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 October 3, 2009





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:  333-152934





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





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





Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes [_]No [_]





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





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





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





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





The number of
shares of Common Stock outstanding as of November 27, 2009 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)




October
      3,
              
              
              December
      31,2009
              
              
              2008AssetsCurrent
      Assets:Unrestricted
      cash and cash equivalents
              
              $
              180.6
              
              
              $
              182.2Restricted
      cash
              
              
              0.8
              
              
              
              0.7Accounts
      receivable, less allowancesof $11.8 and $14.5
              
              
              271.0
              
              
              
              260.3Inventories:Raw materials
              
              
              72.0
              
              
              
              86.0Work in process
              
              
              23.9
              
              
              
              26.9Finished goods
              
              
              163.6
              
              
              
              183.4259.5
              
              
              
              296.3Prepaid
      expenses
              
              
              13.4
              
              
              
              12.8Other current
      assets
              
              
              9.2
              
              
              
              9.5Prepaid
      income taxes
              
              
              9.6
              
              
              
              11.0Total current assets
              
              
              744.1
              
              
              
              772.8Property
      and Equipment, at Cost:Land
              
              
              11.3
              
              
              
              12.1Buildings and
      improvements
              
              
              106.7
              
              
              
              103.6Machinery and
      equipment
              
              
              241.1
              
              
              
              222.6359.1
              
              
              
              338.3Less
      accumulated depreciation
              
              
              164.0
              
              
              
              130.6Total property and equipment, net
              
              
              195.1
              
              
              
              207.7Other
      Assets:Goodwill
              
              
              561.4
              
              
              
              810.8Intangible
      assets, less accumulated amortizationof $124.5 and $107.4
              
              
              118.3
              
              
              
              135.4Deferred debt
      expense
              
              
              37.2
              
              
              
              43.8Restricted
      investments and marketable securities
              
              
              2.4
              
              
              
              2.4Other
      assets
              
              
              5.4
              
              
              
              7.4724.7
              
              
              
              999.8Total
      Assets
              
              $
              1,663.9
              
              
              $
              1,980.3Liabilities
      and Stockholder’s DeficitCurrent
      Liabilities:Notes payable
      and other short-term obligations
              
              $
              17.9
              
              
              $
              32.7Current
      maturities of long-term debt
              
              
              24.6
              
              
              
              13.1Long-term
      debt (see Note B)
              
              
              1,524.4
              
              
              
              8.1Accounts
      payable
              
              
              135.2
              
              
              
              152.3Accrued
      expenses and taxes, net
              
              
              231.4
              
              
              
              213.9Total current liabilities
              
              
              1,933.5
              
              
              
              420.1Other
      Liabilities:Deferred
      income taxes
              
              
              25.4
              
              
              
              30.7Intercompany
      account with affiliates, net
              
              
              43.0
              
              
              
              43.1Other
              
              
              150.0
              
              
              
              160.7218.4
              
              
              
              234.5Notes,
      Mortgage Notes and ObligationsPayable,
      Less Current Maturities
              
              
              14.4
              
              
              
              1,545.5Commitments
      and Contingencies (see Note E)Stockholder’s
      Deficit:Common stock,
      $0.01 par value, authorized 3,000 shares;3,000 issued and outstanding at October 3, 2009 andDecember 31, 2008
              
              
              ---
              
              
              
              ---Additional
      paid-in capital
              
              
              416.8
              
              
              
              416.7Accumulated
      deficit
              
              
              (902.6
              )
              
              
              (612.1
              )Accumulated
      other comprehensive loss
              
              
              (16.6
              )
              
              
              (24.4
              )Total stockholder's deficit
              
              
              (502.4
              )
              
              
              (219.8
              )Total
      Liabilities and Stockholder's Deficit
              
              $
              1,663.9
              
              
              $
              1,980.3




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
      endedOct. 3,
      2009
              
              
              Sept. 27,
      2008(Dollar
      amounts in millions)Net
Sales
              
              $
              451.8
              
              
              $
              582.6Costs
      and Expenses:Cost
      of products sold
              
              
              321.7
              
              
              
              434.4Selling, general and administrative expense, net
              
              
              96.7
              
              
              
              121.1Goodwill impairment charge (see Note A)
              
              
              ---
              
              
              
              600.0Amortization of intangible assets
              
              
              5.7
              
              
              
              6.7424.1
              
              
              
              1,162.2Operating
      earnings (loss)
              
              
              27.7
              
              
              
              (579.6
              )Interest
      expense
              
              
              (37.7
              )
              
              
              (37.1
              )Investment
      income
              
              
              ---
              
              
              
              0.2Loss before
      provision for income taxes
              
              
              (10.0
              )
              
              
              (616.5
              )Provision for
      income taxes
              
              
              2.4
              
              
              
              28.2Net
      loss
              
              $
              (12.4
              )
              
              $
              (644.7
              )




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 nine months
      endedOct. 3,
      2009
              
              
              Sept. 27,
      2008(Dollar
      amounts in millions)Net
Sales
              
              $
              1,378.6
              
              
              $
              1,769.9Costs
      and Expenses:Cost of products sold
              
              
              990.9
              
              
              
              1,299.3Selling, general and administrative expense, net
              
              
              293.5
              
              
              
              358.1Goodwill impairment charge (see Note A)
              
              
              250.0
              
              
              
              600.0Amortization of intangible assets
              
              
              17.6
              
              
              
              21.81,552.0
              
              
              
              2,279.2Operating
      loss
              
              
              (173.4
              )
              
              
              (509.3
              )Interest
      expense
              
              
              (113.7
              )
              
              
              (95.8
              )Loss from
      debt retirement
              
              
              ---
              
              
              
              (9.9
              )Investment
      income
              
              
              0.2
              
              
              
              0.6Loss before
      provision for income taxes
              
              
              (286.9
              )
              
              
              (614.4
              )Provision for
      income taxes
              
              
              3.6
              
              
              
              30.7Net
      loss
              
              $
              (290.5
              )
              
              $
              (645.1
              )




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 nine months
      endedOct. 3,
      2009
              
              
              Sept. 27,
      2008(Dollar
      amounts in millions)Cash
      Flows from operating activities:Net
      loss
              
              $
              (290.5
              )
              
              $
              (645.1
              )Adjustments
      to reconcile net loss to net cashprovided by operating
      activities:Depreciation
      and amortization expense
              
              
              45.8
              
              
              
              53.1Non-cash
      interest expense, net
              
              
              7.5
              
              
              
              5.7Non-cash
      goodwill impairment charge
              
              
              250.0
              
              
              
              600.0Loss from
      debt retirement
              
              
              ---
              
              
              
              9.9Non-cash
      stock-based compensation expense
              
              
              0.1
              
              
              
              0.1Gain on sale
      of property and equipment
              
              
              (0.1
              )
              
              
              (2.5
              )Deferred
      federal income tax (benefit) provision
              
              
              (3.7
              )
              
              
              16.8Changes
      in certain assets and liabilities, net ofeffects from acquisitions and dispositions:Accounts
      receivable, net
              
              
              (9.3
              )
              
              
              (20.2
              )Inventories
              
              
              37.7
              
              
              
              (16.3
              )Prepaids and
      other current assets
              
              
              (2.3
              )
              
              
              (1.5
              )Accounts
      payable
              
              
              (14.9
              )
              
              
              22.7Accrued
      expenses and taxes
              
              
              27.2
              
              
              
              30.3Long-term
      assets, liabilities and other, net
              
              
              (5.6
              )
              
              
              5.1Total adjustments to net loss
              
              
              332.4
              
              
              
              703.2Net cash provided by operating activities
              
              
              41.9
              
              
              
              58.1Cash
      Flows from investing activities:Capital
      expenditures
              
              
              (13.6
              )
              
              
              (20.7
              )Net cash paid
      for businesses acquired
              
              
              (14.1
              )
              
              
              (32.7
              )Proceeds from
      the sale of property and equipment
              
              
              2.1
              
              
              
              6.2Change in
      restricted cash and marketable securities
              
              
              (0.1
              )
              
              
              0.3Other,
      net
              
              
              (2.9
              )
              
              
              (2.1
              )Net cash used in investing activities
              
              
              (28.6
              )
              
              
              (49.0
              )Cash
      Flows from financing activities:Increase in
      borrowings
              
              
              64.0
              
              
              
              165.4Payment of
      borrowings
              
              
              (78.9
              )
              
              
              (105.5
              )Net proceeds
      from the sale of Nortek's 10% Senior Secured Notes due
      2013
              
              
              ---
              
              
              
              742.2Redemption of
      Nortek's senior secured credit facility
              
              
              ---
              
              
              
              (755.5
              )Fees paid in
      connection with Nortek's new debt facilities
              
              
              ---
              
              
              
              (33.1
              )Equity
      investment by THL-Nortek Investors, LLC
              
              
              ---
              
              
              
              4.2Other,
      net
              
              
              ---
              
              
              
              ---Net cash (used in) provided by financing activities
              
              
              (14.9
              )
              
              
              17.7Net change in
      unrestricted cash and cash equivalents
              
              
              (1.6
              )
              
              
              26.8Unrestricted
      cash and cash equivalents at the beginning of the period
              
              
              182.2
              
              
              
              53.4Unrestricted
      cash and cash equivalents at the end of the period
              
              $
              180.6
              
              
              $
              80.2Supplemental
      disclosure of cash flow information:Interest
      paid
              
              $
              75.6
              
              
              $
              75.7Income taxes
      paid, net
              
              $
              11.8
              
              
              $
              9.3




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





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
 OCTOBER
3, 2009 AND SEPTEMBER 27, 2008






(A)
              On October
      21, 2009 (the “Commencement Date”), NTK Holdings, Inc. (“NTK Holdings”),
      the parent company of Nortek, Inc. (“Nortek”), and certain of NTK
      Holding’s affiliates, including Nortek and certain of its domestic
      subsidiaries (collectively, the “Debtors”), filed voluntary petitions for
      reorganization under chapter 11 of Title 11 of the United States Code (the
      “Bankruptcy Code”) in the United States Bankruptcy Court for the District
      of Delaware (the "Bankruptcy Court").  The cases are being
      jointly administered under Case No. 09-13611 (the “Bankruptcy
      Cases”).  As a result, the Debtors are currently operating as
      “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and
      in accordance with the applicable provisions of the Bankruptcy Code (see
      Note H).  The chapter 11 bankruptcy proceedings do not directly
      impact Nortek’s foreign
subsidiaries.
 
 Following the
Commencement Date, the Debtors filed joint prepackaged plans of reorganization
(the “Prepackaged Plans”) and a proposed disclosure statement (the “Disclosure
Statement”) pursuant to sections 1125 and 1126(b) of the Bankruptcy Code, which,
as discussed further in Note H below, provide for a restructuring of
substantially all of the Debtors’ domestic long-term and short-term
debt.  Nortek and its subsidiaries will continue to operate their
businesses in the ordinary course throughout the chapter 11 process while they
seek confirmation of the Prepackaged Plans.
 
 The unaudited
condensed consolidated financial statements presented herein (the “Unaudited
Financial Statements”) reflect the financial position, results of operations and
cash flows of Nortek and all of its wholly-owned subsidiaries, collectively the
“Company”, and have been prepared on the basis of a going concern, although the
events leading up to the chapter 11 bankruptcy proceedings and the chapter 11
bankruptcy proceedings create uncertainties about Nortek’s ability to meet its
debt obligations as they become due in the event that the Prepackaged Plans are
not confirmed by the Bankruptcy Court or the Bankruptcy Court confirms a
substantially different plan of reorganization.  As a result of
certain events of default or cross defaults pursuant to the terms of the
Company’s indentures or other debt instruments, the Company has reclassified
substantially all of its outstanding debt as of October 3, 2009 to current on
its condensed consolidated balance sheet (see Note B).  The Unaudited
Financial Statements do not include any other adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the outcome
of these uncertainties.
 
 The Unaudited
Financial Statements include the accounts of Nortek 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.  The term “Company” is used for convenience only and is not
intended as a precise description of any of the separate corporations, each of
which manages its own affairs.
 
 The Unaudited
Financial Statements do not purport to reflect or provide for the consequences
of the bankruptcy cases, including the accounting requirements under the
Financial Accounting Standards Board Accounting Standards Codification (“ASC”)
Topic 852, Reorganizations(“ASC 852”).As a result, the
Unaudited Financial Statements do not segregate liabilities subject to
compromise in the condensed consolidated balance sheet and reorganization items,
net in the condensed consolidated statement of operations, nor do they reflect
any of the fresh-start reporting adjustments required by ASC 852, which the
Company expects will be required when it emerges from the Bankruptcy Cases (see
Note H for certain pro forma financial information).
 
 Although certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with U.S. generally accepted accounting
principles have been omitted, the Company believes that the disclosures included
are adequate to make the information presented not
misleading.  Operating results for the third quarter and first nine
months ended October 3, 2009 are not necessarily indicative of the results that
may be expected for other interim periods or for the year ending December 31,
2009.  Certain amounts in the prior year’s Unaudited Financial
Statements have been reclassified to conform to the current period
presentation.  The Company has evaluated subsequent events for
potential recognition or disclosure through the date the financial statements
were issued, December 2, 2009.  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”).
  The Company
operates on a calendar year and for its interim periods operates on a 4-4-5
fiscal calendar, where each fiscal quarter is comprised of two 4-week periods
and one 5-week period, with each week ending on a Saturday.  The
Company’s fiscal year always begins on January 1 and ends on December
31.  As a result, the Company’s first and fourth quarters may have
more or less days included than a traditional 4-4-5 fiscal calendar, which
consists of 91 days.  The third quarters ended October 3, 2009 (“third
quarter of 2009”) and September 27, 2008 (“third quarter of 2008”) each include
91 days.  The first nine months ended October 3, 2009 (“nine months of
2009”) and September 27, 2008 (“nine months of 2008”) include 276 days and 271
days, respectively.





Goodwill
and Other Long-Lived Assets





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, net
of any subsequent impairment losses.  At October 3, 2009 and December
31, 2008, the Company had approximately $561.4 million and $810.8 million,
respectively, of goodwill recorded on its unaudited condensed consolidated
balance sheet.  Goodwill, by reporting segment, at October 3, 2009 and
December 31, 2008 was as follows:




Residential
              
              
              Home
              
              
              Residential
              
              
              CommercialVentilation
              
              
              Technology
              
              
              HVAC
              
              
              HVACProducts
              
              
              Products
              
              
              Products
              
              
              Products
              
              
              Consolidated(Amounts
      in millions)Balance
      as of December 31, 2008
              
              $
              341.0
              
              
              $
              351.4
              
              
              $
              43.0
              
              
              $
              75.4
              
              
              $
              810.8Estimated
      impairment loss
              
              
              ---
              
              
              
              (250.0
              )
              
              
              ---
              
              
              
              ---
              
              
              
              (250.0
              )Impact of
      changes in foreign currencytranslation
      and other
              
              
              0.6
              
              
              
              0.2
              
              
              
              (0.1
              )
              
              
              (0.1
              )
              
              
              0.6Balance
      as of October 3, 2009
              
              $
              341.6
              
              
              $
              101.6
              
              
              $
              42.9
              
              
              $
              75.3
              
              
              $
              561.4




The Company’s
accounting for acquired goodwill and intangible assets requires considerable
judgment in the valuation of acquired goodwill and other long-lived assets and
the ongoing evaluation of goodwill and other long-lived assets
impairment.  Goodwill and intangible assets determined to have
indefinite useful lives are not amortized.  Instead, these assets are
evaluated for impairment on an annual basis, or more frequently when an event
occurs or circumstances change between annual tests that would more likely than
not reduce the fair value of the reporting unit below its carrying value,
including, among others, a significant adverse change in the business
climate.  The Company has set the annual evaluation date as of the
first day of its fiscal fourth quarter.  The reporting units evaluated
for goodwill impairment by the Company have been determined to be the same as
the Company’s operating segments and include Residential Ventilation Products
(“RVP”), Home Technology Products (“HTP”), Residential Air Conditioning and
Heating Products (“R-HVAC”), and Commercial Air Conditioning and Heating
Products (“C-HVAC”) (see Note C).





During 2008, the
Company recognized a goodwill impairment charge totaling approximately $710.0
million based upon an interim impairment test performed during the third quarter
and finalized in the fourth quarter.  As of December 31, 2008, the
Company completed another interim impairment test, but no additional charges
were recognized.





During the first
nine months of 2009, the Company’s businesses continued to experience a
difficult market environment due primarily to weak residential new construction,
remodeling and residential air conditioning markets.  Based on these
macro-economic assumptions, the Company believes that EBITDA will continue to
decline in 2009 and then begin to rebound in 2010 with continued growth through
at least 2014.  The Company’s prior long-term forecasts had expected
the rebound in EBITDA to begin to occur in the second half of
2009.  As a result, in the second quarter of 2009 the Company
significantly lowered its cash flow forecasts for 2009 and 2010 for all of the
reporting units and for 2011 through 2014 for the HTP, R-HVAC and C-HVAC
reporting units.  As a result, the Company concluded in the second
quarter of 2009 that indicators of potential goodwill impairment were present
and, therefore, the Company needed to perform an interim test of goodwill
impairment.





As of July 4, 2009,
the Company prepared a “Step 1 Test” that compared the estimated fair value of
each reporting unit to its carrying value.  The Company utilized a
combination of a discounted cash flow approach (“DCF Approach”) and an EBITDA
multiple approach (“EBITDA Multiple Approach”) in order to value the Company’s
reporting units for the interim Step 1 Test.





The DCF Approach
required that the Company forecast future cash flows of the reporting units and
discount the cash flow stream based upon a weighted average cost of capital that
was derived, in part, from comparable companies within similar
industries.  The discounted cash flow calculations also included a
terminal value calculation that was based upon an expected long-term growth rate
for the applicable reporting unit.  The Company believes that its
procedures for estimating discounted future cash flows, including the terminal
valuation, were reasonable and consistent with market conditions at the time of
estimation.





The EBITDA Multiple
Approach required that the Company estimate a valuation multiple of EBITDA
derived from comparable companies, and apply those derived multiples to the
applicable reporting unit EBITDA for selected EBITDA measurement
periods.





The interim Step 1
valuations were determined using a weighted average of 70% of the DCF Approach
and 30% for the EBITDA Multiple Approach, as the Company believes that the DCF
Approach is a more representative measurement of the long-term fair value of the
reporting units and, as such, a higher weighting of valuation probability was
appropriate in the overall weighted average computation of fair
value.





The results of the
Step 1 Tests performed as of July 4, 2009 indicated that the carrying value of
the HTP reporting unit exceeded the estimated fair value determined by the
Company and, as such, a “Step 2 Test” was required for this reporting
unit.   The estimated fair values of the RVP, R-HVAC and C-HVAC
reporting units exceeded the carrying values so no further impairment analysis
was required for these reporting units.  The Company also determined
that no interim Step 1 Testing was required as of October 3, 2009.





The Company
believes that its assumptions used to determine the fair values for the RVP,
HTP, R-HVAC and C- HVAC reporting units were reasonable.  If different
assumptions were to be used, particularly with respect to estimating future cash
flows, the weighted average costs of capital, terminal growth rates, EBITDA, and
selected EBITDA multiples, different estimates of fair value may result and
there could be the potential that an impairment charge could result for RVP,
R-HVAC and C-HVAC and an additional impairment charge could be required for
HTP.  Actual operating results and the related cash flows of these
reporting units could differ from the estimated operating results and related
cash flows.  Based on the Company’s estimates at October 3, 2009, the
impact of reducing the Company’s fair value estimates for the RVP, HTP and
C-HVAC reporting units by 10% would have no impact on the Company’s goodwill
assessment for these reporting units.  For the R-HVAC reporting unit,
the impact of reducing the Company’s fair value estimates by 10% would have
reduced the estimated fair value to an amount below the carrying value for this
reporting unit as of October 3, 2009 and, therefore, would have required the
Company to perform additional impairment analysis for this reporting
unit.





The preliminary
Step 2 Test for the HTP reporting unit as of July 4, 2009 required the Company
to measure the potential goodwill impairment loss by allocating the estimated
fair value of the reporting unit, as determined in Step 1, to the reporting
unit’s assets and liabilities, with the residual amount representing the implied
fair value of goodwill.  To the extent the implied fair value of
goodwill was less than the carrying value, an impairment loss was
recognized.  As such, the Step 2 Test required the Company to perform
a theoretical purchase price allocation for the reporting unit to determine the
implied fair value of goodwill as of the evaluation date.  Due to the
complexity of the analysis required to complete the Step 2 Test, the Company has
not yet finalized its Step 2 Test.  The Company has completed a
preliminary assessment of the expected impact of the Step 2 Test using
reasonable estimates for the theoretical purchase price allocation and recorded
a preliminary estimate of the goodwill impairment loss for the HTP reporting
unit of approximately $250.0 million in the second quarter of
2009.  The preliminary estimate of goodwill impairment loss is
expected to be finalized prior to reporting 2009 annual results.





The following
procedures are, among others, the more significant analyses that the Company
needs to complete in order to finalize its Step 2 Test:





·
            Finalize
      appraisals to determine the estimated fair value of property and
      equipment, and intangible assets within the HTP reporting
      unit,


·
            Finalize
      analyses within the HTP reporting unit to determine the estimated fair
      value adjustment required for inventory,
and


·
            Finalize
      deferred tax analyses for the HTP reporting
  unit.





In connection with
the preliminary Step 2 Test, the Company made what it considered to be
reasonable estimates of each of the above items in order to determine its
preliminary best estimate of the goodwill impairment loss under the theoretical
purchase price allocation required for Step 2 impairment testing.  The
completion of the final analyses described above may result in significant
changes to the estimates used and, therefore, may have a significant impact on
the final HTP goodwill impairment loss recorded in 2009.  In addition,
there can be no assurance that the Company will not identify other issues during
the completion of the Step 2 Test that may have a significant impact on the
final HTP goodwill impairment loss recorded for 2009.





The Company
evaluates the recoverability of long-lived assets, which primarily consist of
property and equipment and definite lived intangible assets (the “Long-Lived
Assets”), when events or business conditions warrant it, including whenever an
interim goodwill impairment test is required.  Prior to the goodwill
impairment test, long-lived assets are assessed for recoverability, and any
impairment is recorded.  As a result of the Company’s conclusion that
an interim impairment test of goodwill was required during the second quarter of
2009, the Company performed an interim test for the recoverability of the
Long-Lived Assets as of July 4, 2009, and determined that there was no
impairment.  As of October 3, 2009, the Company did not identify any
events or conditions that warranted an additional impairment test for Long-Lived
Assets.





The interim
evaluation of the recoverability of Long-Lived Assets, other than goodwill, was
based on expectations of non-discounted future cash flows compared to the
carrying value of the long-lived asset groups.  If the sum of the
expected non-discounted future cash flows was less than the carrying amount of
the Long-Lived Assets, the Company would recognize an impairment
loss.  The Company’s cash flow estimates were based upon historical
cash flows, as well as future projected cash flows received from subsidiary
management in connection with a Company-wide interim forecasting process. The
estimates also included a terminal valuation for the applicable asset group
based upon a multiple of earnings before interest expense, net, depreciation and
amortization expense, and income taxes (“EBITDA”).  The Company
estimated the EBITDA multiple by reviewing comparable company information and
other industry data.  The Company believes that its procedures for
estimating gross future cash flows, including the terminal valuations, are
reasonable and consistent with market conditions at the time the testing was
performed.





Fair
Value





Fair Value of Financial
Instruments





Following is
information about the fair value of each class of financial instruments for
which it is practicable to estimate that value:





Cash
and Cash Equivalents --


The carrying amount
approximates fair value because of the short maturity of those
instruments.





Restricted
Investments and Marketable Securities --


The fair value of
investments is based on quoted market prices.  The fair value of
investments was not materially different from their cost basis at October 3,
2009 or December 31, 2008.





Long-Term
Debt --


At October 3, 2009
and December 31, 2008, the fair value of long-term indebtedness was
approximately $185.9 million lower and $721.2 million lower, respectively, than
the amount on the Company’s consolidated balance sheet, before unamortized
discount, based on available market quotations (see Note B).




Assets and Liabilities
Measured on a Non-Recurring Basis





During the nine
months of 2009, HTP reporting unit goodwill with a carrying value amount of
approximately $351.7 million was written down to its implied fair value of
approximately $101.7 million.  This resulted in an estimated non-cash
goodwill impairment charge of approximately $250.0 million, which was included
in the unaudited condensed consolidated statement of operations for nine months
of 2009.





The HTP reporting
unit's assets itemized below were measured at fair value on a non-recurring
basis during the nine months of 2009 using a combination of the DCF Approach and
the EBITDA Multiple Approach:





Fair
      Value Measurement
            
            
            Quoted
      Prices in Active Markets
              for
      Identical
              Assets
              (“Level
      1”)
            
            
            Significant
      Other Observable Inputs
              (“Level
      2”)
            
            
            Significant
      Unobservable Inputs
              (“Level
      3”)
            
            
            Total
      Impaired Losses(Amounts
      in millions)Goodwill
            
            $
            101.7
            
            
            
            ---
            
            
            
            ---
            
            
            $
            101.7
            
            
            $
            250.0





Comprehensive
Income (Loss)
 
 Comprehensive
loss includes net loss, unrealized gains and losses from currency translation,
and pension liability adjustments, net of tax.  Comprehensive loss for
the periods presented is as follows:
  For the third quarter
      of
                
                
                For the nine months
      of2009
                
                
                2008
                
                
                2009
                
                
                2008(Dollar
      amounts in millions)Net
      loss
                
                $
                (12.4
                )
                
                $
                (644.7
                )
                
                $
                (290.5
                )
                
                $
                (645.1
                )Other
      comprehensive income (loss):Currency translation adjustment
                
                
                4.6
                
                
                
                (5.7
                )
                
                
                8.4
                
                
                
                (4.4
                )Pension liability adjustment
                
                
                0.4
                
                
                
                (0.4
                )
                
                
                (0.6
                )
                
                
                (0.4
                )Comprehensive
      loss
                
                $
                (7.4
                )
                
                $
                (650.8
                )
                
                $
                (282.7
                )
                
                $
                (649.9
                )


New
Accounting Pronouncements





In June 2009, the
FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles” (“SFAS No. 168”).  SFAS No. 168 establishes the FASB Accounting Standards
Codification (“the Codification”) as the sole source of authoritative
GAAP recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the SEC are also sources
of authoritative GAAP for SEC registrants.  On the effective date of
SFAS No. 168, the Codification superseded all then-existing non-SEC accounting
and reporting standards.  All other non-grandfathered non-SEC
accounting literature not included in the Codification became
non-authoritative.  This statement became effective in the third
quarter of 2009, and references made to FASB guidance throughout this document
have been updated for the Codification.





(B)
              On September
      3, 2009, NTK Holdings, Nortek Holdings, Inc. and Nortek entered into a
      restructuring and lock-up agreement (the “Restructuring Agreement”) with
      certain holders of (i) NTK Holdings’ 10 3/4% Senior Discount Notes due
      2014 (the “NTK 10 3/4% Notes”), (ii) Nortek’s 8 1/2% Senior Subordinated
      Notes due 2013 (the “8 1/2% Notes”), and (iii) Nortek’s 10% Senior Secured
      Notes due 2013 (the “10% Notes”) (collectively, the
      “Notes”).  Pursuant to the Restructuring Agreement, certain
      holders of the Notes agreed to restructure and recapitalize the Notes
      through the implementation of a solicitation of votes for prepackaged
      plans of reorganization of NTK Holdings and Nortek pursuant to the
      Bankruptcy Code (the “Solicitation”) (see Note
  H).
 
 As part of the
Company’s strategy to preserve and enhance its near-term liquidity, the Company
elected to forego making the approximately $26.6 million semi-annual interest
payment on its 8 1/2% Notes that was due on September 1, 2009 (subject to a
thirty (30) day grace period), which constituted an event of default under the
indenture governing its 8 1/2% Notes prior to the consolidated balance sheet
date of October 3, 2009.  The failure to make this interest payment
also constituted a cross default under Nortek’s 10% Notes, ABL Facility, and
certain other debt agreements prior to October 3, 2009, as well as a cross
default under the NTK 10 3/4% Notes and the NTK Holdings Senior Unsecured Loans
(the “NTK Unsecured Loans”).   The terms of the Restructuring
Agreement provided that, subject to certain conditions, the holders of the Notes
who executed the Restructuring Agreement would not exercise their rights and
remedies against NTK Holdings or Nortek, respectively, with respect to the
events of default resulting from the failure to pay the interest due on the 8
1/2% Notes under their applicable indentures.  In addition, on
September 3, 2009, the Company entered into a forbearance agreement, as amended,
with the lenders (the “Lenders”) under Nortek’s ABL Facility (the “ABL
Forbearance Agreement”), whereby the Lenders agreed, among other things, to not
exercise their rights and remedies against Nortek and its guarantor
subsidiaries, respectively, with respect to the event of default resulting from
the failure to pay the interest due on the 8 1/2% Notes, provided Nortek
complied with the terms of the ABL Forbearance Agreement.  The
Restructuring Agreement and ABL Forbearance Agreement were in effect up to the
time the Bankruptcy Cases were filed.
 
 The filing of the
Bankruptcy Cases also constituted an event of default under substantially all of
Nortek’s and NTK Holdings’ domestic debt including the 8 1/2% Notes, the 10%
Notes, Nortek’s 9 7/8% Series A and Series B Senior Subordinated Notes due 2011
(the “9 7/8% Notes”), the ABL Facility, the NTK 10 3/4% Notes and the NTK
Unsecured Loans and, as such, the debt under these various agreements and
indentures became automatically due and payable, subject to the automatic stay
provisions of the Bankruptcy Code which prevents the enforcement of any actions
to collect the amounts due.   Accordingly, substantially all of
the Company’s long-term debt was reclassified to current as of October 3, 2009
with the exception of certain capital leases where the payment of the monthly
lease payments has not been accelerated based on the terms of the capital lease
agreements and certain foreign debt that is not impacted by the Bankruptcy Cases
(see Note H).
 
 At December 31,
2008, the Company’s Best subsidiary was not in compliance with a maintenance
covenant with respect to two loan agreements with aggregate borrowings
outstanding of approximately $6.8 million.  Non-compliance with these
two long-term debt agreements would have resulted in non-compliance with two
other long-term debt agreements totaling approximately $5.3 million at December
31, 2008.  The Company’s Best subsidiary obtained waivers from the
bank, which indicated that the Company’s Best subsidiary was not required to
comply with the maintenance covenant as of December 31, 2008.  The
next measurement date for the maintenance covenant is for the year ended
December 31, 2009 and the Company believes that it is probable that its Best
subsidiary will not be in compliance with the maintenance covenant when their
assessment of the required calculation is completed in the first quarter of
2010.  As a result, the Company has classified approximately $4.9
million and $8.1 million of outstanding borrowings under such “long-term debt”
agreements as a current liability on its consolidated balance sheet at October
3, 2009 and December 31, 2008, respectively.  No assurance can be
given that Best will be successful in obtaining a refinancing, amendment or
waiver on terms acceptable to the Company, or at all, in the
future.  Accordingly, Nortek could be required to repay the long-term
portion of approximately $4.9 million at December 31, 2009 related to these
loans in an event of non-compliance.
 
 Prior to the
Bankruptcy Cases being filed, the indentures that govern the 10% Notes and the 8
1/2% Notes limited Nortek’s ability to make certain payments, including
distributions or other payments to NTK Holdings.   Nortek was
under no obligation to make any distribution or other payment to NTK Holdings
even if Nortek had available cash and the making of such a payment was permitted
by the terms of its existing indebtedness.  Nortek has not made any
such distributions to NTK Holdings during the nine months of 2009.
 
 In October 2009,
following the announcement of the Bankruptcy Cases, Moody’s changed its
probability of default rating (“PDR”) from “C” to “D” for NTK
Holdings.  Moody’s also announced that it would be removing all of
Nortek’s debt ratings.  Additionally, in October 2009, Standard &
Poor’s lowered the corporate credit rating on NTK Holdings to “D” from “CC”
following the announcement of the Bankruptcy Cases.





(C)
            The Company
      is a diversified manufacturer of innovative, branded residential and
      commercial building products, operating within four reporting segments:
      the RVP segment, the HTP segment, the R-HVAC segment, and the C-HVAC
      segment.  During the fourth quarter of 2008, the Company changed
      the composition of its reporting segments to report the R-HVAC segment
      separately and as a result, the Company has restated prior period segment
      disclosures to reflect the new
composition.





The Company
evaluates segment performance based on operating earnings before allocations of
corporate overhead costs.  Intersegment net sales and intersegment
eliminations are not material for any of the periods presented.  The
financial statement impact of all purchase accounting adjustments, including
intangible assets amortization and goodwill, are reflected in the applicable
operating segment, which are the Company’s reporting units.  In the
tables below, Unallocated includes corporate related items, intersegment
eliminations and certain income and expense items not allocated to reportable
segments.





Unaudited net
sales, operating earnings (loss) and loss before provision for income taxes for
the Company’s reporting segments for the third quarter of 2009 and 2008 were as
follows:





For the third quarter
      of2009
              
              
              2008(Dollar
      amounts in millions)Net
      sales:Residential
      ventilation products
              
              $
              144.9
              
              
              $
              180.0Home
      technology products
              
              
              100.2
              
              
              
              132.7Residential
      air conditioning and heating products
              
              
              112.5
              
              
              
              138.0Commercial
      air conditioning and heating products
              
              
              94.2
              
              
              
              131.9Consolidated net sales
              
              $
              451.8
              
              
              $
              582.6Operating
      earnings (loss):Residential
      ventilation products
              
              $
              17.5
              
              
              $
              (327.1
              )Home
      technology products
              
              
              4.1
              
              
              
              (49.3
              )Residential
      air conditioning and heating products
              
              
              6.9
              
              
              
              (197.9
              )Commercial
      air conditioning and heating products
              
              
              9.4
              
              
              
              8.4Subtotal
              
              
              37.9
              
              
              
              (565.9
              )Unallocated,
      net
              
              
              (10.2
              )
              
              
              (13.7
              )Consolidated operating earnings (loss)
              
              
              27.7
              
              
              
              (579.6
              )Interest
      expense
              
              
              (37.7
              )
              
              
              (37.1
              )Investment
      income
              
              
              ---
              
              
              
              0.2Loss before provision for income taxes
              
              $
              (10.0
              )
              
              $
              (616.5
              )





Unaudited net
sales, operating earnings (loss) and loss before provision for income taxes for
the Company’s reporting segments for the nine months of 2009 and 2008 were as
follows:





For the nine months
      of2009
              
              
              2008(Dollar
      amounts in millions)Net
      sales:Residential
      ventilation products
              
              $
              434.2
              
              
              $
              555.2Home
      technology products
              
              
              298.5
              
              
              
              388.0Residential
      air conditioning and heating products
              
              
              332.4
              
              
              
              435.6Commercial
      air conditioning and heating products
              
              
              313.5
              
              
              
              391.1Consolidated net sales
              
              $
              1,378.6
              
              
              $
              1,769.9Operating
      earnings (loss):Residential
      ventilation products
              
              $
              38.4
              
              
              $
              (295.2
              )Home
      technology products
              
              
              (241.9
              )
              
              
              (31.2
              )Residential
      air conditioning and heating products
              
              
              12.2
              
              
              
              (182.3
              )Commercial
      air conditioning and heating products
              
              
              39.3
              
              
              
              27.4Subtotal
              
              
              (152.0
              )
              
              
              (481.3
              )Unallocated,
      net
              
              
              (21.4
              )
              
              
              (28.0
              )Consolidated operating loss
              
              
              (173.4
              )
              
              
              (509.3
              )Interest
      expense
              
              
              (113.7
              )
              
              
              (95.8
              )Loss from
      debt retirement
              
              
              ---
              
              
              
              (9.9
              )Investment
      income
              
              
              0.2
              
              
              
              0.6Loss before provision for income taxes
              
              $
              (286.9
              )
              
              $
              (614.4
              )


Unaudited segment
assets for the Company’s reporting segments at October 3, 2009 and December 31,
2008 were as follows:





October
      3,
              
              
              December
      31,2009
              
              
              2008(Dollar
      amounts in millions)Segment
      Assets:Residential
      ventilation products
              
              $
              651.5
              
              
              $
              671.2Home
      technology products
              
              
              316.8
              
              
              
              603.8Residential
      air conditioning and heating products
              
              
              229.5
              
              
              
              209.1Commercial
      air conditioning and heating products
              
              
              228.8
              
              
              
              249.01,426.6
              
              
              
              1,733.1Unallocated:Cash and cash
      equivalents, includingcurrent restricted cash
              
              
              181.4
              
              
              
              182.9Prepaid
      income taxes
              
              
              9.6
              
              
              
              11.0Other assets,
      including long-term restrictedinvestments and marketable securities
              
              
              46.3
              
              
              
              53.3Consolidated
      assets
              
              $
              1,663.9
              
              
              $
              1,980.3


(D)
            The Company
      provided for income taxes on an interim basis based upon the estimated
      annual effective tax rate for 2009 and 2008.  The following
      reconciles the federal statutory income tax rate to the effective tax rate
      of approximately (1.3)% and (5.0)% for the nine months of 2009 and
      2008:





For the nine months
      of2009
            
            2008Income tax at
      the federal statutory rate
            
            
            35.0
            %
            
            
            35.0
            %Net change
      from federal statutory rate:Goodwill
      impairment
            
            
            (28.2
            )
            
            
            (34.3
            )Decrease
      (increase) in FIN 48 reserves, including interest
            
            
            0.3
            
            
            
            (0.3
            )State income
      tax provision, net of federalincome tax
      effect
            
            
            (0.8
            )
            
            
            (0.4
            )Tax effect
      resulting from foreign activities
            
            
            (0.2
            )
            
            
            ---Non-deductible
      expenses
            
            
            (0.3
            )
            
            
            (0.2
            )Increase in
      valuation allowance related to deferred tax assets
            
            
            (7.1
            )
            
            
            (4.9
            )Other,
      net
            
            
            ---
            
            
            
            0.1Income tax at
      effective rate
            
            
            (1.3
            )%
            
            
            (5.0
            )%





During the third
quarter of 2008, the Company evaluated the realizability of its domestic
deferred tax assets as a result of economic conditions, the Company’s operating
results and the Company’s revised forecast, including the increase in future
interest expense as a result of the debt refinancing that occurred in May
2008.  As a result of this analysis during the third quarter of 2008,
the Company established a valuation allowance of approximately $14.6 million
against domestic deferred tax assets in existence as of December 31,
2007.  In addition, for the year ended December 31, 2008, the Company
recorded a valuation allowance against certain tax assets related to domestic
and foreign operating losses generated in 2008 of approximately $40.9
million.  For the
nine months ended October 3, 2009, the Company provided an additional federal,
foreign and state valuation allowance of approximately $20.3
million.In assessing the need for a valuation allowance, the
Company assessed the available means of recovering its deferred tax assets,
including the ability to carry back net operating losses, available deferred tax
liabilities, tax planning strategies and projections of future taxable
income.  The Company concluded that it is more likely than not, based
upon all available evidence, that a valuation allowance is required for
substantially all of its net domestic deferred tax assets, and certain foreign
deferred tax assets and net operating losses.





As of January 1,
2009, the Company had a liability of approximately $18.2 million for
unrecognized tax benefits related to various federal, foreign and state income
tax matters.  During the nine months ended October 3, 2009, the
Company recorded a reduction (tax benefit) to this reserve of approximately $1.8
million as a result of the lapse in the statute of limitations on certain state
and foreign tax items.  As a result of additional provisions to the
reserve during the third quarter and nine months of 2009, the liability for
uncertain tax positions at October 3, 2009 was approximately $17.1
million.  The corresponding amount of gross uncertain tax benefits was
approximately $27.1 million and $28.6 million at October 3, 2009 and December
31, 2008, respectively.





Subsequent to the
end of the third quarter of 2009, the Company received a report of proposed
audit adjustments related to one of its foreign subsidiaries.  In the
report, the taxing authorities have proposed adjustments resulting in additional
income tax related penalties and interest up to a maximum amount of
approximately $5.0 million.  The Company is currently reviewing the
report and the related proposed adjustments.  To the extent that the
Company ultimately determines that the findings in the report will result in
amounts due that are in excess of the amounts that the Company has already
identified as uncertain tax positions, such amounts will be recorded in the
fourth quarter of 2009.





As of October 3,
2009, the Company has approximately $2.8 million in unrecognized benefits
relating to various state tax issues, for which the statute of limitations is
expected to expire in the fourth quarter of 2009.





As of January 1,
2009, the Company accrued approximately $4.5 million of interest related to
uncertain tax positions.  As of October 3, 2009, the total amount of
accrued interest related to uncertain tax positions is approximately $4.5
million. The Company accounts for interest and penalties related to uncertain
tax positions as part of its provision for federal and state taxes.





(E)
            The Company’s
      former subsidiary, Ply Gem, guaranteed third party obligations relating to
      rental payments through June 30, 2016 for a facility leased by a former
      subsidiary, which was sold on September 21, 2001.  Nortek
      indemnified these guarantees in connection with the sale of Ply Gem on
      February 12, 2004 and had an estimated liability related to this
      indemnified guarantee of approximately $7.2 million at December 31,
      2008.    During the second quarter of 2009, the
      Company reduced its estimate by approximately $3.2
      million.  During the third quarter of 2009, the Company paid
      $3.3 million in exchange for a release from the indemnification
      agreement.  These events resulted in a reduction of
      approximately $3.9 million to selling, general and administrative expense,
      net in the accompanying unaudited condensed consolidated statement of
      operations for the nine months of
2009.





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 $9.5 million and $17.1
million at October 3, 2009 and December 31, 2008,
respectively.  Approximately $4.4 million of short-term liabilities
and approximately $5.1 million of long-term liabilities related to these
indemnifications are recorded in accrued expenses and other long-term
liabilities, respectively, in the accompanying unaudited condensed consolidated
balance sheet at October 3, 2009.





The Company sells a
number of products and offers a number of warranties including, in some
instances, extended warranties for which the Company receives
proceeds.  The specific terms and conditions of these warranties vary
depending on the product sold and the country in which the product is
sold.  The Company estimates the costs that may be incurred under its
warranties, with the exception of extended warranties, and records a liability
for such costs at the time of sale.  Deferred revenue from extended
warranties is recorded at the estimated fair value of the liability and is
amortized over the life of the warranty and periodically reviewed to ensure that
the amount recorded is equal to or greater than estimated future
costs.  Factors that affect the Company’s warranty liability include
the number of units sold, historical and anticipated rates of warranty claims,
cost per claim and new product introduction.  The Company periodically
assesses the adequacy of its recorded warranty claims and adjusts the amounts as
necessary.





Changes in the
Company’s combined short-term and long-term warranty accruals during the nine
months of 2009 are as follows:





2009(Amounts in millions)Balance,
      beginning of the period
            
            $
            51.5Warranties
      provided during the period
            
            
            23.1Settlements
      made during the period
            
            
            (22.3
            )Changes in
      liability estimate, including expirations
            
            
            1.5Balance, end
      of the period
            
            $
            53.8





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





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





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





Pension and profit
sharing expense charged to operations aggregated approximately $1.6 million for
each of the third quarters of 2009 and 2008, respectively, and aggregated
approximately $4.9 million and $5.1 million for the nine months of 2009 and
2008, 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
October 3, 2009, the Company estimated that approximately $3.0 million would be
contributed to the Company’s defined benefit pension plans in 2009, of which
approximately $2.3 million was contributed through the first nine months of
2009.





The Company’s
unaudited net periodic benefit cost (income) for its defined benefit plans for
the third quarter of 2009 and 2008 consists of the following
components:





For the third quarter
      of2009
            
            
            2008(Dollar
      amounts in millions)Service
      cost
            
            $
            0.1
            
            
            $
            0.2Interest
      cost
            
            
            2.3
            
            
            
            3.2Expected
      return on plan assets
            
            
            (1.8
            )
            
            
            (3.5
            )Recognized
      actuarial loss (gain)
            
            
            0.2
            
            
            
            (0.1
            )Net periodic
      benefit cost (income)
            
            $
            0.8
            
            
            $
            (0.2
            )





The Company’s
unaudited net periodic benefit cost (income) for its defined benefit plans for
the nine months of 2009 and 2008 consists of the following
components:





For the nine months
      of2009
            
            
            2008(Dollar
      amounts in millions)Service
      cost
            
            $
            0.4
            
            
            $
            0.5Interest
      cost
            
            
            6.9
            
            
            
            9.1Expected
      return on plan assets
            
            
            (5.5
            )
            
            
            (9.9
            )Recognized
      actuarial loss (gain)
            
            
            0.5
            
            
            
            (0.1
            )Net periodic
      benefit cost (income)
            
            $
            2.3
            
            
            $
            (0.4
            )





The Company’s
unaudited net periodic benefit cost (income) for its subsidiary’s
Post-Retirement Health Benefit Plan for the third quarter 2008 was approximately
$(0.1) million and for each of the nine months of 2009 and 2008 was
approximately $0.1 million, respectively.





(G)
            Nortek’s 10%
      Notes and 8 1/2% Notes are guaranteed by all of Nortek’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 10% Note and the 8 1/2% Note guarantees. The Guarantors
      are wholly-owned either directly or indirectly by Nortek and jointly and
      severally guarantee Nortek’s obligations under the 10% Notes and the 8
      1/2% Notes.  None of Nortek’s subsidiaries organized outside of
      the United States guarantee the 10% Notes or the 8 1/2%
    Notes.





Consolidating
balance sheets related to Nortek, its guarantor subsidiaries and non-guarantor
subsidiaries as of October 3, 2009 and December 31, 2008 and the related
consolidating statements of operations and cash flows for the third quarter and
nine months of 2009 and 2008 are reflected below in order to comply with the
reporting requirements for guarantor subsidiaries.






Unaudited
Condensed Consolidating Balance Sheet


As
of October 3, 2009




Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            Consolidated(Dollar
      amounts in millions)ASSETS:Current
      Assets:Unrestricted
      cash and cash equivalents
            
            $
            141.5
            
            
            $
            8.3
            
            
            $
            30.8
            
            
            $
            ---
            
            
            $
            180.6Restricted
      cash
            
            
            0.1
            
            
            
            0.7
            
            
            
            ---
            
            
            
            ---
            
            
            
            0.8Accounts
      receivable, less allowances
            
            
            ---
            
            
            
            206.7
            
            
            
            64.3
            
            
            
            ---
            
            
            
            271.0Intercompany
      receivables (payables)
            
            
            2.1
            
            
            
            (7.0
            )
            
            
            4.9
            
            
            
            ---
            
            
            
            ---Inventories
            
            
            ---
            
            
            
            209.5
            
            
            
            50.0
            
            
            
            ---
            
            
            
            259.5Prepaid
      expenses
            
            
            1.8
            
            
            
            7.9
            
            
            
            3.7
            
            
            
            ---
            
            
            
            13.4Other current
      assets
            
            
            0.4
            
            
            
            1.6
            
            
            
            7.2
            
            
            
            ---
            
            
            
            9.2Prepaid
      income taxes
            
            
            (18.7
            )
            
            
            25.3
            
            
            
            3.0
            
            
            
            ---
            
            
            
            9.6Total
      current assets
            
            
            127.2
            
            
            
            453.0
            
            
            
            163.9
            
            
            
            ---
            
            
            
            744.1Property
      and Equipment, at Cost:Total
      property and equipment, net
            
            
            0.7
            
            
            
            119.9
            
            
            
            74.5
            
            
            
            ---
            
            
            
            195.1Other
      Long-term Assets:Investment in
      subsidiaries and long-termreceivable
      from (to) subsidiaries
            
            
            1,034.3
            
            
            
            (515.1
            )
            
            
            (51.1
            )
            
            
            (468.1
            )
            
            
            ---Goodwill
            
            
            ---
            
            
            
            549.6
            
            
            
            11.8
            
            
            
            ---
            
            
            
            561.4Intangible
      assets, less accumulated amortization
            
            
            ---
            
            
            
            97.0
            
            
            
            21.3
            
            
            
            ---
            
            
            
            118.3Other
      assets
            
            
            41.5
            
            
            
            2.9
            
            
            
            0.6
            
            
            
            ---
            
            
            
            45.0Total
      other long-term assets
            
            
            1,075.8
            
            
            
            134.4
            
            
            
            (17.4
            )
            
            
            (468.1
            )
            
            
            724.7Total
      assets
            
            $
            1,203.7
            
            
            $
            707.3
            
            
            $
            221.0
            
            
            $
            (468.1
            )
            
            $
            1,663.9LIABILITIES
      AND STOCKHOLDER'S(DEFICIT)
      INVESTMENT:Current
      Liabilities:Notes payable
      and other short-term obligations
            
            $
            ---
            
            
            $
            ---
            
            
            $
            17.9
            
            
            $
            ---
            
            
            $
            17.9Current
      maturities of long-term debt
            
            
            15.0
            
            
            
            4.2
            
            
            
            5.4
            
            
            
            ---
            
            
            
            24.6Long-term
      debt (see Note B)
            
            
            1,513.7
            
            
            
            5.8
            
            
            
            4.9
            
            
            
            ---
            
            
            
            1,524.4Accounts
      payable
            
            
            2.6
            
            
            
            82.8
            
            
            
            49.8
            
            
            
            ---
            
            
            
            135.2Accrued
      expenses and taxes, net
            
            
            68.7
            
            
            
            119.1
            
            
            
            43.6
            
            
            
            ---
            
            
            
            231.4Total
      current liabilities
            
            
            1,600.0
            
            
            
            211.9
            
            
            
            121.6
            
            
            
            ---
            
            
            
            1,933.5Other
      Liabilities:Deferred
      income taxes
            
            
            17.6
            
            
            
            (5.6
            )
            
            
            13.4
            
            
            
            ---
            
            
            
            25.4Intercompany
      account with affiliates, net
            
            
            43.0
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            43.0Other
      long-term liabilities
            
            
            45.5
            
            
            
            95.7
            
            
            
            8.8
            
            
            
            ---
            
            
            
            150.0106.1
            
            
            
            90.1
            
            
            
            22.2
            
            
            
            ---
            
            
            
            218.4Notes,
      Mortgage Notes and ObligationsPayable,
      Less Current Maturities
            
            
            ---
            
            
            
            13.4
            
            
            
            1.0
            
            
            
            ---
            
            
            
            14.4Stockholder's
      (deficit) investment
            
            
            (502.4
            )
            
            
            391.9
            
            
            
            76.2
            
            
            
            (468.1
            )
            
            
            (502.4
            )Total
      liabilities and stockholder's(deficit) investment
            
            $
            1,203.7
            
            
            $
            707.3
            
            
            $
            221.0
            
            
            $
            (468.1
            )
            
            $
            1,663.9







Unaudited
Condensed Consolidating Balance Sheet


As
of December 31, 2008





Guarantor
              
              
              Non-Guarantor
              
              
              
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              Consolidated(Dollar
      amounts in millions)ASSETS:Current
      Assets:Unrestricted
      cash and cash equivalents
              
              $
              144.1
              
              
              $
              7.5
              
              
              $
              30.6
              
              
              $
              ---
              
              
              $
              182.2Restricted
      cash
              
              
              ---
              
              
              
              0.7
              
              
              
              ---
              
              
              
              ---
              
              
              
              0.7Accounts
      receivable, less allowances
              
              
              ---
              
              
              
              175.9
              
              
              
              84.4
              
              
              
              ---
              
              
              
              260.3Intercompany
      receivables (payables)
              
              
              2.4
              
              
              
              (6.1
              )
              
              
              3.7
              
              
              
              ---
              
              
              
              ---Inventories
              
              
              ---
              
              
              
              242.7
              
              
              
              53.6
              
              
              
              ---
              
              
              
              296.3Prepaid
      expenses
              
              
              ---
              
              
              
              8.7
              
              
              
              4.1
              
              
              
              ---
              
              
              
              12.8Other current
      assets
              
              
              0.2
              
              
              
              1.3
              
              
              
              8.0
              
              
              
              ---
              
              
              
              9.5Prepaid
      income taxes
              
              
              (16.3
              )
              
              
              24.3
              
              
              
              3.0
              
              
              
              ---
              
              
              
              11.0Total
      current assets
              
              
              130.4
              
              
              
              455.0
              
              
              
              187.4
              
              
              
              ---
              
              
              
              772.8Property
      and Equipment, at Cost:Total
      property and equipment, net
              
              
              0.8
              
              
              
              130.5
              
              
              
              76.4
              
              
              
              ---
              
              
              
              207.7Other
      Long-term Assets:Investment in
      subsidiaries and long-termreceivable
      from (to) subsidiaries
              
              
              1,276.1
              
              
              
              (87.1
              )
              
              
              (63.7
              )
              
              
              (1,125.3
              )
              
              
              ---Goodwill
              
              
              ---
              
              
              
              799.6
              
              
              
              11.2
              
              
              
              ---
              
              
              
              810.8Intangible
      assets, less accumulated amortization
              
              
              ---
              
              
              
              111.5
              
              
              
              23.9
              
              
              
              ---
              
              
              
              135.4Other
      assets
              
              
              49.7
              
              
              
              2.8
              
              
              
              1.1
              
              
              
              ---
              
              
              
              53.6Total
      other long-term assets
              
              
              1,325.8
              
              
              
              826.8
              
              
              
              (27.5
              )
              
              
              (1,125.3
              )
              
              
              999.8Total
      assets
              
              $
              1,457.0
              
              
              $
              1,412.3
              
              
              $
              236.3
              
              
              $
              (1,125.3
              )
              
              $
              1,980.3LIABILITIES
      AND STOCKHOLDER'S(DEFICIT)
      INVESTMENT:Current
      Liabilities:Notes payable
      and other short-term obligations
              
              $
              ---
              
              
              $
              ---
              
              
              $
              32.7
              
              
              $
              ---
              
              
              $
              32.7Current
      maturities of long-term debt
              
              
              ---
              
              
              
              7.7
              
              
              
              5.4
              
              
              
              ---
              
              
              
              13.1Long-term
      debt (see Note B)
              
              
              ---
              
              
              
              ---
              
              
              
              8.1
              
              
              
              ---
              
              
              
              8.1Accounts
      payable
              
              
              2.9
              
              
              
              83.4
              
              
              
              66.0
              
              
              
              ---
              
              
              
              152.3Accrued
      expenses and taxes, net
              
              
              42.3
              
              
              
              127.5
              
              
              
              44.1
              
              
              
              ---
              
              
              
              213.9Total
      current liabilities
              
              
              45.2
              
              
              
              218.6
              
              
              
              156.3
              
              
              
              ---
              
              
              
              420.1Other
      Liabilities:Deferred
      income taxes
              
              
              12.8
              
              
              
              4.4
              
              
              
              13.5
              
              
              
              ---
              
              
              
              30.7Intercompany
      account with affiliates, net
              
              
              43.1
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              43.1Other
      long-term liabilities
              
              
              52.9
              
              
              
              99.4
              
              
              
              8.4
              
              
              
              ---
              
              
              
              160.7108.8
              
              
              
              103.8
              
              
              
              21.9
              
              
              
              ---
              
              
              
              234.5Notes,
      Mortgage Notes and ObligationsPayable,
      Less Current Maturities
              
              
              1,522.8
              
              
              
              20.7
              
              
              
              2.0
              
              
              
              ---
              
              
              
              1,545.5Stockholder's
      (deficit) investment
              
              
              (219.8
              )
              
              
              1,069.2
              
              
              
              56.1
              
              
              
              (1,125.3
              )
              
              
              (219.8
              )Total
      liabilities and stockholder's(deficit) investment
              
              $
              1,457.0
              
              
              $
              1,412.3
              
              
              $
              236.3
              
              
              $
              (1,125.3
              )
              
              $
              1,980.3






Unaudited
Condensed Consolidating Statement of Operations


For
the third quarter ended October 3, 2009





Guarantor
              
              
              Non-Guarantor
              
              
              
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              Consolidated(Dollar
      amounts in millions)Net
      Sales
              
              $
              ---
              
              
              $
              376.9
              
              
              $
              104.9
              
              
              $
              (30.0
              )
              
              $
              451.8Costs
      and expenses:Costs of products sold
              
              
              ---
              
              
              
              268.1
              
              
              
              83.6
              
              
              
              (30.0
              )
              
              
              321.7Selling, general and administrative expenses, net
              
              
              10.1
              
              
              
              70.0
              
              
              
              16.6
              
              
              
              ---
              
              
              
              96.7Amortization of intangible assets
              
              
              ---
              
              
              
              4.9
              
              
              
              0.8
              
              
              
              ---
              
              
              
              5.710.1
              
              
              
              343.0
              
              
              
              101.0
              
              
              
              (30.0
              )
              
              
              424.1Operating
      (loss) earnings
              
              
              (10.1
              )
              
              
              33.9
              
              
              
              3.9
              
              
              
              ---
              
              
              
              27.7Interest
      expense
              
              
              (37.0
              )
              
              
              (0.4
              )
              
              
              (0.3
              )
              
              
              ---
              
              
              
              (37.7
              )(Loss) income
      before charges and allocationsto subsidiaries and equity in subsidiaries'(loss) earnings before income taxes
              
              
              (47.1
              )
              
              
              33.5
              
              
              
              3.6
              
              
              
              ---
              
              
              
              (10.0
              )Charges and
      allocations to subsidiaries andequity in subsidiaries' (loss) earningsbefore income taxes
              
              
              37.1
              
              
              
              (9.0
              )
              
              
              0.7
              
              
              
              (28.8
              )
              
              
              ---(Loss)
      earnings before (benefit)provision for income taxes
              
              
              (10.0
              )
              
              
              24.5
              
              
              
              4.3
              
              
              
              (28.8
              )
              
              
              (10.0
              )(Benefit)
      provision for income taxes
              
              
              2.4
              
              
              
              9.5
              
              
              
              2.4
              
              
              
              (11.9
              )
              
              
              2.4Net (loss) earnings
              
              $
              (12.4
              )
              
              $
              15.0
              
              
              $
              1.9
              
              
              $
              (16.9
              )
              
              $
              (12.4
              )






Unaudited
Condensed Consolidating Statement of Operations


For
the third quarter ended September 27, 2008




Guarantor
              
              
              Non-Guarantor
              
              
              
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              Consolidated(Dollar
      amounts in millions)Net
      Sales
              
              $
              ---
              
              
              $
              474.2
              
              
              $
              149.2
              
              
              $
              (40.8
              )
              
              $
              582.6Costs
      and expenses:Costs of products sold
              
              
              ---
              
              
              
              352.2
              
              
              
              123.0
              
              
              
              (40.8
              )
              
              
              434.4Selling, general and administrative expenses, net
              
              
              13.3
              
              
              
              87.2
              
              
              
              20.6
              
              
              
              ---
              
              
              
              121.1Goodwill impairment charge
              
              
              ---
              
              
              
              600.0
              
              
              
              ---
              
              
              
              ---
              
              
              
              600.0Amortization of intangible assets
              
              
              ---
              
              
              
              5.8
              
              
              
              0.9
              
              
              
              ---
              
              
              
              6.713.3
              
              
              
              1,045.2
              
              
              
              144.5
              
              
              
              (40.8
              )
              
              
              1,162.2Operating
      (loss) earnings
              
              
              (13.3
              )
              
              
              (571.0
              )
              
              
              4.7
              
              
              
              ---
              
              
              
              (579.6
              )Interest
      expense
              
              
              (35.8
              )
              
              
              (0.6
              )
              
              
              (0.7
              )
              
              
              ---
              
              
              
              (37.1
              )Investment
      income
              
              
              ---
              
              
              
              ---
              
              
              
              0.2
              
              
              
              ---
              
              
              
              0.2(Loss) income
      before charges and allocationsto subsidiaries and equity in subsidiaries'earnings (loss) before income taxes
              
              
              (49.1
              )
              
              
              (571.6
              )
              
              
              4.2
              
              
              
              ---
              
              
              
              (616.5
              )Charges and
      allocations to subsidiaries andequity in subsidiaries' (loss) earningsbefore income taxes
              
              
              (567.4
              )
              
              
              (10.0
              )
              
              
              0.5
              
              
              
              576.9
              
              
              
              ---(Loss)
      earnings before provision(benefit) for income taxes
              
              
              (616.5
              )
              
              
              (581.6
              )
              
              
              4.7
              
              
              
              576.9
              
              
              
              (616.5
              )Provision
      (benefit) for income taxes
              
              
              28.2
              
              
              
              9.4
              
              
              
              3.9
              
              
              
              (13.3
              )
              
              
              28.2Net (loss) earnings
              
              $
              (644.7
              )
              
              $
              (591.0
              )
              
              $
              0.8
              
              
              $
              590.2
              
              
              $
              (644.7
              )






Unaudited
Condensed Consolidating Statement of Operations


For
the nine months ended October 3, 2009





Guarantor
              
              
              Non-Guarantor
              
              
              
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              Consolidated(Dollar
      amounts in millions)Net
      Sales
              
              $
              ---
              
              
              $
              1,140.7
              
              
              $
              323.6
              
              
              $
              (85.7
              )
              
              $
              1,378.6Costs
      and expenses:Costs of products sold
              
              
              ---
              
              
              
              815.3
              
              
              
              261.3
              
              
              
              (85.7
              )
              
              
              990.9Selling, general and administrative expenses, net
              
              
              21.6
              
              
              
              221.0
              
              
              
              50.9
              
              
              
              ---
              
              
              
              293.5Goodwill impairment charge
              
              
              ---
              
              
              
              250.0
              
              
              
              ---
              
              
              
              ---
              
              
              
              250.0Amortization of intangible assets
              
              
              ---
              
              
              
              15.3
              
              
              
              2.3
              
              
              
              ---
              
              
              
              17.621.6
              
              
              
              1,301.6
              
              
              
              314.5
              
              
              
              (85.7
              )
              
              
              1,552.0Operating
      (loss) earnings
              
              
              (21.6
              )
              
              
              (160.9
              )
              
              
              9.1
              
              
              
              ---
              
              
              
              (173.4
              )Interest
      expense
              
              
              (111.0
              )
              
              
              (1.2
              )
              
              
              (1.5
              )
              
              
              ---
              
              
              
              (113.7
              )Investment
      income
              
              
              0.1
              
              
              
              ---
              
              
              
              0.1
              
              
              
              ---
              
              
              
              0.2(Loss) income
      before charges and allocationsto subsidiaries and equity in subsidiaries'(loss) earnings before income taxes
              
              
              (132.5
              )
              
              
              (162.1
              )
              
              
              7.7
              
              
              
              ---
              
              
              
              (286.9
              )Charges and
      allocations to subsidiaries andequity in subsidiaries' (loss) earningsbefore income taxes
              
              
              (154.4
              )
              
              
              (18.6
              )
              
              
              2.1
              
              
              
              170.9
              
              
              
              ---(Loss)
      earnings before provision(benefit) for income taxes
              
              
              (286.9
              )
              
              
              (180.7
              )
              
              
              9.8
              
              
              
              170.9
              
              
              
              (286.9
              )Provision
      (benefit) for income taxes
              
              
              3.6
              
              
              
              30.9
              
              
              
              7.1
              
              
              
              (38.0
              )
              
              
              3.6Net (loss) earnings
              
              $
              (290.5
              )
              
              $
              (211.6
              )
              
              $
              2.7
              
              
              $
              208.9
              
              
              $
              (290.5
              )






Unaudited
Condensed Consolidating Statement of Operations


For
the nine months ended September 27, 2008




Guarantor
            
            
            Non-Guarantor
            
            
            
            
            
            NortekParent
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            Consolidated(Dollar
      amounts in millions)Net
      Sales
            
            $
            ---
            
            
            $
            1,439.6
            
            
            $
            438.3
            
            
            $
            (108.0
            )
            
            $
            1,769.9Costs
      and expenses:Costs of products sold
            
            
            ---
            
            
            
            1,047.3
            
            
            
            360.0
            
            
            
            (108.0
            )
            
            
            1,299.3Selling, general and administrative expenses, net
            
            
            27.3
            
            
            
            265.0
            
            
            
            65.8
            
            
            
            ---
            
            
            
            358.1Goodwill impairment charge
            
            
            ---
            
            
            
            600.0
            
            
            
            ---
            
            
            
            ---
            
            
            
            600.0Amortization of intangible assets
            
            
            0.3
            
            
            
            18.6
            
            
            
            2.9
            
            
            
            ---
            
            
            
            21.827.6
            
            
            
            1,930.9
            
            
            
            428.7
            
            
            
            (108.0
            )
            
            
            2,279.2Operating
      (loss) earnings
            
            
            (27.6
            )
            
            
            (491.3
            )
            
            
            9.6
            
            
            
            ---
            
            
            
            (509.3
            )Interest
      expense
            
            
            (91.6
            )
            
            
            (2.0
            )
            
            
            (2.2
            )
            
            
            ---
            
            
            
            (95.8
            )Loss from
      debt retirement
            
            
            (9.9
            )
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            (9.9
            )Investment
      income
            
            
            0.1
            
            
            
            0.1
            
            
            
            0.4
            
            
            
            ---
            
            
            
            0.6(Loss) income
      before charges and allocationsto subsidiaries and equity in subsidiaries'(loss) earnings before income taxes
            
            
            (129.0
            )
            
            
            (493.2
            )
            
            
            7.8
            
            
            
            ---
            
            
            
            (614.4
            )Charges and
      allocations to subsidiaries andequity in subsidiaries' (loss) earningsbefore income taxes
            
            
            (485.4
            )
            
            
            (33.2
            )
            
            
            1.7
            
            
            
            516.9
            
            
            
            ---(Loss)
      earnings before provision(benefit) for income taxes
            
            
            (614.4
            )
            
            
            (526.4
            )
            
            
            9.5
            
            
            
            516.9
            
            
            
            (614.4
            )Provision
      (benefit) for income taxes
            
            
            30.7
            
            
            
            31.6
            
            
            
            5.8
            
            
            
            (37.4
            )
            
            
            30.7Net (loss) earnings
            
            $
            (645.1
            )
            
            $
            (558.0
            )
            
            $
            3.7
            
            
            $
            554.3
            
            
            $
            (645.1
            )







Unaudited
Condensed Consolidating Cash Flow Statement


For
the nine months ended October 3, 2009





Guarantor
              
              
              Non-Guarantor
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Consolidated(Dollar
      amounts in millions)Cash
      Flows from operating activities:Net cash
      (used in) provided by operating activities
              
              $
              (111.2
              )
              
              $
              131.8
              
              
              $
              21.3
              
              
              $
              41.9Cash
      Flows from investing activities:Capital
      expenditures
              
              
              ---
              
              
              
              (9.0
              )
              
              
              (4.6
              )
              
              
              (13.6
              )Net cash paid
      for businesses acquired
              
              
              ---
              
              
              
              (14.1
              )
              
              
              ---
              
              
              
              (14.1
              )Proceeds from
      the sale of property and equipment
              
              
              1.4
              
              
              
              0.6
              
              
              
              0.1
              
              
              
              2.1Change in
      restricted cash and investments
              
              
              (0.1
              )
              
              
              ---
              
              
              
              ---
              
              
              
              (0.1
              )Other,
      net
              
              
              (0.3
              )
              
              
              (0.7
              )
              
              
              (1.9
              )
              
              
              (2.9
              )Net
      cash provided by (used in) investing activities
              
              
              1.0
              
              
              
              (23.2
              )
              
              
              (6.4
              )
              
              
              (28.6
              )Cash
      Flows from financing activities:Increase in
      borrowings
              
              
              20.0
              
              
              
              ---
              
              
              
              44.0
              
              
              
              64.0Payment of
      borrowings
              
              
              (15.0
              )
              
              
              (5.2
              )
              
              
              (58.7
              )
              
              
              (78.9
              )Long-term
      intercompany advance
              
              
              102.6
              
              
              
              (102.6
              )
              
              
              ---
              
              
              
              ---Net
      cash provided by (used in) financing activities
              
              
              107.6
              
              
              
              (107.8
              )
              
              
              (14.7
              )
              
              
              (14.9
              )Net change in
      unrestricted cash and cash equivalents
              
              
              (2.6
              )
              
              
              0.8
              
              
              
              0.2
              
              
              
              (1.6
              )Unrestricted
      cash and cash equivalents at the beginningof the period
              
              
              144.1
              
              
              
              7.5
              
              
              
              30.6
              
              
              
              182.2Unrestricted
      cash and cash equivalents at the endof the period
              
              $
              141.5
              
              
              $
              8.3
              
              
              $
              30.8
              
              
              $
              180.6






Unaudited
Condensed Consolidating Cash Flow Statement


For
the nine months ended September 27, 2008




Guarantor
              
              
              Non-Guarantor
              
              
              NortekParent
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Consolidated(Dollar
      amounts in millions)Cash
      Flows from operating activities:Net cash
      (used in) provided by operating activities
              
              $
              (87.0
              )
              
              $
              119.2
              
              
              $
              25.9
              
              
              $
              58.1Cash
      Flows from investing activities:Capital
      expenditures
              
              
              ---
              
              
              
              (13.4
              )
              
              
              (7.3
              )
              
              
              (20.7
              )Net cash paid
      for businesses acquired
              
              
              ---
              
              
              
              (32.7
              )
              
              
              ---
              
              
              
              (32.7
              )Proceeds from
      the sale of property and equipment
              
              
              ---
              
              
              
              6.2
              
              
              
              ---
              
              
              
              6.2Change in
      restricted cash and marketable securities
              
              
              ---
              
              
              
              0.3
              
              
              
              ---
              
              
              
              0.3Other,
      net
              
              
              (0.8
              )
              
              
              (1.1
              )
              
              
              (0.2
              )
              
              
              (2.1
              )Net
      cash used in investing activities
              
              
              (0.8
              )
              
              
              (40.7
              )
              
              
              (7.5
              )
              
              
              (49.0
              )Cash
      Flows from financing activities:Increase in
      borrowings
              
              
              155.0
              
              
              
              ---
              
              
              
              10.4
              
              
              
              165.4Payment of
      borrowings
              
              
              (79.3
              )
              
              
              (12.0
              )
              
              
              (14.2
              )
              
              
              (105.5
              )Net proceeds
      from the sale of the 10% SeniorSecured Notes due 2013
              
              
              742.2
              
              
              
              ---
              
              
              
              ---
              
              
              
              742.2Redemption of
      Nortek's senior secured credit facility
              
              
              (755.5
              )
              
              
              ---
              
              
              
              ---
              
              
              
              (755.5
              )Fees paid in
      connection with new debt facilities
              
              
              (33.1
              )
              
              
              ---
              
              
              
              ---
              
              
              
              (33.1
              )Equity
      investment by THL-Nortek Investors, LLC
              
              
              4.2
              
              
              
              ---
              
              
              
              ---
              
              
              
              4.2Long-term
      intercompany advance
              
              
              71.3
              
              
              
              (71.3
              )
              
              
              ---
              
              
              
              ---Net
      cash provided by (used in) financing activities
              
              
              104.8
              
              
              
              (83.3
              )
              
              
              (3.8
              )
              
              
              17.7Net change in
      unrestricted cash and cash equivalents
              
              
              17.0
              
              
              
              (4.8
              )
              
              
              14.6
              
              
              
              26.8Unrestricted
      cash and cash equivalents at the beginningof the period
              
              
              20.5
              
              
              
              8.9
              
              
              
              24.0
              
              
              
              53.4Unrestricted
      cash and cash equivalents at the endof
      the period
              
              $
              37.5
              
              
              $
              4.1
              
              
              $
              38.6
              
              
              $
              80.2


(H)
              As discussed
      in Notes A and B above, on the Commencement Date, the Debtors filed the
      Bankruptcy Cases and, following the Commencement Date, the Debtors filed
      the Prepackaged Plans and Disclosure Statement.  The Company
      also disclosed the results of the votes on the Prepackaged Plans obtained
      from the Solicitation that the Debtors performed prior to the Commencement
      Date for all of the impaired or potentially impaired classes that were
      entitled to vote on the Prepackaged Plans, which included, among others,
      the NTK 10 3/4% Notes, the NTK Unsecured Loans, the 10% Notes, the 8 1/2%
      Notes and the 9 7/8% Notes.  Except for the holders of the NTK
      Unsecured Loans, all of the impaired or potentially impaired classes
      entitled to vote accepted the Prepackaged Plans.  A hearing to
      consider the compliance of the Disclosure Statement with the Bankruptcy
      Code’s disclosure requirements and any objections or other pertinent
      matters has been scheduled by the Bankruptcy Court for December 4, 2009
      (the “Disclosure Statement Hearing”).  A hearing to consider
      confirmation of the Prepackaged Plans and any objections thereto (the
      “Confirmation Hearing”) is scheduled to commence immediately following the
      Disclosure Statement Hearing.  Any objections to the Disclosure
      Statement and/or the Prepackaged Plans were to be filed and served upon
      the Bankruptcy Court by 4:00PM EST on November 23, 2009.  One
      creditor, Ore Hill Partners LLC, filed an objection to the Prepackaged
      Plans, has filed a motion asking the Bankruptcy Court to compel the United
      States Trustee to form an official committee of unsecured creditors, and
      has sought a status conference with the Bankruptcy Court and discovery
      from the Debtors.  Ore Hill’s motion will be heard on December
      4, 2009.  The Confirmation Hearing may be rescheduled by the
      Bankruptcy Court in the event that the Bankruptcy Court does not find
      compliance with the Disclosure Statement at the Disclosure Statement
      Hearing.  Assuming that the Prepackaged Plans are confirmed on
      the scheduled hearing date of December 4, 2009, the Company expects to
      emerge from bankruptcy on or about December 21, 2009 (the “Effective
      Date”).  There can be no assurance that the bankruptcy court
      will confirm the Prepackaged Plans or the actual Effective Date will be
      December 21, 2009, as it is subject to matters beyond the control of the
      Debtors, including potential third party objections, including the holders
      of the NTK Unsecured Loans, as well as the final approval of the
      Bankruptcy Court.
 
 The Prepackaged
Plans provide that, on the Effective Date, Nortek shall issue the following
securities: (i) New Nortek Senior Secured Notes bearing interest at 11% and due
in 2013 and having a total principal amount of $750 million, plus the amount of
accrued and unpaid interest payable under the 10% Notes as of the Effective Date
(the “New Nortek Senior Secured Notes”), issued by Nortek and guaranteed by
certain of its subsidiaries; (ii) one class of common stock issued by Nortek
(the “New Common Stock”); and (iii) new warrants, which may be exercised for a
period of five years, subject to certain terms and conditions, to purchase a
number of shares of New Common Stock equal to an aggregate of 5% of the number
of outstanding shares of New Common Stock as of the Effective Date (assuming the
exercise of all New Warrants) at an exercise price of $52.80 per share (assuming
15,000,000 shares of New Common Stock are issued on the Effective Date) (the
“New Warrants”).
 
 The Prepackaged
Plans provide for the following distributions on the Effective Date, except to
the extent any claimholder agrees to less favorable treatment:
 
 · The holders of the
10% Notes will receive their pro rata share (based on principal amount) of the
New Nortek Senior Secured Notes and 5% of the New Common Stock.  On
December 1, 2009, the Company paid the $37.5 million semi-annual interest
payment due under the 10% Notes and any accrued interest earned subsequent to
this payment and prior to the Effective Date is expected to be included in the
principal of the New Nortek Senior Secured Notes.
 
 · The holders of the
8 1/2% Notes will receive their pro rata share (based on principal amount) of
91.5630% of the New Common Stock.
 
 · The holders of the
9 7/8% Notes will receive their pro rata share (based on principal amount) of
1.4370% of the New Common Stock.
 
 · The holders of the
NTK 10 3/4% Notes will receive their pro rata share (based on principal amount)
of 1.1762% of the New Common Stock and New Warrants exercisable for 2.9404% of
the outstanding shares of New Common Stock as of the Effective
Date.
 
 · The holders of the
NTK Unsecured Loans will receive their pro rata share (based on principal
amount) of 0.8238% of the New Common Stock and New Warrants exercisable for
2.0596% of the outstanding shares of New Common Stock as of the Effective
Date.
 
 · The holders of the
existing common stock of Nortek and NTK Holdings will have their shares
cancelled and will receive no distribution.
 
 · Nortek shall
establish the Equity Incentive Plan which will authorize the issuance of present
and future equity awards representing an aggregate of up to 12% of the
New Common Stock, on a fully diluted basis, to officers and key employees of the
Reorganized Debtors and their affiliates.  The terms and allocation of
equity awards shall be mutually agreed to by the Chief Executive Officer and an
ad hoc committee comprised of certain holders of the 8 1/2% Notes, the 10% Notes
and the NTK 10 3/4% Notes, and are contained in a plan supplement filed with the
Bankruptcy Court.
 
 On or about October
29, 2009, the Debtors caused notice of the commencement of the Bankruptcy Cases
to be served on all known or potential creditors and other parties in
interest.  As discussed above, the Bankruptcy Cases constituted an
event of default under the ABL Facility, the 10% Notes, the 8 1/2 % Notes, the 9
7/8% Notes and certain other domestic debt agreements, as well as an event of
default under the NTK 10 3⁄4% Notes and the NTK Unsecured
Loans.  Subject to certain exceptions under the Bankruptcy Code, the
filing of the Bankruptcy Cases automatically enjoined, or stayed, the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a claim
arising prior to the Commencement Date.  Thus, for example, creditor
actions to obtain possession of property from the Debtors, or to create, perfect
or enforce any lien against the property of the Debtors, or to collect on or
otherwise exercise rights or remedies with respect to a pre-petition claim are
enjoined unless and until the Bankruptcy Court lifts the automatic
stay.
 
 On October 23,
2009, the Debtors received approval from the Bankruptcy Court of several first
day motions (the “First Day Motions”), including interim authorization to pay
trade creditor balances that were incurred prior to the Commencement
Date.   Trade creditor balances incurred subsequent to the
Commencement Date will be paid in the ordinary course of
business.  The Bankruptcy Court also authorized, among other things,
the Debtors to pay all salaries and wages to their employees earned and unpaid
as of the Commencement Date and approved the Debtor’s ability to honor all
customer programs, including product warranties, in the ordinary course of
business.  In addition, the Bankruptcy Court authorized the Debtors to
use their cash on hand for the operation of business in the normal
course.  The relief granted by the Bankruptcy Court through the First
Day Motions was designed to stabilize the Company’s operations and business
relationships with vendors, lenders, employees and others, minimize the effects
of the commencement of the Bankruptcy Cases and preserve the value of the
Debtors’ assets.  On November 19, 2009, the Company received final
approval for all of the First Day Motions that were originally granted on an
interim basis.  Certain of the First Day Motions are subject to
Bankruptcy Court approved caps which limit the amounts that can be paid or
honored subject to further approval by the Bankruptcy Court (the
“Caps”).  The Debtors believe that the approved Caps included in the
First Day Motions (and subsequently modified on November 19, 2009) are
sufficient to permit the Company to operate in the ordinary course through the
Effective Date without the need for additional Bankruptcy Court approval to
raise the Caps.
 
 On October 9, 2009,
Nortek secured a commitment from a group of lenders for a $250 million asset
based revolving credit facility (the “New ABL Facility”) in conjunction with its
Prepackaged Plans, which includes a provision that the group of lenders will use
commercially reasonable efforts to form a syndicate of lenders to increase the
facility to $300 million.  As further required by the Prepackaged
Plans, on November 13, 2009, the Company filed a draft of the agreement for the
New ABL Facility that the Company expects to execute on the Effective Date
provided Nortek remains in compliance with the terms of the commitment
agreement.   The New ABL Facility will mature on the earlier of
four years from the Commencement Date and the date that is 95 days before the
stated maturity of the New Nortek Senior Secured Notes.  It will be
subject to a borrowing base calculation that is similar to the existing ABL
Facility.  Similar to the existing ABL Facility, Nortek will have
various interest rate options based on LIBOR, the prime rate and the federal
funds rate for any borrowings.  There will be limitations on Nortek’s
ability to incur the full $250 million ($300 million if increased) of
commitments under the new ABL Facility and Nortek will be required to make
normal and customary representations and warranties prior to execution and to
comply with normal and customary affirmative and negative covenants subsequent
to execution.  As discussed further below, Nortek did not require any
debtor-in-possession financing, as existing cash and cash generated from
operations are expected to be sufficient to fund the operations of Nortek
through the Effective Date.
 
 As discussed above,
upon emergence from chapter 11, Nortek and its subsidiaries (“Reorganized
Nortek”) are expected to adopt fresh start reporting in accordance with ASC
852.  Fresh start reporting results in Reorganized Nortek becoming a
new entity for financial reporting purposes.  Upon adoption of fresh
start reporting, the Reorganized Debtor’s financial statements will not be
comparable, in various material respects, to any of Nortek’s previously issued
financial statements.
 
 Fresh start
reporting requires an allocation of the reorganization value to the reorganized
entity’s assets pursuant to ASC 805, Business Combinations (“ASC
805”).  Fresh start reporting also requires that all liabilities,
other than deferred income taxes, be stated at present values of amounts to be
paid at appropriate market interest rates.  Deferred income taxes are
determined in conformity with ASC 740, Income Taxes (“ASC
740”).
 
 The accompanying
unaudited pro forma condensed consolidated balance sheet as of October 3, 2009
(the “Pro Forma Balance Sheet”) assumes that the Effective Date occurred on
October 3, 2009 and reflects (i) estimated pro forma adjustments related to the
consummation of the transactions contemplated by the Prepackaged Plans for the
Reorganized Nortek, including the settlement of various liabilities, incurrence
of new indebtedness and cash payments (the “Plan Effects”) and (ii) estimated
pro forma adjustments to reflect the adoption of fresh start reporting under ASC
852 (the “Fresh Start Adjustments”) that would have been required had October 3,
2009 been the Effective Date.  The actual Effective Date is expected
to occur on or shortly after December 21, 2009 and, as such, the actual amounts
recorded as of the Effective Date may be materially different from the estimated
amounts included in this Pro Forma Balance Sheet.
 
 The Pro Forma
Balance Sheet set forth below includes estimates for the reorganization value of
Reorganized Nortek and the fair value of the assets and liabilities as of
October 3, 2009.  Actual adjustments made as of the Effective Date
will be based upon the fair values as of that date, which could be materially
greater or less than the values assumed in the Pro Forma Balance Sheet presented
below.  The Pro Forma Balance Sheet reflects the estimated
reorganization value of Reorganized Nortek, which has been allocated to the
assets in accordance with the accounting requirements under ASC
805.  The Pro Forma Balance Sheet assumes that the book value of all
of the assets as of October 3, 2009, after adjustments for the Plan Effects,
approximates the fair value except for inventories, property and equipment, net
and intangible assets, which have been adjusted to their estimated fair value
(the “Asset Fair Value Adjustments”) based on management’s
estimates.  The liabilities, other than deferred taxes, included in
the Pro Forma Balance Sheet have been reflected at their present value as of
October 3, 2009, which is assumed to approximate their book value as of October
3, 2009.  Prepaid and deferred income taxes included in the Pro Forma
Balance Sheet have been estimated in accordance with the provisions of ASC 740
and reflect the deferred tax consequences of the Asset Fair Value Adjustments at
an estimated combined federal and state tax rate of 38% and the elimination of
certain deferred tax asset valuation allowances that are assumed to no longer be
necessary once fresh start reporting is adopted, as a result of the increase in
deferred tax liabilities.  The assumptions used to prepare the
accompanying Pro Forma Balance Sheet are inherently subject to significant
uncertainties and contingencies beyond the control of Reorganized
Nortek.  The estimated reorganization value of Reorganized Nortek,
Asset Fair Value Adjustments and other adjustments included in the accompanying
Pro Forma Balance Sheet represent reasonable estimates and the final
determination of these amounts will be subject to further analyses including,
where necessary, appraisals, actuarial valuations, tax basis analysis and other
detailed analyses, in order to ascertain the reorganization value of the equity,
the fair value of the assets and liabilities and the deferred tax position as of
the Effective Date when the transactions contemplated by the Prepackaged Plans
are actually consummated and Reorganized Nortek emerges from
bankruptcy.  The completion of these final analyses may result in
significant changes to the estimates used in the Pro Forma Balance Sheet and,
therefore, the final amounts actually recorded as of the Effective Date may
differ significantly from such estimates.








Nortek,
      Inc. and Subsidiaries


Unaudited
      Pro Forma Condensed Consolidated Balance
Sheet


As
      of October 3, 2009





Actual
              
              
              Plan
              
              
              
              Reorganized
              
              
              
              Debt
              
              
              
              
              
              
              Fresh
      Start
              
              
              
              Pro
      FormaOct.
      3, 2009
              
              
              Effects
              
              
              
              Equity
              
              
              
              Repayment
              
              
              
              Subtotal
              
              
              Adjustments
              
              
              
              Oct.
      3, 2009(Amounts
      in millions)Assets:Cash and cash equivalents
              
              $
              181.4
              
              
              $
              (77.6
              )
              (a)
              
              $
              ---
              
              
              
              $
              (37.6
              )
              (i)
              
              $
              66.2
              
              
              $
              ---
              
              
              
              $
              66.2Other current assets
              
              
              562.7
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              562.7
              
              
              
              45.1
              
              (j),(k)
              
              
              607.8Property and equipment, net
              
              
              195.1
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              195.1
              
              
              
              19.2
              
              (j)
              
              
              214.3Goodwill
              
              
              561.4
              
              
              
              ---
              
              
              
              
              (13.1
              )
              (h)
              
              
              ---
              
              
              
              
              548.3
              
              
              
              (246.2
              )
              (m)
              
              
              302.1Intangible assets, net
              
              
              118.3
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              118.3
              
              
              
              200.2
              
              (j)
              
              
              318.5Other long-term assets
              
              
              45.0
              
              
              
              (25.2
              )
              (b)
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              19.8
              
              
              
              ---
              
              
              
              
              19.8Total assets
              
              $
              1,663.9
              
              
              $
              (102.8
              )
              
              
              $
              (13.1
              )
              
              
              $
              (37.6
              )
              
              
              $
              1,510.4
              
              
              $
              18.3
              
              
              
              $
              1,528.7Liabilities:Current debt
              
              $
              1,566.9
              
              
              $
              (1,528.7
              )
              (c
      )
              
              $
              ---
              
              
              
              $
              ---
              
              
              
              $
              38.2
              
              
              $
              (5.8
              )
              (l)
              
              $
              32.4Other current liabilities
              
              
              366.6
              
              
              
              (56.6
              )
              (d)
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              310.0
              
              
              
              ---
              
              
              
              
              310.0Long-term indebtedness
              
              
              14.4
              
              
              
              885.0
              
              (e)
              
              
              ---
              
              
              
              
              (37.6
              )
              (i)
              
              
              861.8
              
              
              
              5.8
              
              (l)
              
              
              867.6Other long-term liabilities
              
              
              218.4
              
              
              
              (43.0
              )
              (f)
              
              
              ---
              
              
              
              
              ---
              
              
              
              
              175.4
              
              
              
              18.3
              
              (k)
              
              
              193.7Total liabilities
              
              
              2,166.3
              
              
              
              (743.3
              )
              
              
              
              ---
              
              
              
              
              (37.6
              )
              
              
              
              1,385.4
              
              
              
              18.3
              
              
              
              
              1,403.7Stockholder's
      (deficit) investment
              
              
              (502.4
              )
              
              
              640.5
              
              (g)
              
              
              (13.1
              )
              (h)
              
              
              ---
              
              
              
              
              125.0
              
              
              
              ---
              
              
              
              
              125.0Total
      liabilities and stockholders'(deficit) investment
              
              $
              1,663.9
              
              
              $
              (102.8
              )
              
              
              $
              (13.1
              )
              
              
              $
              (37.6
              )
              
              
              $
              1,510.4
              
              
              $
              18.3
              
              
              
              $
              1,528.7





(a) Reflects (i) the
repayment of $15.0 million of the outstanding amount due under the existing ABL
Facility which occurred on October 6, 2009, (ii) the payment of the
remaining estimated reorganization costs of approximately $37.3 million
anticipated to be incurred in connection with the Prepackaged Plans ($8.7
million of the estimated $46.0 million total has already been paid through
October 3, 2009, including approximately $7.4 million of expenses and
approximately $1.3 million of pre-payments) and (iii) the payment of
approximately $25.3 million of outstanding accrued interest on the 10% Notes and
the existing ABL Facility, which are expected to be paid in cash under the
provisions of the Prepackaged Plans.





(b) Reflects (i) the
elimination of approximately $37.2 million of deferred financing costs
associated with the cancellation of the 10% Notes, the 8 1/2% Notes, the 9 7/8%
Notes and the existing ABL Facility and (ii) deferred financing costs of
approximately $12.0 million associated with the New Nortek Senior Secured Notes
and the New ABL Facility.




(c) Reflects (i) the
repayment of the existing ABL Facility using $15.0 million of available cash and
$135.0 million that is expected to be drawn upon at the Effective Date under the
New ABL Facility (see (e) below) and (ii) the cancellation of debt of
approximately $1,378.7 million related to the 10% Notes, the 8 1/2% Notes and
the 9 7/8% Notes in accordance with the Prepackaged Plans.  The Pro
Forma Balance Sheet assumes that the approximately $750.0 million face value of
the New Nortek Senior Secured Notes approximates present value, although
Reorganized Nortek may be required to record a discount or premium when a final
present value determination is made as of the Effective Date.





(d) Reflects (i) the
payment of approximately $25.3 million of outstanding accrued interest on the
10% Notes and the existing ABL Facility (see (a) above) and (ii) the elimination
of approximately $31.3 million of accrued interest related to the 8 1/2% Notes
and the 9 7/8% Notes in accordance with the Prepackaged
Plans.





(e) Reflects (i) the
$135.0 million that is expected to be drawn upon at the Effective Date under the
New ABL Facility (see (c) above) and (ii) the issuance of approximately $750.0
million of New Nortek Senior Secured Notes in accordance with the Prepackaged
Plans.  The Pro Forma Balance Sheet assumes that the approximately
$750.0 million face value of the New Nortek Senior Secured Notes approximates
fair value, although Reorganized Nortek may be required to record a discount or
premium when a final fair value determination is made as of the Effective
Date.





(f) Reflects the
elimination of the intercompany account with affiliates, net in accordance with
the Prepackaged Plans.





(g) Reflects (i) the
estimated net gain of approximately $622.8 million related to the restructuring
of the debt, (ii) the estimated net gain of approximately $43.0 million related
to the elimination of the intercompany account with affiliates, net
(see (f) above) and (iii) the portion of the restructuring costs in (a) above of
approximately $25.3 million that are required to be expensed under ASC 852
resulting in a total pro forma estimated net gain of approximately $640.5
million.





(h) Adopting fresh
start reporting will result in Reorganized Nortek becoming a new reporting
entity with no accumulated deficit or accumulated other comprehensive income
(loss).  All pre-existing common stock will be eliminated and replaced
by the equity structure based on the Prepackaged Plans.  The Company
estimates that the consolidated balance sheet, at the Effective Date, will
reflect an initial shareholders’ reorganized equity value of approximately
$125.0 million.  The Company believes that the estimated
reorganization equity value reflects current market conditions.  The
adjustment to stockholders’ investment reflects (i) the elimination of the
estimated pro forma historical stockholders’ investment prior to fresh start
reporting of approximately $138.1 million, which consists of the actual
stockholder’s deficit of $502.4 million and the net gain of approximately $640.5
million per (g) above  and (ii) the $125.0 million estimated
reorganized equity value.





(i) Reflects the use of
the estimated excess cash at emergence of approximately $37.6 million to pay
down the ABL Facility.





(j) Reflects the Asset
Fair Value Adjustments for inventories, property and equipment and intangible
assets based on management’s reasonable estimates, which may change
significantly when final analyses, including asset appraisals, are completed
after Reorganized Nortek adopts fresh start reporting.





(k) Reflects the
assumed deferred income tax consequences with respect to the Asset Fair Value
Adjustments and the elimination of certain deferred tax asset valuation
allowances that are assumed to no longer be necessary once fresh start reporting
is adopted, as a result of the expected increase in deferred tax liabilities
related to the Asset Fair Value Adjustments.





(l) Reflects the
reclassification of certain subsidiary debt from short-term to long-term when
Reorganized Nortek emerges from bankruptcy and the related debt no longer has an
event of default.





(m) Reflects the net
impact of Fresh Start Adjustments, which are recorded as an adjustment to
goodwill.  Changes in values and assumptions from those reflected
above may materially affect the final reported value of goodwill as of the
Effective Date.







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 OCTOBER 3, 2009
 AND
THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 27, 2008


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





Nortek, Inc. and
its wholly-owned subsidiaries are diversified manufacturers of innovative,
branded residential and commercial building products, operating within four
reporting segments:  the Residential Ventilation Products (“RVP”)
segment, the Home Technology Products (“HTP”) segment, the Residential Air
Conditioning and Heating Products (“R-HVAC”) segment, and the Commercial Air
Conditioning and Heating Products (“C-HVAC”) segment.





On October 21, 2009
(the “Commencement Date”), NTK Holdings, Inc. (“NTK Holdings”), the parent
company of Nortek, Inc. (“Nortek”), and certain of NTK Holding’s affiliates,
including Nortek and certain of its domestic subsidiaries (collectively, the
“Debtors”), filed voluntary petitions for reorganization under chapter 11 of
Title 11 of the United States Code (the “Bankruptcy Code”) in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court").  The cases are being jointly administered under Case No.
09-13611 (the “Bankruptcy Cases”).  As a result, the Debtors are
currently operating as “debtors-in-possession” under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code (see “Liquidity and Capital Resources”).  The chapter
11 bankruptcy proceedings do not directly impact Nortek’s foreign
subsidiaries.





Following the
Commencement Date, the Debtors filed joint prepackaged plans of reorganization
(the “Prepackaged Plans”) and a proposed disclosure statement (the “Disclosure
Statement”) pursuant to sections 1125 and 1126(b) of the Bankruptcy Code, which,
as discussed further in Liquidity and Capital Resources below, provide for a
restructuring of substantially all of the Debtors’ domestic long-term and
short-term debt.  Nortek and its subsidiaries will continue to operate
their businesses in the ordinary course throughout the chapter 11 process while
they seek confirmation of the Prepackaged Plans.





Financial
Statement Presentation





The unaudited
condensed consolidated financial statements presented herein (the “Unaudited
Financial Statements”) reflect the financial position, results of operations and
cash flows of Nortek and all of its wholly-owned subsidiaries, collectively the
"Company", and have been prepared on the basis of a going concern, although the
events leading up to the chapter 11 bankruptcy proceedings and the chapter 11
bankruptcy proceedings create uncertainties about Nortek’s ability to meet its
debt obligations as they become due in the event that the Prepackaged Plans are
not confirmed by the Bankruptcy Court or the Bankruptcy Court confirms a
substantially different plan of reorganization.  As a result of
certain events of default or cross defaults pursuant to the terms of the
Company’s indentures or other debt instruments, the Company has reclassified
substantially all of its outstanding debt as of October 3, 2009 to current on
its condensed consolidated balance sheet.  The Unaudited Financial
Statements do not include any other adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the outcome of these
uncertainties.





The Unaudited
Financial Statements do not purport to reflect or provide for the consequences
of the bankruptcy cases, including the accounting requirements under the
Financial Accounting Standards Board Accounting Standards Codification (“ASC”)
Topic 852, Reorganizations(“ASC 852”).As a result, the
Unaudited Financial Statements do not segregate liabilities subject to
compromise in the condensed consolidated balance sheet and reorganization items,
net in the condensed consolidated statement of operations, nor do they reflect
any of the fresh-start reporting adjustments required by ASC 852, which the
Company expects will be required when it emerges from the Bankruptcy Cases (see
Note H of the Unaudited Financial Statements included elsewhere herein for
certain pro forma financial information).





During the fourth
quarter of 2008, the Company changed the composition of its reporting segments
to report the R-HVAC segment separately and as a result, the Company has
restated prior period segment disclosures to reflect the new
composition.  In the results of operations presented below,
Unallocated includes corporate related items, intersegment eliminations and
certain income and expense not allocated to its segments.





The Company
operates on a calendar year and for its interim periods operates on a 4-4-5
fiscal calendar, where each fiscal quarter is comprised of two 4-week periods
and one 5-week period, with each week ending on a Saturday.  The
Company’s fiscal year always begins on January 1 and ends on December
31.  As a result, the Company’s first and fourth quarters may have
more or less days included than a traditional 4-4-5 fiscal calendar, which
consists of 91 days.  The third quarters ended October 3, 2009 (“third
quarter of 2009”) and September 27, 2008 (“third quarter of 2008”) each include
91 days.  The first nine months ended October 3, 2009 (“nine months of
2009”) and September 27, 2008 (“nine months of 2008”) include 276 days and 271
days, respectively.





The Company has
evaluated subsequent events for potential recognition or disclosure through the
date the financial statements were issued, December 2, 2009.





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





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 on a
going concern basis.  (See “Liquidity and Capital Resources” and the
Notes to the Unaudited Financial Statements included elsewhere
herein.)  Certain of the Company’s accounting policies require the
application of judgment in selecting the appropriate assumptions for calculating
financial estimates.  By their nature, these judgments are subject to
an inherent degree of uncertainty.  The Company periodically evaluates
the judgments and estimates used for its critical accounting policies to ensure
that such judgments and estimates are reasonable for its interim and year-end
reporting requirements.  These judgments and estimates are based on
the Company’s historical experience, current trends and information available
from other sources, as appropriate.  If different conditions result
from those assumptions used in the Company’s judgments, the results could be
materially different from the Company’s estimates.





The Company’s
critical accounting policies include:





·
            Revenue
      Recognition, Accounts Receivable and Related
  Expenses,


·
            Inventory
      Valuation,


·
            Income
      Taxes,


·
            Goodwill and
      Other Long-Lived Assets,


·
            Pensions and
      Post-Retirement Health Benefits,


·
            Warranty,
      Product Recalls and Safety
Upgrades,


·
            Insurance
      Liabilities, including Product Liability,
and


·
            Contingencies.





The Company’s
critical accounting policies with respect to goodwill and related goodwill
impairment charges are summarized below.  Further detail regarding the
Company’s other critical accounting policies can be found in the consolidated
financial statements and the notes included in Nortek’s latest annual report on
Form 10-K as filed with the Securities and Exchange Commission
(“SEC”).





Goodwill





The Company’s
accounting for acquired goodwill and intangible assets requires considerable
judgment in the valuation of acquired goodwill and other long-lived assets and
the ongoing evaluation of goodwill and other long-lived assets impairment and
the Company believes that the estimates that it has used to record its
acquisitions are reasonable.





The Company’s
accounting for acquired goodwill and intangible assets requires considerable
judgment in the valuation of acquired goodwill and other long-lived assets and
the ongoing evaluation of goodwill and other long-lived assets
impairment.  Goodwill and intangible assets determined to have
indefinite useful lives are not amortized.  Instead, these assets are
evaluated for impairment on an annual basis, or more frequently when an event
occurs or circumstances change between annual tests that would more likely than
not reduce the fair value of the reporting unit below its carrying value,
including, among others, a significant adverse change in the business
climate.  The Company has set the annual evaluation date as of the
first day of its fiscal fourth quarter.  The reporting units evaluated
for goodwill impairment by the Company have been determined to be the same as
the Company’s operating segments and include RVP, HTP, R-HVAC and
C-HVAC.





The Company
utilizes a combination of a discounted cash flow approach (the “DCF Approach”)
and an EBITDA multiple approach (the “EBITDA Multiple Approach”) in order to
value the Company’s reporting units required to be tested for
impairment.  The DCF Approach requires that the Company forecast
future cash flows of the reporting units and discount the cash flow stream based
upon a weighted average cost of capital (“WACC”) that is derived, in part, from
comparable companies within similar industries.  The discounted cash
flow calculations also include a terminal value calculation that is based upon
an expected long-term growth rate for the applicable reporting
unit.  The EBITDA Multiple Approach requires that the Company estimate
certain valuation multiples of EBITDA derived from comparable companies and
apply those derived EBITDA multiples to the applicable reporting unit EBITDA for
the selected EBITDA measurement periods.  The Company then uses a
weighted average of 70% of the DCF Approach and 30% for the EBITDA Multiple
Approach, as the Company believes that the DCF Approach is a more representative
measurement of the long-term fair value of the reporting units and, as such, a
higher weighting of valuation probability is appropriate in the overall weighted
average computation of fair value.





Prior to the annual
goodwill impairment evaluation in the fourth quarter each year, the Company
performs the following analyses, among others, on a quarterly basis in order to
determine if events or circumstances have changed such that it is more likely
than not that the fair value of any of the Company’s reporting units are below
the respective carrying amounts:





-
            The Company
      reviews public information from its competitors and other industry
      information to determine if there are any significant adverse trends in
      the competitor’s businesses such as significant declines in market
      capitalization or significant goodwill impairment charges that could be an
      indication that the goodwill of the Company’s reporting units are
      potentially impaired.





-
            The Company
      updates its long-term 5-year financial projections and compares the
      amounts to the prior long-term 5-year projections to determine if there
      has been a significant adverse change that could materially lower the
      Company’s prior valuation conclusions for any of the reporting units under
      both the DCF and EBITDA Multiple
Approaches.





-
            The Company
      updates its analyses of the WACC rates for each reporting unit in order to
      determine if there have been any significant increases in the rates, which
      could materially lower the Company’s prior valuation conclusions for any
      of the reporting units under the DCF
Approach.





-
            The Company
      updates its analyses of comparable company EBITDA multiples in order to
      determine if there have been any significant decreases in the multiples,
      which could materially lower the Company’s prior valuation conclusions for
      any of the reporting units under the EBITDA Multiple
    Approach.





-
            The Company
      determines the current carrying value for each reporting unit as of the
      end of the quarter and compares it the prior quarter amount in order to
      determine if there has been any significant increase that could impact the
      Company’s prior goodwill impairment
assessments.





-
            The Company
      will also, as necessary, run pro forma models substituting the new
      assumption information derived from the above analyses to determine the
      impact that such assumption changes would have had on the prior
      valuations.  These pro forma calculations assist the Company in
      determining whether or not the new valuation assumption information would
      have resulted in a significant decrease in the fair value of any of the
      reporting units.





Based on this
analysis, the Company makes a final determination for each reporting unit as to
whether or not an interim “Step 1 Test” is required for the
quarter.  The Step 1 Test compares the estimated fair value of each
reporting unit to its carrying value and if the estimated fair value is lower
than the carrying value then there is an indication of goodwill impairment and a
“Step 2 Test” is required.  If the estimated fair value of the
reporting unit exceeds the carrying value then no further goodwill impairment
testing is required.





In connection with
its July 4, 2009 analysis, the Company determined that Step 1 Testing was
required for each of the reporting units, primarily due to the Company’s
reductions in the long-term 5-year forecasts for each reporting unit as
discussed further below.





As indicated above,
the Company uses a combination of a DCF Approach weighted at 70% and an EBITDA
Multiple Approach weighted at 30% in order to determine the estimated fair
values under Step 1 Testing, which is consistent with the valuation approach
that the Company used to determine the estimated fair values for the reporting
units for the Company’s Step 1 Testing during 2008, which included an interim
test as of December 31, 2008, an annual test as of September 28, 2008 and an
interim test as of September 27, 2008.





The key assumptions
used by the Company in order to determine the appropriate WACC rates for the DCF
Approach for each reporting unit are the following:





-
            A risk free
      rate based on the 20-year Treasury Bond
yield.





-
            A market risk
      premium of 6% based on the Company’s assessment of the additional risk
      associated with equity investment that is determined in part through the
      use of published historical equity risk studies as adjusted for the
      business risk index for each reporting unit.  The business risk
      index is derived from comparable companies and measures the estimated
      stock price volatility.





-
            Comparable
      company and market interest rate information are used to determine the
      cost of debt and the appropriate long-term capital structure in order to
      weight the cost of debt and the cost of equity into an overall
      WACC.





-
            A size risk
      premium based on the value of the reporting unit that is determined
      through the use of published historical size risk premia
    data.





-
            A specific
      risk premium for the cost of equity, as necessary, which factors in
      overall economic and stock market volatility conditions at the time the
      WACC is estimated.  The Company used 2% as the specific risk
      premium as of December 31, 2008 and October 3, 2009 for the WACC rates
      disclosed below.





The following is a
summary of the WACC rates by reporting unit used for the DCF Approach as of July
4, 2009 and December 31, 2008, which was the Company’s most recent prior
valuation date.





Reporting
      Unit
            
            
            7-04-09
            
            
            12-31-08RVP
            
            
            11.8
            %
            
            
            12.0
            %HTP
            
            
            12.4
            
            
            
            12.8R-HVAC
            
            
            17.2
            
            
            
            18.0C-HVAC
            
            
            17.2
            
            
            
            18.0





The reduction in
the RVP and HTP WACC rates from December 31, 2008 to October 3, 2009 is
principally due to a 0.3% reduction in the risk free rate
assumption.  The reduction in the R-HVAC and C-HVAC WACC rates from
December 31, 2008 to October 3, 2009 is principally due to a 0.6% reduction in
the market risk premium as a result of a lower business risk index and the 0.3%
reduction in the risk free rate assumption.  The principal differences
between the RVP and HTP WACC rates and the R-HVAC and C-HVAC rates are higher
size risk premiums for R-HVAC and C-HVAC due to their smaller size and a higher
equity component to the long-term capital structure.





The Company’s
latest long-term 5-year forecast includes the following macroeconomic
assumptions, among others:





-
            A continued
      downward outlook for 2009 due to (i) tepid demand from homebuilders, (ii)
      a challenging environment for existing home sales and (iii) decreased
      discretionary spending by consumers and
  businesses.





-
            The Company
      expects U.S. housing starts, which is a key driver of demand for the
      Company’s products, to bottom out in 2009 and achieve growth beginning in
      2010 and continuing through the forecast
period.





-
            Residential
      fixed investment is expected to resume growth in 2010 while
      non-residential construction is not expected to increase until
      2011.





Based on these
macro-economic assumptions, the Company believes that EBITDA will continue to
decline in 2009 and then begin to rebound in 2010 with continued growth through
at least 2014.  The Company’s prior long-term forecasts had expected
the rebound in EBITDA to begin to occur in the second half of
2009.  As a result, during the second quarter of 2009 the Company
significantly lowered its cash flow forecasts for 2009 and 2010 for all of the
reporting units and for 2011 through 2014 for the HTP, R-HVAC and C-HVAC
reporting units.





The combined impact
of the change in the WACC rates used and the change in the long-term forecasts
as of July 4, 2009 resulted in an approximately 3.6% increase in the DCF
Approach valuations for RVP from the prior valuation as of December 31, 2008 and
decreases of approximately 42.5%, 17.7% and 26.3% in the DCF Approach valuations
for HTP, R-HVAC and C-HVAC, respectively, from the prior valuations as of
December 31, 2008.   The Company believes that its assumptions
used to determine the fair value for the respective reporting units under the
DCF Approach are reasonable.  If different assumptions were used,
particularly with respect to estimating future cash flows, weighted average
costs of capital and terminal growth rates, different estimates of fair value
may result and there could be the potential that an impairment charge could
result for RVP, R-HVAC and C-HVAC and an additional impairment charge could be
required for HTP.  Actual operating results and the related cash flows
of the reporting units could differ from the estimated operating results and
related cash flows.





For the EBITDA
Multiple Approach, the Company reviewed comparable company information to
determine EBITDA multiples and concluded that 7.0x was an appropriate EBITDA
multiple to use for each of the reporting units for the selected EBITDA
measurement periods of forecasted 2009 and 2010 EBITDA.  The
valuations using forecasted 2009 and 2010 EBITDA were weighted equally in
arriving at the Company’s overall EBITDA Multiple valuation conclusions that
comprise 30% of the total valuation weighting.  In the prior
valuations as of December 31, 2008, the Company used 6.5x for the comparable
periods for RVP, 8.0x for the comparable periods for HTP, 4.5x to 6x for the
comparable periods for R-HVAC and 5.0x to 5.5x for the comparable periods for
C-HVAC.  As indicated above, the EBITDA Multiple valuations as
compared to the prior valuations as of December 31, 2008 were also impacted by
changes in the forecasted EBITDA amounts for the selected
periods.  The combined impact of the change in the EBITDA multiples
used and the change in the EBITDA forecasts at July 4, 2009 resulted in
decreases of approximately 5.5% and 51.8% in the EBITDA Multiple Approach
valuations for RVP and HTP, respectively, from the prior valuation as of
December 31, 2008 and increases of approximately 23.4% and 12.0% in the EBITDA
Multiple Approach valuations for R-HVAC and C-HVAC, respectively, from the prior
valuations as of December 31, 2008.  The Company believes that its
assumptions used to determine the fair value for the respective reporting units
under the EBITDA Multiple Approach are reasonable.  If different
assumptions were used, particularly with respect to estimating future EBITDA and
selected EBITDA multiples, different estimates of fair value may result and
there could be the potential that an impairment charge could result for RVP,
R-HVAC and C-HVAC and an additional impairment charge could be required for
HTP.  Actual operating results and the related cash flows of the
reporting units could differ from the estimated operating results and related
cash flows.





On an overall
weighted basis consisting of 70% DCF Approach and 30% EBITDA Multiple Approach,
the estimated fair value at July 4, 2009 increased by 1.1% for RVP and decreased
by 45.1%, 6.9% and 14.4% for HTP, R-HVAC and C-HVAC, respectively, from the
estimated fair value as of December 31, 2008.





The results of the
Step 1 Tests performed as of July 4, 2009 indicated that the carrying value of
the HTP reporting unit exceeded the estimated fair value determined by the
Company and, as such, a “Step 2 Test” was required for this reporting
unit.   The estimated fair values of the RVP, R-HVAC and C-HVAC
reporting units exceeded the carrying values so no further impairment analysis
was required for these reporting units.





The Company
believes that its assumptions used to determine the fair values for the its
reporting units were reasonable.  As discussed above, if different
assumptions were to be used, particularly with respect to estimating future cash
flows, the weighted average costs of capital, terminal growth rates, EBITDA, and
selected EBITDA multiples, different estimates of fair value may result and
there could be the potential that an impairment charge could
result.  Actual operating results and the related cash flows of these
reporting units could differ from the estimated operating results and related
cash flows.  The Company estimates that as of October 3, 2009 the fair
value estimates, including the impact of the assumed long-term growth rates, for
RVP, R-HVAC and C-HVAC would have needed to be reduced by 16.3%, 8.6% and 17.7%,
respectively, before the Company would have been required to perform additional
impairment analysis for these reporting units as those decreases would have
reduced the estimated fair value to an amount below the carrying value for these
reporting units.





The preliminary
Step 2 Test for the HTP reporting unit as of July 4, 2009 required the Company
to measure the potential goodwill impairment loss by allocating the estimated
fair value of the reporting unit, as determined in Step 1, to the reporting
unit’s assets and liabilities, with the residual amount representing the implied
fair value of goodwill.  To the extent the implied fair value of
goodwill was less than the carrying value, an impairment loss was
recognized.  As such, the Step 2 Test required the Company to perform
a theoretical purchase price allocation for the reporting unit to determine the
implied fair value of goodwill as of the evaluation date.  Due to the
complexity of the analysis required to complete the Step 2 Test and the timing
of the Company’s determination of the goodwill impairment, the Company had not
yet finalized its Step 2 Test.  The Company has completed a
preliminary assessment of the expected impact of the Step 2 Test using
reasonable estimates for the theoretical purchase price allocation and recorded
a preliminary estimate of the goodwill impairment loss for the HTP reporting
unit as of July 4, 2009 of approximately $250.0 million.  The
preliminary estimate of goodwill impairment loss is expected to be finalized
prior to reporting 2009 annual results.





The following
procedures are, among others, the more significant analyses that the Company
needs to complete in order to finalize its Step 2 Test:





·
            Finalize
      appraisals to determine the estimated fair value of property and
      equipment, and intangible assets within the HTP reporting
      unit,


·
            Finalize
      analyses within the HTP reporting unit to determine the estimated fair
      value adjustment required for inventory,
and


·
            Finalize
      deferred tax analyses for the HTP reporting
  unit.





In connection with
the preliminary Step 2 Test, the Company made what it considered to be
reasonable estimates of each of the above items in order to determine its
preliminary best estimate of the goodwill impairment loss under the theoretical
purchase price allocation required for Step 2 impairment testing.  The
completion of the final analyses described above may result in significant
changes to the estimates used and, therefore, may have a significant impact on
the final HTP goodwill impairment loss recorded in 2009.  In addition,
there can be no assurance that the Company will not identify other issues during
the completion of the Step 2 Test that may have a significant impact on the
final HTP goodwill impairment loss recorded for 2009.





The Company also
incurred a goodwill impairment charge during 2008 of approximately $710.0
million, which consisted of approximately $444.0 million, approximately $77.0
million and approximately $189.0 million for the RVP, HTP and R-HVAC reporting
units, respectively.  The principal driver of the need for these
impairment charges in 2008 were reductions in the cash flow forecasts that
resulted in significantly lower fair value estimates for RVP, HTP and R-HVAC
from prior valuations.  The reduced cash flow forecasts for 2008
reflected the Company’s estimate of the impact of the worldwide economic
downturn at that time but the assumed impact of the downturn in the prior
forecasts was less severe than was actually the case in the first half of 2009
and the Company had believed that the economic turnaround would begin to occur
in the second half of 2009.  The severity of the downturn and the
Company’s current belief that the economic recovery will not begin until 2010
particularly impacted the HTP reporting unit and resulted in the need for a
further impairment charge in 2009.





Although the
Company believes that the forecasts and valuations assumptions used are
reasonable, the worldwide economic situation remains highly volatile and if the
downturn persists or the recovery is slower than anticipated then the Company
may be required to take additional goodwill impairment charges in the
future.  Accordingly, there can be no assurance that the future
forecasted operating results of the Company will be achieved or that future
goodwill impairment charges will not need to be recorded.





Results
of Operations





The following table
presents the financial information for the Company’s reporting segments for the
third quarter of 2009 and 2008:





For the third quarter
      of
              
              
              Net
      Change2009
              
              
              2008
              
              
              $
              
              %(Dollar
      amounts in millions)Net
      sales:Residential
      ventilation products
              
              $
              144.9
              
              
              $
              180.0
              
              
              $
              (35.1
              )
              
              
              (19.5
              )%Home
      technology products
              
              
              100.2
              
              
              
              132.7
              
              
              
              (32.5
              )
              
              
              (24.5
              )Residential
      air conditioning and heating products
              
              
              112.5
              
              
              
              138.0
              
              
              
              (25.5
              )
              
              
              (18.5
              )Commercial
      air conditioning and heating products
              
              
              94.2
              
              
              
              131.9
              
              
              
              (37.7
              )
              
              
              (28.6
              )Consolidated net sales
              
              $
              451.8
              
              
              $
              582.6
              
              
              $
              (130.8
              )
              
              
              (22.5
              )%Operating
      earnings (loss):Residential
      ventilation products
              
              $
              17.5
              
              
              $
              (327.1
              )
              
              $
              344.6
              
              
              
              *
              %Home
      technology products
              
              
              4.1
              
              
              
              (49.3
              )
              
              
              53.4
              
              
              
              *Residential
      air conditioning and heating products
              
              
              6.9
              
              
              
              (197.9
              )
              
              
              204.8
              
              
              
              *Commercial
      air conditioning and heating products
              
              
              9.4
              
              
              
              8.4
              
              
              
              1.0
              
              
              
              11.9Subtotal
              
              
              37.9
              
              
              
              (565.9
              )
              
              
              603.8
              
              
              
              *Unallocated,
      net
              
              
              (10.2
              )
              
              
              (13.7
              )
              
              
              3.5
              
              
              
              (25.5
              )Consolidated operating earnings (loss)
              
              $
              27.7
              
              
              $
              (579.6
              )
              
              $
              607.3
              
              
              
              *
              %Operating
      earnings (loss) margin:Residential
      ventilation products
              
              
              12.1
              %
              
              
              (181.7
              )%Home
      technology products
              
              
              4.1
              
              
              
              (37.2
              )Residential
      air conditioning and heating products
              
              
              6.1
              
              
              
              (143.4
              )Commercial
      air conditioning and heating products
              
              
              10.0
              
              
              
              6.4Consolidated
              
              
              6.1
              %
              
              
              (99.5
              )%




*
            not
      meaningful or not applicable








The following table
presents the financial information for the Company’s reporting segments for the
nine months of 2009 and 2008:





For the nine months
      of
              
              
              Net
      Change2009
              
              
              2008
              
              
              $
              
              %(Dollar
      amounts in millions)Net
      sales:Residential
      ventilation products
              
              $
              434.2
              
              
              $
              555.2
              
              
              $
              (121.0
              )
              
              
              (21.8
              )%Home
      technology products
              
              
              298.5
              
              
              
              388.0
              
              
              
              (89.5
              )
              
              
              (23.1
              )Residential
      air conditioning and heating products
              
              
              332.4
              
              
              
              435.6
              
              
              
              (103.2
              )
              
              
              (23.7
              )Commercial
      air conditioning and heating products
              
              
              313.5
              
              
              
              391.1
              
              
              
              (77.6
              )
              
              
              (19.8
              )Consolidated net sales
              
              $
              1,378.6
              
              
              $
              1,769.9
              
              
              $
              (391.3
              )
              
              
              (22.1
              )%Operating
      earnings (loss):Residential
      ventilation products
              
              $
              38.4
              
              
              $
              (295.2
              )
              
              $
              333.6
              
              
              
              *
              %Home
      technology products
              
              
              (241.9
              )
              
              
              (31.2
              )
              
              
              (210.7
              )
              
              
              *Residential
      air conditioning and heating products
              
              
              12.2
              
              
              
              (182.3
              )
              
              
              194.5
              
              
              
              *Commercial
      air conditioning and heating products
              
              
              39.3
              
              
              
              27.4
              
              
              
              11.9
              
              
              
              43.4Subtotal
              
              
              (152.0
              )
              
              
              (481.3
              )
              
              
              329.3
              
              
              
              (68.4
              )Unallocated,
      net
              
              
              (21.4
              )
              
              
              (28.0
              )
              
              
              6.6
              
              
              
              (23.6
              )Consolidated operating loss
              
              $
              (173.4
              )
              
              $
              (509.3
              )
              
              $
              335.9
              
              
              
              (66.0
              )%Operating
      earnings (loss) margin:Residential
      ventilation products
              
              
              8.8
              %
              
              
              (53.2
              )%Home
      technology products
              
              
              (81.0
              )
              
              
              (8.0
              )Residential
      air conditioning and heating products
              
              
              3.7
              
              
              
              (41.9
              )Commercial
      air conditioning and heating products
              
              
              12.5
              
              
              
              7.0Consolidated
              
              
              (12.6
              )%
              
              
              (28.8
              )%




*
            not
      meaningful or not applicable





The following table
presents the financial information for the third quarter of 2009 and
2008.  The results of operations for the third quarter of 2009 are not
necessarily indicative of the results of operations to be expected for any other
interim period or the full year.





Change
      in earnings inthe
      third quarter of 2009as
      compared to theFor the third quarter
      of
              
              
              third quarter of
      20082009
              
              
              2008
              
              
              $
              
              %(Dollar
      amounts in millions)Net
      sales
              
              $
              451.8
              
              
              $
              582.6
              
              
              $
              (130.8
              )
              
              
              (22.5
              )%Cost of
      products sold
              
              
              321.7
              
              
              
              434.4
              
              
              
              112.7
              
              
              
              25.9Selling,
      general and administrative expense, net
              
              
              96.7
              
              
              
              121.1
              
              
              
              24.4
              
              
              
              20.1Goodwill
      impairment charge (1)
              
              
              ---
              
              
              
              600.0
              
              
              
              600.0
              
              
              
              100.0Amortization
      of intangible assets
              
              
              5.7
              
              
              
              6.7
              
              
              
              1.0
              
              
              
              14.9Operating
      earnings (loss)
              
              
              27.7
              
              
              
              (579.6
              )
              
              
              607.3
              
              
              
              *Interest
      expense
              
              
              (37.7
              )
              
              
              (37.1
              )
              
              
              (0.6
              )
              
              
              (1.6
              )Investment
      income
              
              
              ---
              
              
              
              0.2
              
              
              
              (0.2
              )
              
              
              (100.0
              )Loss before
      provision for income taxes
              
              
              (10.0
              )
              
              
              (616.5
              )
              
              
              606.5
              
              
              
              98.4Provision for
      income taxes
              
              
              2.4
              
              
              
              28.2
              
              
              
              25.8
              
              
              
              91.5Net
      loss
              
              $
              (12.4
              )
              
              $
              (644.7
              )
              
              $
              632.3
              
              
              
              98.1
              %
  Change
      in percentage forPercentage
      of net sales for
                
                the
      third quarter of 2009the third quarter
      ended
                
                as
      compared to the2009
                
                2008
                
                third quarter of
      2008Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                ---
                %Cost of
      products sold
                
                
                71.2
                
                
                
                74.6
                
                
                
                3.4Selling,
      general and administrative expense, net
                
                
                21.4
                
                
                
                20.8
                
                
                
                (0.6
                )Goodwill
      impairment charge (1)
                
                
                ---
                
                
                
                103.0
                
                
                
                103.0Amortization
      of intangible assets
                
                
                1.3
                
                
                
                1.1
                
                
                
                (0.2
                )Operating
      earnings (loss)
                
                
                6.1
                
                
                
                (99.5
                )
                
                
                105.6Interest
      expense
                
                
                (8.3
                )
                
                
                (6.3
                )
                
                
                (2.0
                )Loss before
      provision for income taxes
                
                
                (2.2
                )
                
                
                (105.8
                )
                
                
                103.6Provision for
      income taxes
                
                
                0.5
                
                
                
                4.8
                
                
                
                4.3Net
      loss
                
                
                (2.7
                )
      %
                
                
                (110.6
                )
      %
                
                
                107.9
                %





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





*
            not
      meaningful or not applicable








The following table
presents the financial information for the nine months of 2009 and
2008.  The results of operations for the nine months of 2009 are not
necessarily indicative of the results of operations to be expected for any other
interim period or the full year.





Change
      in earnings inthe
      nine months of 2009as
      compared to theFor the nine months
      of
              
              
              nine months of
      20082009
              
              
              2008
              
              
              $
              
              %(Dollar
      amounts in millions)Net
      sales
              
              $
              1,378.6
              
              
              $
              1,769.9
              
              
              $
              (391.3
              )
              
              
              (22.1
              )%Cost of
      products sold
              
              
              990.9
              
              
              
              1,299.3
              
              
              
              308.4
              
              
              
              23.7Selling,
      general and administrative expense, net
              
              
              293.5
              
              
              
              358.1
              
              
              
              64.6
              
              
              
              18.0Goodwill
      impairment charge (1)
              
              
              250.0
              
              
              
              600.0
              
              
              
              350.0
              
              
              
              58.3Amortization
      of intangible assets
              
              
              17.6
              
              
              
              21.8
              
              
              
              4.2
              
              
              
              19.3Operating
      loss
              
              
              (173.4
              )
              
              
              (509.3
              )
              
              
              335.9
              
              
              
              66.0Interest
      expense
              
              
              (113.7
              )
              
              
              (95.8
              )
              
              
              (17.9
              )
              
              
              (18.7
              )Loss from
      debt retirement
              
              
              ---
              
              
              
              (9.9
              )
              
              
              9.9
              
              
              
              100.0Investment
      income
              
              
              0.2
              
              
              
              0.6
              
              
              
              (0.4
              )
              
              
              (66.7
              )Loss before
      provision for income taxes
              
              
              (286.9
              )
              
              
              (614.4
              )
              
              
              327.5
              
              
              
              53.3Provision for
      income taxes
              
              
              3.6
              
              
              
              30.7
              
              
              
              27.1
              
              
              
              88.3Net
      loss
              
              $
              (290.5
              )
              
              $
              (645.1
              )
              
              $
              354.6
              
              
              
              55.0
              %




Change
      in percentage forPercentage
      of net sales for
              
              the
      nine months of 2009the nine months
      ended
              
              as
      compared to the2009
              
              2008
              
              nine months of
      2008Net
      sales
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              ---
              %Cost of
      products sold
              
              
              71.9
              
              
              
              73.4
              
              
              
              1.5Selling,
      general and administrative expense, net
              
              
              21.3
              
              
              
              20.3
              
              
              
              (1.0
              )Goodwill
      impairment charge (1)
              
              
              18.1
              
              
              
              33.9
              
              
              
              15.8Amortization
      of intangible assets
              
              
              1.3
              
              
              
              1.2
              
              
              
              (0.1
              )Operating
      loss
              
              
              (12.6
              )
              
              
              (28.8
              )
              
              
              16.2Interest
      expense
              
              
              (8.2
              )
              
              
              (5.4
              )
              
              
              (2.8
              )Loss from
      debt retirement
              
              
              ---
              
              
              
              (0.5
              )
              
              
              0.5Loss before
      provision for income taxes
              
              
              (20.8
              )
              
              
              (34.7
              )
              
              
              13.9Provision for
      income taxes
              
              
              0.3
              
              
              
              1.7
              
              
              
              1.4Net
      loss
              
              
              (21.1
              )
      %
              
              
              (36.4
              )
      %
              
              
              15.3
              %


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





*
            not
      meaningful or not applicable





Critical factors
affecting the Company’s future performance, including the level of the Company’s
sales, profitability and cash flows, are the levels of residential remodeling
and replacement activity and new residential and non-residential construction
activity.  The level of new residential and non-residential
construction activity and, to a lesser extent, the level of residential
remodeling and replacement activity are affected by seasonality and cyclical
factors such as interest rates, inflation, consumer spending habits, employment
levels and other macroeconomic factors, over which the Company has no
control.  Any decline in economic activity as a result of these or
other factors typically results in a decline in new construction and, to a
lesser extent, residential remodeling and replacement purchases, which would
result in a decrease in the Company’s sales, profitability and cash
flows.





The severe impact
of the worldwide crisis in the credit and financial markets in the second half
of 2008 and the first nine months of 2009, the instability in the troubled
mortgage market, rising unemployment and decreasing home values have had a
negative impact on residential new construction activity, consumer disposable
income and spending on home remodeling and repair expenditures.  These
factors have had an adverse effect on the Company’s operating results for the
first nine months of 2009 and are expected to continue throughout the remainder
of 2009.  Key industry activity affecting the Company’s businesses in
the United States for the third quarter and nine months of 2009, and the fourth
quarter and full year of 2008 were as follows:





% Increase /
      (Decrease)Sources
            3rd
      Quarter
            9
      Months
            4th
      Quarter
            Full
      Yearof
      Data
            2009
            2009
            2008
            2008Private
      residential construction spending
            1
            (28)%
            (31)%
            (28)%
            (29)%Total housing
      starts
            1
            (31)%
            (43)%
            (44)%
            (33)%New home
      sales
            1
            (10)%
            (27)%
            (42)%
            (38)%Existing home
      sales
            3
            5%
            (1)%
            (6)%
            (13)%Residential
      improvement spending
            1
            (8)%
            (6)%
            (3)%
            (14)%Central air
      conditioning and heat pump shipments
            2
            (12)%
            (16)%
            (26)%
            (9)%Private
      non-residential construction spending
            1
            (14)%
            (8)%
            4%
            13%Manufactured
      housing shipments
            1
            (37)%
            (42)%
            (28)%
            (15)%Residential
      fixed investment spending
            4
            (18)%
            (23)%
            (20)%
            (23)%





Source
      of data:





(1)
            U.S.
      Census Bureau


(2)
            Air
      Conditioning and Refrigeration
Institute


(3)
            National
      Association of Realtors


(4)
            U.S.
      Bureau of Economic Analysis





In addition,
according to the Canada Mortgage and Housing Corporation, Canadian housing
starts decreased approximately 26% and 38% in the third quarter and nine months
of 2009 as compared to the same periods of 2008, and decreased approximately 15%
and 8% in the fourth quarter and full year of 2008 as compared to the same
periods of 2007.





During 2008, and
continuing into the first nine months of 2009, the Company instituted cost
reduction measures by implementing initiatives to significantly reduce
discretionary spending and achieve reductions in workforce across all of its
businesses given the rapidly changing and challenging economic
environment.  As a result of these initiatives, the Company expects to
reduce expense levels by an amount between $60 million and $70 million in 2009
over 2008 levels, of which the Company estimates approximately $19.8 million and
$59.3 million in cost reductions were achieved during the third quarter and nine
months of 2009, respectively, as compared to the same periods of
2008.  The Company’s total selling, general and administrative
expense, net was approximately $24.4 million and $64.6 million lower, while
overhead expense, including freight costs, charged to cost of products sold was
approximately $27.0 million and $66.0 million lower for the third quarter and
nine months of 2009, respectively, over the same periods of
2008.  These lower expense levels reflect both reductions in spending
levels and lower expenses, in part, as a result of a decline in sales
volume.  There can be no assurance that these cost reduction measures
will continue to be successful.





The Company’s
outlook for the remainder of 2009 and into 2010 is for the challenging market
conditions to continue.  Additionally, the weak economy and credit
market are expected to continue to impact the level of residential new
construction, as well as consumer confidence and the related spending on home
remodeling and repairs.  In the third quarter of 2009 and continuing
into the fourth quarter of 2009, certain governmental incentives and policies
may have resulted in higher sales levels of existing homes and new housing
starts, which in turn may have resulted in increased sales volume for certain of
the Company’s products.  However, there can be no assurance that these
governmental incentives and increased levels of housing activity will continue
and as a result the Company may experience further declines in sales until such
time as unemployment rates significantly decline and consumer confidence
improves.





The Company is
looking at its business with a long-term view and a continued focus on its
low-cost country sourcing strategy and cost reduction
initiatives.  Balance sheet management is an extremely important
priority for all of the Company’s businesses so they can maximize cash flow from
operating activities.  During this challenging environment, the
Company will only fund necessary capital investments that will improve its
business operations.





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.





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





The Company is
subject to the effects of changing prices and the impact of inflation which
could have a significant adverse effect on its results of operations for the
periods presented.  In some circumstances, market conditions or
customer expectations may prevent the Company from increasing the prices of its
products to offset the inflationary pressures that may increase costs in the
future.  During the nine months of 2009, the Company experienced
decreased material costs as compared to the same periods of 2008 related
primarily to purchases of steel, copper and aluminum and related purchased
components, such as compressors and fans/blowers.  In the third
quarter of 2009, the Company began to see increased material costs, particularly
copper, aluminum and steel, over the first half of
2009.  Additionally, during the nine months of 2009, the Company
experienced decreased freight costs primarily due to decreased fuel surcharges
as compared to the same period of 2008.  Continued strategic sourcing
initiatives and improvements in manufacturing efficiency, as well as sales price
increases, help to mitigate fluctuations in these costs.





Third
quarter and first nine months ended October 3, 2009 as compared to the third
quarter and first nine months ended September 27, 2008





Net Sales.As
discussed further in the following paragraphs, consolidated net sales for the
third quarter of 2009 decreased by approximately $130.8 million, or 22.5%, as
compared to the third quarter of 2008, while consolidated net sales for the nine
months of 2009 decreased by approximately $391.3 million, or 22.1%, as compared
to the nine months of 2008.  The effect of changes in foreign currency
exchange rates reduced net sales by approximately $5.6 million and $36.4 million
in the third quarter and nine months of 2009, respectively.  Excluding
the effect of changes in foreign currency exchange rates consolidated net sales
for the third quarter and nine months of 2009 decreased approximately $125.2
million and $354.9 million, respectively, as compared to the same periods of
2008.





In the RVP segment,
net sales for the third quarter of 2009 decreased approximately $35.1 million or
19.5% as compared to the third quarter of 2008 and decreased approximately
$121.0 million or 21.8% for the nine months of 2009 as compared to the nine
months of 2008.  Net sales in the RVP segment for the third quarter
and nine months of 2009 reflect a decrease of approximately $3.0 million and
$19.0 million, respectively, attributable to the effect of changes in foreign
currency exchange rates.  Excluding the effect of changes in foreign
currency exchange rates, net sales in the RVP segment for the third quarter and
nine months of 2009 decreased approximately $32.1 million and $102.0 million,
respectively, as compared to the same periods of 2008.  This decrease
reflects lower sales volume of bathroom exhaust fans and kitchen range hoods,
slightly offset by higher average unit sales prices of bathroom exhaust
fans.  The average unit sales price of kitchen range hoods for the
third quarter and nine months of 2009 decreased slightly as compared to the same
periods of 2008.  Higher average unit sales prices of bathroom exhaust
fans reflect, in part, the impact of the sale of new products with higher price
points and an increase in the relative percentage of products sold with higher
sales price points as compared to 2008.  Kitchen range hoods and
bathroom exhaust fans are the largest product categories sold in the RVP
segment, accounting for approximately 78.1% and 78.6% of the RVP segment’s total
gross sales for the third quarter and nine months of 2009,
respectively.  Sales of range hoods and bathroom exhaust fans for the
RVP segment’s domestic subsidiaries decreased approximately 11.8% and 15.6% in
the third quarter and nine months of 2009, respectively, and, excluding the
effect of changes in foreign currency exchange rates, sales of range hoods and
bathroom exhaust fans for the RVP segment’s foreign subsidiaries decreased
approximately 28.2% and 25.6% in the third quarter and nine months of 2009,
respectively.





In the HTP segment,
net sales for the third quarter of 2009 decreased approximately $32.5 million or
24.5% as compared to the third quarter of 2008 and decreased approximately $89.5
million or 23.1% for the nine months of 2009 as compared to the nine months of
2008.  Net sales in the HTP segment for the third quarter and nine
months of 2009 include a decrease of approximately $0.2 million and $0.6
million, respectively, attributable to the effect of changes in foreign currency
exchange rates.  Excluding the effect of changes in foreign currency
exchange rates, net sales in the HTP segment for the third quarter and nine
months of 2009 decreased approximately $32.3 million and $88.9 million,
respectively.  A decrease in sales volume of products sold within this
segment, coupled with higher sales returns as a percentage of gross sales, drove
the decrease in net sales year over year.





In the R-HVAC
segment, net sales for the third quarter of 2009 decreased approximately $25.5
million or 18.5% as compared to the third quarter of 2008 and decreased
approximately $103.2 million or 23.7% for the nine months of 2009 as compared to
the nine months of 2008.  This decrease is primarily a result of lower
sales volume of HVAC products sold to residential site built and manufactured
housing customers as a result of the overall economic downturn in the housing
industry.  The Company’s net sales to customers serving the
manufactured housing markets, principally consisting of air conditioners and
furnaces, constituted approximately 5.4% and 4.6% of the Company’s consolidated
net sales for the third quarter of 2009 and 2008, respectively, and constituted
approximately 4.4% and 4.6% of the Company’s consolidated net sales for the nine
months of 2009 and 2008, respectively.





In the C-HVAC
segment, net sales for the third quarter of 2009 decreased approximately $37.7
million or 28.6% as compared to the third quarter of 2008 and decreased
approximately $77.6 million or 19.8% for the nine months of 2009 as compared to
the nine months of 2008.  Net sales in the C-HVAC segment for the
third quarter and nine months of 2009 include a decrease of approximately $2.4
million and $16.8 million, respectively, attributable to the effect of changes
in foreign currency exchange rates.  Excluding the effect of changes
in foreign currency exchange rates, net sales in the C-HVAC segment for the
third quarter and nine months of 2009 decreased approximately $35.3 million and
$60.8 million, respectively.  This decrease is due, in part, to a
decrease in sales volume of air handlers by certain of the segment’s U.S and
Canadian subsidiaries, partially offset by approximately $3.9 million of net
sales deferred in 2008, under a large contract, and recognized as revenue upon
the resolution and collection of retainage in the first quarter of 2009, and, to
a lesser extent, from price increases implemented in 2008.  Backlog
for C-HVAC products was approximately $156.8 million at October 3, 2009,
approximately $202.0 million at December 31, 2008 and approximately $237.8
million at September 27, 2008.  The decrease in backlog at October 3,
2009 as compared to December 31, 2008 reflects a decrease in orders during the
past several months for jobs expected to be delivered principally over the
fourth quarter of 2009 and first quarter of 2010.  The decrease in
backlog at October 3, 2009 as compared to September 27, 2008 reflects, in part,
the completion of a sizeable job during 2008 resulting in a decrease to backlog
of approximately $72.7 million.





Foreign net sales,
which are attributed based on the location of the Company’s subsidiary
responsible for the sale, were approximately 19.0% and 21.9% of consolidated net
sales for the third quarter of 2009 and 2008, respectively, and were
approximately 19.5% and 21.2% of consolidated net sales for the nine months of
2009 and 2008, respectively.  Net sales from the Company’s Canadian
subsidiaries were approximately 10.6% and 9.9% of consolidated net sales for the
third quarter of 2009 and 2008, respectively, and were approximately 10.6% and
9.3% of consolidated net sales for the nine months of 2009 and 2008,
respectively.  Net sales from the Company’s Canadian subsidiaries
include net sales from the Company’s RVP and C-HVAC segments.  Net
sales from the Company’s European subsidiaries were approximately 6.5% and 8.5%
of consolidated net sales for the third quarter of 2009 and 2008, respectively,
and were approximately 6.8% and 9.2% of consolidated net sales for the nine
months of 2009 and 2008, respectively.  Net sales from the Company’s
European subsidiaries include net sales primarily from the Company’s RVP and
C-HVAC segments and to a lesser extent the Company’s HTP segment.





Cost of Products
Sold.Consolidated cost of products sold for the third quarter
of 2009 was approximately $321.7 million as compared to approximately $434.4
million for the third quarter of 2008 and was approximately $990.9 million for
the nine months of 2009 as compared to approximately $1,299.3 million for the
nine months of 2008.  Cost of products sold as a percentage of net
sales decreased from approximately 74.6% for the third quarter of 2008 to
approximately 71.2% for the third quarter of 2009 and decreased from
approximately 73.4% for the nine months of 2008 to approximately 71.9% for the
nine months of 2009 primarily as a result of the factors described
below.





The Company
continually reviews the costs of its product lines and seeks opportunities to
increase prices to help offset the rising costs of raw materials and
transportation when possible.  During 2008, the Company implemented
certain price increases, which have carried over into 2009, in each of its four
segments to help offset higher costs.





Overall,
consolidated material costs for the third quarter of 2009 were approximately
$204.1 million, or 45.2% of net sales, as compared to approximately $280.6
million, or 48.2% of net sales, for the third quarter of
2008.  Consolidated material costs for the nine months of 2009 were
approximately $630.5 million, or 45.7% of net sales, as compared to
approximately $849.7 million, or 48.0% of net sales for the nine months of
2008.  During the third quarter and nine months of 2009, the Company
experienced lower material costs as compared to the same periods of 2008 related
primarily to purchases of steel, copper and aluminum and related purchased
components, such as compressors and fans/blowers.  Strategic sourcing
initiatives and improvements in manufacturing processes also contributed to the
decrease in material costs in the third quarter and nine months of 2009 as
compared to the same periods of 2008.





In the third
quarter of 2009 and continuing into the fourth quarter of 2009, the price of
certain commodities (copper, aluminum, and to a lesser extent, steel) began to
increase over price levels experienced in the first half of
2009.  Should these price levels continue or increase further there
can be no assurance that the Company will be able to sufficiently increase its
sales prices and accordingly, could experience significant increases in material
costs as a percentage of net sales in the fourth quarter of 2009 and continuing
into 2010 as compared to the levels experienced in the nine months of
2009.





Direct labor costs
for the third quarter of 2009 were approximately $25.8 million, or 5.7% of net
sales, as compared to approximately $35.0 million or 6.0% of net sales, for the
third quarter 2008.  Direct labor costs for the nine months of 2009
were approximately $81.5 million, or 5.9% of net sales, as compared to
approximately $104.6 million or 5.9% of net sales, for the nine months
2008.





Overhead costs,
including freight, for the third quarter of 2009 were approximately $91.8
million, or 20.3% of net sales, as compared to approximately $118.8 million, or
20.4% of net sales, for the third quarter of 2008.  Overhead costs for
the nine months of 2009 were approximately $278.9 million, or 20.2% of net
sales, as compared to approximately $345.0 million, or 19.5% of net sales, for
the nine months of 2008.





The increase in the
percentage of overhead costs to net sales for the nine months of 2009 is due, in
part, to a decrease in sales volume which results in lower absorption
rates.  The increase in the percentage also reflects the effect of
lower sales volume and the fixed nature of certain overhead costs.





Freight costs were
approximately 4.4% and 5.9% of net sales for the third quarter of 2009 and 2008,
respectively, and were approximately 4.6% and 5.3% for the nine months of 2009
and 2008, respectively.  During the third quarter and nine months of
2009, the Company experienced decreased freight costs primarily due to decreased
fuel surcharges as compared to the nine months of 2008.  Continued
strategic sourcing initiatives and other cost reduction measures also help to
mitigate fluctuations in freight costs.  These cost reduction measures
reduced the overall effect of freight costs on cost of goods sold as a
percentage of net sales for the third quarter and nine months of 2009 as
compared to the same period of 2008.





Overall, changes in
the cost of products sold (including material, direct labor, overhead and
freight costs) 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 2009 was approximately $102.3
million or 70.6% of the segment’s net sales, as compared to approximately $138.0
million, or 76.7% of the segment’s net sales for the third quarter of
2008.  In the RVP segment, cost of products sold for the nine months
of 2009 was approximately $318.0 million or 73.2% of the segment’s net sales, as
compared to approximately $418.5 million, or 75.4% of the segment’s net sales
for the nine months of 2008.  The decrease in the percentage of cost
of products sold to net sales in the third quarter and nine months of 2009
reflects a decrease in material costs as a percentage of net sales and to a
lesser extent, in the third quarter of 2009, a decrease in overhead costs as a
percentage of net sales.  Cost of products sold in the RVP segment for
the third quarter and nine months of 2009 also reflects (1) a decrease of
approximately $2.0 million and $14.8 million, respectively, related to the
effect of changes in foreign currency exchange rates, (2) an increase in product
liability expense of approximately $0.2 million and $1.2 million, respectively,
as compared to the same periods of 2008 and (3) approximately $0.2 million and
$1.1 million, respectively, of severance charges incurred related to certain
reduction in workforce initiatives.  Cost of products sold in the RVP
segment for the third quarter and nine months of 2008 includes costs and
expenses incurred in connection with the start up of a range hood facility in
Mexico of approximately $1.8 million and $3.2 million,
respectively.





In the HTP segment,
cost of products sold for the third quarter of 2009was approximately $58.8
million or 58.7% of the segment’s net sales, as compared to approximately $73.7
million, or 55.5% of the segment’s net sales for the third quarter of
2008.  In the HTP segment, cost of products sold for the nine months
of 2009was
approximately $175.3 million or 58.7% of the segment’s net sales, as compared to
approximately $214.1 million, or 55.2% of the segment’s net sales for the nine
months of 2008.  The increase in the percentage of cost of products
sold to net sales is primarily as a result of an increase in material costs as a
percentage of net sales.  Cost of products sold in the HTP segment for
the third quarter and nine months of 2009 also reflects a decrease of
approximately $0.2 million and $0.4 million, respectively, related to the effect
of changes in foreign currency exchange rates.





In the R-HVAC
segment, cost of products sold for the third quarter of 2009 was approximately
$92.5 million, or 82.2% of the segment’s net sales, as compared to approximately
$120.2 million, or 87.1% of the segment’s net sales, for the third quarter of
2008.  In the R-HVAC segment, cost of products sold for the nine
months of 2009 was approximately $278.2 million, or 83.7% of the segment’s net
sales, as compared to approximately $369.0 million, or 84.7% of the segment’s
net sales, for the nine months of 2008.  The decrease in cost of
products sold as a percentage of net sales for the third quarter and nine months
of 2009 primarily reflects a decrease in material costs as a percentage of net
sales resulting primarily from the purchase of steel, copper and
aluminum.  Material costs in this segment are generally higher as a
percentage of net sales than the Company’s other segments and were approximately
59.2% and 62.9% for the third quarter of 2009 and 2008, respectively, and were
approximately 60.6% and 62.0% for the nine months of 2009 and 2008,
respectively.





In the C-HVAC
segment, cost of products sold for the third quarter of 2009 was approximately
$68.1 million, or 72.3% of the segment’s net sales, as compared to approximately
$102.5 million, or 77.7% of the segment’s net sales, for the third quarter of
2008.  In the C-HVAC segment, cost of products sold for the nine
months of 2009 was approximately $219.4 million, or 70.0% of the segment’s net
sales, as compared to approximately $297.7 million, or 76.1% of the segment’s
net sales, for the nine months of 2008.  Direct labor costs in this
segment are generally higher as a percentage of net sales than the Company’s
other segments and were approximately 13.3% and 11.6% in the third quarter of
2009 and 2008, respectively, and were approximately 12.6% and 11.3% in the nine
months of 2009 and 2008, respectively.  The decrease in cost of
products sold as a percentage of net sales for the third quarter and nine months
of 2009 primarily reflects a decrease in material costs as a percentage of net
sales resulting primarily from the purchase of steel, copper and aluminum, and
to a lesser extent, from price increases implemented in 2008, and for the nine
months of 2009 also reflects the effect of approximately $3.9 million of net
sales deferred in 2008, under a large contract, and recognized as revenue upon
the resolution and collection of retainage in the first quarter of 2009 without
any associated costs.  Cost of products sold in the C-HVAC segment for
the third quarter and nine months of 2009 also includes a decrease of
approximately $2.0 million and $12.7 million, respectively, related to the
effect of changes in foreign currency exchange rates.





Selling, General and Administrative
Expense, Net.Consolidated selling, general and administrative
expense, net (“SG&A”) was approximately $96.7 million for the third quarter
of 2009 as compared to approximately $121.1 million for the third quarter of
2008 and was approximately $293.5 million for the nine months of 2009 as
compared to approximately $358.1 million for the nine months of
2008.  SG&A decreased in the third quarter and nine months of 2009
as compared to the same periods of 2008, in part, due to cost reduction measures
initiated in 2008 and 2009.  SG&A as a percentage of net sales
increased from approximately 20.8% for the third quarter of 2008 to
approximately 21.4% for the third quarter of 2009 and increased from
approximately 20.3% for the nine months of 2008 to approximately 21.3% for the
nine months of 2009 primarily as a result of the decline in net sales, partially
offset by the effect of certain expense reduction measures.  SG&A
for the third quarter and nine months of 2009 also includes (1) a decrease of
approximately $1.2 million and $8.2 million, respectively, related to the effect
of changes in foreign currency exchange rates and (2) advisory and other fees
related to the Company’s reorganization of its capital structure of
approximately $6.5 million and $7.4 million, respectively.





Goodwill Impairment
Charge.The nine months of 2009 include an approximate $250.0
million estimated non-cash impairment charge, recorded by the Company in the
second quarter of 2009, to reduce the carrying amount of its HTP reporting
unit’s goodwill to the estimated fair value based upon the results of the
Company’s interim impairment test.  The Company is in the process of
finalizing its goodwill impairment analysis and expects to complete this process
during the fourth quarter of 2009.  The Company believes that the
preliminary estimate of the goodwill impairment loss is reasonable and
represents the Company’s best estimate of the goodwill impairment loss to be
incurred; however, it is possible that when the Step 2 tests are completed, the
Company may be required to record a material adjustment to this preliminary
estimate.





During the third
quarter of 2008, the Company recorded an approximate $600.0 million estimated
non-cash impairment charge to reduce the carrying amount of its goodwill to the
estimated fair value based upon the results of the Company’s interim impairment
test that was necessitated by the further deterioration of the housing market
and other economic factors during the third quarter of 2008 including, among
others, the instability in the troubled mortgage market, rising unemployment and
declining consumer confidence.  See Note A of the Notes to the
Unaudited Financial Statements included elsewhere herein.





Operating Earnings
(Loss).Consolidated operating earnings (loss) increased
approximately $607.3 million from an operating loss of approximately $579.6
million for the third quarter of 2008 to operating earnings of approximately
$27.7 million for the third quarter of 2009.  Consolidated operating
loss decreased approximately $335.9 million from approximately $509.3 million
for the nine months of 2008 to approximately $173.4 million for the nine months
of 2009.  During the third quarter of 2008, the Company recorded an
estimated non-cash goodwill impairment charge of approximately $600.0 million
and in the nine months of 2009, the Company recorded an estimated non-cash
goodwill impairment charge of approximately $250.0 million.  Excluding
the effect of the estimated non-cash goodwill impairment charges, operating
earnings increased approximately $7.3 million for the third quarter of 2009 and
decreased approximately $14.1 million for the nine months of 2009 as compared to
the same periods in the prior year.  The remaining changes in
consolidated operating (loss) earnings are primarily due to the factors
discussed above and that follow.





For the third
quarter of 2009, the RVP segment had operating earnings of approximately $17.5
million as compared to an operating loss of approximately $327.1 million for the
third quarter of 2008.  For the nine months of 2009, the RVP segment
had operating earnings of approximately $38.4 million as compared to an
operating loss of approximately $295.2 million for the nine months of
2008.  During the third quarter of 2008, the Company recorded an
approximate $340.0 million estimated non-cash impairment charge to reduce the
carrying amount of the RVP segment’s goodwill to its estimated fair value based
upon the results of the Company’s interim impairment test.  Excluding
the effect of the estimated non-cash goodwill impairment charge recorded in the
third quarter of 2008, operating earnings increased approximately $4.6 million
for the third quarter of 2009 and decreased approximately $6.4 million for the
nine months of 2009 as compared to the same periods in the prior
year.  The remaining increase in the RVP segment’s operating earnings
for the third quarter of 2009 is primarily the result of a decrease in material
costs, while the remaining decrease in the RVP segment’s operating earnings for
the nine months of 2009 is primarily a result of lower sales volume of kitchen
range hoods and bathroom exhaust fans, partially offset by the effect of a
decrease in material costs.





For the third
quarter of 2009, the HTP segment had operating earnings of approximately $4.1
million as compared to an operating loss of approximately $49.3 million for the
third quarter of 2008 and for the nine months of 2009 had an operating loss of
approximately $241.9 million as compared to approximately $31.2 million for the
nine months of 2008.  As noted earlier, during the second quarter of
2009 and the third quarter of 2008, the Company recorded $250.0 million and
$60.0 million, respectively, of estimated non-cash impairment charges to reduce
the carrying amounts of the HTP segment’s goodwill to its estimated fair value
based upon the results of the Company’s interim impairment
tests.  Excluding the estimated non-cash goodwill impairment charges,
the operating results of the HTP segment decreased approximately $6.6 million
and $20.7 million for the third quarter and nine months of 2009, respectively,
as compared to the same periods of 2008.  The remaining decrease is
primarily the result of decreased sales volume without a proportionate decrease
in overhead costs.





For the third
quarter of 2009, the R-HVAC segment had operating earnings of approximately $6.9
million as compared to an operating loss of approximately $197.9 million for the
third quarter of 2008 and had operating earnings of approximately $12.2 million
for the nine months of 2009 as compared to an operating loss of approximately
$182.3 million for the nine months of 2008.  During the third quarter
of 2008, the Company recorded an approximate $200.0 million estimated non-cash
impairment charge to reduce the carrying amount of the R-HVAC segment’s goodwill
to its estimated fair value based upon the results of the Company’s interim
impairment test.  Excluding the effect of the estimated non-cash
goodwill impairment charge recorded in the third quarter of 2008, operating
earnings increased approximately $4.8 million for the third quarter of 2009 and
decreased approximately $5.5 million for the nine months of 2009.  The
remaining increase in the R-HVAC segment’s operating earnings for the third
quarter of 2009 is primarily the result of a decrease in material costs, while
the remaining decrease in the R-HVAC segment’s operating earnings for the nine
months of 2009 is primarily a result of decreased sales volume without a
proportionate decrease in overhead costs.





For the third
quarter of 2009, the C-HVAC segment had operating earnings of approximately $9.4
million as compared to approximately $8.4 million for the third quarter of 2008
and had operating earnings of approximately $39.3 million in the nine months of
2009 as compared to approximately $27.4 million for the nine months of
2008.  This increase is primarily the result of a decrease in material
costs relating to the purchase of steel, copper and aluminum and to a lesser
extent for the nine months of 2009, approximately $3.9 million of net sales
deferred in 2008, under a large contract, and recognized as revenue upon the
resolution and collection of retainage in the first quarter of 2009 without any
associated costs or expenses and from price increases implemented in
2008.





Excluding the
estimated non-cash goodwill impairment charges recorded in the second quarter of
2009 and third quarter of 2008, operating earnings of foreign operations,
consisting primarily of the results of operations of the Company’s Canadian
subsidiaries, were approximately 9.2% and 15.7% of operating earnings (before
unallocated and corporate expenses) for the third quarter of 2009 and 2008,
respectively, and were approximately 5.0% and 8.9% of operating earnings (before
unallocated and corporate expenses) for the nine months of 2009 and 2008,
respectively.  Net sales and earnings derived from international
markets are subject to, among others, the risks of currency
fluctuations.





Interest
Expense.  Interest expense increased approximately $0.6
million, or approximately 1.6%, during the third quarter of 2009 as compared to
the third quarter of 2008 and increased approximately $17.9 million, or
approximately 18.7%, during the nine months of 2009 as compared to the nine
months of 2008.  The increase in the third quarter of 2009 as compared
to the third quarter of 2008 is the net result of the impact of lower interest
rates of approximately $3.4 million resulting from the Company’s five year
$350.0 million senior secured asset-based revolving credit facility (the “ABL
Facility”) and the impact of higher average principal balances of approximately
$4.4 million.  The increase in the nine months of 2009 as compared to
the nine months of 2008 is the net result of the impact of higher interest rates
of approximately $7.1 million as a result of the Company’s 10% Senior Secured
Notes due December 1, 2013 (the “10% Notes”) and the ABL Facility, both of which
were consummated on May 20, 2008, and the impact of higher average principal
balances of approximately $9.4 million.  In addition, the Company’s
interest expense increased approximately $0.1 million and $1.8 million in the
third quarter and nine months of 2009, respectively, related to increased
amortization of deferred debt expense related to the additional deferred
financing costs associated with the 10% Notes and the ABL Facility.





Loss from Debt
Retirement.  On May 20, 2008, the Company sold $750.0 million
of its 10% Notes and also entered into a five year $350.0 million ABL
Facility.  The net proceeds from the 10% Notes and the ABL Facility
were used to repay all of the outstanding indebtedness under the Company’s then
existing senior secured credit facility, which included approximately $675.5
million outstanding under the Company’s senior secured term loan and
approximately $80.0 million outstanding under the revolving portion of the
senior secured credit facility.  The redemption of the Company’s
senior secured term loan resulted in a pre-tax loss of approximately $9.9
million in the second quarter of 2008, primarily as a result of writing off
unamortized deferred debt expense.





Provision for Income
Taxes.The provision for income taxes for the third quarter of
2009 was approximately $2.4 million as compared approximately $28.2 million for
the third quarter of 2008 and for the nine months of 2009 was approximately $3.6
million as compared to approximately $30.7 million for the nine months of
2008.  The effective income tax rates of approximately (1.3)% and
(5.0)% for the nine months of 2009 and 2008, respectively, differ from the
expected United States federal statutory rate of 35% principally as a result of
the estimated non-cash goodwill impairment charges recorded in the second
quarter of 2009 and the third quarter of 2008, non-deductible expenses,
increases in valuation allowances against deferred tax assets, state income tax
provisions, the effect of foreign operations and interest on uncertain tax
positions.  The change in the effective income tax rates between the
nine months of 2009 and 2008 is principally due to changes in valuation
allowances against deferred tax assets, the estimated non-cash goodwill
impairment charges recorded in the second quarter of 2009 and the third quarter
of 2008, and interest on uncertain tax positions.  See Note D of the
Notes to the Unaudited Financial Statements included elsewhere
herein.





Subsequent to the
end of the third quarter of 2009, the Company received a report of proposed
audit adjustments related to one of its foreign subsidiaries.  In the
report, the taxing authorities have proposed adjustments resulting in additional
income tax related penalties and interest up to a maximum amount of
approximately $5.0 million.  The Company is currently reviewing the
report and the related proposed adjustments.  To the extent that the
Company ultimately determines that the findings in the report will result in
amounts due that are in excess of the amounts that the Company has already
identified as uncertain tax positions, such amounts will be recorded in the
fourth quarter of 2009.





Liquidity
and Capital Resources





On September 3,
2009, NTK Holdings, Nortek Holdings, Inc. and Nortek entered into a
restructuring and lock-up agreement (the “Restructuring Agreement”) with certain
holders of (i) NTK Holdings’ 10 3/4% Senior Discount Notes due 2014 (the “NTK 10
3/4% Notes”), (ii) Nortek’s 8 1/2% Senior Subordinated Notes due 2013 (the “8
1/2% Notes”), and (iii) Nortek’s 10% Senior Secured Notes due 2013 (the “10%
Notes”) (collectively, the “Notes”).  Pursuant to the Restructuring
Agreement, certain holders of the Notes agreed to restructure and recapitalize
the Notes through the implementation of a solicitation of votes for prepackaged
plans of reorganization of NTK Holdings and Nortek pursuant to the Bankruptcy
Code (the “Solicitation”) (see Note H of the Notes to the Unaudited Financial
Statements included elsewhere herein).
 
 As part of the
Company’s strategy to preserve and enhance its near-term liquidity, the Company
elected to forego making the approximately $26.6 million semi-annual interest
payment on its 8 1/2% Notes that was due on September 1, 2009 (subject to a
thirty (30) day grace period), which constituted an event of default under the
indenture governing its 8 1/2% Notes prior to the consolidated balance sheet
date of October 3, 2009.  The failure to make this interest payment
also constituted a cross default under Nortek’s 10% Notes, ABL Facility, and
certain other debt agreements prior to October 3, 2009, as well as a cross
default under the NTK 10 3/4% Notes and the NTK Holdings Senior Unsecured Loans
(the “NTK Unsecured Loans”).   The terms of the Restructuring
Agreement provided that, subject to certain conditions, the holders of the Notes
who executed the Restructuring Agreement would not exercise their rights and
remedies against NTK Holdings or Nortek, respectively, with respect to the
events of default resulting from the failure to pay the interest due on the 8
1/2% Notes under their applicable indentures.  In addition, on
September 3, 2009, the Company entered into a forbearance agreement, as amended,
with the lenders (the “Lenders”) under Nortek’s ABL Facility (the “ABL
Forbearance Agreement”), whereby the Lenders agreed, among other things, to not
exercise their rights and remedies against Nortek and its guarantor
subsidiaries, respectively, with respect to the event of default resulting from
the failure to pay the interest due on the 8 1/2% Notes, provided Nortek
complied with the terms of the ABL Forbearance Agreement.  The
Restructuring Agreement and ABL Forbearance Agreement were in effect up to the
time the Bankruptcy Cases were filed.
 
 As discussed above,
on the Commencement Date, the Debtors filed the Bankruptcy Cases and, following
the Commencement Date, the Debtors filed the Prepackaged Plans and Disclosure
Statement.  The Company also disclosed the results of the votes on the
Prepackaged Plans obtained from the Solicitation that the Debtors performed
prior to the Commencement Date for all of the impaired or potentially impaired
classes that were entitled to vote on the Prepackaged Plans, which included,
among others, the NTK 10 3/4% Notes, the NTK Unsecured Loans, the 10% Notes, the
8 1/2% Notes and the 9 7/8% Notes.  Except for the holders of the NTK
Unsecured Loans, all of the impaired or potentially impaired classes entitled to
vote accepted the Prepackaged Plans.  A hearing to consider the
compliance of the Disclosure Statement with the Bankruptcy Code’s disclosure
requirements and any objections or other pertinent matters has been scheduled by
the Bankruptcy Court for December 4, 2009 (the “Disclosure Statement
Hearing”).  A hearing to consider confirmation of the Prepackaged
Plans and any objections thereto (the “Confirmation Hearing”) is scheduled to
commence immediately following the Disclosure Statement Hearing.  Any
objections to the Disclosure Statement and/or the Prepackaged Plans were to be
filed and served upon the Bankruptcy Court by 4:00PM EST on November 23,
2009.  One creditor, Ore Hill Partners LLC, filed an objection to the
Prepackaged Plans, has filed a motion asking the Bankruptcy Court to compel the
United States Trustee to form an official committee of unsecured creditors, and
has sought a status conference with the Bankruptcy Court and discovery from the
Debtors.  Ore Hill’s motion will be heard on December 4,
2009.  The Confirmation Hearing may be rescheduled by the Bankruptcy
Court in the event that the Bankruptcy Court does not find compliance with the
Disclosure Statement at the Disclosure Statement Hearing.  Assuming
that the Prepackaged Plans are confirmed on the scheduled hearing date of
December 4, 2009, the Company expects to emerge from bankruptcy on or about
December 21, 2009 (the “Effective Date”).  There can be no assurance
that the bankruptcy court will confirm the Prepackaged Plans or the actual
Effective Date will be December 21, 2009, as it is subject to matters beyond the
control of the Debtors, including potential third party objections, including
the holders of the NTK Unsecured Loans, as well as the final approval of the
Bankruptcy Court.
 
 The Prepackaged
Plans provide that, on the Effective Date, Nortek shall issue the following
securities: (i) New Nortek Senior Secured Notes bearing interest at 11% and due
in 2013 and having a total principal amount of $750 million, plus the amount of
accrued and unpaid interest payable under the 10% Notes as of the Effective Date
(the “New Nortek Senior Secured Notes”), issued by Nortek and guaranteed by
certain of its subsidiaries; (ii) one class of common stock issued by Nortek
(the “New Common Stock”); and (iii) new warrants, which may be exercised for a
period of five years, subject to certain terms and conditions, to purchase a
number of shares of New Common Stock equal to an aggregate of 5% of the number
of outstanding shares of New Common Stock as of the Effective Date (assuming the
exercise of all New Warrants) at an exercise price of $52.80 per share (assuming
15,000,000 shares of New Common Stock are issued on the Effective Date) (the
“New Warrants”).
 
 The Prepackaged
Plans provide for the following distributions on the Effective Date, except to
the extent any claimholder agrees to less favorable treatment:
 
 ·
              The holders
      of the 10% Notes will receive their pro rata share (based on principal
      amount) of the New Nortek Senior Secured Notes and 5% of the New Common
      Stock.  On December 1, 2009, the Company paid the $37.5 million
      semi-annual interest payment due under the 10% Notes and any accrued
      interest earned subsequent to this payment and prior to the Effective Date
      is expected to be included in the principal of the New Nortek Senior
      Secured Notes.
 
 ·
              The holders
      of the 8 1/2% Notes will receive their pro rata share (based on principal
      amount) of 91.5630% of the New Common
Stock.
 
 ·
              The holders
      of the 9 7/8% Notes will receive their pro rata share (based on principal
      amount) of 1.4370% of the New Common
Stock.
 
 ·
              The holders
      of the NTK 10 3/4% Notes will receive their pro rata share (based on
      principal amount) of 1.1762% of the New Common Stock and New Warrants
      exercisable for 2.9404% of the outstanding shares of New Common Stock as
      of the Effective Date.
 
 ·
              The holders
      of the NTK Unsecured Loans will receive their pro rata share (based on
      principal amount) of 0.8238% of the New Common Stock and New Warrants
      exercisable for 2.0596% of the outstanding shares of New Common Stock as
      of the Effective Date.
 
 ·
              The holders
      of the existing common stock of Nortek and NTK Holdings will have their
      shares cancelled and will receive no
  distribution.
 
 ·
              Nortek shall
      establish the Equity Incentive Plan which will authorize the issuance of
      present and future equity awards representing an aggregate of up to
      12% of the New Common Stock, on a fully diluted basis, to officers
      and key employees of the Reorganized Debtors and their
      affiliates.  The terms and allocation of equity awards shall be
      mutually agreed to by the Chief Executive Officer and an ad hoc committee
      comprised of certain holders of the 8 1/2% Notes, the 10% Notes and the
      NTK 10 3/4% Notes, and are contained in a plan supplement filed with the
      Bankruptcy Court.
 
 On or about October
29, 2009, the Debtors caused notice of the commencement of the Bankruptcy Cases
to be served on all known or potential creditors and other parties in
interest.  As discussed above, the Bankruptcy Cases constituted an
event of default under the ABL Facility, the 10% Notes, the 8 1/2 % Notes, the 9
7/8% Notes and certain other domestic debt agreements, as well as an event of
default under the NTK 10 3⁄4% Notes and the NTK Unsecured
Loans.  Subject to certain exceptions under the Bankruptcy Code, the
filing of the Bankruptcy Cases automatically enjoined, or stayed, the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a claim
arising prior to the Commencement Date.  Thus, for example, creditor
actions to obtain possession of property from the Debtors, or to create, perfect
or enforce any lien against the property of the Debtors, or to collect on or
otherwise exercise rights or remedies with respect to a pre-petition claim are
enjoined unless and until the Bankruptcy Court lifts the automatic
stay.
 
 On October 23,
2009, the Debtors received approval from the Bankruptcy Court of several first
day motions (the “First Day Motions”), including interim authorization to pay
trade creditor balances that were incurred prior to the Commencement
Date.   Trade creditor balances incurred subsequent to the
Commencement Date will be paid in the ordinary course of
business.  The Bankruptcy Court also authorized, among other things,
the Debtors to pay all salaries and wages to their employees earned and unpaid
as of the Commencement Date and approved the Debtor’s ability to honor all
customer programs, including product warranties, in the ordinary course of
business.  In addition, the Bankruptcy Court authorized the Debtors to
use their cash on hand for the operation of business in the normal
course.  The relief granted by the Bankruptcy Court through the First
Day Motions was designed to stabilize the Company’s operations and business
relationships with vendors, lenders, employees and others, minimize the effects
of the commencement of the Bankruptcy Cases and preserve the value of the
Debtors’ assets.  On November 19, 2009, the Company received final
approval for all of the First Day Motions that were originally granted on an
interim basis.  Certain of the First Day Motions are subject to
Bankruptcy Court approved caps which limit the amounts that can be paid or
honored subject to further approval by the Bankruptcy Court (the
“Caps”).  The Debtors believe that the approved Caps included in the
First Day Motions (and subsequently modified on November 19, 2009) are
sufficient to permit the Company to operate in the ordinary course through the
Effective Date without the need for additional Bankruptcy Court approval to
raise the Caps.
 
 On October 9, 2009,
Nortek secured a commitment from a group of lenders for a $250 million asset
based revolving credit facility (the “New ABL Facility”) in conjunction with its
Prepackaged Plans, which includes a provision that the group of lenders will use
commercially reasonable efforts to form a syndicate of lenders to increase the
facility to $300 million.  As further required by the Prepackaged
Plans, on November 13, 2009, the Company filed a draft of the agreement for the
New ABL Facility that the Company expects to execute on the Effective Date
provided Nortek remains in compliance with the terms of the commitment
agreement.   The New ABL Facility will mature on the earlier of
four years from the Commencement Date and the date that is 95 days before the
stated maturity of the New Nortek Senior Secured Notes.  It will be
subject to a borrowing base calculation that is similar to the existing ABL
Facility.  Similar to the existing ABL Facility, Nortek will have
various interest rate options based on LIBOR, the prime rate and the federal
funds rate for any borrowings.  There will be limitations on Nortek’s
ability to incur the full $250 million ($300 million if increased) of
commitments under the new ABL Facility and Nortek will be required to make
normal and customary representations and warranties prior to execution and to
comply with normal and customary affirmative and negative covenants subsequent
to execution.  As discussed further below, Nortek did not require any
debtor-in-possession financing, as existing cash and cash generated from
operations are expected to be sufficient to fund the operations of Nortek
through the Effective Date.
 
 As discussed above,
upon emergence from chapter 11, Nortek and its subsidiaries (“Reorganized
Nortek”) are expected to adopt fresh start reporting in accordance with ASC
852.  Fresh start reporting results in Reorganized Nortek becoming a
new entity for financial reporting purposes.  Upon adoption of fresh
start reporting, the Reorganized Debtor’s financial statements will not be
comparable, in various material respects, to any of Nortek’s previously issued
financial statements.
 
 The filing of the
Bankruptcy Cases also constituted an event of default under substantially all of
Nortek’s and NTK Holdings’ domestic debt including the 8 1/2% Notes, the 10%
Notes, Nortek’s 9 7/8% Series A and Series B Senior Subordinated Notes due 2011
(the “9 7/8% Notes”), the ABL Facility, the NTK 10 3/4% Notes and the NTK
Unsecured Loans and, as such, the debt under these various agreements and
indentures became automatically due and payable, subject to the automatic stay
provisions of the Bankruptcy Code which prevents the enforcement of any actions
to collect the amounts due.   Accordingly, substantially all of
the Company’s long-term debt was reclassified to current as of October 3, 2009
with the exception of certain capital leases where the payment of the monthly
lease payments has not been accelerated based on the terms of the capital lease
agreements and certain foreign debt that is not impacted by the Bankruptcy
Cases.
 
 Prior to the
Bankruptcy Cases being filed, the indentures that govern the 10% Notes and the 8
1/2% Notes limited Nortek’s ability to make certain payments, including
distributions or other payments to NTK Holdings.   Nortek was
under no obligation to make any distribution or other payment to NTK Holdings
even if Nortek had available cash and the making of such a payment was permitted
by the terms of its existing indebtedness.  Nortek has not made any
such distributions to NTK Holdings during the nine months of 2009.
 
 At December 31,
2008, the Company’s Best subsidiary was not in compliance with a maintenance
covenant with respect to two loan agreements with aggregate borrowings
outstanding of approximately $6.8 million.  Non-compliance with these
two long-term debt agreements would have resulted in non-compliance with two
other long-term debt agreements totaling approximately $5.3 million at December
31, 2008.  The Company’s Best subsidiary obtained waivers from the
bank, which indicated that the Company’s Best subsidiary was not required to
comply with the maintenance covenant as of December 31, 2008.  The
next measurement date for the maintenance covenant is for the year ended
December 31, 2009 and the Company believes that it is probable that its Best
subsidiary will not be in compliance with the maintenance covenant when their
assessment of the required calculation is completed in the first quarter of
2010.  As a result, the Company has classified approximately $4.9
million and $8.1 million of outstanding borrowings under such “long-term debt”
agreements as a current liability on its consolidated balance sheet at October
3, 2009 and December 31, 2008, respectively.  No assurance can be
given that Best will be successful in obtaining a refinancing, amendment or
waiver on terms acceptable to the Company, or at all, in the
future.  Accordingly, Nortek could be required to repay the long-term
portion of approximately $4.9 million at December 31, 2009 related to these
loans in an event of non-compliance.
 
 In October 2009,
following the announcement of the Bankruptcy Cases, Moody’s changed its
probability of default rating (“PDR”) from “C” to “D” for NTK
Holdings.  Moody’s also announced that it would be removing all of
Nortek’s debt ratings.  Additionally, in October 2009, Standard &
Poor’s lowered the corporate credit rating on NTK Holdings to “D” from “CC”
following the announcement of the Bankruptcy Cases.





From time to time,
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, but does not
expect to consummate any acquisitions in 2009.  Contingent
consideration of approximately $14.1 million related to the acquisition of
Gefen, Inc., which was accrued for at December 31, 2008, was paid during the
first quarter of 2009.  The remaining estimated total maximum
potential amount of contingent consideration that may be paid in the future for
all completed acquisitions is approximately $11.3 million.





Capital
expenditures were approximately $7.2 million for the third quarter of 2009 as
compared to approximately $4.8 million for the third quarter of 2008 and were
approximately $13.6 million for the nine months of 2009 as compared to
approximately $20.7 million for the nine months of 2008.  Capital
expenditures were approximately $25.4 million for the year ended December 31,
2008 and are expected to be between approximately $15.0 million and $20.0
million in 2009.





Assuming that the
Prepackaged Plans are approved by the Bankruptcy Court, the Company expects to
meet its cash flow requirements for fiscal 2009, including debt repayments and
payments related to acquisitions, from cash and cash equivalents available
subsequent to the Company’s reorganization and cash from
operations.  Nortek and its subsidiaries have entered into a number of
operating lease obligations, purchase obligations and have guaranteed certain
obligations of these parties.  With the exception of the Company’s
indemnification related to a lease guarantee as discussed in Note E of the Notes
to the Unaudited Financial Statements included elsewhere herein, no significant
changes to these obligations have occurred since December 31,
2008.


Working
Capital





As noted
previously, with the exception of certain capital leases where the payment of
the monthly lease payments has not been accelerated based on the terms of the
capital lease agreements and certain foreign debt that is not impacted by the
Bankruptcy Cases, substantially all of the Company’s long-term debt was
reclassified to current as of October 3, 2009.





Unrestricted cash
and cash equivalents decreased from approximately $182.2 million at December 31,
2008 to approximately $180.6 million at October 3, 2009.  The Company
has classified as restricted, in the accompanying unaudited condensed
consolidated balance sheet, certain cash and cash equivalents that are not fully
available for use in its operations.  At October 3, 2009,
approximately $3.2 million (of which approximately $2.4 million is included in
long-term assets) of cash and cash equivalents were held primarily as collateral
to fund certain benefit obligations relating to supplemental executive
retirement plans.





Accounts receivable
increased approximately $10.7 million, or approximately 4.1%, between December
31, 2008 and October 3, 2009, while net sales decreased approximately $48.0
million, or approximately 9.6%, in the third quarter of 2009 as compared to the
fourth quarter of 2008.  The impact of changes in foreign currency
exchange rates increased accounts receivable at October 3, 2009 by approximately
$5.1 million.  The remaining increase is primarily the result of an
increase in sales in the R-HVAC segment in the third quarter of 2009 as compared
to the fourth quarter of 2008.  The rate of change in accounts
receivable in certain periods may be different than the rate of change in sales
in such periods principally due to the timing of net sales.  Increases
or decreases in net sales near the end of any period generally result in
significant changes in the amount of accounts receivable on the date of the
balance sheet at the end of such period, as was the situation on October 3, 2009
as compared to December 31, 2008.  Accounts receivable from customers
related to foreign operations decreased approximately $21.6 million, or
approximately 23.8%, between December 31, 2008 and October 3, 2009.





Inventories
decreased approximately $36.8 million, or approximately 12.4%, between December
31, 2008 and October 3, 2009 primarily as a result of lower sales levels and a
continued focus on working capital reductions during the nine months of 2009 in
all four of the Company’s segments.  The effect of changes in foreign
currency exchange rates increased inventory at October 3, 2009 by approximately
$3.2 million.





Accounts payable
decreased approximately $17.1 million, or 11.2%, between December 31, 2008 and
October 3, 2009 primarily due to decreases in the RVP and HTP segments, and to a
lesser extent in the C-HVAC segment, partially offset by an increase in the
R-HVAC segment which increased purchasing due to higher sales levels in the
third quarter of 2009, as compared to, the fourth quarter of
2008.  The decrease also reflects the effect of changes in foreign
currency exchange rates which resulted in an increase to accounts payable at
October 3, 2009 of approximately $2.8 million.





Accrued expenses
and taxes, net increased approximately $17.5 million, or approximately 8.2%,
between December 31, 2008 and October 3, 2009 primarily as a result of an
increase in accrued interest of approximately $30.6 million due to the Company
electing to forego making the approximately $26.6 million semi-annual interest
payment on its 8 1/2% Notes that was due on September 1, 2009, partially offset
by contingent consideration payments of approximately $14.1 million which were
accrued at December 31, 2008 and were paid in the first quarter of
2009.





Changes in certain
working capital accounts, as noted above, between December 31, 2008 and October
3, 2009, differ from the changes reflected in the Company’s consolidated
statement of cash flows for such period as a result of the specific items
mentioned in the four preceding paragraphs and from other non-cash items,
including among others, the effect of changes in foreign currency exchange
rates.





Cash
Flows





Net cash flows from
operating activities decreased approximately $16.2 million from net cash
provided by operating activities of approximately $58.1 million for the nine
months of 2008 to approximately $41.9 million for the nine months of
2009.  This was primarily the net result of a decrease in the net loss
of approximately $354.6 million, partially offset by a decrease in estimated
non-cash goodwill impairment charges of approximately $350.0 million the nine
months of 2008 and 2009 and a change from a deferred tax provision to a deferred
tax benefit of approximately $20.5 million.  Net cash flows used in
investing activities decreased by approximately $20.4 million from approximately
$49.0 million for the nine months of 2008 to approximately $28.6 million for the
nine months of 2009.  This decrease was primarily due to a decrease in
payments for acquisitions of approximately $18.6 million and a decrease in the
level of capital expenditures of approximately $7.1 million.  Net cash
flows from financing activities decreased by approximately $32.6 million from
net cash provided by financing activities financing activities of approximately
$17.7 million for the nine months of 2008 to net cash used in financing
activities of approximately $14.9 million for the nine months of
2009.  This decrease is the net result of a decrease in net borrowings
of approximately $74.8 million, partially offset by the transactions which
occurred in May 2008 and resulted in an increase in cash provided by financing
activities of approximately $46.4 million.  As discussed earlier, the
Company generally uses cash flows from operations, and where necessary
borrowings, to finance its capital expenditures and strategic acquisitions, to
meet the service requirements of its existing indebtedness and for working
capital and other general corporate purposes.





Debt
Covenant Compliance





The indenture that
governs the Company’s 10% Notes contains certain covenants that limit the
Company’s ability to incur additional indebtedness if the fixed charge coverage
ratio (“FCCR”) measured on a trailing four quarter basis falls below 2.00 to
1.  The FCCR is the ratio of the Consolidated Cash Flow (as defined)
to Fixed Charges (as defined) for such trailing four quarter
period.  The Consolidated Cash Flow, as defined, is the equivalent to
Adjusted EBITDA.  As of October 3, 2009, the FCCR was 1.20 to
1.
 
 EBITDA represents
net income before interest, income taxes, depreciation and
amortization.  Adjusted EBITDA (which has the same meaning as
Consolidated Cash Flow as defined by the indenture governing the 10% Notes) is
defined as EBITDA further adjusted to exclude certain non-cash, non-recurring
items.  EBITDA and Adjusted EBITDA are not defined terms under
GAAP.  Neither EBITDA nor Adjusted EBITDA should be considered an
alternative to operating income or net income as a measure of operating results
or an alternative to cash flow as a measure of liquidity.  There are
material limitations associated with making the adjustments to the Company’s
earnings to calculate EBITDA and Adjusted EBITDA and using these non-GAAP
financial measures as compared to the most directly comparable GAAP financial
measures.  For instance, EBITDA and Adjusted EBITDA do not
include:
 
 ·
              interest
      expense, and, because the Company has borrowed money in order to finance
      its operations, interest expense is a necessary element of the Company’s
      costs and ability to generate
revenue;
 
 ·
              depreciation
      and amortization expense, and, because the Company uses capital assets,
      depreciation and amortization expense is a necessary element of the
      Company’s costs and ability to generate
revenue;
 
 ·
              income tax
      expense, and because the payment of taxes is part of the Company’s
      operations, tax expense is a necessary element of the Company’s costs and
      ability to operate; and
 
 ·
              non-cash,
      non-recurring items can, at times, affect the Company’s operating results
      and the exclusion of such items is a material
  limitation.
  The Company
presents EBITDA because it considers it an important supplemental measure of its
performance and believes it is frequently used by the Company’s investors and
other interested parties, as well as by the Company’s management, in the
evaluation of companies in its industry, many of which present EBITDA when
reporting their results.  In addition, EBITDA provides additional
information used by the Company’s management and board of directors to
facilitate internal comparisons to historical operating performance of prior
periods.  Further, management believes EBITDA facilitates their
operating performance comparisons from period to period because it excludes
potential differences caused by variations in capital structure (affecting
interest expense), tax positions (such as the impact of changes in effective tax
rates or net operating losses) and the age and book depreciation of facilities
and equipment (affecting depreciation expense).
  The Company
believes that the inclusion of supplementary adjustments to EBITDA applied in
presenting Adjusted EBITDA are appropriate to provide additional information to
investors about the performance of the business, and the Company is required to
reconcile net income to Adjusted EBITDA to demonstrate compliance with debt
covenants.  While the determination of appropriateadjustments in the calculation of Adjusted EBITDA is
subject to interpretation under the terms of the 10% Notes, management believes
the adjustments described below are in accordance with the covenants in the 10%
Notes.


The following table
reconciles net loss to Adjusted EBITDA for the last twelve months ended October
3, 2009:




(1)-(2)+(3)(1)
              
              (2)
              
              (3)
              
              TrailingNine
      Months
              
              
              Nine
      Months
              
              
              Year
      Ended
              
              
              Fourof
      2009
              
              
              of
      2008
              
              
              Dec. 31,
      2008
              
              
              Quarters(Dollar
      amounts in millions)Net
      loss
              
              $
              (290.5
              )
              
              $
              (645.1
              )
              
              $
              (780.7
              )
              
              $
              (426.1
              )Provision for income taxes
              
              
              3.6
              
              
              
              30.7
              
              
              
              26.9
              
              
              
              (0.2
              )Interest expense
              
              
              113.7
              
              
              
              95.8
              
              
              
              134.7
              
              
              
              152.6Investment income
              
              
              (0.2
              )
              
              
              (0.6
              )
              
              
              (0.8
              )
              
              
              (0.4
              )Depreciation and amortization expense
              
              
              45.8
              
              
              
              53.1
              
              
              
              68.6
              
              
              
              61.3EBITDA
              
              $
              (127.6
              )
              
              $
              (466.1
              )
              
              $
              (551.3
              )
              
              $
              (212.8
              )Management fees (a)
              
              
              1.5
              
              
              
              1.5
              
              
              
              2.0
              
              
              
              2.0Interest Income
              
              
              0.2
              
              
              
              0.6
              
              
              
              0.8
              
              
              
              0.4Non-cash items increasing net income (b)
              
              
              ---
              
              
              
              (1.9
              )
              
              
              (1.9
              )
              
              
              ---Non-recurring cash charges (c )
              
              
              ---
              
              
              
              1.3
              
              
              
              3.0
              
              
              
              1.7Other non-recurring items (d)
              
              
              (4.6
              )
              
              
              6.4
              
              
              
              6.4
              
              
              
              (4.6
              )Non-cash impairment charges (e)
              
              
              250.2
              
              
              
              600.0
              
              
              
              713.3
              
              
              
              363.5Stock Option Expense
              
              
              0.1
              
              
              
              0.1
              
              
              
              0.1
              
              
              
              0.1Net foreign exchange losses (gains) (f)
              
              
              (0.3
              )
              
              
              (0.7
              )
              
              
              2.8
              
              
              
              3.2Restructuring (g)
              
              
              11.6
              
              
              
              0.7
              
              
              
              7.8
              
              
              
              18.7Adjusted
      EBITDA
              
              $
              131.1
              
              
              $
              141.9
              
              
              $
              183.0
              
              
              $
              172.2


(a)
              Relates to
      the management agreement Nortek and Nortek Holdings, Inc. has with an
      affiliate of Thomas H. Lee Partners, L.P. providing for certain financial
      and strategic advisory and consultancy
services.
 
 (b)
              For the nine
      months of 2008 and the year ended December 31, 2008, relates to a
      reduction in social liability reserve related to one of the Company’s
      foreign subsidiaries in the RVP
segment.
 
 (c)
              Relates to
      miscellaneous non-recurring items of the Company and is limited to $3.0
      million for any trailing four quarter
period.
 
 (d)
              For the nine
      months of 2009 includes a change in estimate of loss on the Company’s
      indemnification related to a lease guarantee (see Note E of the Notes to
      the Unaudited Financial Statements included elsewhere herein) of
      approximately $3.9 million and a gain on the favorable settlement of
      litigation of approximately $0.7 million.  For the nine months
      of 2008 and the year ended December 31, 2008, includes an estimated loss
      contingency on the Company’s indemnification related to a lease guarantee
      (see Note E of the Notes to the Unaudited Financial Statements included
      elsewhere herein).
 
 (e)
              Includes
      non-cash goodwill impairment charges as well as non-cash write-downs of
      certain of the Company’s
subsidiaries.
 
 (f)
              Non-cash
      foreign exchange (gains) losses related to intercompany debt not
      indefinitely invested in the Company’s
  subsidiaries.
 
 (g)  Includes
severance charges associated with reduction in workforce initiatives, charges
related to the closure of certain of the Company’s facilities and advisory and
other fees related to the Company’s reorganization of its capital
structure.





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 October 3, 2009, the
fair value of the Company’s unrestricted and restricted investments and
marketable securities was not materially different from their cost
basis.





The Company manages
its borrowing exposure to changes in interest rates by optimizing the use of
fixed rate debt with extended maturities.  At October 3, 2009,
approximately 89.7% of the carrying value of the Company’s long-term debt was at
fixed interest rates.  The remaining portion of the Company’s
long-term debt is at variable interest rates.  Based upon interest
rates in effect at October 3, 2009, an overall unfavorable change in interest
rates of 100 basis points would result in an additional charge to interest
expense for the remaining three months of 2009 of approximately $0.4
million.





Foreign
Currency Risk





The Company’s
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of currencies in foreign markets primarily
related to changes in the Euro, the Canadian Dollar and the British
Pound.  In the nine months of 2009, the net impact of changes in
foreign currency exchange rates was not material to the Company’s financial
condition or results of operations.  The impact of changes in foreign
currency exchange rates related to translation resulted in an increase in
stockholder’s investment of approximately $4.6 million and $8.4 million for the
third quarter and nine months of 2009, respectively.  The Company
manages its exposure to foreign currency exchange risk principally by trying to
minimize the Company’s net investment in foreign assets, including, the use of
strategic short and long-term borrowings at the foreign subsidiary
level.  Consistent with this strategy, notes payable and other
short-term obligations at October 3, 2009 consist primarily of short-term
borrowings by certain of the Company’s foreign subsidiaries.  The
Company generally does not enter into derivative financial instruments to manage
foreign currency exposure.  At October 3, 2009, the Company did not
have any significant outstanding foreign currency hedging
contracts.




Item
3.               Quantitative
and Qualitative Disclosures about Market Risk





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





Item
4.              Controls
and Procedures





As of the end of
the period covered by this report, the Company's management carried out an
evaluation, under the supervision and with the participation of the Company’s
Chairman and Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures as defined in
each of Rules 13a–15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended. Based upon that evaluation, the Company’s Chairman and Chief
Executive Officer and Chief Financial Officer, along with the other members of
management, concluded that as of the end of such period, the Company’s
disclosure controls and procedures were not effective, solely because the
Company was not able to file this report within the time period specified by the
SEC's rules and forms. The Company was not able to file this report within the
specified time period because, on October 21, 2009 (the "Commencement Date"),
the Company and certain of its domestic subsidiaries (the "Debtors") filed
voluntary petitions for reorganization under the Bankruptcy Code (the
"Bankruptcy Cases") and, both prior to and since the Commencement Date, the
Company's management has devoted substantial time to matters relating to the
Bankruptcy Cases that would otherwise have been devoted to preparing this
report. The Company continues to apply controls and procedures consistent with
prior periods.  The certifications of our principal executive officer
and principal financial officer attached as Exhibits 31.1 and 31.2 of this
report include, in paragraph 4 of such certifications, information concerning
the Company's controls and procedures.  Such certifications should be
read in conjunction with the information contained in this Item 4 for a more
complete understanding of the matters covered by such
certifications.  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 are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.





PART
II.  OTHER INFORMATION





Item
1A.                   Risk
Factors
 
 In
addition to the risk factors discussed in “Item A Risk Factors” in Part 1 of the
Company’s most recent annual report on Form 10-K for the year ended December 31,
2008, the Company believes that following additional risk factors, among others,
are now applicable in light of the Bankruptcy Cases described above and in Notes
A and H of Notes to Unaudited Financial Statements included elsewhere
herein:
 
 -
              The risks
      related to the impact that the ongoing Bankruptcy Cases may have on the
      Company’s corporate image, business operations, financial condition,
      liquidity or cash flow.
 
 -
              The risks
      related to the Company’s ability to successfully obtain Bankruptcy Court
      confirmation of the Prepackaged Plans so that the Prepackaged Plans can be
      consummated and the Company can emerge from bankruptcy in a timely
      manner.
 
 -
              The risks
      related to the objections to the Prepackaged Plans that have been or
      may be filed with the Bankruptcy Court and their potential impact to the
      successful and timely confirmation of the Prepackaged
    Plans.
 
 -
              The
      limitations on the Company’s operations that have been imposed by the
      terms of the Prepackaged Plans and the Bankruptcy Court during the
      pendency of the bankruptcy
proceedings.
 
 -
              The risks
      related to maintaining compliance with the terms of the Prepackaged Plans
      and the commitment for exit financing with the New ABL Facility and the
      impact that non compliance could have on the Company’s ability to obtain
      suitable financing.
 
 The
factors described above and included in the most recent Form 10-K should not be
construed as exhaustive and should be read together with other cautionary
statements included in this and other reports the Company has or will file with
the SEC.  If one or more events related to these or other risks or
uncertainties materialize, or if the Company’s underlying assumptions proved to
be incorrect, actual results may differ materially from what the Company
anticipates.
 
 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 successful emergence from bankruptcy, availability and cost of
certain raw materials, (including, among others, steel, copper, packaging
materials, plastics and aluminum) and purchased components, the level of
domestic and foreign construction and remodeling activity affecting residential
and commercial markets, interest rates, employment, inflation, foreign currency
fluctuations, consumer spending levels, exposure to foreign economies, the rate
of sales growth, price, and product and warranty liability claims. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.  The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.  All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by these
cautionary statements.  Readers are also urged to carefully review and
consider the various disclosures made by the Company, in this document, as well
as the Company’s periodic reports on Forms 10-K, 10-Q and 8-K, filed with the
SEC.





Item
2.                      Unregistered
Sales of Equity Securities and Use of Proceeds





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





Item
4.                      Submission
of Matters to a Vote of Security Holders





On September 18,
2009, the Debtors commenced a solicitation of votes on the Prepackaged Plans
from NTK Holdings’ and Nortek’s debt holders.  Please refer to
Nortek’s current report filed on Form 8-K on September 18, 2009 for additional
information.





Item
6.                      Exhibits





The items marked
with an asterisk are filed herewith.





3.1
            Amended and
      Restated Certificate of Incorporation of Nortek, Inc. (Exhibit 3.1 to
      Nortek Form S-4 filed October 22, 2004).3.2
            By-Laws of
      Nortek, Inc. (Exhibit 3.2 to Nortek Form S-4 filed October 22,
      2004).*
            10.1
            Letter
      Amendment to Forbearance Agreement dated September 14,
    2009.*
            10.2
            Letter
      Amendment No. 4 to Forbearance Agreement dated October 20,
      2009.*
            10.3
            Second
      Amendment to the Restructuring and Lock-Up Agreement dated October 19,
      2009.*
            31.1
            Certificate
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
            31.2
            Certificate
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
            32
            Certificate
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002.





SIGNATURE














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









NORTEK,
      INC.(Registrant)/s/ Almon C.
      HallAlmon C.
      Hall,Authorized
      Officer, Vice President,Chief Financial Officer
      and Chief Accounting Officer






December 2,
2009