3





The
      Company’s unaudited net periodic benefit cost for its post retirement health
      benefit plans for the
      third quarter ended September 30, 2006 and October 1, 2005 consists
      of the following components:





**For
                the third quarter ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            ---
            
            $
            0.1Interest
                cost
            
            
            0.1
            
            
            0.6Net
                periodic
                post retirement health benefit cost
            
            $
            0.1
            
            $
            0.7





The
      Company’s unaudited net periodic benefit cost for its post retirement health
      benefit plans for the
      first nine months ended September 30, 2006 and October 1, 2005 consists
      of the following components:





**For
                the first nine months ended****September
                30, 2006**
            
            **October
                1, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.1
            
            $
            0.3Interest
                cost
            
            
            0.6
            
            
            1.8Amortization
                of prior service cost
            
            
            (1.4
            )
            
            ---Curtailment
                gain
            
            
            (35.9
            )
            
            ---Net
                periodic
                post retirement health benefit (income) cost
            
            $
            (36.6
            )
            $
            2.1






During
      2005, the Company notified certain retirees that post retirement medical
      benefits would no longer be continued by the Company effective July 31, 2005.
      Such retirees were offered medical benefits through other means at their
      expense. This resulted in a negative plan amendment to the NuTone, Inc.
      ("NuTone") post retirement medical plan and the plan reflected a deferred
      actuarial gain of approximately $22.2 million which was being amortized into
      income by the Company through February 2011.





On
      June
      8, 2005, the Company's collective bargaining agreement with the United
      Automobile Aerospace & Agricultural Implement Workers of America and its
      Local No. 2029 expired. That bargaining unit covered approximately 4.4% of
      the
      Company's employees (414 employees), which were located at the Cincinnati,
      OH
      location of the Company's subsidiary NuTone. On or about June 8, 2005, the
      Company presented its final proposal to the union bargaining committee but
      such
      proposal was not accepted by the union members. On July 16, 2005, the Company
      locked out the union employees at the NuTone Cincinnati, OH facility. On
      September 6, 2005, the Company notified the union bargaining committee that
      negotiations had reached an impasse and that it was unilaterally implementing
      the terms of its final offer. Among other things, this implemented final offer
      does not provide the NuTone union members with post retirement medical benefits.
      Subsequent to May 11, 2006, the union no longer had the right to appeal the
      Company's implementation of the final offer. Accordingly, this implemented
      final
      offer resulted in the Company recording a curtailment gain of approximately
      $35.6 million ($22.1 million, net of tax) in the second quarter of 2006 which
      includes approximately $18.1 million ($11.3 million, net of tax) of unamortized
      deferred actuarial gain related to the negative plan amendment discussed in
      the
      previous paragraph. In addition, as a result of this implemented final offer,
      the Company recorded a curtailment gain on life insurance of approximately
      $0.3
      million, which is included in gain from curtailment of post-retirement medical
      benefits on the accompanying unaudited condensed consolidated statement of
      operations.





In
      late
      June 2006, the Company informed the union that the Company would close the
      manufacturing operations at the Cincinnati, OH facility on or about August
      30,
      2006. As a result of this planned closure, the Company, through its Residential
      Ventilation Products segment, recorded an approximate $4.1 million charge to
      operations (of which approximately $1.7 million is recorded in cost of goods
      sold and approximately $2.4 million is recorded in selling, general and
      administrative expense) consisting of severance of approximately $2.4 million
      and write-offs related to equipment sales and disposals of approximately $1.7
      million.





On
      July
      27, 2006 the union members ratified a Closedown Agreement providing for the
      closedown and permanent layoff of all bargaining unit employees employed at
      the
      NuTone plant effective August 30, 2006, and the release by the union of any
      claims it may have against the Company. That agreement provides for, among
      other
      matters, the payment of severance, which was recorded in the second quarter
      ended July 1, 2006, as provided under the terms of the implemented final offer
      and the payment of enhanced severance, which resulted in additional expense
      of
      approximately $0.3 million in the third quarter of 2006 (which is included
      in
      the $4.1 million charge above as part of severance) relating to those employees
      that executed a release of the Company from any claims, with the exception
      of
      claims related to vested pension, worker's compensation and unemployment
      benefits.





On
      December 8, 2003, President Bush signed into law the Medicare Prescription
      Drug,
      Improvement and Modernization Act of 2003 (“the Act”). The Act expanded Medicare
      to include, for the first time, coverage for prescription drugs. Based upon
      an
      analysis of plan provisions and prescription drug claims experience, it has
      been
      determined that the potential savings that the NuTone Retiree Medical Plan
      could
      realize as a result of the Act would not warrant the administrative cost
      necessary to recover the federal subsidy, and accordingly the Company has not
      reflected any reduction in cost under FASB Staff Position No. FAS 106-2 as
      of
      September 30, 2006 or October 1, 2005.





(J) The
      Company’s 8 1/2% Senior Subordinated Notes due 2014 (the “8 1/2% Notes”) require
      interest to be paid semi-annually in arrears on March 1 and September 1 of
      each
      year. The 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 September 30, 2006 and December 31, 2005 and
      the related consolidating statements of operations and cash flows for the three
      and nine months ended September 30, 2006 and October 1, 2005 are reflected
      below
      in order to comply with the reporting requirements for guarantor subsidiaries.






**Unaudited
      Condensed Consolidating Balance Sheet**


**As
      of September 30, 2006**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***ASSETS:****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              17.2
              
              $
              4.6
              
              $
              34.4
              
              $
              ---
              
              $
              56.2Restricted
                  cash
              
              
              0.1
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              0.1Accounts
                  receivable, less allowances
              
              
              ---
              
              
              259.0
              
              
              87.6
              
              
              ---
              
              
              346.6Intercompany
                  receivables (payables)
              
              
              1.8
              
              
              (5.5
              )
              
              3.7
              
              
              ---
              
              
              ---Inventories
              
              
              ---
              
              
              242.0
              
              
              54.1
              
              
              ---
              
              
              296.1Prepaid
                  expenses
              
              
              1.4
              
              
              9.5
              
              
              4.5
              
              
              ---
              
              
              15.4Other
                  current
                  assets
              
              
              5.7
              
              
              3.8
              
              
              15.7
              
              
              ---
              
              
              25.2Prepaid
                  income
                  taxes
              
              
              5.0
              
              
              14.1
              
              
              0.2
              
              
              ---
              
              
              19.3Total current assets
              
              
              31.2
              
              
              527.5
              
              
              200.2
              
              
              ---
              
              
              758.9**Property
                  and Equipment, at Cost:**Total
                  property
                  and equipment, net
              
              
              1.4
              
              
              146.1
              
              
              74.8
              
              
              ---
              
              
              222.3**Other
                  Long-term Assets:**Investment
                      in
                      subsidiaries and long-term receivable from (to)
                      subsidiaries
              
              
              1,947.8
              
              
              (97.5
              )
              
              (65.1
              )
              
              (1,785.2
              )
              
              ---Goodwill
              
              
              ---
              
              
              1,378.9
              
              
              25.5
              
              
              ---
              
              
              1,404.4Intangible
                  assets, less accumulated amortization
              
              
              1.0
              
              
              115.9
              
              
              22.4
              
              
              ---
              
              
              139.3Other
                  assets
              
              
              41.4
              
              
              3.7
              
              
              0.7
              
              
              ---
              
              
              45.8Total other long-term assets
              
              
              1,990.2
              
              
              1,401.0
              
              
              (16.5
              )
              
              (1,785.2
              )
              
              1,589.5Total assets
              
              $
              2,022.8
              
              $
              2,074.6
              
              $
              258.5
              
              $
              (1,785.2
              )
              $
              2,570.7**LIABILITIES
                      AND STOCKHOLDER'S**INVESTMENT:**Current
                  Liabilities:**Notes
                  payable
                  and other short-term obligations
              
              $
              35.0
              
              
              ---
              
              $
              9.9
              
              $
              ---
              
              $
              44.9Current
                  maturities of long-term debt
              
              
              9.2
              
              
              12.4
              
              
              2.6
              
              
              ---
              
              
              24.2Accounts
                  payable
              
              
              1.2
              
              
              115.5
              
              
              70.9
              
              
              ---
              
              
              187.6Accrued
                  expenses and taxes, net
              
              
              12.9
              
              
              158.2
              
              
              42.1
              
              
              ---
              
              
              213.2Total
                  current
                  liabilities
              
              
              58.3
              
              
              286.1
              
              
              125.5
              
              
              ---
              
              
              469.9**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              (11.0
              )
              
              27.1
              
              
              15.5
              
              
              ---
              
              
              31.6Long-term
                  payable to affiliate
              
              
              17.3
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              17.3Other
                  long-term liabilities
              
              
              66.3
              
              
              49.9
              
              
              12.4
              
              
              ---
              
              
              128.672.6
              
              
              77.0
              
              
              27.9
              
              
              ---
              
              
              177.5**Notes,
                      Mortgage Notes and Obligations**Payable, Less Current
                      Maturities
              
              
              1,326.5
              
              
              22.3
              
              
              9.1
              
              
              ---
              
              
              1,357.9Stockholder's
                  investment
              
              
              565.4
              
              
              1,689.2
              
              
              96.0
              
              
              (1,785.2
              )
              
              565.4Total liabilities and stockholder's investment
              
              $
              2,022.8
              
              $
              2,074.6
              
              $
              258.5
              
              $
              (1,785.2
              )
              $
              2,570.7


**Unaudited
      Condensed Consolidating Balance Sheet**


**As
      of December 31, 2005**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***ASSETS:****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              57.2
              
              $
              3.6
              
              $
              16.4
              
              $
              ---
              
              $
              77.2Accounts
                  receivable, less allowances
              
              
              ---
              
              
              204.0
              
              
              68.2
              
              
              ---
              
              
              272.2Intercompany
                  receivables (payables)
              
              
              3.7
              
              
              (4.7
              )
              
              1.0
              
              
              ---
              
              
              ---Inventories
              
              
              ---
              
              
              199.2
              
              
              43.1
              
              
              ---
              
              
              242.3Prepaid
                  expenses
              
              
              0.6
              
              
              6.6
              
              
              3.3
              
              
              ---
              
              
              10.5Other
                  current
                  assets
              
              
              2.3
              
              
              3.6
              
              
              20.4
              
              
              ---
              
              
              26.3Prepaid
                  income
                  taxes
              
              
              5.0
              
              
              15.5
              
              
              0.2
              
              
              ---
              
              
              20.7Total current assets
              
              
              68.8
              
              
              427.8
              
              
              152.6
              
              
              ---
              
              
              649.2**Property
                  and Equipment, at Cost:**Total
                  property
                  and equipment, net
              
              
              1.5
              
              
              144.0
              
              
              60.0
              
              
              ---
              
              
              205.5**Other
                  Long-term Assets:**Investment
                      in
                      subsidiaries and long-term receivable from (to)
                      subsidiaries
              
              
              1,788.7
              
              
              (67.2
              )
              
              (55.7
              )
              
              (1,665.8
              )
              
              ---Goodwill
              
              
              ---
              
              
              1,355.3
              
              
              26.0
              
              
              ---
              
              
              1,381.3Intangible
                  assets, less accumulated amortization
              
              
              1.3
              
              
              93.2
              
              
              20.0
              
              
              ---
              
              
              114.5Long-term
                  portion of receivable from affiliate
              
              
              17.5
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              17.5Other
                  assets
              
              
              43.6
              
              
              3.9
              
              
              1.1
              
              
              ---
              
              
              48.6Total other long-term assets
              
              
              1,851.1
              
              
              1,385.2
              
              
              (8.6
              )
              
              (1,665.8
              )
              
              1,561.9Total assets
              
              $
              1,921.4
              
              $
              1,957.0
              
              $
              204.0
              
              $
              (1,665.8
              )
              $
              2,416.6**LIABILITIES
                      AND STOCKHOLDER'S INVESTMENT:****Current
                  Liabilities:**Notes
                  payable
                  and other short-term obligations
              
              $
              ---
              
              $
              ---
              
              $
              4.9
              
              $
              ---
              
              $
              4.9Current
                  maturities of long-term debt
              
              
              8.8
              
              
              4.9
              
              
              1.1
              
              
              ---
              
              
              14.8Accounts
                  payable
              
              
              1.1
              
              
              93.7
              
              
              64.2
              
              
              ---
              
              
              159.0Accrued
                  expenses and taxes, net
              
              
              29.9
              
              
              135.2
              
              
              31.6
              
              
              ---
              
              
              196.7Total current liabilities
              
              
              39.8
              
              
              233.8
              
              
              101.8
              
              
              ---
              
              
              375.4**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              (11.0
              )
              
              15.9
              
              
              15.5
              
              
              ---
              
              
              20.4Other
                  long-term liabilities
              
              
              72.2
              
              
              85.1
              
              
              9.1
              
              
              ---
              
              
              166.461.2
              
              
              101.0
              
              
              24.6
              
              
              ---
              
              
              186.8**Notes,
                      Mortgage Notes and Obligations**Payable, Less Current
                      Maturities
              
              
              1,320.1
              
              
              29.1
              
              
              4.9
              
              
              ---
              
              
              1,354.1Stockholder's
                  investment
              
              
              500.3
              
              
              1,593.1
              
              
              72.7
              
              
              (1,665.8
              )
              
              500.3Total liabilities and stockholder's investment
              
              $
              1,921.4
              
              $
              1,957.0
              
              $
              204.0
              
              $
              (1,665.8
              )
              $
              2,416.6


**Unaudited
      Condensed Consolidating Statement of Operations**


**For
      the three months ended September 30, 2006**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              ---
              
              $
              476.9
              
              $
              138.3
              
              $
              (36.2
              )
              $
              579.0**Costs
                  and expenses:**Costs of products sold
              
              
              ---
              
              
              329.5
              
              
              110.9
              
              
              (36.2
              )
              
              404.2Selling, general and administrative expenses, net
              
              
              6.2
              
              
              77.5
              
              
              17.2
              
              
              ---
              
              
              100.9Amortization of intangible assets
              
              
              0.1
              
              
              5.4
              
              
              0.7
              
              
              ---
              
              
              6.26.3
              
              
              412.4
              
              
              128.8
              
              
              (36.2
              )
              
              511.3Operating
                  (loss) earnings
              
              
              (6.3
              )
              
              64.5
              
              
              9.5
              
              
              ---
              
              
              67.7Interest
                  expense
              
              
              (28.9
              )
              
              (0.6
              )
              
              (0.4
              )
              
              ---
              
              
              (29.9
              )Investment
                  income
              
              
              0.2
              
              
              ---
              
              
              0.2
              
              
              ---
              
              
              0.4(Loss)
                  income
                  before charges and allocationsto subsidiaries and equity in subsidiaries'earnings (loss) before income taxes
              
              
              (35.0
              )
              
              63.9
              
              
              9.3
              
              
              ---
              
              
              38.2Charges
                  and
                  allocations to subsidiaries andequity in subsidiaries' earnings (loss)before income taxes
              
              
              73.2
              
              
              (14.6
              )
              
              0.4
              
              
              (59.0
              )
              
              ---Earnings
                      (loss) before provision (benefit) for income
                      taxes
              
              
              38.2
              
              
              49.3
              
              
              9.7
              
              
              (59.0
              )
              
              38.2Provision
                  (benefit) for income taxes
              
              
              15.1
              
              
              18.2
              
              
              4.1
              
              
              (22.3
              )
              
              15.1Net earnings (loss)
              
              $
              23.1
              
              $
              31.1
              
              $
              5.6
              
              $
              (36.7
              )
              $
              23.1


**Unaudited
      Condensed Consolidating Statement of Operations**


**For
      the three months ended October 1, 2005**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
                  ---
              
              $
                  435.2
              
              $
                  112.9
              
              $
                  (25.2)
              
              $
                  522.9**Costs
                  and expenses:**Costs of products sold
              
              
              ---
              
              
              296.9
              
              
              89.6
              
              
              (25.2
              )
              
              361.3Selling, general and administrative expenses, net
              
              
              5.8
              
              
              69.3
              
              
              14.5
              
              
              ---
              
              
              89.6Amortization of intangible assets
              
              
              0.2
              
              
              3.7
              
              
              0.5
              
              
              ---
              
              
              4.46.0
              
              
              369.9
              
              
              104.6
              
              
              (25.2
              )
              
              455.3Operating
                  (loss) earnings
              
              
              (6.0
              )
              
              65.3
              
              
              8.3
              
              
              ---
              
              
              67.6Interest
                  expense
              
              
              (25.7
              )
              
              (0.6
              )
              
              (0.3
              )
              
              ---
              
              
              (26.6
              )Investment
                  income
              
              
              0.2
              
              
              ---
              
              
              0.1
              
              
              ---
              
              
              0.3(Loss)
                  income
                  before charges and allocationsto subsidiaries and equity in subsidiaries'earnings (loss) before income taxes
              
              
              (31.5
              )
              
              64.7
              
              
              8.1
              
              
              ---
              
              
              41.3Charges
                  and
                  allocations to subsidiaries andequity
                  in subsidiaries' earnings (loss)before
                  income taxes
              
              
              72.8
              
              
              (12.7
              )
              
              ---
              
              
              (60.1
              )
              
              ---Earnings
                  (loss) before provision (benefit) for income taxes
              
              
              41.3
              
              
              52.0
              
              
              8.1
              
              
              (60.1
              )
              
              41.3Provision
                  (benefit) for income taxes
              
              
              16.3
              
              
              19.8
              
              
              3.2
              
              
              (23.0
              )
              
              16.3Net earnings (loss)
              
              $
              25.0
              
              $
              32.2
              
              $
              4.9
              
              $
              (37.1
              )
              $
              25.0


**Unaudited
      Condensed Consolidating Statement of Operations**


**For
      the first nine months ended September 30, 2006**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              ---
              
              $
              1,384.2
              
              $
              406.9
              
              $
              (113.8
              )
              $
              1,677.3**Costs
                  and expenses:**Costs of products sold
              
              
              ---
              
              
              957.1
              
              
              325.1
              
              
              (113.8
              )
              
              1,168.4Selling, general and administrative expenses, net
              
              
              19.0
              
              
              227.9
              
              
              52.3
              
              
              ---
              
              
              299.2Amortization of intangible assets
              
              
              0.4
              
              
              13.9
              
              
              1.9
              
              
              ---
              
              
              16.2Gain
                  from curtailment of post-retirement medical
                  benefits
              
              
              ---
              
              
              (35.9
              )
              
              ---
              
              
              ---
              
              
              (35.9
              )19.4
              
              
              1,163.0
              
              
              379.3
              
              
              (113.8
              )
              
              1,447.9Operating
                  (loss) earnings
              
              
              (19.4
              )
              
              221.2
              
              
              27.6
              
              
              ---
              
              
              229.4Interest
                  expense
              
              
              (83.2
              )
              
              (1.7
              )
              
              (1.0
              )
              
              ---
              
              
              (85.9
              )Investment
                  income
              
              
              1.2
              
              
              ---
              
              
              0.4
              
              
              ---
              
              
              1.6(Loss)
                  income
                  before charges and allocationsto subsidiaries and equity in subsidiaries'earnings (loss) before income taxes
              
              
              (101.4
              )
              
              219.5
              
              
              27.0
              
              
              ---
              
              
              145.1Charges
                  and
                  allocations to subsidiaries andequity
                  in subsidiaries' earnings (loss)before
                  income taxes
              
              
              246.5
              
              
              (48.8
              )
              
              0.6
              
              
              (198.3
              )
              
              ---Earnings
                      (loss) before provision (benefit) for income
                      taxes
              
              
              145.1
              
              
              170.7
              
              
              27.6
              
              
              (198.3
              )
              
              145.1Provision
                  (benefit) for income taxes
              
              
              55.7
              
              
              62.6
              
              
              11.0
              
              
              (73.6
              )
              
              55.7Net earnings (loss)
              
              $
              89.4
              
              $
              108.1
              
              $
              16.6
              
              $
              (124.7
              )
              $
              89.4


**Unaudited
      Condensed Consolidating Statement of Operations**


**For
      the first nine months ended October 1, 2005**


**Guarantor**
              
              **Non-Guarantor**
              
              
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              ---
              
              $
              1,204.7
              
              $
              327.4
              
              $
              (76.3
              )
              $
              1,455.8**Costs
                  and expenses:**Costs of products sold
              
              
              ---
              
              
              833.2
              
              
              264.2
              
              
              (76.3
              )
              
              1,021.1Selling, general and administrative expenses, net
              
              
              16.9
              
              
              192.8
              
              
              44.4
              
              
              ---
              
              
              254.1Amortization of intangible assets
              
              
              0.4
              
              
              11.1
              
              
              1.6
              
              
              ---
              
              
              13.117.3
              
              
              1,037.1
              
              
              310.2
              
              
              (76.3
              )
              
              1,288.3Operating
                  (loss) earnings
              
              
              (17.3
              )
              
              167.6
              
              
              17.2
              
              
              ---
              
              
              167.5Interest
                  expense
              
              
              (74.0
              )
              
              (1.4
              )
              
              (0.6
              )
              
              ---
              
              
              (76.0
              )Investment
                  income
              
              
              1.0
              
              
              ---
              
              
              0.1
              
              
              ---
              
              
              1.1(Loss)
                  income
                  before charges and allocationsto subsidiaries and equity in subsidiaries'earnings (loss) before income taxes
              
              
              (90.3
              )
              
              166.2
              
              
              16.7
              
              
              ---
              
              
              92.6Charges
                  and
                  allocations to subsidiaries andequity in subsidiaries' earnings (loss)before income taxes
              
              
              182.9
              
              
              (42.8
              )
              
              (0.5
              )
              
              (139.6
              )
              
              ---Earnings
                      (loss) before provision (benefit) for income
                      taxes
              
              
              92.6
              
              
              123.4
              
              
              16.2
              
              
              (139.6
              )
              
              92.6Provision
                  (benefit) for income taxes
              
              
              35.6
              
              
              45.7
              
              
              6.1
              
              
              (51.8
              )
              
              35.6Net earnings (loss)
              
              $
              57.0
              
              $
              77.7
              
              $
              10.1
              
              $
              (87.8
              )
              $
              57.0


**Unaudited
      Condensed Consolidating Cash Flow Statement**


**For
      the first nine months ended September 30, 2006**


**Guarantor**
              
              **Non-Guarantor**
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Consolidated***(Dollar
                  amounts in millions)***Cash
                  Flows from operating activities:**Net
                  cash
                  (used in) provided by operating activities
              
              $
              (38.2
              )
              $
              85.8
              
              $
              25.7
              
              $
              73.3**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              
              (0.2
              )
              
              (16.0
              )
              
              (16.8
              )
              
              (33.0
              )Net
                  cash paid
                  for businesses acquired
              
              
              ---
              
              
              (67.0
              )
              
              ---
              
              
              (67.0
              )Payment
                of
                IPO Expenses for NTK Holdings
              
              
              (2.4
              )
              
              ---
              
              
              ---
              
              
              (2.4
              )Proceeds
                  from
                  the sale of property and equipment
              
              
              1.9
              
              
              1.3
              
              
              0.2
              
              
              3.4Change
                  in
                  restricted cash and marketable securities
              
              
              ---
              
              
              0.4
              
              
              ---
              
              
              0.4Other,
                  net
              
              
              (0.7
              )
              
              (2.1
              )
              
              (0.3
              )
              
              (3.1
              )Net cash provided by (used in) investing activities
              
              
              (1.4
              )
              
              (83.4
              )
              
              (16.9
              )
              
              (101.7
              )**Cash
                  Flows from financing activities:**Increase
                  in
                  borrowings
              
              
              65.0
              
              
              0.1
              
              
              18.8
              
              
              83.9Payment
                  of
                  borrowings
              
              
              (35.7
              )
              
              (1.5
              )
              
              (9.6
              )
              
              (46.8
              )Dividends
              
              
              (28.1
              )
              
              ---
              
              
              ---
              
              
              (28.1
              )Other,
                  net
              
              
              (1.6
              )
              
              ---
              
              
              ---
              
              
              (1.6
              )Net cash (used in) provided by financing activities
              
              
              (0.4
              )
              
              (1.4
              )
              
              9.2
              
              
              7.4Net
                      (decrease) increase in unrestricted cash and cash
                      equivalents
              
              
              (40.0
              )
              
              1.0
              
              
              18.0
              
              
              (21.0
              )Unrestricted
                      cash and cash equivalents at the beginning of the
                      period
              
              
              57.2
              
              
              3.6
              
              
              16.4
              
              
              77.2Unrestricted
                      cash and cash equivalents at the end of the
                      period
              
              $
              17.2
              
              $
              4.6
              
              $
              34.4
              
              $
              56.2


**Unaudited
      Condensed Consolidating Cash Flow Statement**


**For
      the first nine months ended October 1, 2005**


**Guarantor**
              
              **Non-Guarantor**
              
              **Nortek****Parent**
              
              **Subsidiaries**
              
              **Subsidiaries**
              
              **Consolidated***(Dollar
                  amounts in millions)***Cash
                  Flows from operating activities:**Net
                  cash
                  (used in) provided by operating activities
              
              $
              (49.5
              )
              $
              94.5
              
              $
              14.8
              
              $
              59.8**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              
              (0.5
              )
              
              (10.5
              )
              
              (4.0
              )
              
              (15.0
              )Net
                  cash paid
                  for businesses acquired
              
              
              ---
              
              
              (82.3
              )
              
              (6.5
              )
              
              (88.8
              )Proceeds
                  from
                  the sale of property and equipment
              
              
              ---
              
              
              6.1
              
              
              ---
              
              
              6.1Change
                  in
                  restricted cash and marketable securities
              
              
              ---
              
              
              (2.1
              )
              
              ---
              
              
              (2.1
              )Other,
                  net
              
              
              ---
              
              
              (1.3
              )
              
              (0.2
              )
              
              (1.5
              )Net cash used in investing activities
              
              
              (0.5
              )
              
              (90.1
              )
              
              (10.7
              )
              
              (101.3
              )**Cash
                  Flows from financing activities:**Increase
                  in
                  borrowings
              
              
              25.0
              
              
              ---
              
              
              6.2
              
              
              31.2Payment
                  of
                  borrowings
              
              
              (33.7
              )
              
              (1.5
              )
              
              (2.3
              )
              
              (37.5
              )Other,
                  net
              
              
              (0.2
              )
              
              ---
              
              
              ---
              
              
              (0.2
              )Net cash (used in) provided by financing activities
              
              
              (8.9
              )
              
              (1.5
              )
              
              3.9
              
              
              (6.5
              )Net
                      (decrease) increase in unrestricted cash and cash
                      equivalents
              
              
              (58.9
              )
              
              2.9
              
              
              8.0
              
              
              (48.0
              )Unrestricted
                      cash and cash equivalents at the beginning of the
                      period
              
              
              76.6
              
              
              2.3
              
              
              16.1
              
              
              95.0Unrestricted
                      cash and cash equivalents at the end of the
                      period
              
              $
              17.7
              
              $
              5.2
              
              $
              24.1
              
              $
              47.0


**NORTEK,
        INC. AND SUBSIDIARIES**
 **MANAGEMENT’S
        DISCUSSION AND ANALYSIS**
 **OF
        THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 30,
        2006**
 **AND
        THE THIRD QUARTER AND FIRST NINE MONTHS ENDED OCTOBER 1,
        2005**





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





Nortek,
      Inc., together with its wholly-owned subsidiaries, is a leading diversified
      manufacturer of innovative, branded residential and commercial ventilation
      and
      home technology convenience and security products, operating within three
      reporting segments: the Residential Ventilation Products segment, the Home
      Technology Products segment and the Air Conditioning and Heating Products
      segment. In the results of operations presented below, Unallocated includes
      corporate related items, intersegment eliminations and certain income and
      expense not allocated to the segments. Through its reporting 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.





During
      2005, the Company changed the composition of its reporting segments to reflect
      the Home Technology Products segment separately. In accordance with Statement
      of
      Financial Standards (“SFAS”) No. 131, “Disclosures about Segments of an
      Enterprise and Related Information”, the Company has restated prior period
      segment disclosures to conform to the new composition.





The
      Residential Ventilation Products (“RVP”) 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 (“HTP”) segment manufactures and sells a broad array of
      products designed to provide convenience and security for residential and light
      commercial applications. The principal products sold by this segment
      are:





·
            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,
                and


·
            structured
                wiring.





The
      Air
      Conditioning and Heating Products (“HVAC”) 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
      are:





·
            split
                system air conditioners and heat
                pumps,


·
            furnaces
                and related equipment,


·
            air
                handlers, and


·
            large
                custom roof top cooling and heating
                products.





***Acquisitions***





The
      Company has made the following acquisitions since January 1, 2005:





**Acquired
                Company**
            **Date
                of******
              **Acquisition**
            **Primary
                Business******
              **of
                Acquired Company**
            **Reporting**
              **Segment**Magenta
                Research, Ltd.
            July
                18, 2006
            Design
                and sale ofproducts
                that distribute audio and video signals over Category 5 and fiber
                optic
                cable to multiple display screens.
            HTPSecure
                Wireless, Inc.
            June
                26, 2006
            Design
                and sale of wireless security products for the residential and commercial
                markets.
            HTPAdvanced
                Bridging Technologies, Inc.
            June
                26, 2006
            Design
                and sale of innovative radio frequency control products and
                accessories.
            HTPHuntair,
                Inc.
            April
                14, 2006
            Design,
                manufacture and sale of custom air handlers and related products
                for
                commercial and clean room applications.
            HVACCleanpak
                International, LLC
            April
                14, 2006
            Design,
                manufacture and sale of custom air handlers and related products
                for
                commercial and clean room applications.
            HVACFurman
                Sound, Inc.
            February
                22, 2006
            Design
                and sale of audio and video signal processors and innovative power
                conditioning and surge protection products.
            HTPMammoth
                (Zhejiang) EG Air
              Conditioning
                Ltd. (1)
            January
                25, 2006
            Design,
                manufacture and sale of commercial HVAC products, including water
                source
                heat pumps.
            HVACShanghai
                Mammoth Air
              Conditioning Co., Ltd. (1)
            January
                25, 2006
            Design,
                manufacture and sale of commercial HVAC products, including water
                source
                heat pumps.
            HVACGTO,
                Inc.
            December
                9, 2005
            Design,
                manufacture and sale of automatic electric gate openers and access
                control
                devices to enhance the security and convenience of both residential
                and
                commercial property fences.
            HTPSunfire
                Corporation
            August
                26, 2005
            Design,
                manufacture and sale of home audio and home cinema amplifiers, receivers
                and subwoofers.
            HTPImerge
                Limited
            August
                8, 2005
            Design
                and sale of hard disk media players and multi-room audio
                servers.
            HTPNiles
                Audio Corporation
            July
                15, 2005
            Design,
                manufacture and sale of whole-house audio/video distribution equipment,
                including speakers, receivers, amplifiers automation devices, controls
                and
                accessories.
            HTPInternational
                Marketing Supply, Inc.
            June
                13, 2005
            Sale
                of heating, ventilation and air conditioning equipment to customers
                in
                Latin America and the Caribbean.
            HVACPanamax
            April
                26, 2005
            Design
                and sale of innovative power conditioning and surge protection products
                that prevent loss or damage of home and small business equipment
                due to
                power disturbances.
            HTP





(1)  Increase
      in ownership to 60%





These
      acquisitions have been accounted for under the purchase method of accounting
      and
      accordingly, the results of these acquisitions are included in the Company’s
      unaudited condensed consolidated results since the date of their
      acquisition.





***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 U.S. generally accepted accounting
      principles. Certain of the Company’s accounting policies require the application
      of judgment in selecting the appropriate assumptions for calculating financial
      estimates. By their nature, these judgments are subject to an inherent degree
      of
      uncertainty. The Company periodically evaluates the judgments and estimates
      used
      for its critical accounting policies to ensure that such judgments and estimates
      are reasonable for its interim and year-end reporting requirements. These
      judgments and estimates are based on the Company’s historical experience,
      current trends and information available from other sources, as appropriate.
      If
      different conditions result from those assumptions used in the Company’s
      judgments, the results could be materially different from the Company’s
      estimates. The Company’s critical accounting policies include:





·
            Revenue
                Recognition and Related Expenses


·
            Inventory
                Valuation


·
            Prepaid
                Income Tax Assets and Deferred Tax
                Liabilities


·
            Goodwill,
                Intangible Assets and Other Long-Lived
                Assets


·
            Pensions
                and Post Retirement Health Benefits


·
            Insurance
                Liabilities, 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
      tables that follow present the unaudited net sales, operating earnings and
      depreciation and amortization expense for the Company’s reporting segments for
      the third quarter ended September 30, 2006 and October 1, 2005, the dollar
      amount and percentage change of such results as compared to the prior comparable
      period and the percentage to net sales of operating earnings and depreciation
      and amortization expense for the third quarter ended September 30, 2006 and
      October 1, 2005:





**For
                  the third quarter ended**
              
              **Net
                  Change****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              200.4
              
              $
              198.4
              
              $
              2.0
              
              
              1.0
              %Home
                  technology products
              
              
              127.4
              
              
              100.6
              
              
              26.8
              
              
              26.6Air
                  conditioning and heating products
              
              
              251.2
              
              
              223.9
              
              
              27.3
              
              
              12.2Consolidated net sales
              
              $
              579.0
              
              $
              522.9
              
              $
              56.1
              
              
              10.7
              %**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              30.7
              
              $
              30.8
              
              $
              (0.1
              )
              
              (0.3
              )%Home
                  technology products
              
              
              24.1
              
              
              20.6
              
              
              3.5
              
              
              17.0Air
                  conditioning and heating products (2)
              
              
              19.1
              
              
              22.2
              
              
              (3.1
              )
              
              (14.0
              )Subtotal
              
              
              73.9
              
              
              73.6
              
              
              0.3
              
              
              0.4**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.1
              )
              
              (0.1
              )
              
              ---
              
              
              ---Foreign
                  exchange gain on intercompany debt
              
              
              0.1
              
              
              ---
              
              
              0.1
              
              
              *Unallocated,
                  net
              
              
              (6.2
              )
              
              (5.9
              )
              
              (0.3
              )
              
              (5.1
              )Consolidated operating earnings
              
              $
              67.7
              
              $
              67.6
              
              $
              0.1
              
              
              0.1
              %**Depreciation
                  and amortization expense:**Residential
                  ventilation products (3)
              
              $
              5.0
              
              $
              5.1
              
              $
              (0.1
              )
              
              (2.0
              )%Home
                  technology products
              
              
              3.6
              
              
              2.1
              
              
              1.5
              
              
              71.4Air
                  conditioning and heating products (4)
              
              
              7.0
              
              
              4.0
              
              
              3.0
              
              
              75.0Unallocated
              
              
              0.3
              
              
              0.4
              
              
              (0.1
              )
              
              (25.0
              )$
              15.9
              
              $
              11.6
              
              $
              4.3
              
              
              37.1
              %**Operating
                  earnings margin:**Residential
                  ventilation products (1)
              
              
              15.3
              %
              
              15.5
              %Home
                  technology products
              
              
              18.9
              
              
              20.5Air
                  conditioning and heating products (2)
              
              
              7.6
              
              
              9.9Consolidated
              
              
              11.7
              %
              
              12.9
              %**Depreciation
                      and amortization**expense as a % of net
                      sales:Residential
                  ventilation products (3)
              
              
              2.5
              %
              
              2.6
              %Home
                  technology products
              
              
              2.8
              
              
              2.1Air
                  conditioning and heating products (4)
              
              
              2.8
              
              
              1.8Consolidated
              
              
              2.7
              %
              
              2.2
              %


(1)
            The
                operating results of the Residential Ventilation Products Segment
                for the
                third quarter ended September 30, 2006 include an approximate pre-tax
                $0.3
                million charge related to the planned closure of the Company’s NuTone,
                Inc. Cincinnati, Ohio facility (see Note I of the Notes to the Unaudited
                Financial Statements included elsewhere
                herein).




(2)
            The
                operating results of the Air Conditioning and Heating Products Segment
                for
                the third quarter ended September 30, 2006 include an approximate
                $1.2
                million gain related to the favorable settlement of litigation. The
                operating results of the Air Conditioning and Heating Products Segment
                for
                the third quarter ended October 1, 2005 include a non-cash foreign
                exchange gain of approximately $0.1 million related to intercompany
                debt
                not indefinitely invested in the Company’s
                subsidiaries.




(3)
            Includes
                amortization of approximately $0.3 million and $0.4 million for the
                third
                quarter ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.




(4)
            Includes
                amortization of approximately $0.7 million for the third quarter
                ended
                September 30, 2006 of excess purchase price allocated to inventory
                recorded as a non-cash charge to cost of products sold.




*  not
      meaningful






The
      tables that
      follow present the unaudited net sales, operating earnings and depreciation
      and
      amortization expense for the Company’s reporting segments for the first nine
      months ended September 30, 2006 and October 1, 2005, the dollar amount and
      percentage change of such results as compared to the prior comparable period
      and
      the percentage to net sales of operating earnings and depreciation and
      amortization expense for the first nine months ended September 30, 2006 and
      October 1, 2005:





**For
                  the first nine months ended**
              
              **Net
                  Change****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              619.3
              
              $
              598.1
              
              $
              21.2
              
              
              3.5
              %Home
                  technology products
              
              
              350.0
              
              
              240.9
              
              
              109.1
              
              
              45.3Air
                  conditioning and heating products
              
              
              708.0
              
              
              616.8
              
              
              91.2
              
              
              14.8Consolidated net sales
              
              $
              1,677.3
              
              $
              1,455.8
              
              $
              221.5
              
              
              15.2
              %**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              136.6
              
              $
              88.6
              
              $
              48.0
              
              
              54.2
              %Home
                  technology products (2)
              
              
              55.8
              
              
              46.4
              
              
              9.4
              
              
              20.3Air
                  conditioning and heating products (3)
              
              
              56.3
              
              
              49.9
              
              
              6.4
              
              
              12.8Subtotal
              
              
              248.7
              
              
              184.9
              
              
              63.8
              
              
              34.5**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.3
              )
              
              (0.3
              )
              
              ---
              
              
              ---Foreign
                      exchange gain (loss) on intercompany debt
              
              
              0.4
              
              
              (0.3
              )
              
              0.7
              
              
              *Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4
              
              
              (1.4
              )
              
              *Unallocated,
                  net
              
              
              (19.4
              )
              
              (18.2
              )
              
              (1.2
              )
              
              (6.6
              )Consolidated operating earnings
              
              $
              229.4
              
              $
              167.5
              
              $
              61.9
              
              
              37.0
              %**Depreciation
                  and amortization expense:**Residential
                  ventilation products (4)
              
              $
              14.5
              
              $
              14.8
              
              $
              (0.3
              )
              
              (2.0
              )%Home
                  technology products (5)
              
              
              9.8
              
              
              6.5
              
              
              3.3
              
              
              50.8Air
                  conditioning and heating products (6)
              
              
              19.0
              
              
              12.0
              
              
              7.0
              
              
              58.3Unallocated
              
              
              0.9
              
              
              1.0
              
              
              (0.1
              )
              
              (10.0
              )$
              44.2
              
              $
              34.3
              
              $
              9.9
              
              
              28.9
              %**Operating
                  earnings margin:**Residential
                  ventilation products (1)
              
              
              22.1
              %
              
              14.8
              %Home
                  technology products (2)
              
              
              15.9
              
              
              19.3Air
                  conditioning and heating products (3)
              
              
              8.0
              
              
              8.1Consolidated
              
              
              13.7
              %
              
              11.5
              %**Depreciation
                      and amortization**expense as a % of net
                      sales:Residential
                  ventilation products (4)
              
              
              2.3
              %
              
              2.5
              %Home
                  technology products (5)
              
              
              2.8
              
              
              2.7Air
                  conditioning and heating products (6)
              
              
              2.7
              
              
              1.9Consolidated
              
              
              2.6
              %
              
              2.4
              %


(1)
            The
                operating results of the Residential Ventilation Products Segment
                for the
                first nine months ended September 30, 2006 include an approximate
                pre-tax
                $35.9 million curtailment gain related to post-retirement medical
                and life
                insurance benefits and an approximate pre-tax $4.1 million charge
                related
                to the planned closure of the Company’s NuTone, Inc. Cincinnati, Ohio
                facility (see Note I of the Notes to the Unaudited Financial Statements
                included elsewhere herein).The
                operating results of the Residential Ventilation Products Segment
                for the
                first nine months ended October 1, 2005 include a non-cash foreign
                exchange loss of approximately $1.0 million related to intercompany
                debt
                not indefinitely invested in the Company’s subsidiaries.




(2)
            The
                operating results of the Home Technology Products Segment for the
                first
                nine months ended September 30, 2006 include an increase in warranty
                expense of approximately $4.0 million related to a product safety
                upgrade.




(3)
            The
                operating results of the Air Conditioning and Heating Products Segment
                for
                the first nine months ended September 30, 2006 include an approximate
                $1.6
                million gain related to the favorable settlement of
                litigation.




(4)
            Includes
                amortization of approximately $0.3 million and $0.4 million for the
                first
                nine months ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.




(5)
            Includes
                amortization of approximately $0.1 million and $0.4 million for the
                first
                nine months ended September 30, 2006 and October 1, 2005, respectively,
                of
                excess purchase price allocated to inventory recorded as a non-cash
                charge
                to cost of products sold.




(6)
            Includes
                amortization of approximately $2.8 million for the first nine months
                ended
                September 30, 2006 of excess purchase price allocated to inventory
                recorded as a non-cash charge to cost of products sold.




* not
      meaningful






The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period as it relates to net
      earnings. The results of operations for the third quarter ended September 30,
      2006 are not necessarily indicative of the results of operations to be expected
      for any other interim period or the full year.





**Change
                  in earnings in****the
                  third quarter 2006****as
                  compared to the****For
                  the third quarter ended**
              
              **third
                  quarter 2005****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              **$**
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              579.0
              
              $
              522.9
              
              $
              56.1
              
              
              10.7
              %Cost
                  of
                  products sold
              
              
              404.2
              
              
              361.3
              
              
              (42.9
              )
              
              (11.9
              )Selling,
                  general and administrative expenses, net
              
              
              100.9
              
              
              89.6
              
              
              (11.3
              )
              
              (12.6
              )Amortization
                  of intangible assets
              
              
              6.2
              
              
              4.4
              
              
              (1.8
              )
              
              (40.9
              )Operating
                  earnings
              
              
              67.7
              
              
              67.6
              
              
              0.1
              
              
              0.1Interest
                  expense
              
              
              (29.9
              )
              
              (26.6
              )
              
              (3.3
              )
              
              (12.4
              )Investment
                  income
              
              
              0.4
              
              
              0.3
              
              
              0.1
              
              
              33.3Earnings
                  before provision for income taxes
              
              
              38.2
              
              
              41.3
              
              
              (3.1
              )
              
              (7.5
              )Provision
                  for
                  income taxes
              
              
              15.1
              
              
              16.3
              
              
              1.2
              
              
              7.4Net
                  earnings
              
              $
              23.1
              
              $
              25.0
              
              $
              (1.9
              )
              
              (7.6
              )%


**Change
                  in percentage for****Percentage
                  of net sales**
              
              **the
                  third quarter 2006****third
                  quarter ended**
              
              **as
                  compared to the****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              **third
                  quarter 2005**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              ---
              %Cost
                  of
                  products sold
              
              
              69.8
              
              
              69.1
              
              
              (0.7
              )Selling,
                  general and administrative expenses, net
              
              
              17.4
              
              
              17.2
              
              
              (0.2
              )Amortization
                  of intangible assets
              
              
              1.1
              
              
              0.8
              
              
              (0.3
              )Operating
                  earnings
              
              
              11.7
              
              
              12.9
              
              
              (1.2
              )Interest
                  expense
              
              
              (5.2
              )
              
              (5.1
              )
              
              (0.1
              )Investment
                  income
              
              
              0.1
              
              
              0.1
              
              
              ---Earnings
                  before provision for income taxes
              
              
              6.6
              
              
              7.9
              
              
              (1.3
              )Provision
                  for
                  income taxes
              
              
              2.6
              
              
              3.1
              
              
              0.5Net
                  earnings
              
              
              4.0
              %
              
              4.8
              %
              
              (0.8
              )%






The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period as it relates to net
      earnings. The results of operations for the first nine months ended September
      30, 2006 are not necessarily indicative of the results of operations to be
      expected for any other interim period or the full year.





**Change
                  in earnings in****the
                  first nine months 2006****as
                  compared to the****For
                  the first nine months ended**
              
              **first
                  nine months 2005****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              1,677.3
              
              $
              1,455.8
              
              $
              221.5
              
              
              15.2
              %Cost
                  of
                  products sold
              
              
              1,168.4
              
              
              1,021.1
              
              
              (147.3
              )
              
              (14.4
              )Selling,
                  general and administrative expenses, net
              
              
              299.2
              
              
              254.1
              
              
              (45.1
              )
              
              (17.7
              )Amortization
                  of intangible assets
              
              
              16.2
              
              
              13.1
              
              
              (3.1
              )
              
              (23.7
              )Gain
                      from
                      curtailment of post-retirement medical
                      benefits
              
              
              (35.9
              )
              
              ---
              
              
              35.9
              
              
              *Operating
                  earnings
              
              
              229.4
              
              
              167.5
              
              
              61.9
              
              
              37.0Interest
                  expense
              
              
              (85.9
              )
              
              (76.0
              )
              
              (9.9
              )
              
              (13.0
              )Investment
                  income
              
              
              1.6
              
              
              1.1
              
              
              0.5
              
              
              45.5Earnings
                  before provision for income taxes
              
              
              145.1
              
              
              92.6
              
              
              52.5
              
              
              56.7Provision
                  for
                  income taxes
              
              
              55.7
              
              
              35.6
              
              
              (20.1
              )
              
              (56.5
              )Net
                  earnings
              
              $
              89.4
              
              $
              57.0
              
              $
              32.4
              
              
              56.8
              %


**Change
                  in percentage for****Percentage
                  of net sales**
              
              **the
                  first nine months 2006****first
                  nine months ended**
              
              **as
                  compared to the****September
                  30, 2006**
              
              **October
                  1, 2005**
              
              **first
                  nine months 2005**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              ---
              %Cost
                  of
                  products sold
              
              
              69.6
              
              
              70.1
              
              
              0.5Selling,
                  general and administrative expenses, net
              
              
              17.8
              
              
              17.5
              
              
              (0.3
              )Amortization
                  of intangible assets
              
              
              1.0
              
              
              0.9
              
              
              (0.1
              )Gain
                    from
                    curtailment of post-retirement medical benefits
              
              
              (2.1
              )
              
              ---
              
              
              2.1Operating
                  earnings
              
              
              13.7
              
              
              11.5
              
              
              2.2Interest
                  expense
              
              
              (5.1
              )
              
              (5.2
              )
              
              0.1Investment
                  income
              
              
              0.1
              
              
              0.1
              
              
              ---Earnings
                  before provision for income taxes
              
              
              8.7
              
              
              6.4
              
              
              2.3Provision
                  for
                  income taxes
              
              
              3.3
              
              
              2.5
              
              
              (0.8
              )Net
                  earnings
              
              
              5.4
              %
              
              3.9
              %
              
              1.5
              %


*  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.





*Net
      Sales.* Consolidated
      net sales increased approximately $56.1 million or 10.7% for the third quarter
      of 2006 as compared to the third quarter of 2005 and increased approximately
      $221.5 million or 15.2% for the first nine months of 2006 as compared to the
      first nine months of 2005 as discussed further in the following
      paragraphs.





In
      the
      RVP segment, net sales increased approximately $2.0 million or 1.0% for the
      third quarter of 2006 as compared to the third quarter of 2005 and increased
      approximately $21.2 million or 3.5% for the first nine months of 2006 as
      compared to the first nine months of 2005. Net sales in the RVP segment for
      the
      third quarter and first nine months of 2006 reflect an increase of approximately
      $3.3 million and $5.0 million, respectively, attributable to the effect of
      changes in foreign currency exchange rates.





The
      change in net sales in the RVP segment for the third quarter of 2006 also
      reflects a slight decline in sales volume of kitchen range hoods and bath fans,
      partially offset by higher average unit sales prices. The change in net sales
      in
      the RVP segment for the first nine months of 2006 as compared to the first
      nine
      months of 2005 reflects higher average unit sales prices, partially offset
      by
      slightly lower sales volume of kitchen range hoods and bath fans, which occurred
      in the third quarter of 2006. Higher average unit sales prices of kitchen range
      hoods and bath fans reflect, in part, the impact of the sale of new products
      with higher price points. Range hoods and bathroom exhaust fans are the largest
      product category sold in the RVP segment, accounting for approximately 83.8%
      and
      84.5% of total segment net sales in the third quarter and first nine months
      of
      2006, respectively. Sales of range hoods and bathroom exhaust fans increased
      approximately 0.5% in the third quarter of 2006 over the third quarter of 2005
      and increased approximately 3.3% in the first nine months of 2006 over the
      first
      nine months of 2005.





In
      the
      HTP segment, net sales increased approximately $26.8 million or 26.6% for the
      third quarter of 2006 as compared to the third quarter of 2005 and increased
      approximately $109.1 million or 45.3% for the first nine months of 2006 as
      compared to the first nine months of 2005. The increase in net sales in the
      HTP
      segment for the third quarter and first nine months of 2006 includes
      approximately $21.8 million and $75.8 million, respectively, attributable to
      acquisitions and the balance of the increase is predominately due to increased
      sales volume of audio and video distribution equipment, speakers and access
      control devices.





In
      the
      HVAC segment, net sales increased approximately $27.3 million or 12.2% for
      the
      third quarter of 2006 as compared to the third quarter of 2005 and increased
      approximately $91.2 million or 14.8% for the first nine months of 2006 as
      compared to the first nine months of 2005. Net sales in the HVAC segment for
      the
      third quarter and first nine months of 2006 include (1) an increase of
      approximately $45.1 million and $73.7 million, respectively, attributable to
      acquisitions and (2) an increase of approximately $1.4 million and $2.2 million,
      respectively, attributable to the effect of changes in foreign currency exchange
      rates. The change in net sales in the HVAC segment for the third quarter and
      first nine months of 2006 as compared to the third quarter and first nine months
      of 2005 also includes lower sales volume partially offset by the effect of
      higher average sales prices of products with a rating of 13 SEER or higher
      sold
      to residential site-built and manufactured housing customers. Sales of the
      Company’s commercial HVAC products, excluding the effect of foreign exchange and
      acquisitions, were down in the third quarter of 2006 as compared to the same
      period in 2005. Net sales in the HVAC segment for HVAC products sold to
      residential site-built customers constituted the largest category of product
      sold to a particular group of customers within the HVAC segment. The Company’s
      net sales to customers serving the manufactured housing markets, principally
      consisting of air conditioners and furnaces, constituted
      approximately 5.3% and 6.6% of the Company’s consolidated net sales for the
      third quarter of 2006 and 2005, respectively ,
      and
      constituted approximately 5.5% and 6.4% of the Company’s consolidated net sales
      for the first nine months of 2006 and 2005, respectively. Sales of products
      to
      residential site-built customers decreased approximately 12.5% over the third
      quarter of 2005 and increased approximately 9.7% over the first nine months
      of
      2005.





Foreign
      net sales, which are attributed based on the location of the Company’s
      subsidiary responsible for the sale, were approximately 19.1% and 17.5% of
      consolidated net sales for the third quarter of 2006 and 2005, respectively,
      and
      were approximately 19.0% and 18.1% of consolidated net sales for the first
      nine
      months of 2006 and 2005, respectively. Net sales from the Company’s Canadian
      subsidiaries were approximately 7.7% and 8.2% of consolidated net sales for
      the
      third quarter of 2006 and 2005, respectively, and were approximately 8.0% and
      7.9% of consolidated net sales for the first nine months of 2006 and 2005,
      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 9.6% and 9.3% of consolidated net
      sales
      for the third quarter of 2006 and 2005, respectively, and were approximately
      9.4% and 10.2% of consolidated net sales for the first nine months of 2006
      and
      2005, respectively. Net sales from the Company’s European subsidiaries include
      net sales 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 $404.2 million for the third quarter
      of
      2006 as compared to approximately $361.3 million for the third quarter of 2005
      and was approximately $1,168.4 million for the first nine months of 2006 as
      compared to approximately $1,021.1 million for the first nine months of 2005.
      Cost of products sold, as a percentage of net sales, increased from
      approximately 69.1% in the third quarter of 2005 to approximately 69.8% for
      the
      third quarter of 2006 and decreased from approximately 70.1% in the first nine
      months of 2005 to approximately 69.6% for the first nine months of 2006,
      primarily as a result of the factors that follow.





Overall,
      consolidated material costs were approximately 46.3% and 44.8% of net sales
      for
      the third quarter of 2006 and 2005, respectively, and approximately 45.0% and
      45.1% of net sales for the first nine months of 2006 and 2005, respectively.
      Although the Company continued to experience higher material costs, primarily
      in
      the third quarter of 2006, related primarily to purchases of steel, copper
      and
      aluminum, as well as increased transportation and energy costs, these cost
      increases were partially offset by continued strategic sourcing initiatives
      and
      improvements in manufacturing efficiency, as well as sales price
      increases.





As
      noted in the previous paragraph, during the third quarter and first nine months
      of 2006, the Company experienced an increase in freight costs due primarily
      to
      increased sales volume and rising energy prices. This increase was partially
      offset by favorable shipping rates for lower cost “full truckload” shipments and
      higher dollars per shipment based on the increased volumes, as well as cost
      reduction measures, thereby reducing the overall effect of increased 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 third quarter of 2006 was
      approximately $139.5 million, or 69.6% as a percentage of the RVP segment’s net
      sales, as compared to approximately $137.0 million, or 69.1% as a percentage
      of
      the RVP segment’s net sales, in the third quarter of 2005. In the RVP segment,
      cost of products sold for the first nine months of 2006 was approximately $424.0
      million, or 68.5% as a percentage of the RVP segment’s net sales, as compared to
      approximately $411.9 million, or 68.9% as a percentage of the RVP segment’s net
      sales, in the first nine months of 2005. Cost of products sold in the RVP
      segment for the third quarter and first nine months of 2006 includes (1) an
      increase of approximately $2.4 million and $2.9 million, respectively, related
      to the effect of changes in foreign currency exchange rates, (2) approximately
      $0.3 million and $1.7 million, respectively, of severance charges related to
      the
      planned closure of the Company’s NuTone facility (see Note I of the Notes to the
      Unaudited Financial Statements included elsewhere herein) and (3) a non-cash
      charge of approximately $0.3 million recorded in the third quarter of 2006
      related to the amortization of purchase price allocated to inventory as a result
      of the acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners
      L.P.
      Cost of products sold in the RVP segment for the third quarter and first nine
      months of 2005 includes a non-cash charge of approximately $0.4 million related
      to the amortization of purchase price allocated to inventory as a result of
      the
      acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners L.P. The
      increase in the percentage of cost of products sold to net sales for the third
      quarter of 2006 over the same period of 2005 reflects increased material costs
      and a slight decline in sales volume of kitchen range hoods and bath fans
      without a proportionate decrease in costs. The decrease in the percentage of
      cost of products sold to net sales for the first nine months of 2006 over the
      same period of 2005 reflects the effect of higher average unit sales prices
      without a proportionate increase in costs.




In
        the
        HTP segment, cost of products sold for the third quarter of 2006 was
        approximately $66.3 million, or 52.0% as a percentage of the HTP segment’s net
        sales, as compared to approximately $51.0 million, or 50.7% as a percentage
        of
        the HTP segment’s net sales, in the third quarter of 2005. In the HTP segment,
        cost of products sold for the first nine months of 2006 was approximately
        $188.0
        million, or 53.7% as a percentage of the HTP segment’s net sales, as compared to
        approximately $124.5 million, or 51.7% as a percentage of the HTP segment’s net
        sales, in the first nine months of 2005. Cost of products sold in the HTP
        segment for the third quarter and first nine months of 2006 reflects (1)
        approximately $10.1 million and $38.5 million, respectively, of cost of products
        sold contributed from acquisitions, including a non-cash charge of approximately
        $0.1 million in the first nine months of 2006, related to the amortization
        of
        purchase price allocated to inventory and (2) increased warranty expense
        of
        approximately $4.0 million related to a product safety upgrade in the first
        nine
        months of 2006. Cost of products sold in the HTP segment for the first nine
        months of 2005 includes (1) a non-cash charge of approximately $0.3 million
        related to the amortization of purchase price allocated to inventory as a
        result
        of the acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners
        L.P.
        and (2) a non-cash charge of approximately $0.1 million related to the
        amortization of purchase price allocated to inventory as a result of an
        acquisition. The increase in the percentage of cost of products sold to net
        sales for the third quarter and first nine months of 2006 over the same periods
        of 2005 also reflects increased material costs. In addition, the effect of
        acquired businesses, which have a higher level of material costs as compared
        to
        the businesses in the HTP segment prior to the acquisitions, was also a
        factor.


In
      the
      HVAC segment, cost of products sold for the third quarter of 2006 was
      approximately $198.4 million, or 79.0% as a percentage of the HVAC segment’s net
      sales, as compared to approximately $173.3 million, or 77.4% as a percentage
      of
      the HVAC segment’s net sales, for the third quarter of 2005. In the HVAC
      segment, cost of products sold for the first nine months of 2006 was
      approximately $556.4 million, or 78.6% as a percentage of the HVAC segment’s net
      sales, as compared to approximately $484.7 million, or 78.6% as a percentage
      of
      the HVAC segment’s net sales, in the first nine months of 2005. Cost of products
      sold in the HVAC segment in the third quarter and first nine months of 2006
      includes (1) an increase of approximately $31.4 million and $54.6 million,
      respectively, attributable to acquisitions, including non-cash charges of
      approximately $0.7 million and $2.8 million, respectively, related to the
      amortization of purchase price allocated to inventory and (2) an increase of
      approximately $1.1 million and $1.8 million, respectively, related to the effect
      of changes in foreign currency exchange rates. The change in cost of products
      sold as a percentage of net sales for the third quarter and first nine months
      of
      2006 over the same periods of 2005 reflects the effect of lower sales volume
      and
      higher material costs related primarily to purchases of steel, copper and
      aluminum, partially offset by continued strategic sourcing initiatives and
      improvements in manufacturing efficiency primarily in the first nine months
      of
      2006, as well as, increased average unit sales prices of products sold to
      residential site-built customers.





*Selling,
      General and Administrative Expense.* Consolidated
      selling, general and administrative expense (“SG&A”) was approximately
      $100.9 million for the third quarter of 2006 as compared to approximately $89.6
      million for the third quarter of 2005 and was approximately $299.2 million
      for
      the first nine months of 2006 as compared to approximately $254.1 million for
      the first nine months of 2005. SG&A as a percentage of net sales increased
      from approximately 17.2% for the third quarter of 2005 to approximately 17.4%
      for the third quarter of 2006 and increased from approximately 17.5% for the
      first nine months of 2005 to approximately 17.8% for the first nine months
      of
      2006. These increases in SG&A as a percentage of net sales are principally
      due to acquisitions, as well as, sales growth and increased SG&A of existing
      businesses in the HTP segment which have a higher percentage of SG&A to net
      sales than the Company’s other segments, partially offset, primarily in the
      third quarter of 2006, by the impact of acquisitions in the HVAC segment which
      have a lower percentage of SG&A to net sales.





SG&A
      for the third quarter and first nine months of 2006 includes (1) approximately
      $11.7 million and $37.3 million, respectively, from acquisitions in the HTP
      segment and the HVAC segment, (2) a decrease of approximately $0.5 million
      and
      $4.2 million, respectively, of displays expense in the RVP segment, (3) an
      increase of approximately $0.8 million (of which approximately $0.5 million
      is
      included in the RVP segment and approximately $0.3 million is included in the
      HVAC segment) and $1.5 million (of which approximately $1.2 million is included
      in the RVP segment and approximately $0.3 million is included in the HVAC
      segment), respectively, related to the effect of changes in foreign currency
      exchange rates, (4) approximately $2.4 million of severance, equipment
      write-offs and other charges recorded in the second quarter of 2006 related
      to
      the planned closure of the Company’s NuTone facility within the RVP segment (see
      Note I of the Notes to the Unaudited Financial Statements included elsewhere
      herein), (5) an approximate $1.2 million and $1.6 million gain, respectively,
      related to the favorable settlement of litigation within the HVAC segment,
      (6) a
      non-cash foreign exchange gain of approximately $0.1 million and $0.4 million,
      respectively, all of which is included in Unallocated, related to intercompany
      debt not indefinitely invested in the Company’s subsidiaries and (7)
      approximately $0.1 million and $0.3 million, respectively, of stock-based
      compensation expense, all of which is recorded in Unallocated.





SG&A
      for the third quarter and first nine months of 2005 includes (1) approximately
      $0.1 million and $0.3 million, respectively, of stock-based compensation
      expense, all of which is recorded in Unallocated, (2) a non-cash foreign
      exchange gain of approximately $0.1 million (all of which is included in the
      HVAC segment) and a non-cash foreign exchange loss of approximately $1.3 million
      (of which approximately $1.0 million is included in the RVP segment),
      respectively, related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries and (3) a gain of approximately $1.4 million, all of
      which is recorded in Unallocated, from the settlement of certain obligations
      of
      former subsidiaries recorded in the first nine months of 2005 (see Notes D
      and G
      of the Notes to the Unaudited Financial Statements included elsewhere herein).





*Amortization
      of Intangible Assets.* Amortization
      of intangible assets, as a percentage of net sales, increased from approximately
      0.8% in the third quarter of 2005 to approximately 1.1% in the third quarter
      of
      2006 and increased from approximately 0.9% for the first nine months of 2005
      to
      approximately 1.0% in the first nine months of 2006. These changes are
      principally due to the impact of acquisitions, which contributed approximately
      $2.1 million and $4.8 million in the third quarter and first nine months of
      2006, respectively, partially offset by higher amortization expense in prior
      years as a result of accelerated amortization methods.





*Gain
      from Curtailment of Post-retirement Medical Benefits.* During
      the first nine months of 2006, the Company’s RVP segment recorded a curtailment
      gain of approximately $35.9 million related to post-retirement medical and
      life
      insurance benefits from the final implementation of a union contract that no
      longer provides such benefits (see Note I of the Notes to the Unaudited
      Financial Statements included elsewhere herein).





*Depreciation
      Expense.* Depreciation
      expense increased approximately $1.9 million from approximately $6.8 million
      for
      the third quarter of 2005 to approximately $8.7 million for the third quarter
      of
      2006 and increased approximately $4.4 million from approximately $20.4 million
      for the first nine months of 2005 to approximately $24.8 million for the first
      nine months of 2006. This increase is primarily attributable to the impact
      of
      capital expenditures, as well as acquisitions (which represented approximately
      $0.7 million of the increase for the third quarter of 2006 and approximately
      $1.8 million of the increase for the first nine months of 2006).





*Operating
      Earnings.* Consolidated
      operating earnings increased by approximately $0.1 million from approximately
      $67.6 million, or 12.9% as a percentage of net sales, for the third quarter
      of
      2005 to approximately $67.7 million, or 11.7% as a percentage of net sales,
      for
      the third quarter of 2006 and increased by approximately $61.9 million from
      approximately $167.5 million, or 11.5% as a percentage of net sales, for the
      first nine months of 2005 to approximately $229.4 million, or 13.7% as a
      percentage of net sales, for the first nine months of 2006. The increase in
      consolidated operating earnings for the third quarter and first nine months
      of
      2006 is primarily due to the factors discussed above and that
      follow.





Operating
      earnings of the RVP segment for the third quarter of 2006 were approximately
      $30.7 million as compared to approximately $30.8 million for the third quarter
      of 2005. Operating earnings of the RVP segment for the first nine months of
      2006
      were approximately $136.6 million as compared to approximately $88.6 million
      for
      the first nine months of 2005. Operating earnings of the RVP segment for the
      third quarter and first nine months of 2006 as compared to the same periods
      of
      2005 reflects (1) a curtailment gain of post-retirement medical and life
      insurance benefits of approximately $35.9 million recorded in the second quarter
      of 2006, (2) approximately $0.3 million and $4.1 million, respectively, of
      severance, equipment write-offs and other charges related to the planned closure
      of the Company’s NuTone facility (see Note I of the Notes to the Unaudited
      Financial Statements included elsewhere herein), (3) a decrease of approximately
      $0.5 million and $4.2 million, respectively, of displays expense, (4) an
      increase in earnings of approximately $0.5 million and $1.0 million,
      respectively, from the effect of foreign currency exchange rates, (5)
      approximately $0.4 million and $1.1 million, respectively, of increased
      depreciation expense of property and equipment and approximately $0.4 million
      and $1.3 million, respectively, of decreased amortization of intangible assets
      and (6) a non-cash charge of approximately $0.3 million recorded in the third
      quarter of 2006 related to the amortization of purchase price allocated to
      inventory as a result of the
      acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners
      L.P .
      Operating earnings of the RVP segment for the third quarter and first nine
      months of 2005 reflects (1) a non-cash foreign exchange loss of approximately
      $1.0 million recorded in the first nine months of 2005 related to intercompany
      debt not indefinitely invested in the Company’s subsidiaries and (2) a non-cash
      charge of approximately $0.4 million related to the amortization of purchase
      price allocated to inventory as a result of the
      acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners
      L.P .
      Operating earnings in the RVP segment for the first nine months of 2006 improved
      over the same period in 2005 primarily as a result of the $35.9 million gain
      from curtailment of post-retirement medical and life insurance benefits recorded
      in the first nine months of 2006, as well as a result of higher average unit
      sales prices, partially offset by lower sales volume of kitchen range hoods
      and
      bath fans which occurred in the third quarter of 2006.





Operating
      earnings of the HTP segment for the third quarter of 2006 were approximately
      $24.1 million as compared to approximately $20.6 million for the third quarter
      of 2005. Operating earnings of the HTP segment for the first nine months of
      2006
      were approximately $55.8 million as compared to approximately $46.4 million
      for
      the first nine months of 2005. Operating earnings of the HTP segment for the
      third quarter and first nine months of 2006 reflects (1) approximately $4.3
      million and $8.0 million, respectively, of operating earnings contributed by
      acquisitions, (2) approximately $0.5 million and $1.3 million, respectively,
      of
      increased depreciation expense of property and equipment and approximately
      $1.0
      million and $2.3 million, respectively, of increased amortization of intangible
      assets, primarily attributable to acquisitions, which is included in the impact
      of acquisitions noted above, (3) an increase in warranty expense of
      approximately $4.0 million in the first nine months of 2006 and (4) a non-cash
      charge of approximately $0.1 million for the first nine months of 2006, all
      of
      which is included in the impact of acquisitions noted above, related to the
      amortization of purchase price allocated to inventory. Operating earnings of
      the
      HTP segment for the first nine months of 2005 reflects (1) a non-cash charge
      of
      approximately $0.3 million related to the amortization of purchase price
      allocated to inventory as a result of the acquisition of Nortek, Inc. by
      affiliates of Thomas H. Lee Partners, L.P. and (2) a non-cash charge of
      approximately $0.1 million related to the amortization of purchase price
      allocated to inventory as a result of an acquisition. The increase in operating
      earnings in the HTP segment in the third quarter and first nine months of 2006
      over the same periods in 2005 is primarily a result of acquisitions, increased
      net sales volume of audio and video distribution equipment, speakers and access
      control devices, partially offset by higher cost of products sold primarily
      in
      the first nine months of 2006 due in part to increased warranty expense as
      noted
      above.





Operating
      earnings of the HVAC segment were approximately $19.1 million for the third
      quarter of 2006 as compared to approximately $22.2 million for the third quarter
      of 2005. Operating earnings of the HVAC segment were approximately $56.3 million
      for the first nine months of 2006 as compared to approximately $49.9 million
      for
      the first nine months of 2005. Operating earnings of the HVAC segment for the
      third quarter and first nine months of 2006 reflect (1) approximately $7.3
      million and $6.3 million, respectively, of operating earnings contributed by
      acquisitions, (2) a non-cash charge of approximately $0.7 million and $2.8
      million, respectively, all of which is included in the impact of acquisitions
      noted above, related to the amortization of purchase price allocated to
      inventory, (3) an approximate $1.2 million and $1.6 million gain, respectively,
      related to the favorable settlement of litigation, (4) approximately $1.0
      million and $2.1 million, respectively, of increased depreciation expense of
      property and equipment attributable primarily to capital expenditures and
      approximately $1.3 million and $2.1 million, respectively, of increased
      amortization of intangible assets primarily related to acquisitions and (5)
      an
      increase of approximately $0.1 million in the first nine months of 2006 from
      the
      effect of foreign currency exchange rates. Operating earnings of the HVAC
      segment for the third quarter of 2005 include a non-cash foreign exchange gain
      of approximately $0.1 million related to intercompany debt not indefinitely
      invested in the Company’s subsidiaries. Operating earnings in the HVAC segment
      for the first nine months of 2006 improved over the same period in 2005 as
      a
      result of higher average sales prices of products with a rating of 13 SEER
      or
      higher sold to residential site-built and manufactured housing customers, offset
      by decreased sales volume. The effect on earnings of continued strategic
      sourcing initiatives and improvements in manufacturing efficiencies and
      increased average sales prices, which were partially driven by the change in
      the
      minimum SEER rating to 13 SEER on January 23, 2006, was partially offset by
      higher material costs within the entire HVAC segment, primarily in the third
      quarter of 2006.





The
      operating expense in Unallocated was approximately $6.2 million for the third
      quarter of 2006 as compared to approximately $6.0 million for the third quarter
      of 2005 and was approximately $19.3 million for the first nine months of 2006
      as
      compared to approximately $17.4 million for the first nine months of 2005.
      The
      change in operating expense for the third quarter and first nine months of
      2006
      as compared to the same periods of 2005 in Unallocated is primarily due to
      the
      items noted below. Operating expense in Unallocated for the third quarter and
      first nine months of 2006 reflects (1) approximately $0.1 million and $0.3
      million, respectively, of stock-based compensation charges and (2) a non-cash
      foreign exchange gain of approximately $0.1 million and $0.4 million,
      respectively, related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries. Operating expense in Unallocated for the third quarter
      and first nine months of 2005 reflects (1) approximately $0.1 million and $0.3
      million, respectively, of stock-based compensation charges, (2) a non-cash
      foreign exchange loss of approximately $0.3 million recorded in the first nine
      months of 2005 related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries and (3) a gain of approximately $1.4 million from the
      settlement of certain obligations recorded in the first nine months of 2005
      (see
      Notes D and G of the Notes to the Unaudited Financial Statements included
      elsewhere herein).





Operating
      earnings of foreign operations, consisting primarily of the results of
      operations of the Company’s Canadian and European subsidiaries, were
      approximately 13.0% and 11.0% of operating earnings (before unallocated and
      corporate expenses) for the third quarter of 2006 and 2005, respectively, and
      were approximately 11.2% and 9.4% of operating earnings (before unallocated
      and
      corporate expenses) for the first nine months of 2006 and 2005, respectively.
      Sales and earnings derived from international markets are subject to, among
      others, the risks of currency fluctuations.





*Interest
      Expense.* Interest
      expense increased approximately $3.3 million or approximately 12.4% during
      the
      third quarter of 2006 as compared to the third quarter of 2005 and increased
      approximately $9.9 million or approximately 13.0% during the first nine months
      of 2006 as compared to the first nine months of 2005. During the third quarter
      and first nine months of 2006, the Company experienced increases in interest
      expense of (1) approximately $2.3 million and $7.9 million, respectively, from
      increased interest rates related primarily to Nortek’s Senior Secured Credit
      Facility, (2) approximately $0.9 million and $2.0 million, respectively, from
      increased borrowings and (3) an increase of approximately $0.1 million in the
      third quarter of 2006 related to the amortization of deferred financing
      costs.





*Investment
      Income.* Investment
      income was approximately $0.4 million and $0.3 million for the third quarter
      of
      2006 and 2005, respectively and was approximately $1.6 million and $1.1 million
      for the first nine months of 2006 and 2005, respectively.





*Provision
      for Income Taxes.* The
      provision for income taxes was approximately $15.1 million for the third quarter
      of 2006 as compared to approximately $16.3 million for the third quarter of
      2005
      and was approximately $55.7 million for the first nine months of 2006 as
      compared to approximately $35.6 million for the first nine months of 2005.
      The
      income tax rates in both the third quarters and first nine months of 2006 and
      2005 differed from the United States Federal statutory rate of 35% principally
      as a result of the effect of non-deductible expenses, the impact of foreign
      tax
      rates on foreign earnings and state income tax provisions (see Note F of the
      Notes to the Unaudited Financial Statements included elsewhere
      herein).





*Net
      Earnings.* Consolidated net earnings decreased by approximately $1.9 million from
      approximately $25.0 million, or 4.8% as a percentage of net sales, for the
      third
      quarter of 2005 to approximately $23.1 million, or 4.0% as a percentage of
      net
      sales, for the third quarter of 2006. The decrease in the third quarter of
      2006
      was primarily due to the factors discussed above which included an increase
      of
      approximately $3.3 million in interest expense, which was partially offset
      by an
      increase of approximately $0.1 million in consolidated operating earnings,
      an
      increase of approximately $0.1 million in investment income and a decrease
      in
      the provision for income taxes of approximately $1.2 million. Consolidated
      net
      earnings improved by approximately $32.4 million from approximately $57.0
      million, or 3.9% as a percentage of net sales, for the first nine months of
      2005
      to approximately $89.4 million, or 5.4% as a percentage of net sales, for the
      first nine months of 2006. The increase in the first nine months of 2006 was
      primarily due to the factors discussed above which included an increase of
      approximately $61.9 million in consolidated operating earnings and an increase
      of approximately $0.5 million in investment income, which was partially offset
      by an increase of approximately $9.9 million in interest expense and an increase
      in the provision for income taxes of approximately $20.1 million.





*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 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 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 earnings, which is the most
      directly comparable GAAP operating performance measure, to EBITDA for the third
      quarter of 2006 and 2005:





**For
                  the third quarter ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)*Net
                  earnings
                  (1)
              
              $
              23.1
              
              $
              25.0Provision for income taxes
              
              
              15.1
              
              
              16.3Interest expense
              
              
              29.9
              
              
              26.6Investment income
              
              
              (0.4
              )
              
              (0.3
              )Depreciation expense
              
              
              8.7
              
              
              6.8Amortization
                  expense
              
              
              7.2
              
              
              4.8EBITDA
              
              $
              83.6
              
              $
              79.2


(1)  Net
      earnings include an approximate pre-tax $0.3 million charge related to the
      planned closure of the Company’s NuTone, Inc. Cincinnati, Ohio facility in the
      Residential Ventilation Products Segment for the third quarter ended September
      30, 2006 (see Note I of the Notes to the Unaudited Financial Statements included
      elsewhere herein). Net earnings includes an approximate $1.2 million gain
      related to the favorable settlement of litigation in the Air Conditioning and
      Heating Products Segment for the third quarter ended September 30, 2006. Net
      earnings include approximately $0.1 million of stock-based compensation charges
      recorded in each of the third quarters of 2006 and 2005, respectively (see
      Notes
      A and D of the Notes to the Unaudited Financial Statements included elsewhere
      herein) .





The
      following table presents a reconciliation from net earnings, which is the most
      directly comparable GAAP operating performance measure, to EBITDA for the first
      nine months of 2006 and 2005:





**For
                  the first nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)*Net
                  earnings
                  (1)
              
              $
              89.4
              
              $
              57.0Provision for income taxes
              
              
              55.7
              
              
              35.6Interest expense
              
              
              85.9
              
              
              76.0Investment income
              
              
              (1.6
              )
              
              (1.1
              )Depreciation expense
              
              
              24.8
              
              
              20.4Amortization expense
              
              
              19.4
              
              
              13.9EBITDA
              
              $
              273.6
              
              $
              201.8


(1)  Net
      earnings include an approximate pre-tax $35.9 million curtailment gain related
      to post-retirement medical and life insurance benefits and an approximate
      pre-tax $4.1 million charge related to the planned closure of the Company’s
      NuTone, Inc. Cincinnati, Ohio facility in the Residential Ventilation Products
      Segment for the first nine months ended September 30, 2006 (see Note I of the
      Notes to the Unaudited Financial Statements included elsewhere herein). Net
      earnings include an increase in warranty expense of approximately $4.0 million
      related to a product safety upgrade in the Home Technology Products Segment
      for
      the first nine months ended September 30, 2006. Net earnings includes an
      approximate $1.6 million gain related to the favorable settlement of litigation
      in the Air Conditioning and Heating Products Segment for the first nine months
      ended September 30, 2006. Net earnings include approximately $0.3 million of
      stock-based compensation charges recorded in each of the first nine months
      of
      2006 and 2005, respectively (see Notes A and D of the Notes to the Unaudited
      Financial Statements included elsewhere herein) .








**Liquidity
      and Capital Resources**





On
      May
      5, 2006, NTK Holdings filed a registration statement on Form S-1 with the SEC
      for an initial public offering of shares of its common stock. If the offering
      is
      consummated as described in the registration statement, t he
      net
      proceeds from the offering will be utilized to (1) repay all amounts outstanding
      under NTK Holdings’ unsecured loan facility as noted below, (2) redeem all of
      Nortek’s remaining outstanding 9 7/8% Senior Discount Notes, (3) redeem a
      portion of NTK Holdings’ outstanding 10 3/4% Senior Discount Notes, (4) repay a
      portion of the term loan under Nortek’s Senior Secured Credit Facility and (5)
      pay related redemption premiums and accrued interest. There
      can be no assurance that the offering will be consummated.





The
      Company regularly acquires companies, typically utilizing cash and proceeds
      from
      additional indebtedness to finance these acquisitions. Companies acquired during
      the first nine months of 2006 and the impact on cash flows were as follows:





·
            On
                July 18, 2006, the Company, through Linear, acquired the stock of
                Magenta
                for $14.4 million (utilizing approximately $11.9 million of cash,
                of which
                approximately $10.0 million was borrowed under Nortek’s revolving credit
                facility, and issuing unsecured 6% subordinated notes totaling $2.5
                million due July 2008), plus contingent consideration, which may
                be
                payable in future years.


·
            On
                June 26, 2006, the Company, through Linear, acquired the stock of
                Secure
                Wireless and ABT through two mergers for approximately $10.5 million,
                of
                which approximately $10.0 million was borrowed under Nortek’s revolving
                credit facility, plus contingent consideration, which may be payable
                in
                future years.


·
            On
                April 14, 2006, the Company, through two newly formed subsidiaries
                of its
                HVAC segment, acquired the assets and certain liabilities of Huntair
                and
                Cleanpak, for approximately $48.4 million (utilizing approximately
                $40.0
                million of cash which was borrowed under Nortek’s revolving credit
                facility, including approximately $1.6 million to fund a portion
                of
                Huntair and Cleanpak’s initial working capital needs, and issuing
                unsecured 6% subordinated notes totaling $10.0 million due April
                2008)
                plus contingent consideration, which may be payable in future
                years.


·
            On
                February 22, 2006, the Company, through Linear, acquired the assets
                and
                certain liabilities of Furman for approximately $3.3
                million.


·
            On
                January 25, 2006, the Company, through Mammoth China, increased its
                ownership interests in MEG and MSH to sixty-percent for approximately
                $2.4
                million.


·
            Contingent
                consideration related to the acquisitions of Panamax and GTO was
                also paid
                during the first quarter of 2006 in the amount of $4.5 million and
                $0.2
                million, respectively.





The
      estimated total potential amount of contingent consideration that may be paid
      in
      the future for all completed acquisitions is approximately $116.8 million (see
      Note C of the Notes to the Unaudited Financial Statements included elsewhere
      herein).





The
      Company had consolidated debt as of September 30, 2006, of approximately
      $1,427.0 million consisting of (i) $69.1 million of short-term borrowings and
      current maturities of long-term debt, (ii) $43.9 million of long-term notes,
      mortgage notes and other indebtedness, (iii) $10.0 million of Nortek’s 9 7/8%
      Senior Subordinated Notes due 2011, (iv) $625.0 million of Nortek’s 8 1/2%
      Senior Subordinated Notes due 2014 and (v) $679.0 million of long-term debt
      outstanding under Nortek’s Senior Secured Credit Facility.





During
      the first nine months of 2006, the Company had a net increase in its
      consolidated debt of approximately $53.2 million resulting from (1) a net
      increase in borrowings under the revolving portion of Nortek’s Senior Secured
      Credit Facility of approximately $35.0 million, (2) additional borrowings of
      approximately $33.9 million related primarily to the Company’s European
      subsidiaries, as well as the unsecured notes issued for the acquisitions of
      Huntair, Cleanpak and Magenta as noted above and (3) an approximate $1.1 million
      increase related to the effects of foreign currency translation, partially
      offset by (4) approximately $16.8 million of principal and other payments made
      during the period.





The
      Company’s debt to equity ratio was approximately 2.5:1 as of September 30, 2006
      as compared to approximately 2.7:1 as of December 31, 2005. The decrease in
      the
      ratio was primarily due to an increase in stockholder’s investment, primarily as
      a result of the effect of net earnings in the first nine months of 2006,
      partially offset by the net increase in indebtedness as discussed above.





Stockholder’s
      Investment includes a $4.9 million non-cash “Adjustment of carryover basis of
      continuing management investors in the THL Transaction” for the first nine
      months ended September 30, 2006. This adjustment represents a correction to
      the
      original 2004 purchase accounting for the Acquisition resulting in a reduction
      of goodwill with a corresponding reduction in Stockholder’s Investment. The $4.9
      million adjustment has not been reflected in the consolidated financial
      statements for prior periods as the Company has determined that the adjustment
      is not material to the prior period consolidated financial
      statements.





On
      April 3, 2006, Nortek amended and restated the credit agreement for its senior
      secured credit facility, expanding its $100.0 million revolving credit facility
      to $200.0 million and modifying certain covenants. The amendment provides Nortek
      with additional liquidity and covenant flexibility. The revolving credit
      facility matures in August 2010 and includes both a letter of credit
      sub-facility and swing line loan sub-facility. As of October 30, 2006, Nortek
      had approximately $15.0 million outstanding and approximately $152.9 million
      of
      additional borrowing capacity under the U.S. revolving portion of its senior
      secured credit facility, with approximately $22.1 million in outstanding letters
      of credit, and under the Canadian revolving portion of its senior secured credit
      facility the Company had no outstanding borrowings and approximately $10.0
      million of additional borrowing capacity. The letters of credit have been issued
      under Nortek’s revolving credit facility as additional security for (1)
      approximately $17.2 million relating to certain of the Company’s insurance
      programs, (2) approximately $3.9 million relating to leases outstanding for
      certain of the Company’s manufacturing facilities and (3) approximately $1.0
      million relating to certain of the subsidiaries' purchases and other
      requirements. Letters of credit reduce borrowing availability under Nortek’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 Nortek’s 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.





As
      of
      September 30, 2006, approximately $147.1 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’s ability to pay interest on or to refinance its indebtedness depends on
      the Company’s future performance, working capital levels and capital structure,
      which are subject to general economic, financial, competitive, legislative,
      regulatory and other factors which may be beyond its control. There can be
      no
      assurance that the Company will generate sufficient cash flow from the operation
      of its subsidiaries or that future financings will be available on acceptable
      terms or in amounts sufficient to enable the Company to service or refinance
      its
      indebtedness, or to make necessary capital expenditures.





The
      Company’s combined short-term and long-term warranty liabilities increased from
      approximately $34.8 million as of December 31, 2005 to approximately $41.7
      million as of September 30, 2006, and warranty expense decreased from
      approximately $5.9 million for the third quarter ended October 1, 2005 to
      approximately $5.0 million for the third quarter ended September 30, 2006 and
      increased from approximately $16.3 million for the first nine months ended
      October 1, 2005 to approximately $22.5 million for the first nine months ended
      September 30, 2006. The increase in warranty expense for the first nine months
      of 2006 as compared to the same period of 2005 is primarily as a result of
      increased expense in the HTP segment as noted previously and as a result of
      increased sales activity, particularly in our HVAC segment. 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.





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.





The
      Company expects to meet its cash flow requirements for fiscal 2006 from cash
      from operations, existing cash and cash equivalents and the use of Nortek’s
      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, 2005.





Unrestricted
      cash and cash equivalents decreased from approximately $77.2 million at December
      31, 2005 to approximately $56.2 million at September 30, 2006. 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 September 30, 2006, approximately $3.6 million (of which
      approximately $3.5 million is included in long-term assets) of cash and cash
      equivalents are held primarily as collateral to fund future capital expenditures
      within the Company’s segments, as well as for insurance and letter of credit
      requirements.





Capital
      expenditures were approximately $10.3 million (none of which were financed
      under
      a capital lease) for the third quarter of 2006 as compared to approximately
      $6.9
      million (of which approximately $1.1 million was financed under a capital lease)
      for the third quarter of 2005 and were approximately $33.0 million (none of
      which were financed under a capital lease) for the first nine months of 2006
      as
      compared to approximately $19.6 million (of which approximately $4.6 million
      was
      financed under a capital lease) for the first nine months of 2005. Capital
      expenditures were approximately $33.7 million for the year ended December 31,
      2005 and are expected to be approximately $45.0 million in 2006. Under Nortek’s
      Amended Senior Secured Credit Facility, capital expenditures are limited to
      approximately $65.0 million in 2006.





The
      Company’s working capital increased from approximately $273.8 million at
      December 31, 2005 to approximately $289.0 million at September 30, 2006, while
      the current ratio decreased from approximately 1.7:1 at December 31, 2005 to
      approximately 1.6:1 at September 30, 2006. This increase in working capital
      for
      the first nine months of 2006 was primarily as a result of seasonal increases
      in
      accounts receivable and inventory, which was partially offset by increases
      in
      short-term borrowings, primarily due to acquisitions, and accounts payable.
      The
      change in working capital also reflects the reduction in cash to fund a portion
      of the Nortek Holdings deferred compensation plan payment in the second quarter
      of 2006 (see Note A of the Notes to the Unaudited Financial Statements included
      elsewhere herein).





Accounts
      receivable increased approximately $74.4 million, or approximately 27.3%,
      between December 31, 2005 and September 30, 2006, while net sales increased
      approximately $75.6 million, or approximately 15.0%, in the third quarter of
      2006 as compared to the fourth quarter of 2005. This increase in accounts
      receivable is primarily a result of increased sales levels, timing of cash
      collections and acquisitions. Acquisitions contributed approximately $61.8
      million to the increase in net sales in the third quarter of 2006 as compared
      to
      the fourth quarter of 2005 and approximately $26.5 million to the increase
      in
      accounts receivable at September 30, 2006. 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 September
      30,
      2006 as compared to December 31, 2005. The Company did not experience any
      significant overall changes in credit terms, collection efforts, credit
      utilization or delinquency in accounts receivable in the third quarter of 2006.





Inventories
      increased approximately $53.8 million, or approximately 22.2%, between December
      31, 2005 and September 30, 2006 primarily as a result of increased inventory
      levels, in part, due to higher costs of residential air conditioners related
      to
      13 SEER products in the HVAC segment and increased inventory levels in the
      HTP
      segment to support increased sales levels. Acquisitions contributed
      approximately $16.0 million to the increase at September 30, 2006.





Accounts
      payable increased approximately $28.6 million, or 18.0%, between December 31,
      2005 and September 30, 2006 due primarily to increased inventory levels and
      timing of payments. Acquisitions contributed approximately $15.8 million to
      the
      increase in accounts payable at September 30, 2006.





Changes
      in certain working capital accounts, as noted above, between December 31, 2005
      and September 30, 2006, 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 three preceding paragraphs and
      from other non-cash items, including among others, the effect of changes in
      foreign currency exchange rates.




Net
        cash flows from operating activities for the nine months ended September
        30,
        2006 increased by approximately $13.5 million to approximately $73.3 million
        of
        net cash provided by operating activities from approximately $59.8 million
        of
        net cash provided by operating activities for the nine months ended October
        1,
        2005, primarily due to the increase in net earnings and depreciation and
        amortization expense, partially offset by the $35.9 million non-cash gain
        from
        the curtailment of post-retirement medical benefits recorded during the second
        quarter of 2006. Net cash flows from investing activities for the nine months
        ended September 30, 2006 decreased by approximately $0.4 million to net cash
        used in investing activities of approximately $101.7 million from approximately
        $101.3 million for the nine months ended October 1, 2005, primarily due to
        increased capital expenditures of approximately $18.0 million offset by a
        reduction in payments for acquisitions of approximately $21.8 million. Cash
        flows from financing activities for the nine months ended September 30, 2006
        increased by approximately $13.9 million to net cash provided by financing
        activities of approximately $7.4 million from net cash used in financing
        activities of approximately $6.5 million for the nine months ended October
        1,
        2005, primarily due to the net increase in borrowing proceeds of approximately
        $43.4 million, offset by the amount of cash dividends paid of approximately
        $28.1 million. As discussed earlier, the Company generally uses cash flows
        from
        operations, and where necessary debt financing, to finance its capital
        expenditures and strategic acquisitions and to meet the service requirements
        of
        its existing indebtedness.


Unrestricted
      cash and cash equivalents decreased approximately $21.0 million and
      approximately $48.0 million from December 31, 2005 to September 30, 2006 and
      from December 31, 2004 to October 1, 2005, respectively, principally as a result
      of the following:





**Condensed
                    Consolidated**Cash Flows (1)**For
                  the first nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)***Operating
                  Activities:**Cash flow from operations, net
              
              $
              113.3
              
              $
              118.2Change in accounts receivable, net
              
              
              (43.4
              )
              
              (64.5
              )Change in inventories
              
              
              (37.9
              )
              
              (11.6
              )Change in prepaids and other current assets
              
              
              5.1
              
              
              (8.2
              )Change in accounts payable
              
              
              9.2
              
              
              32.9Change in accrued expenses and taxes
              
              
              31.7
              
              
              (3.1
              )**Investing
                  Activities:**Capital expenditures
              
              
              (33.0
              )
              
              (15.0
              )Net cash paid for businesses acquired
              
              
              (67.0
              )
              
              (88.8
              )Payment of IPO Expenses for NTK Holdings
              
              
              (2.4
              )
              
              ---Proceeds from the sale of property and equipment
              
              
              3.4
              
              
              6.1Change in restricted cash and marketable securities
              
              
              0.4
              
              
              (2.1
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              37.1
              
              
              (6.3
              )Dividends
              
              
              (28.1
              )
              
              ---Other,
                  net
              
              
              (9.4
              )
              
              (5.6
              )$
              (21.0
              )
              $
              (48.0
              )


(1)
            Summarized
                from the Company’s Unaudited Condensed Consolidated Statement of Cash
                Flows for the first nine months ended September 30, 2006 and October
                1,
                2005 (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 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, 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 used in operating
      activities, which is the most directly comparable GAAP liquidity measure, to
      EBITDA for the first nine months of 2006 and 2005:





**For
                  the first nine months ended****September
                  30, 2006**
              
              **October
                  1, 2005***(Dollar
                  amounts in millions)*Net cash provided by operating activities
              
              $
              73.3
              
              $
              59.8Cash
                        used by
                        working capital and other long-term asset and liability
                        changes
              
              
              40.0
              
              
              58.4Deferred federal income tax provision
              
              
              (10.0
              )
              
              (22.7
              )(Loss) gain on property and equipment
              
              
              (1.4
              )
              
              0.2Non-cash interest expense, net
              
              
              (3.9
              )
              
              (4.1
              )Non-cash stock-based compensation expense
              
              
              (0.3
              )
              
              (0.3
              )Gain from curtailment of post-retirement medical benefits
              
              
              35.9
              
              
              ---Provision for income taxes
              
              
              55.7
              
              
              35.6Interest expense
              
              
              85.9
              
              
              76.0Investment income
              
              
              (1.6
              )
              
              (1.1
              )EBITDA
                  (1)
              
              $
              273.6
              
              $
              201.8


(1)  EBITDA
      includes an approximate pre-tax $35.9 million curtailment gain related to
      post-retirement medical and life insurance benefits and an approximate pre-tax
      $4.1 million charge related to the planned closure of the Company’s NuTone, Inc.
      Cincinnati, Ohio facility in the Residential Ventilation Products Segment for
      the first nine months ended September 30, 2006 (see Note I of the Notes to
      the
      Unaudited Financial Statements included elsewhere herein). EBITDA includes
      an
      increase in warranty expense of approximately $4.0 million related to a product
      safety upgrade in the Home Technology Products Segment for the first nine months
      ended September 30, 2006. Net earnings includes an approximate $1.6 million
      gain
      related to the favorable settlement of litigation in the Air Conditioning and
      Heating Products Segment for the first nine months ended September 30, 2006.






**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 remodeling and replacement and
      non-residential construction, all of which are affected by such factors as
      interest rates, inflation, consumer confidence and unemployment.





The
      demand for the Company’s products is seasonal, particularly in the Northeast and
      Midwest regions of the United States where inclement weather during the winter
      months usually reduces the level of building and remodeling activity in both
      the
      home improvement and new construction markets. The Company’s lower sales levels
      historically have occurred 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.





As
      of
      September 30, 2006, approximately 6.7% of the Company’s workforce was subject to
      various collective bargaining agreements.





On
      June
      8, 2005, the Company's collective bargaining agreement with the United
      Automobile Aerospace & Agricultural Implement Workers of America and its
      Local No. 2029 expired. That bargaining unit covered approximately 4.4% of
      the
      Company's employees (414 employees), which were located at the Cincinnati,
      OH
      location of the Company's subsidiary NuTone. On or about June 8, 2005, the
      Company presented its final proposal to the union bargaining committee but
      such
      proposal was not accepted by the union members. On July 16, 2005, the Company
      locked out the union employees at the NuTone Cincinnati, OH facility. On
      September 6, 2005, the Company notified the union bargaining committee that
      negotiations had reached an impasse and that it was unilaterally implementing
      the terms of its final offer. Among other things, this implemented final offer
      does not provide the NuTone union members with post retirement medical benefits.
      Subsequent to May 11, 2006, the union no longer had the right to appeal the
      Company's implementation of the final offer. Accordingly, this implemented
      final
      offer resulted in the Company recording a curtailment gain of approximately
      $35.6 million ($22.1 million, net of tax) in the second quarter of 2006 which
      includes approximately $18.1 million ($11.3 million, net of tax) of unamortized
      deferred actuarial gain related to the negative plan amendment (see Note I
      of
      the Notes to the Unaudited Financial Statements included elsewhere herein).
      In
      addition, as a result of this implemented final offer, the Company recorded
      a
      curtailment gain on life insurance of approximately $0.3 million, which is
      included in gain from curtailment of post-retirement medical benefits on the
      accompanying unaudited condensed consolidated statement of
      operations.





In
      late
      June 2006, the Company informed the union that the Company would close the
      manufacturing operations at the Cincinnati, OH facility on or about August
      30,
      2006. As a result of this planned closure, the Company, through its Residential
      Ventilation Products segment, recorded an approximate $4.1 million charge to
      operations (of which approximately $1.7 million is recorded in cost of goods
      sold and approximately $2.4 million is recorded in selling, general and
      administrative expense) consisting of severance of approximately $2.4 million
      and write-offs related to equipment sales and disposals of approximately $1.7
      million.





On
      July
      27, 2006 the union members ratified a Closedown Agreement providing for the
      closedown and permanent layoff of all bargaining unit employees employed at
      the
      NuTone plant effective August 30, 2006, and the release by the union of any
      claims it may have against the Company. That agreement provides for, among
      other
      matters, the payment of severance, which was recorded in the second quarter
      ended July 1, 2006, as provided under the terms of the implemented final offer
      and the payment of enhanced severance, which resulted in additional expense
      of
      approximately $0.3 million in the third quarter of 2006 (which is included
      in
      the $4.1 million charge above as part of severance) relating to those employees
      that executed a release of the Company from any claims, with the exception
      of
      claims related to vested pension, worker's compensation and unemployment
      benefits.





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 and losses or the recognition of an asset impairment. As
      agreements expire, until negotiations are completed, it is not known whether
      the
      Company 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.





**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.





There
      have been no significant changes in market risk from the December 31, 2005
      disclosures included in the Company’s annual report on Form 10-K as filed with
      the SEC.





**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 September 30, 2006, the fair value of the Company’s unrestricted and
      restricted investments and marketable securities was not materially different
      from their cost basis.





The
      Company has historically managed its borrowing exposure to changes in interest
      rates by optimizing the use of fixed rate debt with extended maturities. At
      September 30, 2006, approximately 48.4% of the carrying values of the Company’s
      long-term debt were at fixed interest rates.





**B**.  **Foreign
      Currency Risk**





Sales
      and earnings derived from international markets and net assets within
      international markets are subject to, among others, the risks of currency
      fluctuations primarily related to changes in the Euro, the Canadian Dollar
      and
      the British Pound. In the third quarter of 2006, the net impact of foreign
      currency changes was not material to the Company’s financial condition or
      results of operations, but this may not be indicative of future results. The
      impact of foreign currency changes related to translation resulted in a decrease
      in stockholder’s investment of approximately $0.2 million for the third quarter
      of 2006 and an increase in stockholder’s investment of approximately $6.7
      million for the first nine months of 2006. 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. The Company generally
      does
      not enter into derivative financial instruments to manage foreign currency
      exposure. At September 30, 2006, 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 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 September 30, 2006, 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 and purchased components (including, among others, steel,
      motors, compressors, copper, packaging materials, aluminum, plastics, glass
      and
      various chemicals and paints), the level of domestic and foreign construction
      and remodeling and replacement activity affecting residential and commercial
      markets, changes in weather and seasonal fluctuations, interest rates,
      employment levels, inflation, foreign currency fluctuations, consumer spending
      levels, exposure to foreign economies, the rate of sales growth, competition
      and
      resulting pricing pressures, changes in relationships with distributors, dealers
      and customers, acquisitions and the integration of acquired businesses, labor
      disruptions, technological changes and product innovation, litigation and other
      contingencies, including product and warranty liability claims and oil and
      other
      energy costs. 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 disclosures 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 changes in
      the Company’s internal control over financial reporting that occurred during the
      period covered by this report that have materially affected, or that are
      reasonably likely to materially affect the Company’s internal control over
      financial reporting.











**PART
      II. OTHER INFORMATION**





**Item
      6.**  **Exhibits**








The
      items marked with an asterisk are filed herewith.





*
            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.










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. HallAlmon C.
              Hall,Vice
              President and Chief Financial
              OfficerNovember
              3, 2006