**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 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 1, 2005





**OR**





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


EXCHANGE
      ACT OF 1934





For
      the
      transition period from ______ to ______





333-126389


(Commission
      File Number)


__________








**NTK
      HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)


__________




**Delaware**
            
            **20-1934298**(State
                or other jurisdiction
                of
            
            (I.R.S.
                Employerincorporation
                or
                organization)
            
            Identification
                No.)**50
                Kennedy Plaza, Providence,
                RI**
            
            **02903-2360**(Address
                of principal executive
                offices)
            
            (Zip
                Code)**(401)
                751-1600**(Registrant’s
                telephone number,
                including area code)




__________





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
      [X]
      No [  ]





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





The
      number of shares of Common Stock outstanding as of November 2, 2005 was 3,000.








**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEET**


*(Dollar
      amounts in thousands, except share data)*




**October
                  1,**
              
              **December
                  31,****2005**
              
              **2004****Assets****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              47,281
              
              $
              94,955Restricted
                  cash and cash equivalents
              
              
              2,271
              
              
              ---Accounts
                    receivable, less allowancesof
                    $6,941 and $5,467
              
              
              296,617
              
              
              225,706Inventories:Raw
                  materials
              
              
              77,067
              
              
              72,166Work
                  in process
              
              
              22,780
              
              
              24,249Finished
                  goods
              
              
              125,573
              
              
              109,134225,420
              
              
              205,549Prepaid
                  expenses
              
              
              11,201
              
              
              8,596Other
                  current assets
              
              
              27,283
              
              
              26,126Prepaid
                  income taxes
              
              
              32,765
              
              
              32,745Total current assets
              
              
              642,838
              
              
              593,677**Property
                  and Equipment, at Cost:**Land
              
              
              8,780
              
              
              8,683Buildings
                  and improvements
              
              
              72,097
              
              
              75,476Machinery
                  and equipment
              
              
              140,522
              
              
              124,644221,399
              
              
              208,803Less
                  accumulated depreciation
              
              
              24,338
              
              
              7,713Total property and equipment, net
              
              
              197,061
              
              
              201,090**Other
                  Assets:**Goodwill
              
              
              1,383,848
              
              
              1,295,105Intangible
                    assets, less accumulated amortizationof
                    $21,507 and $8,436
              
              
              99,312
              
              
              110,715Deferred
                  tax benefit
              
              
              ---
              
              
              2,488Deferred
                  debt expense
              
              
              43,346
              
              
              41,741Restricted
                  investments and marketable securities
              
              
              3,808
              
              
              8,605Other
                  assets
              
              
              8,569
              
              
              11,1541,538,883
              
              
              1,469,808$
              2,378,782
              
              $
              2,264,575**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable and other short-term obligations
              
              $
              6,894
              
              $
              5,364Current
                  maturities of long-term debt
              
              
              11,291
              
              
              14,414Accounts
                  payable
              
              
              171,342
              
              
              137,343Accrued
                  expenses and taxes, net
              
              
              169,451
              
              
              220,784Total current liabilities
              
              
              358,978
              
              
              377,905**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              10,764
              
              
              ---Other
              
              
              211,644
              
              
              214,672222,408
              
              
              214,672**Notes,
                    Mortgage Notes and Obligations Payable, Less Current
                    Maturities**
              
              
              1,625,456
              
              
              1,350,210**Stockholder’s
                  Investment:**Common
                    stock, $0.01 par value, authorized 3,000 shares;3,000
                    issued and outstanding at October 1, 2005 and December 31,
                    2004
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              130,100
              
              
              316,823Retained
                  earnings (accumulated deficit)
              
              
              34,400
              
              
              (4,100
              )Accumulated
                  other comprehensive income
              
              
              7,440
              
              
              9,065Total stockholder's investment
              
              
              171,940
              
              
              321,788**Total
                  Liabilities and Stockholder's Investment:**
              
              $
              2,378,782
              
              $
              2,264,575




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






**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**




**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****July
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **July
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Net
                  Sales**
              
              $
              522,866
              
              $
              161,028
              
              $
              266,836**Costs
                  and Expenses:**Cost
                  of products sold
              
              
              361,268
              
              
              115,892
              
              
              191,073Selling,
                  general and administrative expense
              
              
              89,739
              
              
              28,266
              
              
              46,014Amortization
                  of intangible assets
              
              
              4,391
              
              
              1,404
              
              
              2,020Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              83,700455,398
              
              
              145,562
              
              
              322,807Operating
                  earnings (loss)
              
              
              67,468
              
              
              15,466
              
              
              (55,971
              )Interest
                  expense
              
              
              (34,332
              )
              
              (16,798
              )
              
              (12,092
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (118,778
              )Investment
                  income
              
              
              264
              
              
              32
              
              
              241Earnings
                    (loss) from continuing operationsbefore
                    provision (benefit) for income taxes
              
              
              33,400
              
              
              (1,300
              )
              
              (186,600
              )Provision
                  (benefit) for income taxes
              
              
              13,700
              
              
              (500
              )
              
              (55,200
              )**Earnings
                  (loss) from continuing operations**
              
              
              19,700
              
              
              (800
              )
              
              (131,400
              )**Earnings
                  from discontinued operations**
              
              
              ---
              
              
              ---
              
              
              500**Net
                  earnings (loss)**
              
              $
              19,700
              
              $
              (800
              )
              $
              (130,900
              )




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






**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**




**For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Net
                  Sales**
              
              $
              1,455,844
              
              $
              161,028
              
              $
              1,117,860**Costs
                  and Expenses:**Cost
                  of products sold
              
              
              1,021,133
              
              
              115,892
              
              
              792,759Selling,
                  general and administrative expense
              
              
              254,417
              
              
              28,266
              
              
              199,943Amortization
                  of intangible assets
              
              
              13,109
              
              
              1,404
              
              
              8,869Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              83,7001,288,659
              
              
              145,562
              
              
              1,085,271Operating
                  earnings
              
              
              167,185
              
              
              15,466
              
              
              32,589Interest
                  expense
              
              
              (104,257
              )
              
              (16,798
              )
              
              (56,073
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )Investment
                  income
              
              
              1,072
              
              
              32
              
              
              1,520Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              64,000
              
              
              (1,300
              )
              
              (152,700
              )Provision
                  (benefit) for income taxes
              
              
              25,500
              
              
              (500
              )
              
              (41,400
              )**Earnings
                  (loss) from continuing operations**
              
              
              38,500
              
              
              (800
              )
              
              (111,300
              )**Earnings
                  from discontinued operations**
              
              
              ---
              
              
              ---
              
              
              67,400**Net
                  earnings (loss)**
              
              $
              38,500
              
              $
              (800
              )
              $
              (43,900
              )




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






**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS**




**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Cash
                  Flows from operating activities:**Net
                  earnings (loss) from continuing operations
              
              $
              38,500
              
              $
              (800
              )
              $
              (111,300
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              ---
              
              
              67,400Net
                  earnings (loss)
              
              
              38,500
              
              
              (800
              )
              
              (43,900
              )**Adjustments
                    to reconcile net earnings (loss)to
                    net cash provided by operating activities:**Depreciation
                  and amortization expense, including amortization of purchase price
                  allocated to inventory
              
              
              34,343
              
              
              6,307
              
              
              25,823Non-cash
                  interest expense, net
              
              
              21,536
              
              
              389
              
              
              24,671Effect
                  of the Acquisition, net
              
              
              ---
              
              
              ---
              
              
              38,423Non-cash
                  stock-based compensation
              
              
              248
              
              
              30
              
              
              48,561Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              130,736Gain
                  on the sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              (125,200
              )Gain
                  on sale of fixed assets
              
              
              (220
              )
              
              ---
              
              
              ---Deferred
                    federal income tax provision from continuing operations
              
              
              12,600
              
              
              ---
              
              
              9,800Deferred
                    federal income tax credit fromdiscontinued
                    operations
              
              
              ---
              
              
              ---
              
              
              (18,500
              )**Changes
                    in certain assets and liabilities, net ofeffects
                    from acquisitions and dispositions**:Accounts
                  receivable, net
              
              
              (64,462
              )
              
              (1,347
              )
              
              (26,921
              )Inventories
              
              
              (11,633
              )
              
              (5,907
              )
              
              (34,337
              )Prepaids
                  and other current assets
              
              
              (8,197
              )
              
              17,853
              
              
              (14,363
              )Net
                  assets of discontinued operations
              
              
              ---
              
              
              ---
              
              
              2,326Accounts
                  payable
              
              
              32,962
              
              
              (15,274
              )
              
              52,669Accrued
                  expenses and taxes
              
              
              (2,943
              )
              
              14,566
              
              
              (33,926
              )Long-term
                  deferred compensation
              
              
              (57,781
              )
              
              ---
              
              
              ---Long-term
                  assets, liabilities and other, net
              
              
              7,379
              
              
              (1,070
              )
              
              835Total adjustments to net earnings (loss)
              
              
              (36,168
              )
              
              15,547
              
              
              80,597Net cash provided by operating activities
              
              $
              2,332
              
              $
              14,747
              
              $
              36,697**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              $
              (15,020
              )
              $
              (2,620
              )
              $
              (11,848
              )Net
                  cash paid for businesses acquired
              
              
              (88,800
              )
              
              ---
              
              
              (16,500
              )Purchase
                    of outstanding equity shares of the Company byThomas
                    H. Lee Partners, L.P. and affiliates
              
              
              ---
              
              
              (706,189
              )
              
              ---Purchase
                  of investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              (5,000
              )Proceeds
                  from the sale of investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              5,000Payment
                  of Acquisition fees and expenses
              
              
              ---
              
              
              (57,000
              )
              
              ---Proceeds
                  from the sale of discontinued businesses
              
              
              ---
              
              
              ---
              
              
              526,000Proceeds
                  from the sale of property and equipment
              
              
              6,144
              
              
              ---
              
              
              ---Change
                  in restricted cash and investments
              
              
              (2,070
              )
              
              1
              
              
              (103
              )Other,
                  net
              
              
              (1,485
              )
              
              (53
              )
              
              (291
              )Net cash (used in) provided by investing activities
              
              
              (101,231
              )
              
              (765,861
              )
              
              497,258**Cash
                  Flows from financing activities:**Change
                  in borrowings, net
              
              
              (6,305
              )
              
              (484
              )
              
              (5,370
              )Sale
                  of the 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---
              
              
              ---Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,970
              )
              
              ---
              
              
              ---Sale
                  of Floating Rate Notes
              
              
              ---
              
              
              ---
              
              
              196,000Redemption
                  of notes in connection with the Acquisition
              
              
              ---
              
              
              (919,300
              )
              
              ---Redemption
                  of Senior Notes
              
              
              ---
              
              
              ---
              
              
              (716,700
              )Net
                  proceeds from the sale of the 8
                  1/2% Notes
              
              
              ---
              
              
              605,400
              
              
              ---Net
                    proceeds from borrowings under the Senior Secured Credit
                    Facility
              
              
              ---
              
              
              685,350
              
              
              ---Equity
                    investment by Thomas H. Lee Partners, L.P. and
                    affiliates
              
              
              ---
              
              
              361,841
              
              
              ---Settlement
                  of stock options
              
              
              ---
              
              
              (113,032
              )
              
              ---Other,
                  net
              
              
              (208
              )
              
              76
              
              
              (55
              )Net cash provided by (used in) financing activities
              
              
              51,225
              
              
              619,851
              
              
              (526,125
              )Net
                  (decrease) increase in unrestricted cash and cash
                  equivalents
              
              
              (47,674
              )
              
              (131,263
              )
              
              7,830Unrestricted
                    cash and cash equivalents at the beginning of the period
              
              
              94,955
              
              
              201,950
              
              
              194,120Unrestricted
                  cash and cash equivalents at the end of the period
              
              $
              47,281
              
              $
              70,687
              
              $
              201,950**Supplemental
                  disclosure of cash flow information:**Interest
                  paid
              
              $
              93,857
              
              $
              16,676
              
              $
              71,640Income
                  taxes paid (refunded), net
              
              $
              9,264
              
              $
              (35,437
              )
              $
              43,517




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S
      INVESTMENT**


**FOR
      THE PERIOD JULY 4, 2004 TO AUGUST 27, 2004**


*(Dollar
      amounts in thousands)*




**Former
                  Nortek**
              
              **Former
                  Nortek****Holdings**
              
              **Holdings**
              
              
              
              
              
              **Accumulated****Series
                  B**
              
              **Class
                  A**
              
              **Additional**
              
              
              
              **Other****Preference**
              
              **Common**
              
              **Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Stock**
              
              **Stock**
              
              **Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  July 3, 2004**
              
              $
              8,130
              
              $
              397
              
              $
              177,486
              
              $
              87,000
              
              $
              15,691
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (130,900
              )
              
              ---
              
              
              (130,900
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (197
              )
              
              (197
              )Unrealized appreciation in the fair valueof marketable securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              24
              
              
              24Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (131,073
              )Settlement
                  and cancellation of stock options, net
              
              
              ---
              
              
              ---
              
              
              (43,035
              )
              
              ---
              
              
              ---Subtotal
              
              
              8,130
              
              
              397
              
              
              134,451
              
              
              (43,900
              )
              
              15,518Effect
                  of the Acquisition
              
              
              (8,130
              )
              
              (397
              )
              
              179,986
              
              
              43,900
              
              
              (15,518
              )**Balance,
                  August 27, 2004**
              
              $
              ---
              
              $
              ---
              
              $
              314,437
              
              $
              ---
              
              $
              ---




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S
      INVESTMENT**


**FOR
      THE PERIOD JANUARY 1, 2004 TO AUGUST 27, 2004**


*(Dollar
      amounts in thousands)*




**Former
                  Nortek**
              
              **Former
                  Nortek****Holdings**
              
              **Holdings**
              
              
              
              
              
              **Accumulated****Series
                  B**
              
              **Class
                  A**
              
              **Additional**
              
              
              
              **Other****Preference**
              
              **Common**
              
              **Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Stock**
              
              **Stock**
              
              **Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2003**
              
              $
              8,130
              
              $
              397
              
              $
              172,244
              
              $
              ---
              
              $
              19,437
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (43,900
              )
              
              ---
              
              
              (43,900
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3,958
              )
              
              (3,958
              )Unrealized appreciation in the fair value ofmarketable securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              21
              
              
              21Minimum pension liability, net of tax of $10
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              18
              
              
              18Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (47,819
              )Stock-based
                  compensation
              
              
              ---
              
              
              ---
              
              
              5,242
              
              
              ---
              
              
              ---Settlement
                  and cancellation of stock options, net
              
              
              ---
              
              
              ---
              
              
              (43,035
              )
              
              ---
              
              
              ---Subtotal
              
              
              8,130
              
              
              397
              
              
              134,451
              
              
              (43,900
              )
              
              15,518Effect
                  of the Acquisition
              
              
              (8,130
              )
              
              (397
              )
              
              179,986
              
              
              43,900
              
              
              (15,518
              )**Balance,
                  August 27, 2004**
              
              $
              ---
              
              $
              ---
              
              $
              314,437
              
              $
              ---
              
              $
              ---




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S
      INVESTMENT**


**FOR
      THE PERIOD AUGUST 28, 2004 TO OCTOBER 2, 2004**


*(Dollar
      amounts in thousands)*


**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  August 28, 2004**
              
              $
              314,437
              
              $
              ---
              
              $
              ---
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              (800
              )
              
              ---
              
              
              (800
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              3,989
              
              
              3,989Unrealized decline in the fair value of marketable
                  securities
              
              
              ---
              
              
              ---
              
              
              (9
              )
              
              (9
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              3,180Stock-based
                  compensation
              
              
              30
              
              
              ---
              
              
              ---**Balance,
                  October 2, 2004**
              
              $
              314,467
              
              $
              (800
              )
              $
              3,980




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






**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S
      INVESTMENT**


**FOR
      THE THREE MONTHS ENDED OCTOBER 1, 2005**


*(Dollar
      amounts in thousands)*




**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  July 2, 2005**
              
              $
              130,010
              
              $
              14,700
              
              $
              2,457
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              19,700
              
              
              ---
              
              
              19,700Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              4,996
              
              
              4,996Unrealized decline in the fair value of marketable
                    securities
              
              
              ---
              
              
              ---
              
              
              (13
              )
              
              (13
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              24,683Stock-based
                  compensation
              
              
              90
              
              
              ---
              
              
              ---**Balance,
                  October 1, 2005**
              
              $
              130,100
              
              $
              34,400
              
              $
              7,440




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S
      INVESTMENT**


**FOR
      THE NINE MONTHS ENDED OCTOBER 1, 2005**


*(Dollar
      amounts in thousands)*




**Retained**
              
              **Accumulated****Additional**
              
              **Earnings**
              
              **Other****Paid
                  in**
              
              **(Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit)**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2004**
              
              $
              316,823
              
              $
              (4,100
              )
              $
              9,065
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              38,500
              
              
              ---
              
              
              38,500Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (1,619
              )
              
              (1,619
              )Unrealized
                  decline in the fair value of
                  marketable securities
              
              
              ---
              
              
              ---
              
              
              (6
              )
              
              (6
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              36,875Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,971
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              248
              
              
              ---
              
              
              ---**Balance,
                  October 1, 2005**
              
              $
              130,100
              
              $
              34,400
              
              $
              7,440




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







**NTK
        HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
        STATEMENTS**
 **OCTOBER
        1, 2005 AND OCTOBER 2, 2004**





(A) The
      unaudited condensed consolidated financial statements presented herein (the
      “Unaudited Financial Statements”) for the “Pre-Acquisition” period from January
      1, 2004 to August 27, 2004 reflects the results of operations of the former
      Nortek Holdings, Inc. and all of its wholly-owned subsidiaries (the predecessor
      company) and for the “Post-Acquisition” periods from August 28, 2004 to October
      2, 2004 and the nine months ended October 1, 2005 reflect the results of
      operations of NTK Holdings, Inc. and its wholly-owned subsidiary, Nortek
      Holdings, Inc. Nortek, Inc. (“Nortek”) is a wholly-owned subsidiary of Nortek
      Holdings, Inc. (“Nortek Holdings”) and is required under the terms of its
      indenture to file periodic reports with the Securities and Exchange Commission
      (“SEC”). The Unaudited Financial Statements include the accounts of the former
      Nortek Holdings and NTK Holdings, Inc., as appropriate and all of their
      wholly-owned subsidiaries (individually and collectively, the “Company” or “NTK
      Holdings”), after elimination of intercompany accounts and transactions, without
      audit and, in the opinion of management, reflect all adjustments of a normal
      recurring nature necessary for a fair statement of the interim periods
      presented. Although certain information and footnote disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States have been omitted, the
      Company believes that the disclosures included are adequate to make the
      information presented not misleading. Certain amounts in the prior year’s
      Unaudited Financial Statements have been reclassified to conform to the current
      year presentation. It is suggested that these Unaudited Financial Statements
      be
      read in conjunction with the consolidated financial statements and the notes
      included in Nortek’s latest annual report on Form 10-K and the Company’s latest
      Current Reports on Form 8-K as filed with the SEC.





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





The
      Company uses the fair value method of accounting for stock-based employee
      compensation in accordance with Statement of Financial Standards (“SFAS”) No.
      123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).





The
      Company recorded stock-based compensation charges in continuing operations
      of
      approximately $100,000 and $300,000 for the three months and nine months ended
      October 1, 2005, respectively, in accordance with SFAS No. 123. In the period
      from August 28, 2004 to October 2, 2004, the Company recorded stock-based
      compensation charges in continuing operations of approximately $30,000 related
      to the C-1 Units received by certain employees and consultants of the Company
      in
      connection with the THL Transaction (see Note B) and in the periods from July
      4,
      2004 to August 27, 2004 and from January 1, 2004 to August 27, 2004, recorded
      stock-based compensation charges in continuing operations of approximately
      $45,200,000 and $48,500,000, respectively, related to the accelerated vesting
      and achievement of the performance criteria for a portion of the Company’s
      outstanding stock options due to the change in control of the Company as a
      result of the Acquisition. A
      portion
      of this expense has been allocated to the Company’s reporting segments for all
      periods presented and a portion has been recorded in Unallocated (see Note
      G).
      In addition, the Company recorded stock-based employee compensation charges
      in
      discontinued operations of approximately $4,500,000 and $6,400,000 for the
      periods from July 4, 2004 to August 27, 2004 and from January 1, 2004
      to
      August 27, 2004, respectively, relating to the accelerated vesting and
      achievement of the performance criteria for a portion of the Company’s
      outstanding Class A and B stock options, which were retained by employees of
      the
      discontinued operations (see Note F) due to the change of control of the Company
      as a result of the Acquisition.





In
      connection with the THL Transaction on August 27, 2004, certain employees and
      consultants received approximately 21,184 C-1 units and approximately 42,368
      C-2
      units, which represent equity interests in THL-Nortek Investors, LLC (“Investors
      LLC”) that function similar to stock options. During the second quarter of 2005,
      approximately 1,500 C-1 units and approximately 3,000 C-2 units were granted
      to
      one of the Company’s officers. The C-1 units vest pro rata on a quarterly basis
      over a three-year period and approximately 7,175 and 1,758 were vested at
      October 1, 2005 and December 31, 2004, respectively. The total stock-based
      employee compensation charge associated with the C-1 units is approximately
      $1,000,000, which is being amortized pro rata over the three-year vesting
      period. Approximately $649,000 remains to be amortized at October 1, 2005.
      The
      C-2 units only vest in the event that certain performance-based criteria, as
      defined, are met. As of October 1, 2005, there was approximately $1,600,000
      of unamortized stock-based employee compensation with respect to the C-2 units,
      which will be amortized in the event that it becomes probable that the C-2
      units
      or any portion thereof will vest. The C-1 and C-2 units were valued using the
      Black-Scholes option pricing model to determine the freely-traded call option
      value based upon information from comparable public companies, which was then
      adjusted to reflect the discount period, the minority interest factor and the
      lack of marketability factor to arrive at the final valuations.





On
      December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R
      is a revision of SFAS No. 123 and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and amends
      SFAS No. 95, “Statement of Cash Flows” (“SFAS No. 95”). The accounting for
      share-based payments under SFAS No. 123R is similar to the approach described
      in
      SFAS No. 123. The provisions of SFAS No. 123R will be effective for the Company
      beginning after January 1, 2006 with earlier adoption encouraged.





Under
      SFAS No. 123R, the Company plans on adopting the modified-prospective transition
      method of accounting for stock-based compensation. Under the
      modified-prospective transition method, the Company would be required to
      recognize compensation cost for share-based payments to employees based on
      their
      grant-date fair value from the beginning of the fiscal period in which the
      recognition provisions are first applied. Measurement and attribution of
      compensation cost for awards that were granted prior to, but not vested as
      of
      the date SFAS No. 123R is adopted would be based on the same estimate of the
      grant-date fair value and the same attribution method used previously under
      SFAS
      No. 123. Under the modified-prospective transition method, prior periods would
      not be restated.





The
      Company does not believe that the adoption of SFAS No. 123R will have a material
      impact on its financial position or results of operations.





(B) On
      July
      15, 2004, THL Buildco Holdings, Inc. (“THL Buildco Holdings”) and THL Buildco,
      Inc. (“THL Buildco”), newly formed Delaware corporations affiliated with Thomas
      H. Lee Partners, L.P., entered into a stock purchase agreement with the owners
      of Nortek Holdings, Inc., Nortek’s former parent company (referred to herein as
“the former Nortek Holdings”), which included affiliates of Kelso & Company,
      L.P. (“Kelso”) and certain members of Nortek’s management, pursuant to which THL
      Buildco agreed to purchase all the outstanding capital stock of the former
      Nortek Holdings. Prior to the completion of the THL Transaction described below,
      Nortek was a wholly-owned direct subsidiary of the former Nortek Holdings and
      THL Buildco was a wholly-owned direct subsidiary of THL Buildco
      Holdings.





On
      August
      27, 2004, THL Buildco purchased all of the outstanding capital stock of the
      former Nortek Holdings pursuant to a stock purchase agreement in a transaction
      valued at approximately $1,740,000,000 (the “Acquisition”). Immediately upon the
      completion of the Acquisition, THL Buildco was merged with and into the former
      Nortek Holdings with the former Nortek Holdings continuing as the surviving
      corporation. The former Nortek Holdings was then merged with and into Nortek
      with Nortek continuing as the surviving corporation and a wholly-owned
      subsidiary of THL Buildco Holdings. THL Buildco Holdings was then renamed Nortek
      Holdings, Inc. (“Nortek Holdings”). Nortek Holdings is wholly-owned by the
      Company, which is wholly-owned by Investors LLC, a Delaware limited liability
      company. In connection with the Acquisition, members of Nortek management
      reinvested a portion of their equity interest in the former Nortek Holdings
      for
      an equity interest in Investors LLC and interests in a deferred compensation
      plan established by Nortek Holdings (the Acquisition and the above events are
      collectively referred to herein as the “THL Transaction”).





**The
      Acquisition**





On
      August
      27, 2004, the sole stockholder of Nortek, the former Nortek Holdings, adopted
      and approved, by unanimous written consent in lieu of special meeting, the
      Agreement and plan of Merger between the former Nortek Holdings and Nortek,
      which provided for the merger of the former Nortek Holdings with and into
      Nortek.





Prior
      to
      the Acquisition, certain members of Nortek management held stock options to
      purchase shares of common stock of the former Nortek Holdings issued to them
      under the former Nortek Holdings 2002 Stock Option Plan. These members of Nortek
      management, who would have been entitled to receive cash payments upon
      consummation of the Acquisition in respect to these options, instead sold a
      portion of those options to THL Buildco for approximately $113,032,000 and
      surrendered the remainder of these options held by them for cancellation without
      immediate payment. In consideration for this cancellation of options without
      immediate payment, these option holders received an equity interest in Investors
      LLC and Nortek Holdings established a deferred compensation plan and credited
      for the account of each of these management participants under the plan a number
      of notional Class A units of Investors LLC equal in value to the value of the
      old stock options so cancelled.





In
      connection with the THL Transaction, members of the Company’s management became
      participants in a newly adopted deferred compensation plan of Nortek Holdings.
      These management participants, who would have been entitled to receive cash
      payments upon consummation of the THL Transaction in respect of all options
      previously granted to them under the former Nortek Holdings, Inc. 2002 Stock
      Option Plan, instead sold a portion of those options to THL Buildco and
      surrendered the remainder of the options held by them for cancellation without
      immediate payment. In consideration for this cancellation of options without
      immediate payment, Nortek Holdings established this deferred compensation plan
      and credited for the account of each of these management participants under
      the
      plan a notional amount equal to the value of the old stock options so cancelled.
      For purposes of the plan, the value of the stock options cancelled equals the
      excess of the value of the stock underlying the options at the time of the
      THL
      Transaction over the aggregate exercise price of the options. The plan is a
      non-qualified, unfunded obligation of Nortek Holdings. Distributions to
      participants under the plan will track proportionate distributions to those
      made
      to the Class A units of Investors LLC. The maximum aggregate amount of
      distributions that are payable to any participant under the plan equals the
      total value of the stock options surrendered by the participant for cancellation
      without payment, or an aggregate of approximately $111,800,000 for all
      participants.





Nortek
      Holdings recorded approximately $93,000,000 at August 27, 2004 in other
      long-term liabilities related to its deferred compensation plan. At October
      1,
      2005, other long-term liabilities include approximately $48,264,000 related
      to
      the deferred compensation plan and at December 31, 2004 approximately
      $95,164,000 (of which approximately $49,200,000 is recorded in accrued expenses
      and taxes, net and approximately $45,964,000 is recorded in other long-term
      liabilities) was recorded in the accompanying unaudited condensed consolidated
      balance sheet relating to the deferred compensation plan. On February 18, 2005,
      Nortek Holdings made a distribution to the participants of its deferred
      compensation plan in the amount of approximately $57,700,000 (see Note
      C).





In
      connection with accounting for the purchase price for the Acquisition, Nortek
      recorded a deferred tax benefit of approximately $32,550,000 representing the
      tax benefit related to the deferred compensation plan of Nortek Holdings. At
      October 1, 2005 the deferred tax benefit was approximately $16,893,000 and
      at
      December 31, 2004 the deferred tax benefit was approximately
      $33,308,000.





Beginning
      on August 28, 2004, the Company accounted for the Acquisition as a purchase
      in
      accordance with the provisions of SFAS No. 141, “Business Combinations” (“SFAS
      No. 141”), Emerging Issue Task Force (“EITF”) Issue No. 88-16, “Basis in
      Leveraged Buyout Transactions”, (“EITF 88-16”) and SEC Staff Accounting Bulletin
      (“SAB”) No. 54, “Push Down Basis of Accounting Required in Certain Limited
      Circumstances” (“SAB No. 54”), which resulted in a new valuation for the assets
      and liabilities of the Company and its subsidiaries based upon fair values
      as of
      the date of the Acquisition. SFAS No. 141 requires the Company to establish
      a
      new basis for its assets and liabilities based on the amount paid for its
      ownership at August 27, 2004. In accordance with EITF 88-16, the acquired assets
      and liabilities have been recorded at fair value for the interests acquired
      by
      new investors and at carryover basis for continuing investors. As a result,
      the
      assets and liabilities are assigned new values, which are part Pre-Acquisition
      cost and part fair value, in the same proportions as the carryover basis of
      the
      residual interests retained by the continuing management investors and the
      new
      interests acquired by the affiliates of Thomas H. Lee Partners L.P. Accordingly,
      the Company’s ownership basis (including the fair value of options rolled over
      by the Management Investors) is reflected in the Company’s consolidated
      financial statements beginning upon completion of the Acquisition. The purchase
      price for the equity of the Company of approximately $743,154,000 was allocated
      to the assets and liabilities based on their relative fair values and
      approximately $316,715,000 was recorded in Stockholder’s Investment representing
      the ownership interest of the Company’s equity holders upon completion of the
      Acquisition, net of a deemed dividend of approximately $63,879,000.





During
      the three and nine months ended October 1, 2005 and the period from August
      28,
      2004 to October 2, 2004, the Company recorded approximately $400,000, $700,000
      and $2,400,000, respectively, of amortization of excess purchase price allocated
      to inventory related to the Acquisition as a non-cash charge to cost of goods
      sold.





The
      following reflects the unaudited pro forma effect of the Acquisition on
      continuing operations for the periods presented below:





**Pro
                Forma for the Period****July
                4, 2004 -**
              **Aug.
                27, 2004**
            
            **Jan.
                1, 2004 -**
              **Aug.
                27, 2004***(Amounts
                in thousands)*Net
                sales
            
            $
            266,836
            
            $
            1,117,860Operating
                earnings
            
            $
            27,469
            
            $
            110,296Earnings
                from continuing operations
            
            $
            6,182
            
            $
            27,041





The
      unaudited pro forma condensed consolidated amounts presented above have been
      prepared by adjusting historical amounts for the period to give effect to the
      Acquisition as if it had occurred on January 1, 2004. The pro forma adjustments
      to the historical results of operations for the amounts presented include the
      pro forma impact of the purchase accounting for such period, the elimination
      of
      approximately $83,700,000 of expenses and charges arising from the Acquisition
      in August of 2004 recorded during such period, as the unaudited pro forma
      condensed consolidated summary of operations assumes that the Acquisition
      occurred on January 1, 2004.





The
      following table presents a summary of the activity in goodwill for continuing
      operations and discontinued operations for the nine months ended October 1,
      2005, the period from August 28, 2004 to December 31, 2004 and the period from
      January 1, 2004 to August 27, 2004.





**Continuing**
            
            **Discontinued****Operations**
            
            **Operations**
            
            **Total***(Amounts
                in thousands)***Balance
                as of December 31, 2003**
            
            **$**
            **675,846**
            
            **$**
            **222,194**
            
            **$**
            **898,040**Acquisitions
                during the period from January 1, 2004 to August 27, 2004
            
            
            6,841
            
            
            ---
            
            
            6,841Dispositions
            
            
            ---
            
            
            (222,194
            )
            
            (222,194
            )Purchase
                accounting adjustments
            
            
            (3,229
            )
            
            ---
            
            
            (3,229
            )Impact
                of foreign currency translation
            
            
            1
            
            
            ---
            
            
            1**Balance
                as of August 27, 2004**
            
            
            **679,459**
            
            
            **---**
            
            
            **679,459**Effect
                of the Acquisition
            
            
            607,053
            
            
            ---
            
            
            607,053Acquisitions
                during the period fromAugust
                28, 2004 to December 31, 2004
            
            
            8,805
            
            
            ---
            
            
            8,805Purchase
                accounting adjustments
            
            
            (2,005
            )
            
            ---
            
            
            (2,005
            )Impact
                of foreign currency translation
            
            
            1,793
            
            
            ---
            
            
            1,793**Balance
                as of December 31, 2004**
            
            
            **1,295,105**
            
            
            **---**
            
            
            **1,295,105**Acquisitions
                during the nine months endedOctober
                1, 2005
            
            
            90,234
            
            
            ---
            
            
            90,234Purchase
                accounting adjustments
            
            
            (1,105
            )
            
            ---
            
            
            (1,105
            )Impact
                of foreign currency translation
            
            
            (386
            )
            
            ---
            
            
            (386
            )**Balance
                as of October 1, 2005**
            
            **$**
            **1,383,848**
            
            **$**
            **---**
            
            **$**
            **1,383,848**





Approximately
      $82,600,000 of goodwill associated with companies acquired in 2005 (see Note
      D)
      will be deductible for income tax purposes. Purchase
      accounting adjustments relate principally to final revisions resulting from
      the
      completion of fair value adjustments and adjustments to deferred income taxes
      that impact goodwill.





(C) On
      February 15, 2005, the Company completed the sale of $403,000,000 aggregate
      principal amount at maturity ($250,408,080 gross proceeds) of its 10 3/4% Senior
      Discount Notes due March 1, 2014 (the “10 3/4% Senior Discount Notes”). The 10
      3/4% Senior Discount Notes, which are structurally subordinate to all debt
      and
      liabilities of the Company’s subsidiaries, including Nortek Holdings and Nortek,
      were issued and sold in a private Rule 144A offering to institutional investors. On
      July
      5, 2005, the Company filed a registration statement with the SEC to exchange
      the
      10 3/4% Senior Discount Notes for registered notes. The registration statement
      went effective on July 21, 2005. During the exchange offer period, which closed
      during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
      were
      exchanged for registered notes. The Company will continue to file periodic
      reports with the SEC as required by the indenture governing the 10 3/4% Senior
      Discount Notes.





The
      accreted value of the 10 3/4% Senior Discount Notes will increase from the
      date
      of issuance at a rate of 10 3/4% per annum compounded semi-annually such that
      the accreted value would, if no prior redemptions are made, equal the principal
      amount of $403,000,000 in September 2009. No cash interest will accrue on the
      10
      3/4% Senior Discount Notes prior to September 1, 2009 and, thereafter, cash
      interest will accrue at 10 3/4% per annum payable semi-annually in arrears
      on
      March 1 and September 1 of each year, commencing on March 1, 2010, until
      maturity. The 10 3/4% Senior Discount Notes are unsecured obligations of the
      Company, which mature on March 1, 2014, and may be redeemed in whole or in
      part
      at the redemption prices as defined in the indenture governing the 10 3/4%
      Senior Discount Notes (the “Indenture”). The Indenture contains covenants that
      limit the Company’s ability to engage in certain transactions, including
      incurring additional indebtedness and paying dividends or
      distributions.





The
      net
      proceeds of the offering were used to pay a dividend of approximately
      $187,000,000 to its sole stockholder, Investors LLC. In turn, Investors LLC
      authorized a distribution of approximately $187,000,000 to the equity holders
      of
      Investors LLC in accordance with the terms of the LLC agreement by and among
      Investors LLC and its members. In addition, on February 18, 2005, NTK Holdings
      contributed approximately $57,700,000 to Nortek Holdings for the purpose of
      making payments under the Nortek Holdings, Inc. Deferred Compensation Plan,
      which resulted in additional expense of approximately $8,200,000, which the
      Company has included in interest expense in the accompanying unaudited condensed
      consolidated statement of operations. All payments related to this contribution
      have been made by Nortek Holdings, Inc.





On
      August
      27, 2004 in connection with the Acquisition, Nortek purchased for cash through
      a
      tender offer or redeemed for cash pursuant to the applicable indenture governing
      such notes all of the former Nortek Holdings’ 10% Senior Discount Notes due 2011
      (the “Senior Discount Notes) (approximately $376,500,000 of accreted principal
      as of August 27, 2004), all of its outstanding $200,000,000 in principal amount
      Floating Rate Notes due 2010 (the “Floating Rate Notes), and approximately
      $240,000,000 principal amount of its outstanding 9 7/8% Senior Subordinated
      Notes due 2011 ($250,000,000 in principal amount outstanding immediately before
      the Acquisition) (the “9 7/8% Notes”). The Company recorded a pre-tax loss from
      debt retirement of approximately $118,778,000 in the period from July 4, 2004
      to
      August 27, 2004 as a result of these debt redemptions. As the indenture
      governing the 9 7/8% Notes does not allow for redemption, after completion
      of
      the tender offer on August 27, 2004, approximately $10,000,000 in aggregate
      principal amount of such notes remains outstanding.





From
      January 1, 2004 through February 3, 2004, Nortek purchased approximately
      $14,800,000 of its 9 1/4% Senior Notes due 2007 (“9 1/4% Notes”) and
      approximately $10,700,000 of its 9 1/8% Senior Notes due 2007 (“9 1/8% Notes”)
      in open market transactions. On March 15, 2004, Nortek redeemed all of its
      outstanding 9 1/4% Notes (approximately $160,200,000 in principal amount) and
      on
      March 14, 2004 redeemed all of its outstanding 9 1/8% Notes (approximately
      $299,300,000 in principal amount). The 9 1/4% Notes and 9 1/8% Notes were
      redeemed at a redemption price of 101.542% and 103.042%, respectively, of the
      principal amount thereof plus accrued and unpaid interest. The 9 1/4% Notes
      and
      9 1/8% Notes ceased to accrue interest as of the respective redemption dates
      indicated above. The Company used the net after tax proceeds from the sale
      of
      Ply Gem of approximately $450,000,000 (see Note F), together with existing
      cash
      on hand, to fund the redemption of the 9 1/4% Notes and 9 1/8% Notes.





On
      March
      14, 2004, Nortek redeemed $60,000,000 of its outstanding 8 7/8% Senior Notes
      due
      2008 (“8 7/8% Notes”) and on March 31, 2004, Nortek redeemed the remaining
      $150,000,000 of its outstanding 8 7/8% Notes (see below). The 8 7/8% Notes
      were
      called at a redemption price of 104.438% of the principal amount thereof plus
      accrued and unpaid interest. Nortek used the net proceeds of approximately
      $196,000,000 from the sale of the Floating Rate Notes on March 1, 2004, together
      with existing cash on hand, to fund the redemption of the 8 7/8% Notes.





The
      open
      market purchases and the redemption of the Senior Discount Notes, the Floating
      Rate Notes, the 9 7/8% Notes, the 9 1/4% Notes, the 9 1/8% Notes and the 8
      7/8%
      Notes noted above resulted in a pre-tax loss of approximately $118,778,000
      and
      $130,736,000 in the periods from July 4, 2004 to August 27, 2004 and from
      January 1, 2004 to August 27, 2004, respectively, based upon the difference
      between the respective redemption prices indicated above and the estimated
      carrying values at the redemption dates.





Interest
      expense for the period from January 1, 2004 to August 27, 2004 includes
      duplicative interest arising during the waiting period from the call for
      redemption to the date of redemption of the 8 7/8% Notes as during that period,
      the Floating Rate Notes, whose proceeds were used to refinance the 8 7/8% Notes,
      were also outstanding.





Also
      in
      connection with the Acquisition, Nortek received a bridge-financing letter
      from
      a lender for a senior unsecured term loan facility not to exceed $625,000,000
      (the “THL Bridge Facility”). The THL Bridge Facility was intended to be used to
      fund, if necessary, any short fall in raising the financing necessary to
      consummate the Acquisition. Nortek did not use this THL Bridge Facility because
      it was able to obtain the financing necessary to consummate the Acquisition
      through conventional sources. The THL Bridge Facility expired upon the closing
      of the Acquisition. As a result, the Company’s consolidated interest expense for
      the period from August 28, 2004 to October 2, 2004 includes approximately
      $6,250,000 of interest expense from the amortization of the THL Bridge Facility
      commitment fees and related expenses.





At
      October 1, 2005, there was approximately $109,000,000 available for the payment
      of cash dividends, stock purchases or other restricted payments (“Restricted
      Payments”) by the Company as defined under the terms of the Company’s 10 3/4%
      Senior Discount Notes’ indenture. Restricted Payments to NTK Holdings and Nortek
      Holdings from Nortek are limited by the terms of Nortek’s most restrictive loan
      agreement, Nortek’s Senior Secured Credit Facility. The amount available for
      such payments under Nortek’s Senior Secured Credit Facility was approximately
      $112,800,000 at October 1, 2005.





(D)
            On
                August 26, 2005, the Company acquired the assets of Sunfire Corporation
                (“Sunfire”) for approximately $4,000,000 (utilizing approximately
                $3,500,000 of cash on hand and issuing an unsecured subordinated
                promissory note in the amount of approximately $500,000) plus contingent
                consideration. Sunfire is located in Snohomish, WA and manufactures
                and
                designs home audio and home cinema amplifiers, receivers and
                subwoofers.





On
      August
      8, 2005, the Company acquired the stock of Imerge Limited (“Imerge”) for
      approximately $6,000,000 in cash plus contingent consideration. Imerge is
      located in Cambridge, United Kingdom and manufactures and designs hard disk
      media players and multi-room audio servers.





On
      July
      15, 2005, the Company acquired the assets and certain liabilities of Niles
      Audio
      Corporation (“Niles”) for approximately $76,500,000. In connection with the
      acquisition of Niles, the Company utilized approximately $41,500,000 of cash
      on
      hand, borrowed approximately $25,000,000 against the U.S. portion of its
      revolving credit facility (which was subsequently paid prior to October 1,
      2005)
      and issued an unsecured promissory note in the amount of approximately
      $10,000,000. Niles is located in Miami, FL and manufactures and designs products
      that provide customers with innovative solutions for whole-house distribution
      and integration of audio and video systems, including speakers, receivers,
      amplifiers, automation devices, controls and accessories. For the year ended
      December 31, 2004, Niles had unaudited net sales, operating earnings and
      depreciation and amortization expense of approximately $50,000,000, $8,500,000
      and $500,000, respectively.





On
      June
      13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc.
      (“Nordyne”), acquired International Marketing Supply, Inc. (“IMS”) for
      approximately $4,600,000, utilizing approximately $4,100,000 of cash on hand
      and
      issuing an unsecured promissory note in the amount of approximately $500,000.
      IMS is located in Miami, FL and sells heating, ventilation and air-conditioning
      equipment to customers in Latin America.





On
      April
      26, 2005, the Company, through its indirect wholly-owned subsidiary, Linear
      LLC
      (“Linear”), acquired Panamax for approximately $11,850,000 (utilizing
      approximately $9,600,000 of cash on hand and issuing an unsecured promissory
      note in the amount of approximately $2,250,000) plus contingent consideration.
      Panamax is located in Petaluma, CA and manufactures and designs innovative
      power
      conditioning and surge protection products that prevent loss or damage of home
      and small business equipment due to power disturbances.





On
      December 17, 2004, the Company, through Linear, acquired M&S Systems, LP
      (“M&S”), located in Dallas, TX, for approximately $16,400,000 in cash.
      M&S is a manufacturer and designer of distributed audio and communication
      equipment, speakers and central vacuum systems.





On
      March
      9, 2004, the Company, through Linear, acquired OmniMount Systems, Inc.
      (“OmniMount”) for approximately $16,500,000 in cash plus contingent
      consideration. OmniMount is a manufacturer and designer of speaker and video
      mountings and other products to maximize the home theater experience.





The
      estimated total potential amount of contingent consideration that may be paid
      in
      the future for these acquisitions is approximately $7,250,000.





Acquisitions
      contributed approximately $30,300,000, $4,100,000 and $200,000 to net sales,
      operating earnings and depreciation and amortization expense, respectively,
      for
      the three months ended October 1, 2005 and contributed approximately
      $53,700,000, $5,800,000 and $400,000 to net sales, operating earnings and
      depreciation and amortization expense, respectively, for the nine months ended
      October 1, 2005. Sunfire, Imerge, Niles, Panamax, M&S and OmniMount are
      included in the Residential Building Products Segment in the Company’s segment
      reporting, while IMS is included in the Air Conditioning and Heating Products
      Segment in the Company’s segment reporting.





During
      the nine months ended October 1, 2005 and the period from January 1, 2004 to
      August 27, 2004, the Company recorded approximately $100,000 and $200,000,
      respectively, of amortization of excess purchase price allocated to inventory
      related to the acquisitions noted above as a non-cash charge to cost of goods
      sold.





Acquisitions
      are accounted for as purchases and accordingly have been included in the
      Company’s consolidated results of operations since the acquisition date. For
      recent acquisitions, the Company has made preliminary estimates of the fair
      value of the assets and liabilities of the acquired companies, including
      intangible assets and property and equipment, as of the date of acquisition,
      utilizing information available at the time that the Company’s Unaudited
      Financial Statements were prepared and these estimates are subject to refinement
      until all pertinent information has been obtained. The Company is in the process
      of obtaining appraisals of intangible assets and property and equipment and
      finalizing the integration of the acquired companies, which are expected to
      be
      completed by the end of the first half of 2006.





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





(E) The
        operating results of the Air Conditioning and Heating Products Segment for
        the
        periods from August 28, 2004 to October 2, 2004, from July 4, 2004 to August
        27,
        2004 and from January 1, 2004 to August 27, 2004 include approximately $200,000,
        $300,000 and $2,200,000, respectively, of costs associated with the closure
        of
        certain manufacturing facilities (see Note J).





Operating
      results for the three months ended October 1, 2005 include a non-cash foreign
      exchange gain of approximately $100,000 and for the nine months ended October
      1,
      2005 include a non-cash foreign exchange loss of approximately $1,300,000
      related to intercompany debt not permanently invested in the Company’s
      subsidiaries. Operating results for the periods from August 28, 2004 to October
      2, 2004, from July 4, 2004 to August 27, 2004 and from January 1, 2004 to August
      27, 2004 include non-cash foreign exchange losses of approximately $100,000,
      $300,000 and $800,000, respectively, related to intercompany debt not
      permanently invested in the Company’s subsidiaries. A portion of this expense
      has been allocated to the Company’s reporting segments for all periods presented
      (see Note G).





Operating
      results for the nine months ended October 1, 2005 include a gain of
      approximately $1,400,000 from the settlement of certain obligations related
      to
      former subsidiaries (see Note I).





During
      the three months and nine months ended October 1, 2005 the Company recorded
      a
      pre-tax charge to continuing operations of approximately $100,000 and $300,000,
      respectively, for compensation expense related to stock options issued to
      employees, officers and directors in accordance with SFAS No. 123. During the
      periods from August 28, 2004 to October 2, 2004, from July 4, 2004 to August
      27,
      2004 and from January 1, 2004 to August 27, 2004 the Company recorded a pre-tax
      charge to continuing operations of approximately $30,000,
      $45,200,000 and $48,500,000 ,
      respectively, for compensation expense related to stock options issued to
      employees, officers and directors in accordance with SFAS No. 123 (see Note
      A).
      A portion of this expense has been allocated to the Company’s reporting segments
      for all periods presented (see Note G).





For
      the
      period from January 1, 2004 to August 27, 2004, the Company incurred certain
      expenses and charges in connection with the Acquisition which are summarized
      as
      follows:





Expense
                related to the cancellation of stock options, net
            
            $
            45,200,000Sellers
                fees and expenses
            
            
            26,000,000Expense
                related to settlement and termination of certain benefits with two
                of the
                Company’s officers
            
            
            10,200,000Other
            
            
            2,300,000$
            83,700,000





(F)
            On
                July 31, 2004, the Company sold the capital stock of its wholly-owned
                subsidiary, La Cornue SAS (“La Cornue”) for net cash proceeds of
                approximately $5,800,000 and recorded a net after tax gain of
                approximately $900,000. La Cornue, situated outside of Paris, France
                manufactures and sells high-end custom made cooking ranges.





On
      February 12, 2004, the Company sold the capital stock of its wholly-owned
      subsidiary Ply Gem Industries, Inc. (“Ply Gem”) for net cash proceeds of
      approximately $506,700,000, after excluding approximately $21,400,000 of
      proceeds provided to fund liabilities of Ply Gem indemnified by the Company,
      and
      recorded a net after-tax gain on the sale of approximately $74,100,000. Ply
      Gem,
      through its operating subsidiaries, is a manufacturer and distributor of a
      range
      of products for use in the residential new construction, do-it-yourself and
      professional renovation markets, including vinyl siding, windows, patio doors,
      fencing, railing, decking and accessories. The results of operations of the
      operating subsidiaries of Ply Gem comprised the Company’s entire Windows, Doors
      and Siding Products (“WDS”) reporting segment and the corporate expenses of Ply
      Gem, which were previously included in Unallocated in the Company’s segment
      reporting (see Note G).





The
      Company allocates interest to dispositions that qualify as a discontinued
      operation for debt instruments which are entered into specifically and solely
      with the entity disposed of and for debt which is settled with proceeds received
      from the disposition. Interest allocated to discontinued operations, included
      in
      interest income (expense), net, in the table below, was approximately $2,800,000
      (net of taxes of approximately $1,600,000) for the period from January 1, 2004
      to August 27, 2004.





The
      sale
      of La Cornue and Ply Gem and the related operating results have been excluded
      from earnings (loss) from continuing operations and are classified as
      discontinued operations for all applicable periods presented.





The
      table
      that follows presents a summary of the results of discontinued operations for
      the periods presented:




**Pre-Acquisition****For
                  the Periods****July
                  4, 2004 -**
              
              **Jan.
                  1, 2004 -****Aug.
                  27, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)*Net
                  sales
              
              $
              3,500
              
              $
              48,900Operating
                  loss of discontinued operations *
              
              $
              (4,006
              )
              $
              (7,743
              )Interest
                  income (expense), net
              
              
              6
              
              
              (4,557
              )Loss
                  before income tax benefit
              
              
              (4,000
              )
              
              (12,300
              )Income
                  tax benefit
              
              
              (1,800
              )
              
              (4,700
              )Loss
                  from discontinued operations
              
              
              (2,200
              )
              
              (7,600
              )Gain
                  on sale of discontinued operations
              
              
              2,500
              
              
              125,200Income
                  tax (benefit) provision on sale of discontinued operations
              
              
              (200
              )
              
              50,2002,700
              
              
              75,000Earnings
                  from discontinued operations
              
              $
              500
              
              $
              67,400Depreciation
                  and amortization expense
              
              $
              8
              
              $
              1,413




*
            Operating
                loss of discontinued operations are net of Ply Gem corporate expenses,
                which were previously included within Unallocated in the Company’s segment
                reporting.





(G)
            The
                Company has two reportable segments: the Residential Building Products
                Segment and the Air Conditioning and Heating Products Segment. In
                the
                tables below, Unallocated includes corporate related items, intersegment
                eliminations and certain income and expense items not allocated to
                reportable segments.





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





Unaudited
      net sales, operating earnings (loss) and pre-tax earnings (loss) from
      continuing operations for the Company’s segments for the three months ended
      October 1, 2005 and the periods from August 28, 2004 to October 2, 2004 and
      from
      July 4, 2004 to August 27, 2004 were as follows:




**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****July
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **July
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Net
                  sales:**Residential
                  building products
              
              $
              299,077
              
              $
              99,185
              
              $
              146,523Air
                  conditioning and heating products
              
              
              223,789
              
              
              61,843
              
              
              120,313Consolidated net sales
              
              $
              522,866
              
              $
              161,028
              
              $
              266,836**Operating
                  earnings (loss):**Residential
                  building products *
              
              $
              51,373
              
              $
              16,387
              
              $
              20,711Air
                  conditioning and heating products *
              
              
              22,154
              
              
              1,168
              
              
              217Subtotal
              
              
              73,527
              
              
              17,555
              
              
              20,928**Unallocated:**Expenses
                    and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              (38,500
              )Stock-based
                  compensation charges
              
              
              (100
              )
              
              ---
              
              
              (34,100
              )Other,
                  net
              
              
              (5,959
              )
              
              (2,089
              )
              
              (4,299
              )Consolidated operating earnings (loss)
              
              
              67,468
              
              
              15,466
              
              
              (55,971
              )Interest
                  expense
              
              
              (34,332
              )
              
              (16,798
              )
              
              (12,092
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (118,778
              )Investment
                  income
              
              
              264
              
              
              32
              
              
              241Earnings
                    (loss) before provision (benefit) for income taxes
              
              $
              33,400
              
              $
              (1,300
              )
              $
              (186,600
              )




*
            The
                operating results of the Residential Building Products Segment for
                the
                periods from August 28, 2004 to October 2, 2004 and from July 4,
                2004 to
                August 27, 2004 include non-cash foreign exchange losses of approximately
                $100,000 and $300,000, respectively, related to intercompany debt
                not
                permanently invested in the Company’s subsidiaries. The operating results
                of the Residential Building Products Segment for the period from
                July 4,
                2004 to August 27, 2004 also include approximately $5,300,000 of
                stock-based compensation charges (see Note
                A).





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      three months ended October 1, 2005 include a non-cash foreign exchange gain
      of
      approximately $100,000 related to intercompany debt not permanently invested
      in
      the Company’s subsidiaries. The operating results of the Air Conditioning and
      Heating Products Segment for the periods from August 28, 2004 to October 2,
      2004
      and from July 4, 2004 to August 27, 2004 include approximately $200,000 and
      $300,000, respectively, of costs associated with the closure of certain
      manufacturing facilities (see Note J) and also includes for the period from
      July
      4, 2004 to August 27, 2004 approximately $5,800,000 of stock-based compensation
      charges (see Note A).





Unaudited
      net sales, operating earnings and pre-tax earnings (loss) from continuing
      operations for the Company’s segments for the nine months ended October 1, 2005
      and the periods from August 28, 2004 to October 2, 2004 and from January 1,
      2004
      to August 27, 2004 were as follows:




**For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Net
                  sales:**Residential
                  building products
              
              $
              839,029
              
              $
              99,185
              
              $
              623,859Air
                  conditioning and heating products
              
              
              616,815
              
              
              61,843
              
              
              494,001Consolidated net sales
              
              $
              1,455,844
              
              $
              161,028
              
              $
              1,117,860**Operating
                  earnings:**Residential
                  building products *
              
              $
              135,012
              
              $
              16,387
              
              $
              102,808Air
                  conditioning and heating products *
              
              
              49,927
              
              
              1,168
              
              
              25,507Subtotal
              
              
              184,939
              
              
              17,555
              
              
              128,315**Unallocated:**Expenses
                    and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              (38,500
              )Stock-based
                  compensation charges
              
              
              (300
              )
              
              ---
              
              
              (36,400
              )Foreign
                  exchange loss on intercompany debt
              
              
              (300
              )
              
              ---
              
              
              (200
              )Gain
                  on legal settlement
              
              
              1,400
              
              
              ---
              
              
              ---Other,
                  net
              
              
              (18,554
              )
              
              (2,089
              )
              
              (20,626
              )Consolidated operating earnings
              
              
              167,185
              
              
              15,466
              
              
              32,589Interest
                  expense
              
              
              (104,257
              )
              
              (16,798
              )
              
              (56,073
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )Investment
                  income
              
              
              1,072
              
              
              32
              
              
              1,520Earnings
                    (loss) before provision (benefit) for income taxes
              
              $
              64,000
              
              $
              (1,300
              )
              $
              (152,700
              )




*
            The
                operating results of the Residential Building Products Segment for
                the
                nine months ended October 1, 2005 and the periods from August 28,
                2004 to
                October 2, 2004 and from January 1, 2004 to August 27, 2004 include
                non-cash foreign exchange losses of approximately $1,000,000, $100,000
                and
                $600,000, respectively, related to intercompany debt not permanently
                invested in the Company’s subsidiaries. The operating results of the
                Residential Building Products Segment for the period from January
                1, 2004
                to August 27, 2004 also include approximately $5,900,000 of stock-based
                compensation charges (see Note A).





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      periods from August 28, 2004 to October 2, 2004 and from January 1, 2004 to
      August 27, 2004 include approximately $200,000 and $2,200,000, respectively,
      of
      costs associated with the closure of certain manufacturing facilities (see
      Note
      J) and also includes for the period from January 1, 2004 to August 27, 2004
      approximately $6,200,000 of stock-based compensation charges (see Note
      A).





Unaudited
      depreciation expense, amortization of intangible assets and purchase price
      allocated to inventory and capital expenditures from continuing operations
      for
      the Company’s segments for the three months ended October 1, 2005 and the
      periods from August 28, 2004 to October 2, 2004 and from July 4, 2004 to August
      27, 2004 were as follows:




**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****July
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **July
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Depreciation
                  Expense:**Residential
                  building products
              
              $
              3,406
              
              $
              1,288
              
              $
              2,036Air
                  conditioning and heating products
              
              
              3,239
              
              
              1,171
              
              
              1,800Other
              
              
              231
              
              
              65
              
              
              103Consolidated
                  depreciation expense
              
              $
              6,876
              
              $
              2,524
              
              $
              3,939**Amortization
                    of intangible assets andpurchase
                    price allocated to inventory *:**Residential
                  building products
              
              $
              3,837
              
              $
              2,953
              
              $
              1,503Air
                  conditioning and heating products
              
              
              797
              
              
              782
              
              
              519Other
              
              
              126
              
              
              48
              
              
              ---Consolidated
                    amortization expense andpurchase
                    price allocated to inventory
              
              $
              4,760
              
              $
              3,783
              
              $
              2,022**Capital
                  Expenditures **:**Residential
                  building products
              
              $
              2,390
              
              $
              679
              
              $
              2,157Air
                  conditioning and heating products
              
              
              4,316
              
              
              2,208
              
              
              1,008Other
              
              
              225
              
              
              ---
              
              
              5Consolidated
                  capital expenditures
              
              $
              6,931
              
              $
              2,887
              
              $
              3,170




*
            During
                the three months ended October 1, 2005 and the period from August
                28, 2004
                to October 2, 2004 the Company reflected amortization of approximately
                $400,000 and $1,900,000, respectively, in the Residential Building
                Products Segment and for the period from August 28, 2004 to October
                2,
                2004 approximately $500,000 in the Air Conditioning and Heating Products
                Segment of excess purchase price allocated to inventory as a non-cash
                charge to cost of products sold.





**
            Includes
                capital expenditures financed under capital leases of approximately
                $1,100,000, $300,000 and $900,000 for the three months ended October
                1,
                2005 and the periods from August 28, 2004 to October 2, 2004 and
                from July
                4, 2004 to August 27, 2004, respectively.





Unaudited
      depreciation expense, amortization of intangible assets and purchase price
      allocated to inventory and capital expenditures from continuing operations
      for
      the Company’s segments for the nine months ended October 1, 2005 and the periods
      from August 28, 2004 to October 2, 2004 and from January 1, 2004 to August
      27,
      2004 were as follows:




**For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Depreciation
                  Expense:**Residential
                  building products
              
              $
              10,174
              
              $
              1,288
              
              $
              8,495Air
                  conditioning and heating products
              
              
              9,605
              
              
              1,171
              
              
              7,828Other
              
              
              655
              
              
              65
              
              
              408Consolidated
                  depreciation expense
              
              $
              20,434
              
              $
              2,524
              
              $
              16,731**Amortization
                    of intangible assets andpurchase
                    price allocated to inventory *:**Residential
                  building products
              
              $
              11,137
              
              $
              2,953
              
              $
              6,879Air
                  conditioning and heating products
              
              
              2,397
              
              
              782
              
              
              2,213Other
              
              
              375
              
              
              48
              
              
              ---Consolidated
                    amortization expense andpurchase
                    price allocated to inventory
              
              $
              13,909
              
              $
              3,783
              
              $
              9,092**Capital
                  Expenditures **:**Residential
                  building products
              
              $
              7,171
              
              $
              679
              
              $
              6,956Air
                  conditioning and heating products
              
              
              11,993
              
              
              2,208
              
              
              5,483Other
              
              
              451
              
              
              ---
              
              
              347Consolidated
                  capital expenditures
              
              $
              19,615
              
              $
              2,887
              
              $
              12,786




*
            During
                the nine months ended October 2, 2005 and the periods from August
                28, 2004
                to October 2, 2004 and from January 1, 2004 to August 27, 2004 the
                Company
                reflected amortization of approximately $800,000, $1,900,000 and
                $200,000,
                respectively, in the Residential Building Products Segment and for
                the
                period from August 28, 2004 to October 2, 2004 approximately $500,000
                in
                the Air Conditioning and Heating Products Segment of excess purchase
                price
                allocated to inventory as a non-cash charge to cost of products
                sold.





**
            Includes
                capital expenditures financed under capital leases of approximately
                $4,600,000, $300,000 and $900,000 for the nine months ended October
                1,
                2005 and the periods from August 28, 2004 to October 2, 2004 and
                from
                January 1, 2004 to August 27, 2004, respectively.






(H)
            The
                Company provides income taxes on an interim basis based upon the
                estimated
                annual effective income tax rate. The following reconciles the federal
                statutory income tax rate to the estimated effective tax rate of
                approximately 39.8%, 38.5% and 27.1% for the periods
                presented:






**For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Oct.
                1, 2005**
            
            **Oct.
                2, 2004**
            
            **Aug.
                27, 2004**Income
                tax provision (benefit) at the federal statutory rate
            
            
            35.0
            %
            
            (35.0
            )%
            
            (35.0
            )%Net
                change from federal statutory rate:State income tax provision, net of federal income tax
                effect
            
            
            3.2
            
            
            (1.7
            )
            
            0.5Tax effect resulting from foreign activities
            
            
            1.1
            
            
            (8.1
            )
            
            1.2Non-deductible expenses
            
            
            0.5
            
            
            (0.6
            )
            
            0.2Tax effect of the Acquisition
            
            
            ---
            
            
            ---
            
            
            6.0Other, net
            
            
            ---
            
            
            6.9
            
            
            ---Income
                tax provision (benefit) at estimated effective rate
            
            
            39.8
            %
            
            (38.5
            )%
            
            (27.1
            )%






(I)
            As
                of October 1, 2005, the Company’s former subsidiary, Ply Gem, has
                guaranteed approximately $24,100,000 of third party obligations relating
                to rental payments through June 30, 2016 under a facility leased
                by a
                former subsidiary, which was sold on September 21, 2001. The Company
                has
                indemnified these guarantees in connection with the sale of Ply Gem
                on
                February 12, 2004 (see Note F) and has recorded an estimated liability
                related to this indemnified guarantee of approximately $1,000,000
                at
                October 1, 2005 in accordance with Interpretation No. 45, “Guarantor’s
                Accounting and Disclosure Requirements for Guarantees, Including
                Indirect
                Guarantees of Indebtedness of Others” (“FIN 45”). The buyer of the former
                subsidiary has provided certain indemnifications and other rights
                to
                Nortek for any payments that it might be required to make pursuant
                to this
                guarantee. Should the buyer of the former subsidiary cease making
                payments
                then the Company may be required to make payments on its
                indemnification.





The
      Company has indemnified third parties for certain matters in a number of
      transactions involving dispositions of former subsidiaries. The Company has
      recorded liabilities in relation to these indemnifications, including the
      indemnified guarantee noted above, of approximately $13,200,000 at October
      1,
      2005 and $17,800,000 at December 31, 2004. Approximately $6,000,000 of
      short-term liabilities and approximately $7,200,000 of long-term liabilities
      are
      recorded in accrued expenses and other long-term liabilities, respectively,
      in
      the accompanying unaudited condensed consolidated balance sheet at October
      1,
      2005 related to these indemnifications. In February 2005 the Company settled
      a
      portion of these obligations with a lump sum cash payment resulting in a
      reduction of approximately $1,400,000 in such liabilities, which was recorded
      as
      income in the Company’s unaudited condensed consolidated statement of operations
      for the nine months ended October 1, 2005 (see Note E). Approximately
      $12,400,000 of these indemnifications at October 1, 2005 relate to
      indemnifications provided to a buyer in connection with the sale of certain
      former subsidiaries, including Ply Gem (see Note F). Accordingly, the Company
      has included approximately $5,200,000 of short-term liabilities and
      approximately $7,200,000 of long-term liabilities in accrued expenses and other
      long-term liabilities, respectively, in the accompanying unaudited condensed
      consolidated balance sheet at October 1, 2005 related to these
      indemnifications.





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





Changes
      in the Company’s unaudited combined short-term and long-term warranty
      liabilities during the three months ended October 1, 2005 and the periods from
      August 28, 2004 to October 2, 2004 and from July 4, 2004 to August 27, 2004
      are
      as follows:





**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jul.
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jul.
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)*Balance,
                  beginning of period
              
              $
              31,961
              
              $
              29,683
              
              $
              30,416Warranties
                  provided during the period
              
              
              5,853
              
              
              1,495
              
              
              2,175Settlements
                  made during the period
              
              
              (5,670
              )
              
              (1,704
              )
              
              (3,049
              )Changes
                  in liability estimate, including acquisitions
              
              
              307
              
              
              235
              
              
              141Balance,
                  end of period
              
              $
              32,451
              
              $
              29,709
              
              $
              29,683





Changes
      in the Company’s unaudited combined short-term and long-term warranty
      liabilities during the nine months ended October 1, 2005 and the periods from
      August 28, 2004 to October 2, 2004 and from January 1, 2004 to August 27, 2004
      are as follows:





**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)*Balance,
                  beginning of period
              
              $
              30,319
              
              $
              29,683
              
              $
              29,087Warranties
                  provided during the period
              
              
              16,257
              
              
              1,495
              
              
              11,437Settlements
                  made during the period
              
              
              (14,791
              )
              
              (1,704
              )
              
              (10,877
              )Changes
                  in liability estimate, including acquisitions
              
              
              666
              
              
              235
              
              
              36Balance,
                  end of period
              
              $
              32,451
              
              $
              29,709
              
              $
              29,683





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





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





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





Within
      the Air Conditioning and Heating Products Segment, the Company, in the second
      quarter of 2003, initiated restructuring activities related to the closure
      of
      two facilities owned by the Company in St. Louis, MO, in order to relocate
      the
      operations to other facilities. The facilities supported warehousing and
      distribution activities of the segment’s residential HVAC products. Since the
      initiation of these restructuring activities in 2003, a total of approximately
      438 employees have been terminated to date and one additional employee is
      expected to be terminated during the fourth quarter of 2005. During the periods
      from August 28, 2004 to October 2, 2004, from July 4, 2004 to August 27, 2004
      and from January 1, 2004 to August 27, 2004 the Company provided approximately
      $200,000, $300,000 and $2,200,000, respectively, in cost of goods sold related
      to liabilities incurred as a result of this restructuring. The Company sold
      one
      of the facilities on March 30, 2005 and recorded a gain of approximately
      $200,000.





During
      August of 2004, the Company accrued approximately $3,400,000 related to
      severance benefits for certain of the Company’s employees at its corporate
      office. Approximately $1,400,000 was included as a charge in the Company’s
      consolidated statement of operations on August 27, 2004 and the balance was
      recorded as an intangible asset related to a non-compete agreement. No
      additional amounts have been incurred or are expected to be incurred related
      to
      these severance benefits. It is expected that these severance benefits will
      be
      paid through August 2006.





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






**Employee
                Separation****Expenses**
            
            **Other**
            
            **Total**
              **Restructuring**
              **Costs***(Amounts
                in thousands)**(Unaudited)***Balance
                at December 31, 2003**
            
            **$**
            **1,638**
            
            **$**
            **205**
            
            **$**
            **1,843**Provision
            
            
            71
            
            
            1,219
            
            
            1,290Payments
            
            
            (1,139
            )
            
            (1,420
            )
            
            (2,559
            )**Balance
                at April 3, 2004**
            
            
            **570**
            
            
            **4**
            
            
            **574**Provision
            
            
            125
            
            
            458
            
            
            583Payments
            
            
            (202
            )
            
            (462
            )
            
            (664
            )**Balance
                at July 3, 2004**
            
            
            **493**
            
            
            **---**
            
            
            **493**Provision
            
            
            3,351
            
            
            311
            
            
            3,662Payments
            
            
            (14
            )
            
            (167
            )
            
            (181
            )**Balance
                at August 27, 2004**
            
            
            **3,830**
            
            
            **144**
            
            
            **3,974**Provision
            
            
            ---
            
            
            329
            
            
            329Payments
            
            
            (21
            )
            
            (398
            )
            
            (419
            )**Balance
                at October 2, 2004**
            
            **$**
            **3,809**
            
            **$**
            **75**
            
            **$**
            **3,884****Balance
                at December 31, 2004**
            
            **$**
            **3,150**
            
            **$**
            **30**
            
            **$**
            **3,180**Payments
            
            
            (454
            )
            
            (30
            )
            
            (484
            )Other
            
            
            (10
            )
            
            ---
            
            
            (10
            )**Balance
                at April 2, 2005**
            
            
            **2,686**
            
            
            **---**
            
            
            **2,686**Payments
            
            
            (380
            )
            
            ---
            
            
            (380
            )**Balance
                at July 2, 2005**
            
            
            **2,306**
            
            
            **---**
            
            
            **2,306**Payments
            
            
            (772
            )
            
            ---
            
            
            (772
            )**Balance
                at October 1, 2005**
            
            **$**
            **1,534**
            
            **$**
            **---**
            
            **$**
            **1,534**





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





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





Pension
      and profit sharing expense charged to operations aggregated approximately
      $3,100,000 and $9,900,000 for the three and nine months ended October 1, 2005,
      respectively. Pension and profit sharing expense charged to operations
      aggregated approximately $1,400,000, $2,300,000 and $10,200,000 for the periods
      from August 28, 2004 to October 2, 2004, from July 4, 2004 to August 27, 2004
      and from January 1, 2004 to August 27, 2004, respectively. The Company’s policy
      is to generally fund currently at least the minimum allowable annual
      contribution of its various qualified defined benefit plans. The Company expects
      to contribute approximately $4,300,000 to its defined benefit pension plans
      in
      2005. As of October 1, 2005, approximately $3,500,000 of contributions has
      been
      made.





The
      Company’s unaudited net periodic benefit cost for its defined benefit plans for
      the periods presented consists of the following components:





**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jul.
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jul.
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)*Service
                  cost
              
              $
              336
              
              $
              95
              
              $
              177Interest
                  cost
              
              
              2,213
              
              
              684
              
              
              1,399Expected
                  return on plan assets
              
              
              (2,106
              )
              
              (648
              )
              
              (1,208
              )Amortization
                  of prior service cost
              
              
              ---
              
              
              ---
              
              
              28Recognized
                  actuarial loss
              
              
              5
              
              
              ---
              
              
              2Curtailment
                  loss
              
              
              ---
              
              
              ---
              
              
              806Net
                  periodic benefit cost
              
              $
              448
              
              $
              131
              
              $
              1,204





**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)*Service
                  cost
              
              $
              1,011
              
              $
              95
              
              $
              772Interest
                  cost
              
              
              6,693
              
              
              684
              
              
              6,106Expected
                  return on plan assets
              
              
              (6,364
              )
              
              (648
              )
              
              (5,271
              )Amortization
                  of prior service cost
              
              
              ---
              
              
              ---
              
              
              124Recognized
                  actuarial loss
              
              
              15
              
              
              ---
              
              
              10Curtailment
                  loss
              
              
              ---
              
              
              ---
              
              
              806Net
                  periodic benefit cost
              
              $
              1,355
              
              $
              131
              
              $
              2,547








The
      Company’s unaudited net periodic benefit cost for its subsidiary’s Post
      Retirement Health Benefit Plan for the periods presented consists of the
      following components:






**For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition****Jul.
                3, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jul.
                4, 2004 -****Oct.
                1, 2005**
            
            **Oct.
                2, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            111
            
            $
            36
            
            $
            149Interest
                cost
            
            
            613
            
            
            206
            
            
            368Recognized
                actuarial gain
            
            
            ---
            
            
            ---
            
            
            (3
            )Net
                periodic post retirement health benefit cost
            
            $
            724
            
            $
            242
            
            $
            514






**For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Oct.
                1, 2005**
            
            **Oct.
                2, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            333
            
            $
            36
            
            $
            650Interest
                cost
            
            
            1,844
            
            
            206
            
            
            1,604Recognized
                actuarial gain
            
            
            ---
            
            
            ---
            
            
            (14
            )Net
                periodic post retirement health benefit cost
            
            $
            2,177
            
            $
            242
            
            $
            2,240






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





(L)
            As
                of October 1, 2005, approximately 11.1% of the Company’s workforce was
                subject to various collective bargaining agreements. Collective bargaining
                agreements covering approximately 2.4% of the Company’s workforce expired
                in 2004 and are currently being renegotiated.





On
      June
      8, 2005 the Company’s collective bargaining agreement with the United Automobile
      Aerospace & Agricultural Implement Workers of America and its Local No. 2029
      (which is estimated to cover approximately 4.8% (422 employees) of the Company’s
      workforce subject to collective bargaining agreements as of October 1, 2005)
      at
      the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc. expired.
      The Company has presented its final proposal to the union bargaining committee
      but such proposal was not accepted by the union members. On July 16, 2005,
      the
      Company locked out the union employees at the NuTone Cincinnati, OH facility.
      The Company’s management has prepared contingency plans to ensure that
      operational disruptions are minimized and the Company’s customers’ needs are met
      without significant delay.





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





**NTK
        HOLDINGS, 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 1,
        2005**
 **AND
        THE THIRD QUARTER AND FIRST NINE MONTHS ENDED OCTOBER 2,
        2004**






**ITEM
      2.** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





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





The
      Residential Building Products Segment manufactures and distributes built-in
      products primarily for the residential new construction and DIY and professional
      remodeling and renovation markets. The principal products sold by the segment
      include:





·
            kitchen
                range hoods,


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


·
            indoor
                air quality products,


·
            medicine
                cabinets,


·
            door
                chimes,


·
            musical
                intercoms,


·
            central
                vacuum systems,


·
            security
                and access control products,


·
            multi-room
                audio, video distribution and related equipment and controls,
                and


·
            architectural
                built-in loudspeakers





The
      Air
      Conditioning and Heating Products Segment manufactures and sells heating,
      ventilating and air conditioning systems (“HVAC”) for site-built residential and
      manufactured housing structures, custom-designed commercial applications and
      standard light commercial products.





***The
      THL Transaction***





On
      July
      15, 2004, THL Buildco Holdings, Inc. (“THL Buildco Holdings”) and THL Buildco,
      Inc. (“THL Buildco”), newly formed Delaware corporations affiliated with Thomas
      H. Lee Partners L.P., entered into a stock purchase agreement with the owners
      of
      Nortek Holdings, Inc., Nortek’s former parent company (referred to herein as
“the former Nortek Holdings”), including affiliates of Kelso & Company, L.P.
      (“Kelso”) and certain members of the Company’s management, pursuant to which THL
      Buildco agreed to purchase all the outstanding capital stock of the former
      Nortek Holdings. Prior to the completion of the THL Transaction described below,
      Nortek was a wholly-owned direct subsidiary of the former Nortek Holdings and
      THL Buildco was a wholly-owned direct subsidiary of THL Buildco Holdings.





On
      August
      27, 2004, THL Buildco purchased all of the outstanding capital stock of the
      former Nortek Holdings pursuant to the stock purchase agreement in a transaction
      valued at approximately $1,740,000,000 (the “Acquisition”). Immediately upon the
      completion of the Acquisition, THL Buildco was merged with and into the former
      Nortek Holdings with the former Nortek Holdings continuing as the surviving
      corporation. The former Nortek Holdings was then merged with and into Nortek
      with Nortek continuing as the surviving corporation and a wholly-owned
      subsidiary of THL Buildco Holdings. THL Buildco Holdings was then renamed Nortek
      Holdings, Inc. (“Nortek Holdings”). Nortek Holdings is wholly-owned by NTK
      Holdings, Inc. (“NTK Holdings”), which is wholly-owned by THL-Nortek Investors,
      LLC, a Delaware limited liability company, (“Investors LLC”). In connection with
      the Acquisition, members of Nortek management reinvested a portion of their
      equity interest in the former Nortek Holdings for an equity interest in
      Investors LLC and interests in a deferred compensation plan established by
      Nortek Holdings (the Acquisition and the above events are collectively referred
      to herein as the “THL Transaction”) (see Note B of the Notes to the Unaudited
      Condensed Consolidated Financial Statements included elsewhere herein).





***Financial
      Statement Presentation***





The
      consolidated financial statements presented elsewhere herein prior to August
      28,
      2004 (“Pre-Acquisition”) reflect the financial position, results of operations
      and cash flows of the former Nortek Holdings and its wholly-owned subsidiaries,
      the predecessor company. Subsequent to August 27, 2004 (“Post-Acquisition”) and
      prior to February 15, 2005, the consolidated financial statements presented
      elsewhere herein reflect the financial position, results of operations and
      cash
      flows of Nortek Holdings and subsequent to February 15, 2005, the consolidated
      financial statements presented elsewhere herein reflect the financial position,
      results of operations and cash flows of NTK Holdings and its wholly-owned
      subsidiaries. Nortek Holdings is a wholly-owned subsidiary of NTK Holdings
      and
      Nortek is a wholly-owned subsidiary of Nortek Holdings.





***Discontinued
      Operations***





On
      July
      31, 2004, the Company sold the capital stock of its wholly-owned subsidiary,
      La
      Cornue SAS (“La Cornue”). La Cornue, situated outside of Paris, France,
      manufactures and sells high-end custom made cooking ranges and was included
      in
      the Company’s Residential Building Products reporting segment.





On
      February 12, 2004, the Company’s wholly-owned subsidiary, WDS, LLC, sold all of
      the capital stock of Ply Gem Industries, Inc. (“Ply Gem”). The results of
      operations of the operating subsidiaries of Ply Gem comprised the Company’s
      entire Window, Doors and Siding Products (“WDS”) reporting segment and the
      corporate expenses of Ply Gem were previously included in Unallocated in the
      Company’s segment reporting.





The
      results of La Cornue and Ply Gem have been excluded from earnings from
      continuing operations and are classified separately as discontinued operations
      for all periods presented. Accordingly, for purposes of this presentation of
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, all discussion relates to the results from continuing operations
      (see Notes F and G of the Notes to the Unaudited Condensed Consolidated
      Financial Statements included elsewhere herein).





***Acquisitions***





On
      August
      26, 2005, the Company acquired the assets of Sunfire Corporation (“Sunfire”).
      Sunfire is located in Snohomish, WA and manufactures and designs home audio
      and
      home cinema amplifiers, receivers and subwoofers.





On
      August
      8, 2005, the Company acquired the stock of Imerge Limited (“Imerge”). Imerge is
      located in Cambridge, United Kingdom and manufactures and designs hard disk
      media players and multi-room audio servers.





On
      July
      15, 2005, the Company acquired the assets and certain liabilities of Niles
      Audio
      Corporation (“Niles”). Niles is located in Miami, FL and manufactures and
      designs products that provide customers with innovative solutions for
      whole-house distribution and integration of audio and video systems, including
      speakers, receivers, amplifiers, automation devices, controls and
      accessories.





On
      June
      13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc.
      (“Nordyne”), acquired International Marketing Supply, Inc. (“IMS”). IMS is
      located in Miami, FL and sells heating, ventilation
      and air-conditioning equipment to customers in Latin America.





On
      April
      26, 2005, the Company, through its indirect wholly-owned subsidiary, Linear
      LLC
      (“Linear”), acquired Panamax. Panamax is located in Petaluma, CA and
      manufactures and designs innovative power conditioning and surge protection
      products that prevent loss or damage of home and small business equipment due
      to
      power disturbances.





On
      December 17, 2004, the Company, through Linear, acquired M&S Systems, LP
      (“M&S”). M&S is located in Dallas, TX and manufacturers and designs
      distributed audio and communication equipment, speakers and central vacuum
      systems.





On
      March
      9, 2004, the Company, through Linear, acquired OmniMount Systems, Inc.
      (“OmniMount”). OmniMount is located in Phoenix, AZ and manufactures and designs
      speaker and video mountings and other products to maximize the home theater
      experience.





These
      acquisitions have been accounted for under the purchase method of accounting
      and
      are included in the Company’s Residential Building Products Segment, with the
      exception of IMS, which is recorded in the Company’s Air Conditioning and
      Heating Products Segment. Accordingly, the results of Sunfire, Imerge, Niles,
      IMS, Panamax, M&S and OmniMount are included in the Company’s consolidated
      results since the date of their acquisition (see “Liquidity and Capital
      Resources” and Note D of the Notes to the Unaudited Condensed Consolidated
      Financial Statements included elsewhere herein).





***Critical
      Accounting Policies***





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





The
      Company’s critical accounting policies include:





·
            Revenue
                Recognition and Related Expenses


·
            Inventory
                Valuation


·
            Prepaid
                Income Tax Assets and Deferred Tax
                Liabilities


·
            Goodwill


·
            Pensions
                and Post Retirement Health Benefits


·
            Insurance
                Liabilities


·
            Contingencies





The
      Company’s critical accounting policies are similar to that of its wholly-owned
      subsidiary, Nortek. Further detail surrounding these 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”).





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




**Results
      of Operations**




The
      third
      quarter 2005 has been compared to the combined third quarter 2004
      Pre-Acquisition and Post-Acquisition periods for purposes of management’s
      discussion and analysis of the results of operations. Any references below
      to
      the third quarter 2004 shall refer to the combined three months ended October
      2,
      2004.






**Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Combined
                  Three****Aug
                  28, 2004 -**
              
              **July
                  4, 2004 -**
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004**
              
              **Oct.
                  2, 2004***(Dollar
                  amounts in thousands)**(Unaudited)***Net
                  sales:**Residential
                  Building Products
              
              $
              99,185
              
              $
              146,523
              
              $
              245,708Air
                  Conditioning and Heating Products
              
              
              61,843
              
              
              120,313
              
              
              182,156Consolidated net sales
              
              $
              161,028
              
              $
              266,836
              
              $
              427,864**Operating
                  earnings (loss):**Residential
                  Building Products
              
              $
              16,387
              
              $
              20,711
              
              $
              37,098Air
                  Conditioning and Heating Products
              
              
              1,168
              
              
              217
              
              
              1,385Subtotal
              
              
              17,555
              
              
              20,928
              
              
              38,483**Unallocated:**Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              (38,500
              )
              
              (38,500
              )Stock-based
                  compensation charges
              
              
              ---
              
              
              (34,100
              )
              
              (34,100
              )Other,
                  net
              
              
              (2,089
              )
              
              (4,299
              )
              
              (6,388
              )Consolidated operating earnings (loss)
              
              $
              15,466
              
              $
              (55,971
              )
              $
              (40,505
              )**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              4,241
              
              $
              3,539
              
              $
              7,780Air
                  Conditioning and Heating Products
              
              
              1,953
              
              
              2,319
              
              
              4,272Other
              
              
              113
              
              
              103
              
              
              216$
              6,307
              
              $
              5,961
              
              $
              12,268**Operating
                  earnings (loss) margin:**Residential
                  Building Products
              
              
              16.5
              %
              
              14.1
              %
              
              15.1
              %Air
                  Conditioning and Heating Products
              
              
              1.9
              
              
              0.2
              
              
              0.8Consolidated
              
              
              9.6
              %
              
              (21.0
              )%
              
              (9.5
              )%**Depreciation
                    and amortizationexpense
                    as a % of net sales:**Residential
                  Building Products
              
              
              4.3
              %
              
              2.4
              %
              
              3.2
              %Air
                  Conditioning and Heating Products
              
              
              3.2
              
              
              1.9
              
              
              2.3Consolidated
              
              
              3.9
              %
              
              2.2
              %
              
              2.9
              %





The
      tables that follow present the unaudited net sales from continuing operations,
      operating earnings from continuing operations and depreciation and amortization
      expense from continuing operations for the Company’s principal segments for the
      third quarter ended October 1, 2005 and October 2, 2004, the dollar amount
      and
      percentage change of such results as compared to the prior comparable period
      and
      the percentage to net sales of operating earnings and depreciation and
      amortization expense for the third quarter ended October 1, 2005 and October
      2,
      2004:




**Change
                  in Earnings****Third
                  Quarter Ended**
              
              **Third
                  Quarter 2005****Oct.
                  1,**
              
              **Oct.
                  2,**
              
              **as
                  Compared to 2004****2005**
              
              **2004
                  (1)**
              
              $
              
              %*(Dollar
                  amounts in thousands)***Net
                  sales:**Residential
                  Building Products
              
              $
              299,077
              
              $
              245,708
              
              $
              53,369
              
              
              21.7
              %Air
                  Conditioning and Heating Products
              
              
              223,789
              
              
              182,156
              
              
              41,633
              
              
              22.9Consolidated net sales
              
              $
              522,866
              
              $
              427,864
              
              $
              95,002
              
              
              22.2
              %**Operating
                  earnings (loss):**Residential
                  Building Products
              
              $
              51,373
              
              $
              37,098
              
              $
              14,275
              
              
              38.5
              %Air
                  Conditioning and Heating Products
              
              
              22,154
              
              
              1,385
              
              
              20,769
              
              
              *Subtotal
              
              
              73,527
              
              
              38,483
              
              
              35,044
              
              
              91.1**Unallocated:**Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              (38,500
              )
              
              38,500
              
              
              *Stock-based
                  compensation charges
              
              
              (100
              )
              
              (34,100
              )
              
              34,000
              
              
              99.7Other,
                  net
              
              
              (5,959
              )
              
              (6,388
              )
              
              429
              
              
              6.7Consolidated operating earnings (loss)
              
              $
              67,468
              
              $
              (40,505
              )
              $
              107,973
              
              
              *
              %**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              7,243
              
              $
              7,780
              
              $
              (537
              )
              
              (6.9
              )%Air
                  Conditioning and Heating Products
              
              
              4,036
              
              
              4,272
              
              
              (236
              )
              
              (5.5
              )Other
              
              
              357
              
              
              216
              
              
              141
              
              
              65.3$
              11,636
              
              $
              12,268
              
              $
              (632
              )
              
              (5.2
              )%**Operating
                  earnings (loss) margin:**Residential
                  Building Products
              
              
              17.2
              %
              
              15.1
              %Air
                  Conditioning and Heating Products
              
              
              9.9
              
              
              0.8Consolidated
              
              
              12.9
              %
              
              (9.5
              )%**Depreciation
                    and amortizationexpense
                    as a % of net sales:**Residential
                  Building Products
              
              
              2.4
              %
              
              3.2
              %Air
                  Conditioning and Heating Products
              
              
              1.8
              
              
              2.3Consolidated
              
              
              2.2
              %
              
              2.9
              %




* not
      meaningful




(1) The
      third
      quarter ended October 2, 2004 represents the combined Post-Acquisition and
      Pre-Acquisition periods of August 28, 2004 to October 2, 2004 and July 4, 2004
      to August 27, 2004, respectively.




The
      first
      nine months of 2005 has been compared to the combined first nine months of
      2004
      Pre-Acquisition and Post-Acquisition periods for purposes of management’s
      discussion and analysis of the results of operations. Any references below
      to
      the first nine months of 2004 shall refer to the combined nine months ended
      October 2, 2004.




**Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Combined
                  Nine****Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004**
              
              **Oct.
                  2, 2004***(Dollar
                  amounts in thousands)***Net
                  sales:**
              
              *(Unaudited)*Residential
                  Building Products
              
              $
              99,185
              
              $
              623,859
              
              $
              723,044Air
                  Conditioning and Heating Products
              
              
              61,843
              
              
              494,001
              
              
              555,844Consolidated net sales
              
              $
              161,028
              
              $
              1,117,860
              
              $
              1,278,888**Operating
                  earnings:**Residential
                  Building Products
              
              $
              16,387
              
              $
              102,808
              
              $
              119,195Air
                  Conditioning and Heating Products
              
              
              1,168
              
              
              25,507
              
              
              26,675Subtotal
              
              
              17,555
              
              
              128,315
              
              
              145,870**Unallocated:**Expenses
                    and charges arisingfrom
                    the Acquisition
              
              
              ---
              
              
              (38,500
              )
              
              (38,500
              )Stock-based
                  compensation charges
              
              
              ---
              
              
              (36,400
              )
              
              (36,400
              )Foreign
                  exchange loss on intercompany debt
              
              
              ---
              
              
              (200
              )
              
              (200
              )Other,
                  net
              
              
              (2,089
              )
              
              (20,626
              )
              
              (22,715
              )Consolidated operating earnings
              
              $
              15,466
              
              $
              32,589
              
              $
              48,055**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              4,241
              
              $
              15,374
              
              $
              19,615Air
                  Conditioning and Heating Products
              
              
              1,953
              
              
              10,041
              
              
              11,994Other
              
              
              113
              
              
              408
              
              
              521$
              6,307
              
              $
              25,823
              
              $
              32,130**Operating
                  earnings margin:**Residential
                  Building Products
              
              
              16.5
              %
              
              16.5
              %
              
              16.5
              %Air
                  Conditioning and Heating Products
              
              
              1.9
              
              
              5.2
              
              
              4.8Consolidated
              
              
              9.6
              %
              
              2.9
              %
              
              3.8
              %**Depreciation
                    and amortizationexpense
                    as a % of net sales:**Residential
                  Building Products
              
              
              4.3
              %
              
              2.5
              %
              
              2.7
              %Air
                  Conditioning and Heating Products
              
              
              3.2
              
              
              2.0
              
              
              2.2Consolidated
              
              
              3.9
              %
              
              2.3
              %
              
              2.5
              %




The
      tables that follow present the unaudited net sales from continuing operations,
      operating earnings from continuing operations and depreciation and amortization
      expense from continuing operations for the Company’s principal segments for the
      first nine months ended October 1, 2005 and October 2, 2004, the dollar amount
      and percentage change of such results as compared to the prior comparable period
      and the percentage to net sales of operating earnings and depreciation and
      amortization expense for the first nine months ended October 1, 2005 and October
      2, 2004:




**Change
                  in Earnings****First
                  Nine Months Ended**
              
              **First
                  Nine Months 2005****Oct.
                  1,**
              
              **Oct.
                  2,**
              
              **as
                  Compared to 2004****2005**
              
              **2004
                  (1)**
              
              $
              
              %*(Dollar
                  amounts in thousands)***Net
                  sales:**Residential
                  Building Products
              
              $
              839,029
              
              $
              723,044
              
              $
              115,985
              
              
              16.0
              %Air
                  Conditioning and Heating Products
              
              
              616,815
              
              
              555,844
              
              
              60,971
              
              
              11.0Consolidated net sales
              
              $
              1,455,844
              
              $
              1,278,888
              
              $
              176,956
              
              
              13.8
              %**Operating
                  earnings:**Residential
                  Building Products
              
              $
              135,012
              
              $
              119,195
              
              $
              15,817
              
              
              13.3
              %Air
                  Conditioning and Heating Products
              
              
              49,927
              
              
              26,675
              
              
              23,252
              
              
              87.2Subtotal
              
              
              184,939
              
              
              145,870
              
              
              39,069
              
              
              26.8**Unallocated:**Expenses
                    and charges arisingfrom
                    the Acquisition
              
              
              ---
              
              
              (38,500
              )
              
              38,500
              
              
              *Stock-based
                  compensation charges
              
              
              (300
              )
              
              (36,400
              )
              
              36,100
              
              
              99.2Foreign
                  exchange loss on intercompany debt
              
              
              (300
              )
              
              (200
              )
              
              (100
              )
              
              (50.0
              )Gain
                  on legal settlement
              
              
              1,400
              
              
              ---
              
              
              1,400
              
              
              *Other,
                  net
              
              
              (18,554
              )
              
              (22,715
              )
              
              4,161
              
              
              18.3Consolidated operating earnings
              
              $
              167,185
              
              $
              48,055
              
              $
              119,130
              
              
              *
              %**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              21,311
              
              $
              19,615
              
              $
              1,696
              
              
              8.6
              %Air
                  Conditioning and Heating Products
              
              
              12,002
              
              
              11,994
              
              
              8
              
              
              0.1Other
              
              
              1,030
              
              
              521
              
              
              509
              
              
              97.7$
              34,343
              
              $
              32,130
              
              $
              2,213
              
              
              6.9
              %**Operating
                  earnings margin:**Residential
                  Building Products
              
              
              16.1
              %
              
              16.5
              %Air
                  Conditioning and Heating Products
              
              
              8.1
              
              
              4.8Consolidated
              
              
              11.5
              %
              
              3.8
              %**Depreciation
                    and amortizationexpense
                    as a % of net sales:**Residential
                  Building Products
              
              
              2.5
              %
              
              2.7
              %Air
                  Conditioning and Heating Products
              
              
              1.9
              
              
              2.2Consolidated
              
              
              2.4
              %
              
              2.5
              %


* not
      meaningful




(1)
            The
                nine months ended October 2, 2004 represents the combined Post-Acquisition
                and Pre-Acquisition periods of August 28, 2004 to October 2, 2004
                and
                January 1, 2004 to August 27, 2004,
                respectively.






The
      third
      quarter 2005 has been compared to the combined third quarter 2004
      Pre-Acquisition and Post-Acquisition periods for purposes of management’s
      discussion and analysis of the results of operations. Any references below
      to
      the third quarter 2004 shall refer to the combined three months ended October
      2,
      2004.




**Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Combined
                  Three****Aug.
                  28, 2004 -**
              
              **July
                  4, 2004 -**
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004**
              
              **Oct.
                  2, 2004***(Dollar
                  amounts in millions)**(Unaudited)*Net
                  sales
              
              $
              161.0
              
              $
              266.8
              
              $
              427.8Cost
                  of products sold
              
              
              115.9
              
              
              191.1
              
              
              307.0Selling,
                  general and administrative expenses, net
              
              
              28.2
              
              
              46.0
              
              
              74.2Amortization
                  of intangible assets
              
              
              1.4
              
              
              2.0
              
              
              3.4Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              83.7
              
              
              83.7Operating
                  earnings (loss)
              
              
              15.5
              
              
              (56.0
              )
              
              (40.5
              )Interest
                  expense
              
              
              (16.8
              )
              
              (12.1
              )
              
              (28.9
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (118.8
              )
              
              (118.8
              )Investment
                  income
              
              
              ---
              
              
              0.3
              
              
              0.3Loss
                    from continuing operations before income tax benefit
              
              
              (1.3
              )
              
              (186.6
              )
              
              (187.9
              )Income
                  tax benefit
              
              
              (0.5
              )
              
              (55.2
              )
              
              (55.7
              )Loss
                  from continuing operations
              
              
              (0.8
              )
              
              (131.4
              )
              
              (132.2
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              0.5
              
              
              0.5Net
                  loss
              
              $
              (0.8
              )
              $
              (130.9
              )
              $
              (131.7
              )**Percentage
                  of Net Sales****Post-Acquisition**
              
              
              **Pre-Acquisition**
              
              
              **Combined
                  Three****Aug.
                  28, 2004 -**
              
              
              **July
                  4, 2004 -**
              
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              
              **Aug.
                  27, 2004**
              
              
              **Oct.
                  2, 2004**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of products sold
              
              
              72.0
              
              
              71.6
              
              
              71.8Selling,
                  general and administrative expenses, net
              
              
              17.5
              
              
              17.2
              
              
              17.3Amortization
                  of intangible assets
              
              
              0.9
              
              
              0.8
              
              
              0.8Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              31.4
              
              
              19.6Operating
                  earnings (loss)
              
              
              9.6
              
              
              (21.0
              )
              
              (9.5
              )Interest
                  expense
              
              
              (10.4
              )
              
              (4.5
              )
              
              (6.7
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (44.5
              )
              
              (27.8
              )Investment
                  income
              
              
              ---
              
              
              0.1
              
              
              0.1Loss
                    from continuing operations before income tax benefit
              
              
              (0.8
              )
              
              (69.9
              )
              
              (43.9
              )Income
                  tax benefit
              
              
              (0.3
              )
              
              (20.7
              )
              
              (13.0
              )Loss
                  from continuing operations
              
              
              (0.5
              )
              
              (49.2
              )
              
              (30.9
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              0.2
              
              
              0.1Net
                  loss
              
              
              (0.5
              )%
              
              (49.0
              )%
              
              (30.8
              )%






The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period. The results of
      operations for the third quarter ended October 1, 2005 are not necessarily
      indicative of the results of operations to be expected for any other interim
      period or the full year.




**Change
                  in Earnings****Third
                  Quarter Ended**
              
              **Third
                  Quarter 2005****Oct.
                  1,**
              
              **Oct.
                  2,**
              
              **as
                  Compared to 2004****2005**
              
              **2004
                  (1)**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              522.9
              
              $
              427.8
              
              $
              95.1
              
              
              22.2
              %Cost
                  of products sold
              
              
              361.3
              
              
              307.0
              
              
              (54.3
              )
              
              (17.7
              )Selling,
                  general and administrative expenses, net
              
              
              89.8
              
              
              74.2
              
              
              (15.6
              )
              
              (21.0
              )Amortization
                  of intangible assets
              
              
              4.4
              
              
              3.4
              
              
              (1.0
              )
              
              (29.4
              )Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              83.7
              
              
              83.7
              
              
              *Operating
                  earnings (loss)
              
              
              67.4
              
              
              (40.5
              )
              
              107.9
              
              
              *Interest
                  expense
              
              
              (34.3
              )
              
              (28.9
              )
              
              (5.4
              )
              
              (18.7
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (118.8
              )
              
              118.8
              
              
              *Investment
                  income
              
              
              0.3
              
              
              0.3
              
              
              ---
              
              
              ---Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              33.4
              
              
              (187.9
              )
              
              221.3
              
              
              *Provision
                  (benefit) for income taxes
              
              
              13.7
              
              
              (55.7
              )
              
              (69.4
              )
              
              *Earnings
                  (loss) from continuing operations
              
              
              19.7
              
              
              (132.2
              )
              
              151.9
              
              
              *Earnings
                  from discontinued operations
              
              
              ---
              
              
              0.5
              
              
              (0.5
              )
              
              *Net
                  earnings (loss)
              
              $
              19.7
              
              $
              (131.7
              )
              $
              151.4
              
              
              *
              %
   **Percentage
                    of Net Sales****Third
                    Quarter Ended**
                
                **Change
                    in Percentage****Oct.
                    1,**
                
                **Oct.
                    2,**
                
                **Third
                    Quarter 2005****2005**
                
                **2004
                    (1)**
                
                **as
                    Compared to 2004**Net
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                ---
                %Cost
                    of products sold
                
                
                69.1
                
                
                71.8
                
                
                2.7Selling,
                    general and administrative expenses, net
                
                
                17.2
                
                
                17.3
                
                
                0.1Amortization
                    of intangible assets
                
                
                0.8
                
                
                0.8
                
                
                ---Expenses
                    and charges arising from the Acquisition
                
                
                ---
                
                
                19.6
                
                
                19.6Operating
                    earnings (loss)
                
                
                12.9
                
                
                (9.5
                )
                
                22.4Interest
                    expense
                
                
                (6.6
                )
                
                (6.7
                )
                
                0.1Loss
                    from debt retirement
                
                
                ---
                
                
                (27.8
                )
                
                27.8Investment
                    income
                
                
                0.1
                
                
                0.1
                
                
                ---Earnings
                    (loss) from continuing operationsbefore provision (benefit) for income taxes
                
                
                6.4
                
                
                (43.9
                )
                
                50.3Provision
                    (benefit) for income taxes
                
                
                2.6
                
                
                (13.0
                )
                
                (15.6
                )Earnings
                    (loss) from continuing operations
                
                
                3.8
                
                
                (30.9
                )
                
                34.7Earnings
                    from discontinued operations
                
                
                ---
                
                
                0.1
                
                
                (0.1
                )Net
                    earnings (loss)
                
                
                3.8
                %
                
                (30.8
                )%
                
                34.6
                %




* not
      meaningful




(1)
            The
                third quarter ended October 2, 2004 represents the combined
                Post-Acquisition and Pre-Acquisition periods of August 28, 2004 to
                October
                2, 2004 and July 4, 2004 to August 27, 2004,
                respectively.






The
      first
      nine months of 2005 has been compared to the combined first nine months of
      2004
      Pre-Acquisition and Post-Acquisition periods for purposes of management’s
      discussion and analysis of the results of operations. Any references below
      to
      the first nine months of 2004 shall refer to the combined nine months ended
      October 2, 2004.




**Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Combined
                  Nine****Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004**
              
              **Oct.
                  2, 2004***(Dollar
                  amounts in millions)**(Unaudited)*Net
                  sales
              
              $
              161.0
              
              $
              1,117.9
              
              $
              1,278.9Cost
                  of products sold
              
              
              115.9
              
              
              792.8
              
              
              908.7Selling,
                  general and administrative expenses, net
              
              
              28.2
              
              
              199.9
              
              
              228.1Amortization
                  of intangible assets
              
              
              1.4
              
              
              8.9
              
              
              10.3Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              83.7
              
              
              83.7Operating
                  earnings
              
              
              15.5
              
              
              32.6
              
              
              48.1Interest
                  expense
              
              
              (16.8
              )
              
              (56.1
              )
              
              (72.9
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (130.7
              )
              
              (130.7
              )Investment
                  income
              
              
              ---
              
              
              1.5
              
              
              1.5Loss
                    from continuing operations before income tax benefit
              
              
              (1.3
              )
              
              (152.7
              )
              
              (154.0
              )Income
                  tax benefit
              
              
              (0.5
              )
              
              (41.4
              )
              
              (41.9
              )Loss
                  from continuing operations
              
              
              (0.8
              )
              
              (111.3
              )
              
              (112.1
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              67.4
              
              
              67.4Net
                  loss
              
              $
              (0.8
              )
              $
              (43.9
              )
              $
              (44.7
              )**Percentage
                  of Net Sales****Post-Acquisition**
              
              
              **Pre-Acquisition**
              
              
              **Combined
                  Nine****Aug.
                  28, 2004 -**
              
              
              **Jan.
                  1, 2004 -**
              
              
              **Months
                  Ended****Oct.
                  2, 2004**
              
              
              **Aug.
                  27, 2004**
              
              
              **Oct.
                  2, 2004**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of products sold
              
              
              72.0
              
              
              70.9
              
              
              71.1Selling,
                  general and administrative expenses, net
              
              
              17.5
              
              
              17.9
              
              
              17.8Amortization
                  of intangible assets
              
              
              0.9
              
              
              0.8
              
              
              0.8Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              7.5
              
              
              6.5Operating
                  earnings
              
              
              9.6
              
              
              2.9
              
              
              3.8Interest
                  expense
              
              
              (10.4
              )
              
              (5.0
              )
              
              (5.7
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (11.7
              )
              
              (10.2
              )Investment
                  income
              
              
              ---
              
              
              0.1
              
              
              0.1Loss
                    from continuing operations beforeincome
                    tax benefit
              
              
              (0.8
              )
              
              (13.7
              )
              
              (12.0
              )Income
                  tax benefit
              
              
              (0.3
              )
              
              (3.7
              )
              
              (3.3
              )Loss
                  from continuing operations
              
              
              (0.5
              )
              
              (10.0
              )
              
              (8.7
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              6.0
              
              
              5.2Net
                  loss
              
              
              (0.5
              )%
              
              (4.0
              )%
              
              (3.5
              )%






The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period. The results of
      operations for the first nine months ended October 1, 2005 are not necessarily
      indicative of the results of operations to be expected for any other interim
      period or the full year.




**Change
                  in Earnings****First
                  Nine Months Ended**
              
              **First
                  Nine Months 2005****Oct.
                  1,**
              
              **Oct.
                  2,**
              
              **as
                  Compared to 2004****2005**
              
              **2004
                  (1)**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              1,455.8
              
              $
              1,278.9
              
              $
              176.9
              
              
              13.8
              %Cost
                  of products sold
              
              
              1,021.1
              
              
              908.7
              
              
              (112.4
              )
              
              (12.4
              )Selling,
                  general and administrative expenses, net
              
              
              254.4
              
              
              228.1
              
              
              (26.3
              )
              
              (11.5
              )Amortization
                  of intangible assets
              
              
              13.1
              
              
              10.3
              
              
              (2.8
              )
              
              (27.2
              )Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              83.7
              
              
              83.7
              
              
              *Operating
                  earnings
              
              
              167.2
              
              
              48.1
              
              
              119.1
              
              
              *Interest
                  expense
              
              
              (104.3
              )
              
              (72.9
              )
              
              (31.4
              )
              
              (43.1
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (130.7
              )
              
              130.7
              
              
              *Investment
                  income
              
              
              1.1
              
              
              1.5
              
              
              (0.4
              )
              
              (26.7
              )Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              64.0
              
              
              (154.0
              )
              
              218.0
              
              
              *Provision
                  (benefit) for income taxes
              
              
              25.5
              
              
              (41.9
              )
              
              (67.4
              )
              
              *Earnings
                  (loss) from continuing operations
              
              
              38.5
              
              
              (112.1
              )
              
              150.6
              
              
              *Earnings
                  from discontinued operations
              
              
              ---
              
              
              67.4
              
              
              (67.4
              )
              
              *Net
                  earnings (loss)
              
              $
              38.5
              
              $
              (44.7
              )
              $
              83.2
              
              
              *
              %
   **Percentage
                    of Net Sales****First
                    Nine Months Ended**
                
                **Change
                    in Percentage****Oct.
                    1,**
                
                **Oct.
                    2,**
                
                **First
                    Nine Months 2005****2005**
                
                **2004
                    (1)**
                
                **as
                    Compared to 2004**Net
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                ---
                %Cost
                    of products sold
                
                
                70.1
                
                
                71.1
                
                
                1.0Selling,
                    general and administrative expenses, net
                
                
                17.5
                
                
                17.8
                
                
                0.3Amortization
                    of intangible assets
                
                
                0.9
                
                
                0.8
                
                
                (0.1
                )Expenses
                    and charges arising from the Acquisition
                
                
                ---
                
                
                6.5
                
                
                6.5Operating
                    earnings
                
                
                11.5
                
                
                3.8
                
                
                7.7Interest
                    expense
                
                
                (7.2
                )
                
                (5.7
                )
                
                (1.5
                )Loss
                    from debt retirement
                
                
                ---
                
                
                (10.2
                )
                
                10.2Investment
                    income
                
                
                0.1
                
                
                0.1
                
                
                ---Earnings
                    (loss) from continuing operationsbefore provision (benefit) for income taxes
                
                
                4.4
                
                
                (12.0
                )
                
                16.4Provision
                    (benefit) for income taxes
                
                
                1.8
                
                
                (3.3
                )
                
                (5.1
                )Earnings
                    (loss) from continuing operations
                
                
                2.6
                
                
                (8.7
                )
                
                11.3Earnings
                    from discontinued operations
                
                
                ---
                
                
                5.2
                
                
                (5.2
                )Net
                    earnings (loss)
                
                
                2.6
                %
                
                (3.5
                )%
                
                6.1
                %




* not
      meaningful




(1)
            The
                nine months ended October 2, 2004 represents the combined Post-Acquisition
                and Pre-Acquisition periods of August 28, 2004 to October 2, 2004
                and
                January 1, 2004 to August 27, 2004,
                respectively.






The
      Company’s 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. The
      Company however, does ensure that whenever the underlying causes of material
      increases or decreases in consolidated net sales can be adequately analyzed
      and
      quantified, that appropriate disclosure of such reasons, including changes
      in
      price, volume and the mix of products sold is made.





Consolidated
      net sales from continuing operations increased approximately $95,100,000 or
      22.2% for the third quarter of 2005 as compared to the combined third quarter
      of
      2004 and increased approximately $176,900,000 or 13.8% for the first nine months
      of 2005 as compared to the combined first nine months of 2004 as discussed
      in
      the following paragraphs.





In
      the
      Residential Building Products Segment, net sales increased approximately
      $53,400,000 or 21.7% for the third quarter of 2005 as compared to the combined
      third quarter of 2004 and increased approximately $116,000,000 or 16.0% for
      the
      first nine months of 2005 as compared to the combined first nine months of
      2004.
      The third quarter and first nine months of 2005 include (1) increases of
      approximately $2,300,000 and $8,800,000, respectively, attributable to the
      effect of changes in foreign currency exchange rates and (2) approximately
      $25,800,000 and $48,800,000, respectively, attributable to acquisitions in
      this
      segment.





The
      increase in net sales in the Residential Building Products Segment in the third
      quarter and first nine months of 2005 as compared to the combined third quarter
      and first nine months of 2004 was primarily due to increased sales volume,
      in
      part due to acquisitions, of the Company’s multi-room audio, video distribution
      and related equipment and controls products. Sales of these built-in electronic
      products (which include products for multi-room audio, video distribution and
      related equipment and controls products, wireless security and access control
      products, and architectural built-in loudspeakers among others) increased
      approximately 74.1% over the combined third quarter of 2004 and increased
      approximately 54.5% over the combined first nine months of 2004. As a percentage
      of the Company’s total net sales, sales of built-in electronic products
      increased from approximately 14.5% in the combined third quarter of 2004 to
      approximately 20.6% in the third quarter of 2005 and from approximately 13.2%
      in
      the combined first nine months of 2004 to approximately 18.0% in the first
      nine
      months of 2005. Net sales in this segment also increased due to higher sales
      volume and sales price increases of range hoods and bathroom exhaust fans.
      Range
      hoods and bathroom exhaust fans are the largest product category sold in this
      segment, accounting for approximately 31.5% and 34.3% of total net sales in
      the
      third quarter and first nine months of 2005, respectively. Sales of range hoods
      and bathroom exhaust fans increased approximately 7.2% over the combined third
      quarter of 2004 and approximately 7.3% over the combined first nine months
      of
      2004.





In
      the
      Air Conditioning and Heating Products Segment, net sales increased approximately
      $41,700,000 or 22.9% for the third quarter of 2005 as compared to the combined
      third quarter of 2004 and increased approximately $60,900,000 or 11.0% for
      the
      first nine months of 2005 as compared to the combined first nine months of
      2004.
      The third quarter and first nine months of 2005 include (1) increases of
      approximately $900,000 and $3,200,000, respectively, attributable to the effect
      of changes in foreign currency exchange rates in this segment and (2)
      approximately $4,500,000 and $4,900,000, respectively, attributable to
      acquisitions in this segment. Net sales in the Air Conditioning and Heating
      Products Segment for HVAC products sold to residential site-built customers
      constituted the largest category of product sold to a particular group of
      customers within this segment. Sales of products to residential site-built
      customers increased approximately 46.0% over the combined third quarter of
      2004
      and increased approximately 19.4% over the combined first nine months of 2004.
      The increase in net sales in this segment in the third quarter and first nine
      months of 2005 as compared to the combined third quarter and first nine months
      of 2004 was due principally to increased sales volume and prices of products
      sold to residential site-built customers, in part, due to unusually warm weather
      in the United States in the third quarter of 2005. Sales of the Company’s
      commercial HVAC products, before considering the effect of foreign exchange,
      were down slightly in the third quarter of 2005 and first nine months of 2005
      as
      compared to the same periods in 2004. The
      Company’s net sales to customers serving the manufactured housing markets,
      principally consisting of air conditioners and furnaces, constituted
      approximately 6.6% and 7.0% of the Company’s consolidated net sales for the
      third quarter of 2005 and 2004, respectively, and constituted approximately
      6.4% and 6.7% of the Company’s consolidated net sales for the first nine months
      of 2005 and 2004, respectively. Although
      sales of residential products sold to manufactured housing customers for the
      same period were up, the Company does not believe that it will see any
      meaningful recovery in either the manufactured housing or commercial markets
      in
      the remaining portion of 2005.





Consolidated
      cost of products sold was approximately $361,300,000 for the third quarter
      of
      2005 as compared to approximately $307,000,000 for the combined third quarter
      of
      2004 and approximately $1,021,100,000 for the first nine months of 2005 as
      compared to approximately $908,700,000 for the combined first nine months of
      2004. Cost of products sold, as a percentage of net sales, decreased from
      approximately 71.8% in the combined third quarter of 2004 to approximately
      69.1%
      for the third quarter of 2005 and decreased from approximately 71.1% in the
      combined first nine months of 2004 to approximately 70.1% for the first nine
      months of 2005, primarily as a result of the factors that follow.





In
      the
      Residential Building Products Segment, cost of products sold for the third
      quarter of 2005 was approximately $188,000,000 as compared to approximately
      $156,500,000 in the combined third quarter of 2004 and approximately
      $536,400,000 for the first nine months of 2005 as compared to approximately
      $459,100,000 for the combined first nine months of 2004. Cost of products sold
      in this segment for the third quarter and first nine months of 2005 includes
      (1)
      approximately $13,800,000 and $29,300,000, respectively, of cost of products
      sold from acquisitions, (2) approximately $100,000 and $700,000, respectively,
      of increased depreciation expense of property and equipment arising primarily
      from capital expenditures subsequent to the Acquisition partially offset by
      the
      impact of the fair value adjustments related to the Acquisition that were
      finalized in the fourth quarter of 2004, (3) an increase of approximately
      $1,500,000 and $6,200,000, respectively, related to the effect of changes in
      foreign currency exchange rates and (4) a non-cash charge of approximately
      $400,000 and $800,000, respectively, related to the amortization of purchase
      price allocated to inventory. Cost of products sold in this segment for 2004
      includes (1) a non-cash charge of approximately $1,900,000 in the combined
      third
      quarter and first nine months of 2004 related to the amortization of purchase
      price allocated to inventory as a result of the Acquisition and (2) a non-cash
      charge of approximately $200,000 for the combined first nine months of 2004
      related to the amortization of purchase price allocated to inventory as a result
      of the OmniMount acquisition.





In
      the
      Air Conditioning and Heating Products Segment cost of products sold for the
      third quarter of 2005 was approximately $173,300,000 as compared to
      approximately $150,500,000 in the combined third quarter of 2004 and
      approximately $484,700,000 for the first nine months of 2005 as compared to
      approximately $449,600,000 for the combined first nine months of 2004. Cost
      of
      products sold in this segment in the third quarter and first nine months of
      2005
      includes (1) an increase of approximately $700,000 and $2,600,000, respectively,
      related to the effect of changes in foreign currency exchange rates, (2)
      approximately $200,000 and $600,000, respectively, of increased depreciation
      expense of property and equipment arising primarily from capital expenditures
      subsequent to the Acquisition partially offset by the impact of the fair value
      adjustments related to the Acquisition that were finalized in the fourth quarter
      of 2004 and (3) approximately
      $3,300,000 and $3,800,000, respectively, attributable to acquisitions in this
      segment .
      Cost of
      products sold in this segment in the combined third quarter and first nine
      months of 2004 includes (1) approximately $500,000 and $2,400,000, respectively,
      of costs associated with the closure of certain manufacturing facilities, (2)
      approximately $800,000 and $6,700,000 of estimated inefficient production costs
      and expenses associated with the start-up of a new manufacturing facility and
      (3) a non-cash charge of approximately $500,000 in the combined third quarter
      and first nine months of 2004 related to the amortization of purchase price
      allocated to inventory as a result of the Acquisition.





Material
      costs were approximately 44.8% and 45.2% of net sales for the third quarter
      of
      2005 and 2004, respectively, and approximately 45.1% and 44.4% of net sales
      for
      the first nine months of 2005 and 2004, respectively. Although the Company
      continued to experience material cost increases related primarily to purchases
      of steel, copper and aluminum, as well as, increased transportation and energy
      costs, these cost increases were offset by price increases, continued strategic
      sourcing initiatives and improvement in manufacturing efficiency, as evidenced
      by the decrease in material costs as a percentage of net sales in the third
      quarter of 2005 as compared to the same period in 2004.





During
      the third quarter and first nine months of 2005, both of the Company’s segments
      experienced an increase in freight costs due to rising energy prices. This
      increase in freight costs was offset by increased sales volume and prices,
      as
      well as cost reduction measures, thereby reducing the overall effect on cost
      of
      goods sold as a percentage of net sales.





Overall,
      changes in the cost of products sold as a percentage of net sales for one period
      as compared to another period may reflect a number of factors including changes
      in the relative mix of products sold, the effect of changes in sales prices,
      material costs and changes in productivity levels.





Consolidated
      selling, general and administrative expense (“SG&A”) was approximately
      $89,800,000 for the third quarter of 2005 as compared to approximately
      $74,200,000 for the combined third quarter of 2004 and approximately
      $254,400,000 for the first nine months of 2005 as compared to approximately
      $228,100,000 for the combined first nine months of 2004. SG&A as a
      percentage of net sales decreased from approximately 17.3% for the combined
      third quarter of 2004 to approximately 17.2% for the third quarter of 2005
      and
      decreased from approximately 17.8% for the combined first nine months of 2004
      to
      approximately 17.5% for the first nine months of 2005.





SG&A
      in the third quarter and first nine months of 2005 includes (1) approximately
      $9,000,000 and $14,700,000, respectively, of SG&A from acquisitions in the
      Residential Building Products Segment and the Air Conditioning and Heating
      Products Segment, (2) an increase of approximately $700,000 and $3,000,000,
      respectively, of displays expense in the Residential Building Products Segment
      related in part to the introduction of new products, (3) an increase of
      approximately $500,000 (of which approximately $400,000 is included in the
      Residential Building Products Segment and approximately $100,000 is included
      in
      the Air Conditioning and Heating Products Segment) and $2,100,000 (of which
      approximately $1,500,000 is included in the Residential Building Products
      Segment and approximately $600,000 is included in and the Air Conditioning
      and
      Heating Products Segment), respectively, related to the effect of changes in
      foreign currency exchange rates, (4) approximately $100,000 and $300,000,
      respectively, of stock-based compensation expense (all of which is recorded
      in
      Unallocated), (5) a non-cash foreign exchange gain of approximately $100,000
      (all of which is included in the Air Conditioning and Heating Products Segment)
      and a non-cash foreign exchange loss of approximately $1,300,000 (of which
      approximately $1,000,000 is included in the Residential Building Products
      Segment), respectively, related to intercompany debt not permanently invested
      in
      the Company’s subsidiaries and (6) a
      gain of
      approximately $1,400,000 from the settlement of certain obligations related
      to
      former subsidiaries recorded in the first nine months of 2005 (see Note I of
      the
      Notes to the Unaudited Condensed Consolidated Financial Statements included
      elsewhere herein) .





SG&A
      in the combined third quarter and first nine months of 2004 includes (1)
      approximately $3,300,000 of stock-based compensation expense, of which
      approximately $2,300,000 is included in Unallocated, recorded in the combined
      first nine months of 2004 and (2) a non-cash foreign exchange loss of
      approximately $400,000 and $900,000, respectively, of which $400,000 and
      $700,000, respectively, is recorded in the Residential Building Products
      Segment, related to intercompany debt not permanently invested in the Company’s
      subsidiaries.





The
      decrease in SG&A as a percentage of net sales in the third quarter and first
      nine months of 2005 is primarily due to lower
      compensation and employee benefit expense in Unallocated, as well as the factors
      noted above.





Amortization
      of intangible assets, as a percentage of net sales from continuing operations,
      remained unchanged at 0.8% for the third quarters of 2005 and 2004 and increased
      from approximately 0.8% in the combined first nine months of 2004 to
      approximately 0.9% for the first nine months of 2005. This increase is
      principally a result of approximately $900,000 and $2,700,000 of increased
      amortization of intangible assets in the Residential Building Products Segment
      in the third quarter and first nine months 2005, respectively, as compared
      to
      the same periods in 2004 arising from finalizing the fair value adjustments
      to
      intangible assets in the fourth quarter of 2004 as a result of the Acquisition
      (see Note B of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein).





The
      combined third quarter and first nine months of 2004 include approximately
      $83,700,000, or 19.6% and 6.5% as a percentage of net sales, respectively,
      of
      expenses and charges arising from the Acquisition. Approximately $45,200,000
      (of
      which approximately $34,100,000 is included in Unallocated, approximately
      $5,300,000 is included in the Residential Building Products Segment and
      approximately $5,800,000 is included in the Air Conditioning and Heating
      Products Segment) of stock-based compensation expense related to the Acquisition
      was recorded in the combined third quarter and first nine months of 2004 (see
      Notes A, B and E of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein for further discussion of these expenses
      and charges).





Consolidated
      operating earnings improved by approximately $107,900,000 to approximately
      $67,400,000, or 12.9% as a percentage of net sales, for the third quarter of
      2005 from an operating loss of approximately $40,500,000, or 9.5% as a
      percentage of net sales, for the combined third quarter of 2004. Consolidated
      operating earnings increased by approximately $119,100,000 from approximately
      $48,100,000, or 3.8% as a percentage of net sales, for the combined first nine
      months of 2004 to approximately $167,200,000, or 11.5% as a percentage of net
      sales, for the first nine months of 2005 as a result of the factors discussed
      above and that follow.





Operating
      earnings of the Residential Building Products Segment for the third quarter
      of
      2005 were approximately $51,400,000 as compared to approximately $37,100,000
      for
      the combined third quarter of 2004 and approximately $135,000,000 for the first
      nine months of 2005 as compared to approximately $119,200,000 for the combined
      first nine months of 2004. Operating earnings of this segment for the third
      quarter and first nine months of 2005 reflects (1) an increase in earnings
      of
      approximately $500,000 and $1,200,000, respectively, from the effect of foreign
      currency exchange rates, (2) approximately $3,700,000 and $5,400,000,
      respectively, of operating earnings contributed by acquisitions, (3)
      approximately $100,000 and $400,000, respectively, of increased depreciation
      expense of property and equipment and approximately $900,000 and $2,700,000,
      respectively, of increased amortization of intangible assets, (4) a non-cash
      charge of approximately $400,000 and $800,000, respectively, related to the
      amortization of purchase price allocated to inventory primarily as a result
      of
      the Acquisition and (5) a non-cash foreign exchange loss of approximately
      $1,000,000 recorded in the first nine months of 2005 related to intercompany
      debt not permanently invested in the Company’s subsidiaries.





Operating
      earnings of the Residential Building Products Segment for the combined third
      quarter and first nine months of 2004 include (1) approximately $5,300,000
      and
      $5,900,000, respectively, of stock-based compensation charges (of which
      approximately $5,300,000 for both the combined three and nine months of 2004
      is
      included in the $83,700,000 of expenses and charges arising from the Acquisition
      as noted above), (2) a non-cash charge of approximately $200,000 recorded in
      the
      combined first nine months of 2004 of amortization of purchase price allocated
      to inventory primarily as a result of the acquisitions in this segment, (3)
      a
      non-cash charge of approximately $1,900,000 in the combined third quarter and
      first nine months of 2004 related to the amortization of purchase price
      allocated to inventory as a result of the Acquisition and (4) non-cash foreign
      exchange losses of approximately $400,000 and $700,000, respectively, related
      to
      intercompany debt not permanently invested in the Company’s subsidiaries.





In
      addition to the effect of the items noted above, operating earnings in the
      Residential Building Products Segment in the third quarter and first nine months
      of 2005 improved over the same periods in 2004 primarily as a result of increased
      sales volume of the Company’s built-in electronic products, increased sales
      volume and sales prices of bathroom exhaust fans and range hoods and
      acquisitions, partially offset by
      material cost increases and increased display expenses as noted previously,
      related in part to the introduction of new products .





Operating
      earnings of the Air Conditioning and Heating Products Segment were approximately
      $22,200,000 for the third quarter of 2005 as compared to approximately
      $1,400,000 for the combined third quarter of 2004 and approximately $49,900,000
      for the first nine months of 2005 as compared to approximately $26,700,000
      for
      the combined first nine months of 2004. Operating earnings of this segment
      for
      the third quarter and first nine months of 2005 reflects (1) a decrease in
      earnings of approximately $100,000 for the first nine months of 2005 from the
      effect of foreign currency exchange rates, (2) approximately $300,000 and
      $600,000, respectively, of increased depreciation expense of property and
      equipment, (3) approximately $400,000 of operating expense contributed by
      acquisitions in the third quarter and first nine months of 2005 and (4) a
      non-cash foreign exchange gain of approximately $100,000 recorded in the third
      quarter of 2005 related to intercompany debt not permanently invested in the
      Company’s subsidiaries.





Operating
      earnings of the Air Conditioning and Heating Products Segment for the combined
      third quarter and first nine months of 2004 includes (1) approximately $500,000
      and $2,400,000, respectively, of costs associated with the closure of certain
      manufacturing facilities, (2) approximately $800,000 and $6,700,000,
      respectively, of estimated inefficient production costs and expenses associated
      with the start-up of a new manufacturing facility, (3) a non-cash charge of
      approximately $500,000 in the combined third quarter and first nine months
      of
      2004 related to the amortization of purchase price allocated to inventory as
      a
      result of the Acquisition and (4) approximately $5,800,000 and $6,200,000,
      respectively, of stock-based compensation charges (of which approximately
      $5,800,000 for both the combined three and nine months of 2004 is included
      in
      the $83,700,000 of expenses and charges arising from the Acquisition as noted
      above).





In
      addition to the items noted above, operating earnings in the Air Conditioning
      and Heating Products Segment in the third quarter and first nine months of
      2005
      improved over the same periods in 2004 as a result of increased sales volume
      of
      products sold to residential customers, in part, due to unusually warm weather
      in the United States during the third quarter of 2005, sales price increases
      and
      improved manufacturing efficiencies, partially offset by material cost increases
      within the entire segment.





The
      operating expense in Unallocated was approximately $6,200,000 for the third
      quarter of 2005 as compared to approximately $79,000,000 for the combined third
      quarter of 2004 and approximately $17,700,000 for the first nine months of
      2005
      as compared to approximately $97,800,000 for the combined first nine months
      of
      2004. The decrease in operating expense for the third quarter and first nine
      months of 2005 as compared to the same periods of 2004 in Unallocated is
      primarily due to the items noted below, as well as, lower compensation and
      employee benefit expense. Operating expense in Unallocated for the third quarter
      and first nine months of 2005 includes (1) approximately $100,000 and $300,000,
      respectively, of stock-based compensation charges, (2) a non-cash foreign
      exchange loss of approximately $300,000 recorded in the first nine months of
      2005 related to intercompany debt not permanently invested in the Company’s
      subsidiaries, (3) a
      gain of
      approximately $1,400,000 from the settlement of certain obligations of former
      subsidiaries recorded in the first nine months of 2005 (see Note I of the Notes
      to the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein), (4) approximately $100,000 and $300,000, respectively, of increased
      amortization of intangible assets and (5) approximately $200,000 of increased
      depreciation expense of property and equipment in the first nine months of
      2005 .





Operating
      expense in Unallocated for the combined third quarter and first nine months
      of
      2004 includes (1) approximately $34,100,000 and $36,400,000, respectively,
      of
      stock-based compensation charges (including approximately $34,100,000 of charges
      arising from the Acquisition), (2) approximately $38,500,000 of fees and
      expenses associated with the Acquisition, other than stock-based compensation
      and (3) a non-cash foreign exchange loss of approximately $200,000 recorded
      in
      the combined first nine months of 2004 related to intercompany debt not
      permanently invested in the Company’s subsidiaries. There were no non-cash
      foreign exchange losses recorded in Unallocated in the combined third quarter
      of
      2004.





Operating
      earnings of foreign operations, consisting primarily of the results of
      operations of the Company’s Canadian and European subsidiaries, were
      approximately 9.1% and 9.8% of operating earnings (before unallocated and
      corporate expenses) in the third quarters of 2005 and 2004, respectively, and
      approximately 8.0% and 10.3% of operating earnings (before unallocated and
      corporate expenses) in the first nine months of 2005 and 2004, respectively.
      Sales and earnings derived from international markets are subject to, among
      others, the risks of currency fluctuations.





Interest
      expense increased approximately $5,400,000 or approximately 18.7% in the third
      quarter of 2005 as compared to the combined third quarter of 2004 and increased
      approximately $31,400,000 or approximately 43.1% in the first nine months of
      2005 as compared to the combined first nine months of 2004. In the third quarter
      and first nine months of 2005, the Company experienced increases in interest
      expense related to (1) approximately $15,100,000 and $60,800,000, respectively,
      from additional borrowings primarily in connection with the Acquisition, (2) approximately
      $100,000 and $10,200,000, respectively, of additional interest expense related
      to the amortization of the Nortek Holdings deferred compensation plan and (3)
      approximately $7,000,000 and $17,500,000, respectively, of interest expense
      related to the accretion of NTK Holdings’ 10 3/4% Senior Discount Notes. These
      increases were offset
      by
      a reduction in interest expense of approximately $11,300,000 and $53,500,000,
      respectively, relating to the redemption and open market purchases of certain
      debt in 2004 as discussed in the paragraph below, as well as, a reduction in
      the
      amortization of deferred financing costs of approximately $5,500,000 and
      $3,600,000, respectively, relating primarily to the amortization of commitment
      fees and related expenses recorded in the third quarter of 2004 of approximately
      $6,250,000 in connection with the bridge-facility entered into by the Company
      to
      fund the consummation of the Acquisition should it have been necessary (see
      Notes B and C of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein).





On
      August
      27, 2004, Nortek purchased for cash all of the former Nortek Holdings’ 10%
      Senior Discount Notes due 2011 (the “Senior Discount Notes”), its $200,000,000
      Floating Rate Notes due 2010 (the “Floating Rate Notes”) and most of its 9 7/8%
      Senior Subordinated Notes due 2011 (the “9 7/8% Notes”) and recorded a pre-tax
      loss from debt retirement of approximately $118,800,000 in the combined third
      quarter of 2004. In addition, during the first quarter of 2004, Nortek called
      for redemption all of its outstanding 9 1/4% Senior Notes due 2007 (“9 1/4%
      Notes”), all of its outstanding 9 1/8% Senior Notes due 2007 (“9 1/8% Notes”)
      and all of its outstanding 8 7/8% Senior Notes due 2008 (“8 7/8% Notes”). The
      redemption of the 9 1/4% Notes, 9 1/8% Notes and 8 7/8% Notes resulted in a
      pre-tax loss of approximately $11,900,000 in the first quarter of 2004, based
      upon the difference between the respective redemption prices and the estimated
      carrying values at the redemption dates of the 9 1/4% Notes, 9 1/8% Notes and
      8
      7/8% Notes, which include the principal amount redeemed and the estimated
      remaining unamortized premium recorded in connection with the Recapitalization.
      As a result of all of these transactions, the Company recorded a pre-tax loss
      in
      the combined first nine months of 2004 of approximately $130,700,000. (See
      Note
      C of the Notes to the Unaudited Condensed Consolidated Financial Statements
      included elsewhere herein.)





Investment
      income was approximately $300,000 for both the third quarter of 2005 and 2004
      and approximately $1,100,000 and $1,500,000 for the first nine months of 2005
      and 2004, respectively. The decrease in investment income in the first nine
      months of 2005 as compared to the same period in 2004 is primarily a result
      of
      lower average invested balances, partially offset by higher yields.





The
      provision for income taxes from continuing operations was approximately
      $13,700,000 for the third quarter of 2005 as compared to an income tax benefit
      of approximately $55,700,000 for the combined third quarter of 2004, while
      the
      provision for income taxes from continuing operations was approximately
      $25,500,000 for the first nine months of 2005 as compared to an income tax
      benefit of approximately $41,900,000 for the combined first nine months of
      2004.
      The income tax rates in both the second quarters and first six months of 2005
      and 2004 differed from the United States Federal statutory rate of 35%
      principally as a result of the effect of non-deductible expenses, foreign income
      tax on foreign source income and state income tax provisions (see Note H of
      the
      Notes to the Unaudited Condensed Consolidated Financial Statements included
      elsewhere herein).





Discontinued
      operations for the combined third quarter and first nine months of 2004 includes
      earnings of approximately $500,000 (net of a tax benefit of approximately
      $2,000,000) and $67,400,000 (net of a tax provision of approximately
      $45,500,000), respectively, (see Note F of the Notes to the Unaudited Condensed
      Consolidated Financial Statements included elsewhere herein).





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





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





Company
      management uses EBITDA as a supplementary non-GAAP operating performance measure
      to assist with its overall evaluation of Company and subsidiary operating
      performance (including the performance of subsidiary management) relative to
      outside peer group companies. In addition, the Company uses EBITDA as an
      operating performance measure in financial presentations to the Company’s Board
      of Directors, shareholders, various banks participating in Nortek’s Senior
      Secured Credit Facility, note holders and Bond Rating agencies, among others,
      as
      a supplemental non-GAAP operating measure to assist them in their evaluation
      of
      the Company’s performance. The Company is also active in mergers, acquisitions
      and divestitures and uses EBITDA as an additional operating performance measure
      to assess Company, subsidiary and potential acquisition target enterprise value
      and to assist in the overall evaluation of Company, subsidiary and potential
      acquisition target performance on an internal basis and relative to peer group
      companies. The Company uses EBITDA in conjunction with traditional GAAP
      operating performance measures as part of its overall assessment of potential
      valuation and relative performance and therefore does not place undue reliance
      on EBITDA as its only measure of operating performance. The Company believes
      EBITDA is useful for both the Company and investors as it is a commonly used
      analytical measurement for comparing company profitability, which eliminates
      the
      effects of financing, differing valuations of fixed and intangible assets and
      tax structure decisions. The Company believes that EBITDA is specifically
      relevant to the Company, due to the different degrees of leverage among its
      competitors, the impact of purchase accounting associated with the Acquisition,
      which impacts comparability with its competitors who may or may not have
      recently revalued their fixed and intangible assets, and the differing tax
      structures and tax jurisdictions of certain of the Company’s competitors. The
      Company has included EBITDA as a supplemental operating performance measure,
      which should be evaluated by investors in conjunction with the traditional
      GAAP
      performance measures discussed earlier in this Results of Operations section
      for
      a complete evaluation of the Company’s operating performance.





The
      following table presents a reconciliation from net earnings, which is the most
      directly comparable GAAP operating performance measure, to EBITDA for the third
      quarter ended October 1, 2005 and the periods from August 28, 2004 to October
      2,
      2004 and from July 4, 2004 to August 27, 2004:





**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****July
                  3, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **July
                  4, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)**(Unaudited)*Net
                  earnings (loss)*
              
              $
              19,700
              
              $
              (800
              )
              $
              (130,900
              )Provision (benefit) for income taxes from continuing
                  operations
              
              
              13,700
              
              
              (500
              )
              
              (55,200
              )Benefit from income taxes from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (2,000
              )Interest expense from continuing operations **
              
              
              34,332
              
              
              16,798
              
              
              12,092Interest expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              12Investment income from continuing operations
              
              
              (264
              )
              
              (32
              )
              
              (241
              )Investment income from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (18
              )Depreciation expense from continuing operations
              
              
              6,876
              
              
              2,524
              
              
              3,939Depreciation expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              8Amortization expense from continuing operations
              
              
              4,760
              
              
              3,783
              
              
              2,022EBITDA
              
              $
              79,104
              
              $
              21,773
              
              $
              (170,286
              )




* EBITDA
      includes approximately $100,000, $30,000 and $45,200,000 of stock-based
      compensation charges recorded in the third quarter ended October 1, 2005 and
      the
      periods from August 28, 2004 to October 2, 2004 and from July 4, 2004 to August
      27, 2004, respectively (see Notes A and G of the Notes to the Unaudited
      Condensed Consolidated Financial Statements included elsewhere
      herein) .





EBITDA
      includes earnings of approximately $500,000 from discontinued operations for
      the
      period from July 4, 2004 to August 27, 2004 (see Note F of the Notes to the
      Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein).





EBITDA
      for the period from July 4, 2004 to August 27, 2004 includes approximately
      $83,700,000 (which includes the approximate $45,200,000 of stock-based
      compensation expense as noted above) of expenses and charges arising from the
      Acquisition and approximately $118,778,000 of loss on debt retirement, which
      are
      recorded in earnings (loss) from continuing operations (see
      Notes C and E of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein). EBITDA
      for the period from July 4, 2004 to August 27, 2004 also includes approximately
      $4,500,000 of stock-based employee compensation charges related to the former
      Nortek Holdings’ stock options retained by employees of Ply Gem subsequent to
      the sale of Ply Gem, which are recorded in earnings from discontinued operations (see
      Notes A and F of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein) .





**
            Interest
                expense from continuing operations for the third quarter ended October
                1,
                2005 includes cash interest of approximately $25,937,000 and non-cash
                interest of approximately $8,395,000, interest expense from continuing
                operations for the period from August 28, 2004 to October 2, 2004
                includes
                cash interest of approximately $16,409,000 and non-cash interest
                of
                approximately $389,000 and interest expense from continuing operations
                for
                the period from July 4, 2004 to August 27, 2004 includes cash interest
                of
                approximately $5,761,000 and non-cash interest of approximately
                $6,331,000.






The
      following table presents a reconciliation from net earnings, which is the most
      directly comparable GAAP operating performance measure, to EBITDA for the nine
      months ended October 1, 2005 and the periods from August 28, 2004 to October
      1,
      2004 and from January 1, 2004 to August 27, 2004:




**For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)**(Unaudited)*Net
                  earnings *
              
              $
              38,500
              
              $
              (800
              )
              $
              (43,900
              )Provision (benefit) for income taxesfrom
                    continuing operations
              
              
              25,500
              
              
              (500
              )
              
              (41,400
              )Provision for income taxes from discontinued
                    operations
              
              
              ---
              
              
              ---
              
              
              45,500Interest expense from continuing operations **
              
              
              104,257
              
              
              16,798
              
              
              56,073Interest expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              4,609Investment income from continuing operations
              
              
              (1,072
              )
              
              (32
              )
              
              (1,520
              )Investment income from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (52
              )Depreciation expense from continuing operations
              
              
              20,434
              
              
              2,524
              
              
              16,731Depreciation expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              1,210Amortization expense from continuing operations
              
              
              13,909
              
              
              3,783
              
              
              9,092Amortization expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              203EBITDA
              
              $
              201,528
              
              $
              21,773
              
              $
              46,546


*
            EBITDA
                includes approximately $300,000, $30,000 and $48,500,000 of stock-based
                compensation charges recorded in the first nine months ended October
                1,
                2005 and the periods from August 28, 2004 to October 2, 2004 and
                from
                January 1, 2004 to August 27, 2004, respectively (see Notes A and
                G of the
                Notes to the Unaudited Condensed Consolidated Financial Statements
                included elsewhere herein).





EBITDA
      includes earnings of approximately $67,400,000 from discontinued operations
      for
      the period from January 1, 2004 to August 27, 2004 (see Note F of the Notes
      to
      the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein).





EBITDA
      for the period from January 1, 2004 to August 27, 2004 includes approximately
      $83,700,000 (which includes approximately $45,200,000 of the $48,500,000 of
      stock-based compensation expense noted above) of expenses and charges arising
      from the Acquisition and approximately $130,700,000 of loss on debt retirement,
      which are recorded in earnings (loss) from continuing operations (see Notes
      C
      and E of the Notes to the Unaudited Condensed Consolidated Financial Statements
      included elsewhere herein). EBITDA for the period from January 1, 2004 to August
      27, 2004 also includes approximately $6,400,000 of stock-based employee
      compensation charges related to the former Nortek Holdings’ stock options
      retained by employees of Ply Gem subsequent to the sale of Ply Gem, which are
      recorded in earnings from discontinued operations (see Notes A and F of the
      Notes to the Unaudited Condensed Consolidated Financial Statements included
      elsewhere herein).





**
            Interest
                expense from continuing operations for the first nine months ended
                October
                1, 2005 includes cash interest of approximately $82,721,000 and non-cash
                interest of approximately $21,536,000, interest expense from continuing
                operations for the period from August 28, 2004 to October 2, 2004
                includes
                cash interest of approximately $16,409,000 and non-cash interest
                of
                approximately $389,000 and interest expense from continuing operations
                for
                the period from January 1, 2004 to August 27, 2004 includes cash
                interest
                of approximately $31,402,000 and non-cash interest of approximately
                $24,671,000.




**Liquidity
      and Capital Resources**





The
      Company acquired several companies during the first nine months of 2005
      utilizing cash on hand and incurring additional indebtedness. Companies acquired
      during 2005 and the impact on cash flow in 2005 were as follows:





·
            On
                August 26, 2005, the Company acquired the assets of Sunfire for
                approximately $4,000,000 (utilizing approximately $3,500,000 of cash
                on
                hand and issuing an unsecured subordinated promissory note in the
                amount
                of approximately $500,000) plus contingent consideration.





·
            On
                August 8, 2005, the Company acquired the stock of Imerge for approximately
                $6,000,000 in cash plus contingent
                consideration.





·
            On
                July 15, 2005, the Company acquired the assets and certain liabilities
                of
                Niles for approximately $76,500,000, utilizing approximately $41,500,000
                of cash on hand, borrowing approximately $25,000,000 against the
                U.S.
                portion of its revolving credit facility (which was subsequently
                repaid
                during the third quarter of 2005) and issuing an unsecured promissory
                note
                in the amount of approximately
                $10,000,000.





·
            On
                June 13, 2005, the Company, through its wholly-owned subsidiary Nordyne,
                acquired IMS for approximately $4,600,000, utilizing approximately
                $4,100,000 of cash on hand and issuing an unsecured promissory note
                in the
                amount of approximately $500,000.





·
            On
                April 26, 2005, the Company, through its indirect wholly-owned subsidiary,
                Linear, acquired Panamax for approximately $11,850,000 (utilizing
                approximately $9,600,000 of cash on hand and issuing an unsecured
                promissory note in the amount of approximately $2,250,000) plus contingent
                consideration.





The
      estimated total potential amount of contingent consideration that may be paid
      in
      the future for all acquisitions is approximately $7,250,000 (see Note D of
      the
      Notes to the Unaudited Condensed Consolidated Financial Statements included
      elsewhere herein).





On
      February 15, 2005, the Company completed the sale of $403,000,000 aggregate
      principal amount at maturity ($250,408,080 gross proceeds) of its 10 3/4% Senior
      Discount Notes due March 1, 2014 (the “10 3/4% Senior Discount Notes”). The 10
      3/4% Senior Discount Notes, which are structurally subordinate to all debt
      and
      liabilities of the Company’s subsidiaries, including Nortek Holdings and Nortek,
      were issued and sold in a private Rule 144A offering to institutional investors. On
      July
      5, 2005, the Company filed a registration statement with the SEC to exchange
      the
      10 3/4% Senior Discount Notes for registered notes. The registration statement
      went effective on July 21, 2005. During the exchange offer period, which closed
      during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
      were
      exchanged for registered notes. The Company will continue to file periodic
      reports with the SEC as required by the indenture governing the 10 3/4% Senior
      Discount Notes.





The
      accreted value of the 10 3/4% Senior Discount Notes will increase from the
      date
      of issuance at a rate of 10 3/4% per annum compounded semi-annually such that
      the accreted value would, if no prior redemptions are made, equal the principal
      amount of $403,000,000 in September 2009. No cash interest will accrue on the
      10
      3/4% Senior Discount Notes prior to September 1, 2009 and, thereafter, cash
      interest will accrue at 10 3/4% per annum payable semi-annually in arrears
      on
      March 1 and September 1 of each year, commencing on March 1, 2010, until
      maturity. The 10 3/4% Senior Discount Notes are unsecured obligations of the
      Company, which mature on March 1, 2014, and may be redeemed in whole or in
      part
      at the redemption prices as defined in the indenture governing the 10 3/4%
      Senior Discount Notes (the “Indenture”). The Indenture contains covenants that
      limit the Company’s ability to engage in certain transactions, including
      incurring additional indebtedness and paying dividends or
      distributions.





The
      net
      proceeds of the offering were used to pay a dividend of approximately
      $187,000,000 to its sole stockholder, Investors LLC. In turn, Investors LLC
      authorized a distribution of approximately $187,000,000 to the equity holders
      of
      Investors LLC in accordance with the terms of the LLC agreement by and among
      Investors LLC and its members. In addition, on February 18, 2005, NTK Holdings
      contributed approximately $57,700,000 to Nortek Holdings for the purpose of
      making payments under the Nortek Holdings, Inc. Deferred Compensation Plan,
      which resulted in additional expense of approximately $8,200,000, which the
      Company has included in interest expense in the accompanying unaudited condensed
      consolidated statement of operations. All payments related to this contribution
      have been made by Nortek Holdings, Inc.





The
      Company had consolidated debt at October 1, 2005, of approximately
      $1,643,641,000 consisting of (i) $18,185,000 of short-term borrowings and
      current maturities of long-term debt, (ii) $36,902,000 of long-term notes,
      mortgage notes and other indebtedness, (iii) $9,983,000 of Nortek’s 9 7/8%
      Senior Subordinated Notes due 2011, (iv) $625,000,000 of Nortek’s 8 1/2% Senior
      Subordinated Notes due 2014, (v) $686,000,000 of long-term debt outstanding
      under Nortek’s Senior Secured Credit Facility and (vi) $267,571,000 of the
      Company’s 10 3/4% Senior Discount Notes.





During
      the nine months ended October 1, 2005, the Company had a net increase in its
      consolidated debt of approximately $273,700,000 resulting from (1) additional
      borrowings related to the 10 3/4% Senior Discount Notes as discussed above
      of
      approximately $250,400,000, (2) additional borrowings of approximately
      $15,800,000 primarily related to the acquisitions noted above, (3) approximately
      $17,200,000 of debt accretion related to the 10 3/4% Senior Discount Notes
      and
      (4) approximately $2,200,000 in net additional borrowings from secured lines
      of
      credit and bank advances of the Company’s European subsidiaries, offset by (5)
      approximately $11,000,000 of principal and other payments made during the period
      and (6) an approximate $900,000 decrease related to the effects of foreign
      currency translation.





The
      Company’s debt to equity ratio was approximately 9.6:1 at October 1, 2005 as
      compared to approximately 4.3:1 at December 31, 2004. The increase in the ratio
      was primarily due to the net increase in indebtedness as discussed
      above.





Nortek’s
      Senior Secured Credit Facility also provides the Company and its subsidiaries
      with a $100,000,000 revolving credit facility with a maturity in August 2010
      that includes both a letter of credit sub-facility and swing line loan
      sub-facility. At October 1, 2005, Nortek had approximately $70,700,000 of
      borrowing availability under the U.S. portion of its revolving credit facility
      and approximately $10,000,000 of borrowing availability under its Canadian
      credit facility. There were no outstanding borrowings under the U.S. or Canadian
      portions of Nortek’s revolving credit facility at October 1, 2005.





The
      indentures and other agreements governing the Company and its subsidiaries’
      indebtedness (including the credit agreement for the Senior Secured Credit
      Facility) contain certain restrictive financial and operating covenants
      including covenants that restrict the ability of the Company and its
      subsidiaries to complete acquisitions, pay dividends, incur indebtedness, make
      investments, sell assets and take certain other corporate actions.





At
      October 1, 2005, there was approximately $109,000,000 available for the payment
      of cash dividends, stock purchases or other restricted payments (“Restricted
      Payments”) by the Company as defined under the terms of the Company’s 10 3/4%
      Senior Discount Notes’ indenture. Restricted Payments to NTK Holdings and Nortek
      Holdings from Nortek are limited by the terms of Nortek’s most restrictive loan
      agreement, Nortek’s Senior Secured Credit Facility. The amount available for
      such payments under Nortek’s Senior Secured Credit Facility was approximately
      $112,800,000 at October 1, 2005.





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





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





The
      following is a summary of NTK Holdings’ estimated future cash obligations under
      current and long-term debt obligations (excluding unamortized debt premium
      of
      approximately $18,000 at October 1, 2005) and interest expense (based upon
      interest rates in effect at the time of the preparation of this summary).
      Long-term debt and interest payments in the table below reflect the financing
      transactions during the first nine months of 2005 as previously described (see
      Notes C and D of the Notes to the Unaudited Condensed Consolidated Financial
      Statements included elsewhere herein):





**Payments
                due by period****Remaining
                3****Months
                of 2005**
            
            **2006
                - 2007**
            
            **2008
                - 2009**
            
            **2010
                and****Thereafter**
            
            **Total***(Amounts
                in thousands)*Debt
                obligations
            
            $
            10,728
            
            $
            28,909
            
            $
            15,693
            
            $
            1,569,096
            
            $
            1,624,426Interest
                payments
            
            
            23,595
            
            
            247,799
            
            
            255,457
            
            
            477,034
            *
            
            1,003,885
            *Capital
                lease obligations
            
            
            306
            
            
            2,640
            
            
            2,948
            
            
            13,303
            
            
            19,197Total
            
            $
            34,629
            
            $
            279,348
            
            $
            274,098
            
            $
            2,059,433
            
            $
            2,647,508





*
            Subsidiary
                debt used for working capital purposes such as lines of credit are
                estimated to continue through December 31, 2011 in the above table.
                Additionally, unaccreted non-cash interest expense relating
                to the 10
                3/4% Senior Discount Notes has been included in interest payments
                for the
                applicable period.






The
      Company expects to meet its cash flow requirements for fiscal 2005 from cash
      from operations, existing cash and cash equivalents and the use of Nortek’s
      Senior Secured Credit Facility, as needed, to fund short-term requirements,
      if
      any.





As
      of
      October 1, 2005, approximately $19,800,000 of letters of credit have been issued
      as additional security for (1) approximately $14,000,000 relating to certain
      of
      the Company’s insurance programs, (2) approximately $4,100,000 relating to
      leases outstanding for certain of the Company’s manufacturing facilities and (3)
      approximately $1,700,000 relating to certain of the subsidiaries purchases
      and
      other requirements.





The
      Company and its subsidiaries have entered into a number of operating lease
      obligations, purchase obligations and have guaranteed certain obligations of
      various third parties. No significant changes in these obligations have occurred
      since December 31, 2004.





Unrestricted
      cash and cash equivalents decreased from approximately $95,000,000 at December
      31, 2004 to approximately $47,300,000 at October 1, 2005, in part, to partially
      fund the acquisitions in 2005 noted above. The Company has classified as
      restricted, in the accompanying unaudited condensed consolidated balance sheet,
      certain investments that are not fully available for use in its operations.
      At
      October 1, 2005, approximately $6,079,000 (of which approximately $2,271,000
      is
      included in short-term assets) of investments is held primarily as collateral
      to
      fund future capital expenditures within the Company’s segments, as well as for
      insurance and letter of credit requirements.





Capital
      expenditures were approximately $6,900,000 (of which approximately $1,100,000
      was financed under a capital lease) in the third quarter of 2005 as compared
      to
      approximately $6,100,000 (of which approximately $1,200,000 was financed under
      a
      capital lease) in the combined third quarter of 2004. Capital expenditures
      were
      approximately $19,600,000 (of which approximately $4,600,000 was financed under
      a capital lease) in the first nine months of 2005 as compared to approximately
      $15,700,000 (of which approximately $1,200,000 was financed under a capital
      lease) in the combined first nine months of 2004. Capital expenditures were
      approximately $25,300,000 for the year ended December 31, 2004 and are expected
      to be approximately $40,000,000 in 2005. Under Nortek’s Senior Secured Credit
      Facility, capital expenditures are limited to approximately $48,500,000 in
      2005.





The
      Company’s working capital and current ratio increased from approximately
      $215,800,000 and 1.6:1 at December 31, 2004 to approximately $283,900,000 and
      1.8:1 at October 1, 2005. This
      increase in working capital and current ratio for the first nine months of
      2005
      was primarily as a result of a seasonal increase in accounts receivable and
      a
      reduction in accrued expenses, which was partially offset by the increase in
      accounts payable as noted below and the decrease in cash due to acquisitions
      as
      noted above.





Accounts
      receivable increased approximately $70,911,000, or approximately 31.4%, between
      December 31, 2004 and October 1, 2005, while net sales increased approximately
      $122,916,000, or approximately 30.7%, in the third quarter of 2005 as compared
      to the fourth quarter of 2004. These increases are primarily a result of
      increased sales levels, timing of cash collections and acquisitions.
      Acquisitions contributed approximately $30,300,000 to the increase in net sales
      in the third quarter of 2005 and approximately $11,100,000 to the increase
      in
      accounts receivable at October 1, 2005. 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 1,
      2005
      as compared to December 31, 2004. The Company did not experience any significant
      overall changes in credit terms, collection efforts, credit utilization or
      delinquency in accounts receivable in the third quarter of 2005.





Inventories
      increased approximately $19,871,000, or approximately 9.7%, between December
      31,
      2004 and October 1, 2005 primarily as a result of increased inventory levels
      in
      the Residential Building Products Segment, in part, due to strong demand of
      certain product categories and acquisitions which contributed approximately
      $10,500,000 to the increase in inventories at October 1, 2005.





Accounts
      payable increased approximately $33,886,000, or approximately 24.7%, between
      December 31, 2004 and October 1, 2005 due primarily to increased inventory
      levels and timing of payments. Acquisitions contributed approximately $6,000,000
      to the increase in accounts payable at October 1, 2005.





Changes
      in certain working capital accounts, as noted above, between December 31, 2004
      and October 1, 2005, differ from the changes reflected in the Company’s
      Unaudited Condensed Consolidated Statement of Cash Flows for such period as
      a
      result of the specific items mentioned in the three preceding paragraphs and
      from other non-cash items, including among others, the effect of changes in
      foreign currency exchange rates.





Unrestricted
      cash and cash equivalents decreased approximately $47,674,000 and $131,263,000
      from January 1, 2005 to October 1, 2005 and from August 28, 2004 to October
      2,
      2004, respectively and increased approximately $7,830,000 from January 1, 2004
      to August 27, 2004, principally as a result of the following:




**Condensed
                  Consolidated Cash Flows (*)****For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Operating
                  Activities:**Cash flow from operations, net
              
              $
              107,007
              
              $
              5,926
              
              $
              90,414Increase in accounts receivable, net
              
              
              (64,462
              )
              
              (1,347
              )
              
              (26,921
              )Increase in inventories
              
              
              (11,633
              )
              
              (5,907
              )
              
              (34,337
              )(Increase) / decrease in prepaids and other current assets
              
              
              (8,197
              )
              
              17,853
              
              
              (14,363
              )Decrease in net assets of discontinued operations
              
              
              ---
              
              
              ---
              
              
              2,326Increase / (decrease) in accounts payable
              
              
              32,962
              
              
              (15,274
              )
              
              52,669(Decrease) / increase in accrued expenses and taxes
              
              
              (2,943
              )
              
              14,566
              
              
              (33,926
              )Decrease in long-term deferred compensation
              
              
              (57,781
              )
              
              ---
              
              
              ---**Investing
                  Activities:**Capital expenditures
              
              
              (15,020
              )
              
              (2,620
              )
              
              (11,848
              )Net cash paid for businesses acquired
              
              
              (88,800
              )
              
              ---
              
              
              (16,500
              )Purchase of outstanding equity shares of the Company by Thomas
                    H. Lee
                    Partners, L.P. and affiliates
              
              
              ---
              
              
              (706,189
              )
              
              ---Purchase of investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              (5,000
              )Proceeds from the sale of investments andmarketable
                    securities
              
              
              ---
              
              
              ---
              
              
              5,000Payment of Acquisition fees and expenses
              
              
              ---
              
              
              (57,000
              )
              
              ---Proceeds from the sale of discontinued businesses
              
              
              ---
              
              
              ---
              
              
              526,000Proceeds from the sale of property and equipment
              
              
              6,144
              
              
              ---
              
              
              ---Change in restricted cash and investments
              
              
              (2,070
              )
              
              1
              
              
              (103
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              (6,305
              )
              
              (484
              )
              
              (5,370
              )Sale of the 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---
              
              
              ---Dividend to THL-Nortek Investors, LLC
              
              
              (186,970
              )
              
              ---
              
              
              ---Sale of Floating Rate Notes
              
              
              ---
              
              
              ---
              
              
              196,000Redemption of notes in connection with the Acquisition
              
              
              ---
              
              
              (919,300
              )
              
              ---Redemption of Senior Notes
              
              
              ---
              
              
              ---
              
              
              (716,700
              )Net proceeds from the sale of the 8 1/2% Notes
              
              
              ---
              
              
              605,400
              
              
              ---Net proceeds from borrowings under the Senior  Secured
                    Credit
                    facility
              
              
              ---
              
              
              685,350
              
              
              ---Equity investment by Thomas H. Lee Partners, L.P. and
                    affiliates
              
              
              ---
              
              
              361,841
              
              
              ---Settlement of stock options
              
              
              ---
              
              
              (113,032
              )
              
              ---Other,
                  net
              
              
              5,686
              
              
              (1,047
              )
              
              489$
              (47,674
              )
              $
              (131,263
              )
              $
              7,830




(*)
            Summarized
                from the Company’s Unaudited Condensed Consolidated Statement of Cash
                Flows for the nine months ended October 1, 2005 and the periods from
                August 28, 2004 to October 2, 2004 and from January 1, 2004 to August
                27,
                2004 (see the Unaudited Financial Statements included elsewhere
                herein).






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





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





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





Company
      management uses EBITDA as a supplementary non-GAAP liquidity measure to allow
      the Company to evaluate its operating units cash-generating ability to fund
      income tax payments, corporate overhead, capital expenditures and increases
      in
      working capital. EBITDA is also used by management to allocate resources for
      growth among its businesses, to identify possible impairment charges, to
      evaluate the Company’s ability to service its debt and to raise capital for
      growth opportunities, including acquisitions. In addition, the Company uses
      EBITDA as a liquidity measure in financial presentations to the Company’s Board
      of Directors, shareholders, various banks participating in Nortek’s Senior
      Secured Credit Facility, note holders and Bond Rating agencies, among others,
      as
      a supplemental non-GAAP liquidity measure to assist them in their evaluation
      of
      the Company’s cash flow performance. The Company uses EBITDA in conjunction with
      traditional GAAP liquidity measures as part of its overall assessment of cash
      flow ability and therefore does not place undue reliance on EBITDA as its only
      measure of cash flow performance. The Company believes EBITDA is useful for
      both
      the Company and investors as it is a commonly used analytical measurement for
      assessing a company’s cash flow ability to service and/or incur additional
      indebtedness, which eliminates the impact of certain non-cash items such as
      depreciation and amortization. The Company believes that EBITDA is specifically
      relevant to the Company due to the Company’s leveraged position as well as the
      common use of EBITDA as a liquidity measure within the Company’s industries by
      lenders, investors, others in the financial community and peer group companies.
      The Company has included EBITDA as a supplemental liquidity measure, which
      should be evaluated by investors in conjunction with the traditional GAAP
      liquidity measures discussed earlier in this Liquidity and Capital Resources
      section for a complete evaluation of the Company’s cash flow
      performance.





The
      following table presents a reconciliation from net cash provided by (used in)
      operating activities, which is the most directly comparable GAAP liquidity
      measure, to EBITDA for the nine months ended October 1, 2005 and the periods
      from August 28, 2004 to October 2, 2004 and from January 1, 2004 to August
      27,
      2004:




**For
                  the Periods****Post
                  - Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Oct.
                  1, 2005**
              
              **Oct.
                  2, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)**(Unaudited)*Net cash provided by operating activities *
              
              $
              2,332
              
              $
              14,747
              
              $
              36,697Cash used in (provided by) working capital andother
                    long-term asset and liability changes
              
              
              104,675
              
              
              (8,821
              )
              
              53,717Non-cash interest expense, net
              
              
              (21,536
              )
              
              (389
              )
              
              (24,671
              )Effect of the Acquisition, net
              
              
              ---
              
              
              ---
              
              
              (38,423
              )Non-cash stock-based compensation
              
              
              (248
              )
              
              (30
              )
              
              (48,561
              )Loss from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )Gain on the sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              125,200Gain on sale of fixed assets
              
              
              220
              
              
              ---
              
              
              ---Deferred federal income tax provision fromcontinuing
                    operations
              
              
              (12,600
              )
              
              ---
              
              
              (9,800
              )Deferred federal income tax credit fromdiscontinued
                    operations
              
              
              ---
              
              
              ---
              
              
              18,500Provision (benefit) for income taxes from continuing
                  operations
              
              
              25,500
              
              
              (500
              )
              
              (41,400
              )Provision for income taxes from discontinued operations
              
              
              ---
              
              
              ---
              
              
              45,500Interest expense from continuing operations **
              
              
              104,257
              
              
              16,798
              
              
              56,073Interest expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              4,609Investment income from continuing operations
              
              
              (1,072
              )
              
              (32
              )
              
              (1,520
              )Investment income from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (52
              )Depreciation expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              1,210Amortization expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              203EBITDA
              
              $
              201,528
              
              $
              21,773
              
              $
              46,546




*
            EBITDA
                includes approximately $300,000, $30,000 and $48,500,000 of stock-based
                compensation charges recorded in the first nine months ended October
                1,
                2005 and the periods from August 28, 2004 to October 2, 2004 and
                from
                January 1, 2004 to August 27, 2004, respectively (see Notes A and
                G of the
                Notes to the Unaudited Condensed Consolidated Financial Statements
                included elsewhere herein).





EBITDA
      includes earnings of approximately $67,400,000 from discontinued operations
      for
      the period from January 1, 2004 to August 27, 2004 (see Note F of the Notes
      to
      the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein).





EBITDA
      for the period from January 1, 2004 to August 27, 2004 includes approximately
      $83,700,000 (which includes approximately $45,200,000 of the $48,500,000 of
      stock-based compensation expense noted above) of expenses and charges arising
      from the Acquisition and approximately $130,700,000 of loss on debt retirement,
      which are recorded in earnings (loss) from continuing operations (see Notes
      C
      and E of the Notes to the Unaudited Condensed Consolidated Financial Statements
      included elsewhere herein). EBITDA for the period from January 1, 2004 to August
      27, 2004 also includes approximately $6,400,000 of stock-based employee
      compensation charges related to the former Nortek Holdings’ stock options
      retained by employees of Ply Gem subsequent to the sale of Ply Gem, which are
      recorded in earnings from discontinued operations (see Notes A and F of the
      Notes to the Unaudited Condensed Consolidated Financial Statements included
      elsewhere herein).





**
            Interest
                expense from continuing operations for the first nine months ended
                October
                1, 2005 includes cash interest of approximately $82,721,000 and non-cash
                interest of approximately $21,536,000, interest expense from continuing
                operations for the period from August 28, 2004 to October 2, 2004
                includes
                cash interest of approximately $16,409,000 and non-cash interest
                of
                approximately $389,000 and interest expense from continuing operations
                for
                the period from January 1, 2004 to August 27, 2004 includes cash
                interest
                of approximately $31,402,000 and non-cash interest of approximately
                $24,671,000.





**Inflation,
      Trends and General Considerations**





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





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





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





The
      Department of Energy announced on April 2, 2004 that effective January 26,
      2006,
      the minimum seasonal energy efficiency rating for residential central air
      conditioners (“SEER”) will be raised to 13 SEER. The current minimum is 10 SEER.
      Approximately 97% of the Company’s residential central air conditioner sales are
      currently below the 13 SEER efficiency rating. The Company’s Air Conditioning
      and Heating Products Segment currently produces residential central air
      conditioners with a 13 SEER efficiency rating and continues to focus on product
      improvements including energy efficiency as part of its engineering and
      manufacturing efforts. The Company does not expect any significant adverse
      effect on its business subsequent to January 26, 2006 as a result of the
      increase in the minimum SEER rating.





As
      of
      October 1, 2005, approximately 11.1% of the Company’s workforce was subject to
      various collective bargaining agreements. Collective bargaining agreements
      covering approximately 2.4% of the Company’s workforce expired in 2004 and are
      currently being renegotiated.





On
      June
      8, 2005 the Company’s collective bargaining agreement with the United Automobile
      Aerospace & Agricultural Implement Workers of America and its Local No. 2029
      (which is estimated to cover approximately 4.8% (422 employees) of the Company’s
      workforce subject to collective bargaining agreements as of October 1, 2005)
      at
      the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc. expired.
      The Company has presented its final proposal to the union bargaining committee
      but such proposal was not accepted by the union members. On July 16, 2005,
      the
      Company locked out the union employees at the NuTone Cincinnati, OH facility.
      The Company’s management has prepared contingency plans to ensure that
      operational disruptions are minimized and the Company’s customers’ needs are met
      without significant delay.





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





**Market
      Risk**





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





The
      Company’s market risks are similar to that of its wholly-owned subsidiary,
      Nortek. There have been no significant changes in market risk from the December
      31, 2004 disclosures included in Nortek’s latest annual report on Form 10-K as
      filed with the SEC.





**A.**  **Interest
      Rate Risk**





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





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





The
      Company has historically managed its borrowing exposure to changes in interest
      rates by optimizing the use of fixed rate debt with extended maturities. At
      October 1, 2005, approximately 57.4% of the carrying values of the Company’s
      long-term debt were at fixed interest rates.





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





Sales
      and
      earnings derived from international markets and net assets within international
      markets are subject to, among others, the risks of currency fluctuations
      primarily related to changes in the Euro, the Canadian Dollar and the British
      Pound. In the third quarter and first nine months of 2005, the net impact of
      foreign currency changes was not material to the Company’s financial condition
      or results of operations, but may not be indicative of future results. The
      impact of foreign currency changes related to translation resulted in an
      increase in stockholder’s investment of approximately $4,996,000 for the three
      months ended October 1, 2005 and a decrease in stockholder’s investment of
      approximately $1,619,000 for the nine months ended October 1, 2005. The Company
      manages its exposure to foreign currency exchange risk principally by trying
      to
      minimize the Company’s net investment in foreign assets through the use of
      strategic short and long-term borrowings at the foreign subsidiary level. The
      Company generally does not enter into derivative financial instruments to manage
      foreign currency exposure. At October 1, 2005, the Company did not have any
      significant outstanding foreign currency hedging contracts.





**C.**  **Commodity
      Pricing Risk**





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





The
      Company generally does not enter into derivative financial instruments to manage
      commodity pricing exposure. At October 1, 2005, the Company did not have any
      material outstanding commodity forward contracts.





**Forward-Looking
      Statements**





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





**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





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





**Item
      4.**  **Controls
      and Procedures**





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







**PART
      II. OTHER INFORMATION**





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





None





**Item
      5.**  **Other
      Information**





None





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




The
      items
      marked with an asterisk are filed herewith.








*
            31.1
            Certificate
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.*
            31.2
            Certificate
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.*
            32.1
            Certificate
                of Chief Executive 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*
            32.2
            Certificate
                of 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.





NTK HOLDINGS, INC.(Registrant)/s/ Almon C.
              HallAlmon
              C. Hall,Vice President and ChiefFinancial OfficerNovember 7, 2005