**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 July 2, 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
      [  ] No [X]





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 August 4, 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 per share data)*


**July
                  2,**
              
              **December
                  31,****2005**
              
              **2004****Assets****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              74,615
              
              $
              94,955Restricted
                  cash and cash equivalents
              
              
              468
              
              
              ---Accounts
                  receivable, less allowancesof $5,684 and $5,467
              
              
              284,233
              
              
              225,706Inventories:Raw
                  materials
              
              
              70,677
              
              
              72,166Work
                  in process
              
              
              24,846
              
              
              24,249Finished
                  goods
              
              
              133,997
              
              
              109,134229,520
              
              
              205,549Prepaid
                  expenses
              
              
              11,349
              
              
              8,596Other
                  current assets
              
              
              29,179
              
              
              26,126Prepaid
                  income taxes
              
              
              30,208
              
              
              32,745Total
                  current assets
              
              
              659,572
              
              
              593,677**Property
                  and Equipment, at Cost:**Land
              
              
              8,418
              
              
              8,683Buildings
                  and improvements
              
              
              71,004
              
              
              75,476Machinery
                  and equipment
              
              
              133,107
              
              
              124,644212,529
              
              
              208,803Less
                  accumulated depreciation
              
              
              18,561
              
              
              7,713Total
                  property and equipment, net
              
              
              193,968
              
              
              201,090**Other
                  Assets:**Goodwill
              
              
              1,309,067
              
              
              1,295,105Intangible
                  assets, less accumulated amortizationof $17,041 and $8,436
              
              
              100,776
              
              
              110,715Deferred
                  tax benefit
              
              
              ---
              
              
              2,488Deferred
                  debt expense
              
              
              44,855
              
              
              41,741Restricted
                  investments and marketable securities
              
              
              4,973
              
              
              8,605Other
                  assets
              
              
              8,124
              
              
              11,1541,467,795
              
              
              1,469,808$
              2,321,335
              
              $
              2,264,575**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable and other short-term obligations
              
              $
              7,481
              
              $
              5,364Current
                  maturities of long-term debt
              
              
              10,555
              
              
              14,414Accounts
                  payable
              
              
              167,886
              
              
              137,343Accrued
                  expenses and taxes, net
              
              
              168,803
              
              
              220,784Total
                  current liabilities
              
              
              354,725
              
              
              377,905**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              113
              
              
              ---Other
              
              
              210,890
              
              
              214,672211,003
              
              
              214,672**Notes,
                  Mortgage Notes and Obligations****Payable, Less Current Maturities**
              
              
              1,608,440
              
              
              1,350,210**Stockholder’s
                  Investment:**Common
                  stock, $0.01 par value, authorized 3,000 shares;3,000 issued and outstanding at July 2, 2005 andDecember 31, 2004
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              130,010
              
              
              316,823Retained
                  earnings (accumulated deficit)
              
              
              14,700
              
              
              (4,100
              )Accumulated
                  other comprehensive income
              
              
              2,457
              
              
              9,065Total
                  stockholder's investment
              
              
              147,167
              
              
              321,788**Total
                  Liabilities and Stockholder's Investment:**
              
              $
              2,321,335
              
              $
              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 Three Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Net
                  Sales**
              
              $
              498,860
              
              $
              446,012**Costs
                  and Expenses:**Cost
                  of products sold
              
              
              350,406
              
              
              314,804Selling,
                  general and administrative expense
              
              
              85,090
              
              
              80,781Amortization
                  of intangible assets
              
              
              4,385
              
              
              3,540439,881
              
              
              399,125Operating
                  earnings
              
              
              58,979
              
              
              46,887Interest
                  expense
              
              
              (32,741
              )
              
              (18,422
              )Investment
                  income
              
              
              362
              
              
              335Earnings
                  from continuing operationsbefore provision for income taxes
              
              
              26,600
              
              
              28,800Provision
                  for income taxes
              
              
              10,100
              
              
              11,700**Earnings
                  from continuing operations**
              
              
              16,500
              
              
              17,100**Loss
                  from discontinued operations**
              
              
              ---
              
              
              (1,200
              )**Net
                  earnings**
              
              $
              16,500
              
              $
              15,900


*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 Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Net
                  Sales**
              
              $
              932,978
              
              $
              851,024**Costs
                  and Expenses:**Cost
                  of products sold
              
              
              659,865
              
              
              601,686Selling,
                  general and administrative expense
              
              
              164,678
              
              
              153,929Amortization
                  of intangible assets
              
              
              8,718
              
              
              6,849833,261
              
              
              762,464Operating
                  earnings
              
              
              99,717
              
              
              88,560Interest
                  expense
              
              
              (69,925
              )
              
              (43,981
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (11,958
              )Investment
                  income
              
              
              808
              
              
              1,279Earnings
                    from continuing operations before provision for income taxes
              
              
              30,600
              
              
              33,900Provision
                  for income taxes
              
              
              11,800
              
              
              13,800**Earnings
                  from continuing operations**
              
              
              18,800
              
              
              20,100**Earnings
                  from discontinued operations**
              
              
              ---
              
              
              66,900**Net
                  earnings**
              
              $
              18,800
              
              $
              87,000


*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 Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Cash
                  Flows from operating activities:**Net
                  earnings from continuing operations
              
              $
              18,800
              
              $
              20,100Earnings
                  from discontinued operations
              
              
              ---
              
              
              66,900Net
                  earnings
              
              
              18,800
              
              
              87,000**Adjustments
                  to reconcile net earnings **to
                  net cash used in operating
                  activities:****Depreciation
                  and amortization expense, includingamortization of purchase price allocated to inventory
              
              
              22,707
              
              
              19,862Non-cash
                  interest expense, net
              
              
              13,141
              
              
              18,340Non-cash
                  stock based compensation
              
              
              158
              
              
              5,241Loss
                  from debt retirement
              
              
              ---
              
              
              11,958Gain
                  on the sale of discontinued operations
              
              
              ---
              
              
              (122,700
              )Gain
                  on sale of fixed assets
              
              
              (506
              )
              
              ---Deferred
                    federal income tax provision from continuing operations
              
              
              5,500
              
              
              9,800Deferred
                    federal income tax credit from discontinued operations
              
              
              ---
              
              
              (18,500
              )**Changes
                    in certain assets and liabilities, net of**effects from
                    acquisitions and dispositions:Accounts
                  receivable, net
              
              
              (60,602
              )
              
              (48,357
              )Inventories
              
              
              (23,964
              )
              
              (38,057
              )Prepaids
                  and other current assets
              
              
              (7,825
              )
              
              4,895Net
                  assets of discontinued operations
              
              
              ---
              
              
              (3,496
              )Accounts
                  payable
              
              
              31,844
              
              
              45,937Accrued
                  expenses and taxes
              
              
              (923
              )
              
              (689
              )Long-term
                  deferred compensation
              
              
              (57,737
              )
              
              ---Long-term
                  assets, liabilities and other, net
              
              
              5,253
              
              
              (1,892
              )Total adjustments to net earnings
              
              
              (72,954
              )
              
              (117,658
              )Net cash used in operating activities
              
              $
              (54,154
              )
              $
              (30,658
              )**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              $
              (9,238
              )
              $
              (9,616
              )Net
                  cash paid for businesses acquired
              
              
              (13,400
              )
              
              (16,500
              )Purchase
                  of investments and marketable securities
              
              
              ---
              
              
              (5,000
              )Proceeds
                  from the sale of discontinued businesses
              
              
              ---
              
              
              520,138Proceeds
                  from the sale of property and equipment
              
              
              6,084
              
              
              ---Change
                  in restricted cash and investments
              
              
              (275
              )
              
              (111
              )Other,
                  net
              
              
              (906
              )
              
              (163
              )Net cash (used in) provided by investing activities
              
              
              (17,735
              )
              
              488,748**Cash
                  Flows from financing activities:**Change
                  in borrowings, net
              
              
              (5,983
              )
              
              (4,011
              )Sale
                  of 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,971
              )
              
              ---Sale
                  of Floating Rate Notes
              
              
              ---
              
              
              196,000Redemption
                  of Senior Notes
              
              
              ---
              
              
              (716,700
              )Other,
                  net
              
              
              (205
              )
              
              63Net cash provided by (used in) financing activities
              
              
              51,549
              
              
              (524,648
              )Net
                    decrease in unrestricted cash and cash equivalents
              
              
              (20,340
              )
              
              (66,558
              )Unrestricted
                    cash and cash equivalents at the beginning of the period
              
              
              94,955
              
              
              194,120Unrestricted
                    cash and cash equivalents at the end of the period
              
              $
              74,615
              
              $
              127,562**Supplemental
                  disclosure of cash flow information:**Interest
                  paid
              
              $
              55,568
              
              $
              47,816Income
                  taxes paid, net
              
              $
              5,483
              
              $
              41,634


*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 JULY 3, 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,
                  April 3, 2004**
              
              $
              8,130
              
              $
              397
              
              $
              173,217
              
              $
              71,100
              
              $
              16,202
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              15,900
              
              
              ---
              
              
              15,900Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (511
              )
              
              (511
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              15,389Stock
                  based compensation
              
              
              ---
              
              
              ---
              
              
              4,269
              
              
              ---
              
              
              ---**Balance,
                  July 3, 2004**
              
              $
              8,130
              
              $
              397
              
              $
              177,486
              
              $
              87,000
              
              $
              15,691


*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 SIX MONTHS ENDED JULY 3, 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
                  earnings
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              87,000
              
              
              ---
              
              
              87,000Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3,761
              )
              
              (3,761
              )Unrealized decline in the fair value ofmarketable securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3
              )
              
              (3
              )Minimum
                  pension liability, net of tax of $10
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              18
              
              
              18Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              83,254Stock
                  based compensation
              
              
              ---
              
              
              ---
              
              
              5,242
              
              
              ---
              
              
              ---**Balance,
                  July 3, 2004**
              
              $
              8,130
              
              $
              397
              
              $
              177,486
              
              $
              87,000
              
              $
              15,691


*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 JULY 2, 2005**


*(Dollar
      amounts in thousands)*


**Retained**
              
              **Accumulated****Additional**
              
              **Earnings**
              
              **Other****Paid
                  in**
              
              **(Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit)**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  April 2, 2005**
              
              $
              129,931
              
              $
              (1,800
              )
              $
              6,816
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              16,500
              
              
              ---
              
              
              16,500Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (4,372
              )
              
              (4,372
              )Unrealized appreciation in the fair value ofmarketable securities
              
              
              ---
              
              
              ---
              
              
              13
              
              
              13Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              12,141Stock
                  based compensation
              
              
              79
              
              
              ---
              
              
              ---**Balance,
                  July 2, 2005**
              
              $
              130,010
              
              $
              14,700
              
              $
              2,457


*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 SIX MONTHS ENDED JULY 2, 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
              
              
              ---
              
              
              18,800
              
              
              ---
              
              
              18,800Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (6,615
              )
              
              (6,615
              )Unrealized appreciation in the fair value ofmarketable securities
              
              
              ---
              
              
              ---
              
              
              7
              
              
              7Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              12,192Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,971
              )
              
              ---
              
              
              ---Stock
                  based compensation
              
              
              158
              
              
              ---
              
              
              ---**Balance,
                  July 2, 2005**
              
              $
              130,010
              
              $
              14,700
              
              $
              2,457




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




NTK
      HOLDINGS, INC. AND SUBSIDIARIES


NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL
      STATEMENTS


JULY
      2, 2005 AND JULY 3, 2004





(A) The
      unaudited condensed consolidated financial statements presented herein (the
      “Unaudited Financial Statements”) for the pre-acquisition period ended July 3,
      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 period ended July 2, 2005 reflects 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 $200,000 for the second quarter and first six months
      ended July 2, 2005, respectively, and approximately $3,100,000 and $3,300,000
      for the second quarter and first six months ended July 3, 2004, respectively,
      in
      accordance with SFAS No. 123. Included in these amounts are stock-based employee
      compensation charges of approximately $2,800,000 recorded in the second quarter
      of 2004 related to the accelerated vesting and achievement of the performance
      criteria for a portion of the Company’s outstanding Class B stock options. 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 $1,200,000 and $1,900,000
      in
      the second quarter and first six months ended July 3, 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).





In
      connection with the THL Transaction, 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 5,289 and 1,758 were vested at July
      2, 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 $737,000 remains to be amortized at July 2, 2005. The C-2 units
      only vest in the event that certain performance-based criteria, as defined,
      are
      met. As of July 2, 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, however, SFAS No. 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on their fair values and pro-forma disclosure is
      no
      longer an alternative to financial statement recognition. The provisions of
      SFAS
      No. 123R will be effective for nonpublic entities in fiscal years beginning
      after December 15, 2005, subject to limitations, with earlier adoption
      encouraged. The Company is currently evaluating the impact of adopting SFAS
      No.
      123R on its consolidated financial statements.





(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 July 2,
      2005, other long-term liabilities include approximately $47,508,000 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 15, 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
      July 2, 2005 the deferred tax benefit was approximately $16,628,000 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 first six months ended July 2, 2005, the Company recorded approximately
      $300,000 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****April
                4, 2004 -**
              **July
                3, 2004**
            
            **Jan.
                1, 2004 -**
              **July
                3, 2004**
            
            **Jan.
                1, 2004 -**
              **Aug.
                27, 2004***(Amounts
                in thousands)*Net
                sales
            
            $
            446,012
            
            $
            851,024
            
            $
            1,117,860Operating
                earnings
            
            $
            46,770
            
            $
            82,827
            
            $
            110,296Earnings
                from continuing operations
            
            $
            13,013
            
            $
            20,859
            
            $
            27,041





The
      unaudited pro forma condensed consolidated amounts presented above has 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 six months ended July 2, 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 fromJanuary
                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 six months endedJuly
                2, 2005
            
            
            11,525
            
            
            ---
            
            
            11,525Purchase
                accounting adjustments
            
            
            3,204
            
            
            ---
            
            
            3,204Impact
                of foreign currency translation
            
            
            (767
            )
            
            ---
            
            
            (767
            )**Balance
                as of July 2, 2005**
            
            **$**
            **1,309,067**
            
            **$**
            **---**
            
            **$**
            **1,309,067**





Goodwill
      associated with the Acquisition, as well as acquisitions (see Note D), above
      will not 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, Inc. and Nortek, Inc., 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 and the Company
                is
                currently in the exchange offer period for the 10 3/4% Senior Discount
                Notes. The exchange offer period expires on August 23, 2005. 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.





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.





On
      March
      1, 2004, Nortek completed the sale of $200,000,000 of Floating Rate Notes due
      2010 (the “Floating Rate Notes”), which were subsequently redeemed on August 28,
      2004 in connection with the Acquisition (see Note B). Nortek used the net
      proceeds of approximately $196,000,000 from the sale of the Floating Rate Notes, 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 Floating Rate 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 $11,958,000 which was recorded in the first quarter of
      2004, based upon the difference between the respective redemption prices
      indicated above and the estimated carrying values at redemption.





Interest
      expense in the first six months ended July 3, 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.





At
      July
      2, 2005, there was approximately $63,700,000 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
      $49,400,000 at July 2, 2005. Any restricted payments made by Nortek in excess
      of
      $10,000,000 would require an equal prepayment of Nortek’s Senior Secured Credit
      Facility.





(D)
            On
                June 13, 2005, the Company, through its wholly-owned subsidiary Nordyne
                Inc. (“Nordyne”), acquired International Marketing Supply, Inc. (“IMS”)
                for approximately $5,000,000, utilizing approximately $4,500,000
                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 Latin
                America.





On
      April
      26, 2005, the Company, through its indirect wholly-owned subsidiary, Linear
      LLC
      (“Linear”), acquired Panamax for approximately $11,750,000 (utilizing
      approximately $9,500,000 of cash on hand and issuing an unsecured promissory
      note in the amount of approximately $2,250,000) plus an earn-out based upon
      the
      earnings of Panamax for 2005 which is capped at approximately $4,250,000.
      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 and contingent
      consideration. The contingent consideration is payable 90 days after fiscal
      2006
      if certain fiscal 2006 financial results, as defined by the stock purchase
      agreement, are met. OmniMount is a manufacturer and designer of speaker and
      video mountings and other products to maximize the home theater experience.





Acquisitions
      contributed approximately $11,200,000, $1,200,000 and $100,000 to net sales,
      operating earnings and depreciation and amortization expense, respectively,
      for
      the second quarter ended July 2, 2005 and contributed approximately $23,400,000,
      $1,700,000 and $200,000 to net sales, operating earnings and depreciation and
      amortization expense, respectively, for the first six months ended July 2,
      2005.
      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.





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 in the second half of 2005.





On
      July
      15, 2005, the Company acquired the assets and certain liabilities of Niles
      Audio
      Corporation (“Niles”) for an initial purchase price of approximately
      $75,400,000. In connection with the acquisition of Niles, the Company utilized
      approximately $40,400,000 of cash on hand, borrowed approximately $25,000,000
      against Nortek’s U.S. portion of its revolving credit facility (which
      effectively reduced its borrowing availability by such amount) and issued an
      unsecured promissory note in the amount of approximately $10,000,000. As this
      transaction occurred on July 15, 2005, amounts prior to July 15, 2005 do not
      include the effect of the Niles acquisition. 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 net sales,
      operating earnings and depreciation and amortization expense of approximately
      $50,000,000, $8,500,000 and $500,000, respectively.





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
      second quarter and first six months ended July 3, 2004 include approximately
      $600,000 and $1,900,000, respectively, of costs associated with the closure
      of
      certain manufacturing facilities (see Note J).





Operating
      results for the second quarter and first six months ended July 2, 2005 include
      a
      non-cash foreign exchange loss of approximately $900,000 and $1,400,000,
      respectively, on certain intercompany debt between the Company’s subsidiaries.
      Operating results for the second quarter ended July 3, 2004 include a non-cash
      foreign exchange gain of approximately $100,000 and operating results for the
      first six months ended July 3, 2004 include a non-cash foreign exchange loss
      of
      approximately $500,000 on certain intercompany debt between 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 first six months ended July 2, 2005 include a gain of
      approximately $1,400,000 from the settlement of certain obligations of former
      subsidiaries (see Note I).





During
      the second quarter and first six months ended July 2, 2005 the Company recorded
      a pre-tax charge to continuing operations of approximately $100,000 and
      $200,000, respectively, for compensation expense related to stock options issued
      to employees, officers and directors in accordance with SFAS No. 123. During
      the
      second quarter and first six months ended July 3, 2004 the Company recorded
      a
      pre-tax charge to continuing operations of approximately $3,100,000 and
      $3,300,000, 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).





(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
      (see
      Note I), 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 expense, net in the table below, was approximately $2,800,000 (net
      of
      taxes of approximately $1,600,000) for the first six months ended July 3,
      2004.





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





The
      table
      that follows presents a summary of the results of discontinued operations for
      the second quarter and first six months ended July 3, 2004:





**Pre-Acquisition****For
                  the Three**
              
              **For
                  the Six****Months
                  Ended**
              
              **Months
                  Ended****July
                  3, 2004**
              
              **July
                  3, 2004***(Amounts
                  in thousands)*Net
                  sales
              
              $
              2,400
              
              $
              45,400Operating
                  loss of discontinued operations *
              
              $
              (1,495
              )
              $
              (3,737
              )Interest
                  expense, net
              
              
              (5
              )
              
              (4,563
              )Loss
                  before income tax benefit
              
              
              (1,500
              )
              
              (8,300
              )Income
                  tax benefit
              
              
              (300
              )
              
              (2,900
              )Loss
                  from discontinued operations
              
              
              (1,200
              )
              
              (5,400
              )Gain
                  on sale of discontinued operations
              
              
              ---
              
              
              122,700Income
                  tax provision on sale of discontinued operations
              
              
              ---
              
              
              50,400---
              
              
              72,300(Loss)
                  earnings from discontinued operations
              
              $
              (1,200
              )
              $
              66,900Depreciation
                  and amortization expense
              
              $
              26
              
              $
              1,405


*
            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 and pre-tax earnings from continuing operations
      for the Company’s segments for the three months ended July 2, 2005 and July 3,
      2004 were as follows:





**For
                  the Three Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Net
                  sales:**Residential
                  building products
              
              $
              278,928
              
              $
              243,246Air
                  conditioning and heating products
              
              
              219,932
              
              
              202,766Consolidated net sales
              
              $
              498,860
              
              $
              446,012**Operating
                  earnings:**Residential
                  building products *
              
              $
              45,946
              
              $
              41,931Air
                  conditioning and heating products *
              
              
              20,434
              
              
              16,218Subtotal
              
              
              66,380
              
              
              58,149**Unallocated:**Stock
                  based compensation charges
              
              
              (100
              )
              
              (2,100
              )Foreign
                  exchange loss on intercompany debt
              
              
              (200
              )
              
              ---Other,
                  net
              
              
              (7,101
              )
              
              (9,162
              )Consolidated
                  operating earnings
              
              
              58,979
              
              
              46,887Interest
                  expense
              
              
              (32,741
              )
              
              (18,422
              )Investment
                  income
              
              
              362
              
              
              335Earnings
                    before provisionfor
                    income taxes
              
              $
              26,600
              
              $
              28,800


*
            The
                operating results of the Residential Building Products Segment for
                the
                second quarter ended July 2, 2005 and July 3, 2004 include a non-cash
                foreign exchange loss of approximately $600,000 and a non-cash foreign
                exchange gain of approximately $100,000, respectively, on certain
                intercompany debt between the Company’s subsidiaries. The operating
                results of the Residential Building Products Segment for the second
                quarter ended July 3, 2004 also include approximately $600,000 of
                stock-based compensation charges (see Note
                A).





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      second quarter ended July 2, 2005 include a non-cash foreign exchange loss
      of
      approximately $100,000 on certain intercompany debt between the Company’s
      subsidiaries. The operating results of the Air Conditioning and Heating Products
      Segment for the second quarter ended July 3, 2004 include approximately $600,000
      of costs associated with the closure of certain manufacturing facilities (see
      Note J) and approximately $400,000 of stock-based compensation charges (see
      Note
      A).





Unaudited
      net sales, operating earnings and pre-tax earnings from continuing operations
      for the Company’s segments for the first six months ended July 2, 2005 and July
      3, 2004 were as follows:





**For
                  the Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Net
                  sales:**Residential
                  building products
              
              $
              539,952
              
              $
              477,336Air
                  conditioning and heating products
              
              
              393,026
              
              
              373,688Consolidated net sales
              
              $
              932,978
              
              $
              851,024**Operating
                  earnings:**Residential
                  building products *
              
              $
              83,639
              
              $
              82,097Air
                  conditioning and heating products *
              
              
              27,773
              
              
              25,290Subtotal
              
              
              111,412
              
              
              107,387**Unallocated:**Stock
                  based compensation charges
              
              
              (200
              )
              
              (2,300
              )Foreign
                  exchange loss on intercompany debt
              
              
              (300
              )
              
              (200
              )Gain
                  on legal settlement
              
              
              1,400
              
              
              ---Other,
                  net
              
              
              (12,595
              )
              
              (16,327
              )Consolidated
                  operating earnings
              
              
              99,717
              
              
              88,560Interest
                  expense
              
              
              (69,925
              )
              
              (43,981
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (11,958
              )Investment
                  income
              
              
              808
              
              
              1,279Earnings
                    before provisionfor
                    income taxes
              
              $
              30,600
              
              $
              33,900


*
            The
                operating results of the Residential Building Products Segment for
                the
                first six months ended July 2, 2005 and July 3, 2004 include a non-cash
                foreign exchange loss of approximately $1,000,000 and $300,000,
                respectively, on certain intercompany debt between the Company’s
                subsidiaries. The operating results of the Residential Building Products
                Segment for the first six months ended July 3, 2004 also include
                approximately $600,000 of stock-based compensation charges (see Note
                A).





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      first six months ended July 2, 2005 include a non-cash foreign exchange loss
      of
      approximately $100,000 on certain intercompany debt between the Company’s
      subsidiaries. The operating results of the Air Conditioning and Heating Products
      Segment for the first six months ended July 3, 2004 include approximately
      $1,900,000 of costs associated with the closure of certain manufacturing
      facilities (see Note J) and approximately $400,000 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 July 2, 2005 and July 3, 2004
      were as follows:





**For
                  the Three Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Depreciation
                  Expense:**Residential
                  building products
              
              $
              3,340
              
              $
              3,653Air
                  conditioning and heating products
              
              
              3,168
              
              
              3,126Other
              
              
              199
              
              
              223Consolidated
                  depreciation expense
              
              $
              6,707
              
              $
              7,002**Amortization
                  of intangible assets and****purchase price allocated to inventory *:**Residential
                  building products
              
              $
              3,464
              
              $
              2,728Air
                  conditioning and heating products
              
              
              797
              
              
              870Other
              
              
              124
              
              
              ---Consolidated
                    amortization expense and purchase price allocated to
                    inventory
              
              $
              4,385
              
              $
              3,598**Capital
                  Expenditures:**Residential
                  building products
              
              $
              2,334
              
              $
              2,370Air
                  conditioning and heating products
              
              
              4,796
              
              
              2,318Other
              
              
              19
              
              
              24Consolidated
                  capital expenditures
              
              $
              7,149
              
              $
              4,712


*  During
      the second quarter ended July 3, 2004 the Company reflected in the Residential
      Building Products Segment amortization of approximately $100,000 of excess
      purchase price allocated to inventory as a non-cash charge to cost of products
      sold.




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 first six months ended July 2, 2005 and July 3,
      2004 were as follows:





**For
                  the Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Depreciation
                  Expense:**Residential
                  building products
              
              $
              6,768
              
              $
              6,459Air
                  conditioning and heating products
              
              
              6,366
              
              
              6,028Other
              
              
              424
              
              
              305Consolidated
                  depreciation expense
              
              $
              13,558
              
              $
              12,792**Amortization
                  of intangible assets and purchase price allocated to inventory
                  *:**Residential
                  building products
              
              $
              7,300
              
              $
              5,376Air
                  conditioning and heating products
              
              
              1,600
              
              
              1,694Other
              
              
              249
              
              
              ---Consolidated
                  amortization expense and purchase price allocated to
                  inventory
              
              $
              9,149
              
              $
              7,070**Capital
                  Expenditures:**Residential
                  building products
              
              $
              4,781
              
              $
              4,799Air
                  conditioning and heating products
              
              
              7,677
              
              
              4,475Other
              
              
              226
              
              
              342Consolidated
                  capital expenditures
              
              $
              12,684
              
              $
              9,616


*  During
      the first six months ended July 2, 2005 and July 3, 2004 the Company reflected
      in the Residential Building Products Segment amortization of approximately
      $400,000 and $200,000, respectively, of excess purchase price allocated to
      inventory as a non-cash charge to cost of products sold.




(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 38.6% and 40.7% for the first six months ended July
                2, 2005
                and July 3, 2004:





**For
                the Six Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004**Income
                tax provision at the federal statutory rate
            
            
            35.0
            %
            
            35.0
            %Net
                change from federal statutory rate:State income tax provision, net of federalincome
                tax effect
            
            
            2.9
            
            
            1.8Tax effect resulting from foreign activities
            
            
            0.2
            
            
            1.6Change
                in tax reserves
            
            
            ---
            
            
            0.3Non-deductible
                expenses
            
            
            0.5
            
            
            0.3Other,
                net
            
            
            ---
            
            
            1.7Income
                tax provision at estimated effective rate
            
            
            38.6
            %
            
            40.7
            %





(I)
            As
                of July 2, 2005, the Company’s former subsidiary, Ply Gem, has guaranteed
                approximately $24,600,000 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 July
                2, 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 $13,400,000 at July 2,
      2005
      and $17,800,000 at December 31, 2004. Approximately $6,000,000 of short-term
      liabilities and approximately $7,400,000 of long-term liabilities are recorded
      in accrued expenses and other long-term liabilities, respectively, in the
      accompanying unaudited condensed consolidated balance sheet at July 2, 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 first six months ended July 2, 2005 (see Note E). Approximately
      $12,600,000 of these indemnifications at July 2, 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 $7,400,000
      of long-term liabilities in accrued expenses and other long-term liabilities,
      respectively, in the accompanying unaudited condensed consolidated balance
      sheet
      at July 2, 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 July 2, 2005 and July 3, 2004 are
      as
      follows:





**For
                the Three Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Balance,
                beginning of period
            
            $
            30,822
            
            $
            29,378Warranties
                provided during period
            
            
            5,980
            
            
            5,067Settlements
                made during period
            
            
            (4,950
            )
            
            (4,240
            )Changes
                in liability estimate, including acquisitions
            
            
            109
            
            
            211Balance,
                end of period
            
            $
            31,961
            
            $
            30,416





Changes
      in the Company’s unaudited combined short-term and long-term warranty
      liabilities during the first six months ended July 2, 2005 and July 3, 2004
      are
      as follows:





**For
                the Six Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Balance,
                beginning of period
            
            $
            30,319
            
            $
            29,087Warranties
                provided during period
            
            
            10,404
            
            
            9,262Settlements
                made during period
            
            
            (9,121
            )
            
            (7,828
            )Changes
                in liability estimate, including acquisitions
            
            
            359
            
            
            (105
            )Balance,
                end of period
            
            $
            31,961
            
            $
            30,416





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 in St. Louis, MO, in order to relocate the operations to other
      facilities. The facilities currently support warehousing and distribution
      activities of the segment’s residential HVAC products. Since the initiation of
      these restructuring activities in 2003, a total of approximately 404 employees
      have been terminated to date and an additional approximate 34 employees are
      expected to be terminated during the third quarter of 2005. During the second
      quarter and first six months ended July 3, 2004 the Company provided
      approximately $600,000 and $1,900,000, respectively, in cost of goods sold
      related to liabilities incurred as a result of this restructuring. Two of the
      facilities to be closed are owned by the Company, one of which was sold on
      March
      30, 2005.





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
                and asset write downs
            
            
            (1,139
            )
            
            (1,420
            )
            
            (2,559
            )**Balance
                at April 3, 2004**
            
            
            **570**
            
            
            **4**
            
            
            **574**Provision
            
            
            125
            
            
            458
            
            
            583Payments
                and asset write downs
            
            
            (202
            )
            
            (462
            )
            
            (664
            )**Balance
                at July 3, 2004**
            
            **$**
            **493**
            
            **$**
            **---**
            
            **$**
            **493**





**Employee
                Separation****Expenses**
            
            **Other**
            
            **Total**
              **Restructuring**
              **Costs***(Amounts
                in thousands)**(Unaudited)***Balance
                at December 31, 2004**
            
            **$**
            **3,150**
            
            **$**
            **30**
            
            **$**
            **3,180**Payments
                and asset write downs
            
            
            (454
            )
            
            (30
            )
            
            (484
            )Other
            
            
            (10
            )
            
            ---
            
            
            (10
            )**Balance
                at April 2, 2005**
            
            
            **2,686**
            
            
            **---**
            
            
            **2,686**Payments
                and asset write downs
            
            
            (380
            )
            
            ---
            
            
            (380
            )**Balance
                at July 2, 2005**
            
            **$**
            **2,306**
            
            **$**
            **---**
            
            **$**
            **2,306**





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
      $3,200,000 and $3,700,000 for the second quarter ended July 2, 2005 and July
      3,
      2004, respectively, and approximately $6,800,000 and $7,900,000 for the first
      six months ended July 2, 2005 and July 3, 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 $5,000,000 to its defined benefit pension plans
      in
      2005. As of July 2, 2005, approximately $1,600,000 of contributions has been
      made.





The
      Company’s unaudited net periodic benefit cost for its defined benefit plans for
      the three months ended July 2, 2005 and July 3, 2004 consists of the following
      components:





**For
                the Three Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            336
            
            $
            298Interest
                cost
            
            
            2,220
            
            
            2,316Expected
                return on plan assets
            
            
            (2,111
            )
            
            (1,998
            )Amortization
                of prior service cost
            
            
            ---
            
            
            47Recognized
                actuarial loss
            
            
            5
            
            
            8Net
                periodic benefit cost
            
            $
            450
            
            $
            671





The
      Company’s unaudited net periodic benefit cost for its defined benefit plans for
      the first six months ended July 2, 2005 and July 3, 2004 consists of the
      following components:





**For
                the Six Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            675
            
            $
            595Interest
                cost
            
            
            4,480
            
            
            4,708Expected
                return on plan assets
            
            
            (4,258
            )
            
            (4,064
            )Amortization
                of prior service cost
            
            
            ---
            
            
            96Recognized
                actuarial loss
            
            
            10
            
            
            8Net
                periodic benefit cost
            
            $
            907
            
            $
            1,343





The
      Company’s unaudited net periodic benefit cost for its subsidiary’s Post
      Retirement Health Benefit Plan for the three months ended July 2, 2005 and
      July
      3, 2004 consists of the following components:





**For
                the Three Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            110
            
            $
            247Interest
                cost
            
            
            612
            
            
            608Recognized
                actuarial gain
            
            
            ---
            
            
            (5
            )Net
                periodic post retirement health benefit cost
            
            $
            722
            
            $
            850





The
      Company’s unaudited net periodic benefit cost for its subsidiary’s Post
      Retirement Health Benefit Plan for the first six months ended July 2, 2005
      and
      July 3, 2004 consists of the following components:





**For
                the Six Months Ended****Post-**
            
            **Pre-****Acquisition**
            
            **Acquisition****July
                2, 2005**
            
            **July
                3, 2004***(Amounts
                in thousands)*Service
                cost
            
            $
            222
            
            $
            501Interest
                cost
            
            
            1,231
            
            
            1,237Recognized
                actuarial gain
            
            
            ---
            
            
            (11
            )Net
                periodic post retirement health benefit cost
            
            $
            1,453
            
            $
            1,727





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
      July 2, 2005.





(L)
            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 (covering approximately 5.1% of the Company’s workforce
                as of July 2, 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, including increased inventory
                levels at July 2, 2005, to ensure that operational disruptions are
                minimized and the Company’s customers’ needs are met without significant
                delay. Nonetheless, 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.








NTK
      HOLDINGS, INC. AND SUBSIDIARIES


MANAGEMENT'S
      DISCUSSION AND ANALYSIS


OF
      THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS


FOR
      THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JULY 2,
      2005


AND
      THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JULY 3,
      2004


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





NTK
      Holdings, Inc. (the “Company” or “NTK Holdings”) 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
      term “Nortek” refers to Nortek, Inc., together with its subsidiaries, unless the
      context indicates otherwise. Such terms as “Company”, “NTK Holdings” 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,


·
            surround
                sound systems,


·
            multi-room
                audio and video distribution equipment,
                and


·
            architectural
                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., 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 for the periods
      subsequent to January 9, 2003 and prior to August 28, 2004 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 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
      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 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 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).





On
      July
      15, 2005, the Company acquired the assets and certain liabilities of Niles
      Audio
      Corporation (“Niles”). As this transaction occurred on July 15, 2005, the
      Company's financial statements prior to July 15, 2005 do not include the effect
      of the Niles acquisition. 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.





***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
      tables that follow present the unaudited net sales from continuing operations,
      operating earnings from continuing operations and depreciation and amortization
      expense from continuing operations for the Company’s principal segments for the
      second quarter ended July 2, 2005 and July 3, 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 second quarter ended July 2, 2005 and July 3,
      2004:





**Second
                  Quarter Ended**
              
              **Change
                  in Earnings****Post-**
              
              **Pre-**
              
              **Second
                  Quarter 2005****Acquisition**
              
              **Acquisition**
              
              **as
                  Compared to 2004****July
                  2, 2005**
              
              **July
                  3, 2004**
              
              $
              
              %*(Dollar
                  amounts in thousands)***Net
                  sales:**Residential
                  Building Products
              
              $
              278,928
              
              $
              243,246
              
              $
              35,682
              
              
              14.7
              %Air
                  Conditioning and Heating Products
              
              
              219,932
              
              
              202,766
              
              
              17,166
              
              
              8.5Consolidated
                  net sales
              
              $
              498,860
              
              $
              446,012
              
              $
              52,848
              
              
              11.9
              %**Operating
                  earnings:**Residential
                  Building Products
              
              $
              45,946
              
              $
              41,931
              
              $
              4,015
              
              
              9.6
              %Air
                  Conditioning and Heating Products
              
              
              20,434
              
              
              16,218
              
              
              4,216
              
              
              26.0Subtotal
              
              
              66,380
              
              
              58,149
              
              
              8,231
              
              
              14.2**Unallocated:**Stock
                  based compensation charges
              
              
              (100
              )
              
              (2,100
              )
              
              2,000
              
              
              95.2Foreign
                  exchange loss on intercompany debt
              
              
              (200
              )
              
              ---
              
              
              (200
              )
              
              *Other,
                  net
              
              
              (7,101
              )
              
              (9,162
              )
              
              2,061
              
              
              22.5Consolidated
                  operating earnings
              
              $
              58,979
              
              $
              46,887
              
              $
              12,092
              
              
              25.8
              %**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              6,804
              
              $
              6,381
              
              $
              423
              
              
              6.6
              %Air
                  Conditioning and Heating Products
              
              
              3,965
              
              
              3,996
              
              
              (31
              )
              
              (0.8
              )Other
              
              
              323
              
              
              223
              
              
              100
              
              
              44.8$
              11,092
              
              $
              10,600
              
              $
              492
              
              
              4.6
              %**Operating
                  earnings margin:**Residential
                  Building Products
              
              
              16.5
              %
              
              17.2
              %Air
                  Conditioning and Heating Products
              
              
              9.3
              
              
              8.0Consolidated
              
              
              11.8
              %
              
              10.5
              %**Depreciation
                    and amortization**expense
                    as a % of net sales:Residential
                  Building Products
              
              
              2.4
              %
              
              2.6
              %Air
                  Conditioning and Heating Products
              
              
              1.8
              
              
              2.0Consolidated
              
              
              2.2
              %
              
              2.4
              %


*  not
      meaningful





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 six months ended July 2, 2005 and July 3, 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 six months ended July 2, 2005 and July 3,
      2004:





**First
                  Six Months Ended**
              
              **Change
                  in Earnings****Post-**
              
              **Pre-**
              
              **First
                  Six Months 2005****Acquisition**
              
              **Acquisition**
              
              **as
                  Compared to 2004****July
                  2, 2005**
              
              **July
                  3, 2004**
              
              $
              
              %*(Dollar
                  amounts in thousands)***Net
                  sales:**Residential
                  Building Products
              
              $
              539,952
              
              $
              477,336
              
              $
              62,616
              
              
              13.1
              %Air
                  Conditioning and Heating Products
              
              
              393,026
              
              
              373,688
              
              
              19,338
              
              
              5.2Consolidated
                  net sales
              
              $
              932,978
              
              $
              851,024
              
              $
              81,954
              
              
              9.6
              %**Operating
                  earnings:**Residential
                  Building Products
              
              $
              83,639
              
              $
              82,097
              
              $
              1,542
              
              
              1.9
              %Air
                  Conditioning and Heating Products
              
              
              27,773
              
              
              25,290
              
              
              2,483
              
              
              9.8Subtotal
              
              
              111,412
              
              
              107,387
              
              
              4,025
              
              
              3.7**Unallocated:**Stock
                  based compensation charges
              
              
              (200
              )
              
              (2,300
              )
              
              2,100
              
              
              91.3Foreign
                  exchange loss on intercompany debt
              
              
              (300
              )
              
              (200
              )
              
              (100
              )
              
              (50.0
              )Gain
                  on legal settlement
              
              
              1,400
              
              
              ---
              
              
              1,400
              
              
              *Other,
                  net
              
              
              (12,595
              )
              
              (16,327
              )
              
              3,732
              
              
              22.9Consolidated
                  operating earnings
              
              $
              99,717
              
              $
              88,560
              
              $
              11,157
              
              
              12.5
              %**Depreciation
                  and amortization expense:**Residential
                  Building Products
              
              $
              14,068
              
              $
              11,835
              
              $
              2,233
              
              
              18.9
              %Air
                  Conditioning and Heating Products
              
              
              7,966
              
              
              7,722
              
              
              244
              
              
              3.2Other
              
              
              673
              
              
              305
              
              
              368
              
              
              120.7$
              22,707
              
              $
              19,862
              
              $
              2,845
              
              
              14.3
              %**Operating
                  earnings margin:**Residential
                  Building Products
              
              
              15.5
              %
              
              17.2
              %Air
                  Conditioning and Heating Products
              
              
              7.1
              
              
              6.8Consolidated
              
              
              10.7
              %
              
              10.4
              %**Depreciation
                    and amortization**expense
                    as a % of net sales:Residential
                  Building Products
              
              
              2.6
              %
              
              2.5
              %Air
                  Conditioning and Heating Products
              
              
              2.0
              
              
              2.1Consolidated
              
              
              2.4
              %
              
              2.3
              %


*  not
      meaningful





The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period. The results of
      operations for the second quarter ended July 2, 2005 are not necessarily
      indicative of the results of operations to be expected for any other interim
      period or the full year.





**Second
                  Quarter Ended****Post-**
              
              **Pre-**
              
              **Change
                  in Earnings****Acquisition**
              
              **Acquisition**
              
              **Second
                  Quarter 2005****July
                  2,**
              
              **July
                  3,**
              
              **as
                  Compared to 2004****2005**
              
              **2004**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              498.9
              
              $
              446.0
              
              $
              52.9
              
              
              11.9
              %Cost
                  of products sold
              
              
              350.4
              
              
              314.8
              
              
              (35.6
              )
              
              (11.3
              )Selling,
                  general and administrative expenses, net
              
              
              85.1
              
              
              80.8
              
              
              (4.3
              )
              
              (5.3
              )Amortization
                  of intangible assets
              
              
              4.4
              
              
              3.5
              
              
              (0.9
              )
              
              (25.7
              )Operating
                  earnings
              
              
              59.0
              
              
              46.9
              
              
              12.1
              
              
              25.8Interest
                  expense
              
              
              (32.7
              )
              
              (18.4
              )
              
              (14.3
              )
              
              (77.7
              )Investment
                  income
              
              
              0.3
              
              
              0.3
              
              
              ---
              
              
              ---Earnings
                    from continuing operationsbefore
                    provision for income taxes
              
              
              26.6
              
              
              28.8
              
              
              (2.2
              )
              
              (7.6
              )Provision
                  for income taxes
              
              
              10.1
              
              
              11.7
              
              
              1.6
              
              
              13.7Earnings
                  from continuing operations
              
              
              16.5
              
              
              17.1
              
              
              (0.6
              )
              
              (3.5
              )Loss
                  from discontinued operations
              
              
              ---
              
              
              (1.2
              )
              
              1.2
              
              
              100.0Net
                  earnings
              
              $
              16.5
              
              $
              15.9
              
              $
              0.6
              
              
              3.8
              %
  **Percentage
                    of Net Sales****Second
                    Quarter Ended**
                
                **Change
                    in Percentage****July
                    2,**
                
                **July
                    3,**
                
                **Second
                    Quarter 2005****2005**
                
                **2004**
                
                **as
                    Compared to 2004**Net
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                ---
                %Cost
                    of products sold
                
                
                70.2
                
                
                70.6
                
                
                0.4Selling,
                    general and administrative expenses, net
                
                
                17.1
                
                
                18.1
                
                
                1.0Amortization
                    of intangible assets
                
                
                0.9
                
                
                0.8
                
                
                (0.1
                )Operating
                    earnings
                
                
                11.8
                
                
                10.5
                
                
                1.3Interest
                    expense
                
                
                (6.6
                )
                
                (4.1
                )
                
                (2.5
                )Investment
                    income
                
                
                0.1
                
                
                0.1
                
                
                ---Earnings
                    from continuing operationsbefore provision for income taxes
                
                
                5.3
                
                
                6.5
                
                
                (1.2
                )Provision
                    for income taxes
                
                
                2.0
                
                
                2.6
                
                
                0.6Earnings
                    from continuing operations
                
                
                3.3
                
                
                3.9
                
                
                (0.6
                )Loss
                    from discontinued operations
                
                
                ---
                
                
                (0.3
                )
                
                0.3Net
                    earnings
                
                
                3.3
                %
                
                3.6
                %
                
                (0.3
                )%


The
      tables that follow set forth, for the periods presented, (a) certain unaudited
      consolidated operating results, (b) the change in the amount and the percentage
      change of such results as compared to the prior comparable period, (c) the
      percentage which such results bear to net sales, and (d) the change of such
      percentages as compared to the prior comparable period. The results of
      operations for the first six months ended July 2, 2005 are not necessarily
      indicative of the results of operations to be expected for any other interim
      period or the full year.


**First
                  Six Months Ended****Post-**
              
              **Pre-**
              
              **Change
                  in Earnings****Acquisition**
              
              **Acquisition**
              
              **First
                  Six Months 2005****July
                  2,**
              
              **July
                  3,**
              
              **as
                  Compared to 2004****2005**
              
              **2004**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              933.0
              
              $
              851.0
              
              $
              82.0
              
              
              9.6
              %Cost
                  of products sold
              
              
              659.9
              
              
              601.7
              
              
              (58.2
              )
              
              (9.7
              )Selling,
                  general and administrative expenses, net
              
              
              164.7
              
              
              153.9
              
              
              (10.8
              )
              
              (7.0
              )Amortization
                  of intangible assets
              
              
              8.7
              
              
              6.8
              
              
              (1.9
              )
              
              (27.9
              )Operating
                  earnings
              
              
              99.7
              
              
              88.6
              
              
              11.1
              
              
              12.5Interest
                  expense
              
              
              (69.9
              )
              
              (44.0
              )
              
              (25.9
              )
              
              (58.9
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (11.9
              )
              
              11.9
              
              
              100.0Investment
                  income
              
              
              0.8
              
              
              1.2
              
              
              (0.4
              )
              
              (33.3
              )Earnings
                  from continuing operationsbefore provision for income taxes
              
              
              30.6
              
              
              33.9
              
              
              (3.3
              )
              
              (9.7
              )Provision
                  for income taxes
              
              
              11.8
              
              
              13.8
              
              
              2.0
              
              
              14.5Earnings
                  from continuing operations
              
              
              18.8
              
              
              20.1
              
              
              (1.3
              )
              
              (6.5
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              66.9
              
              
              (66.9
              )
              
              (100.0
              )Net
                  earnings
              
              $
              18.8
              
              $
              87.0
              
              $
              (68.2
              )
              
              (78.4
              )%
  **Percentage
                    of Net Sales****First
                    Six Months Ended**
                
                **Change
                    in Percentage****July
                    2,**
                
                **July
                    3,**
                
                **First
                    Six Months 2005****2005**
                
                **2004**
                
                **as
                    Compared to 2004**Net
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                ---
                %Cost
                    of products sold
                
                
                70.7
                
                
                70.7
                
                
                ---Selling,
                    general and administrative expenses, net
                
                
                17.6
                
                
                18.1
                
                
                0.5Amortization
                    of intangible assets
                
                
                1.0
                
                
                0.8
                
                
                (0.2
                )Operating
                    earnings
                
                
                10.7
                
                
                10.4
                
                
                0.3Interest
                    expense
                
                
                (7.5
                )
                
                (5.2
                )
                
                (2.3
                )Loss
                    from debt retirement
                
                
                ---
                
                
                (1.4
                )
                
                1.4Investment
                    income
                
                
                0.1
                
                
                0.2
                
                
                (0.1
                )Earnings
                    from continuing operationsbefore provision for income taxes
                
                
                3.3
                
                
                4.0
                
                
                (0.7
                )Provision
                    for income taxes
                
                
                1.3
                
                
                1.6
                
                
                0.3Earnings
                    from continuing operations
                
                
                2.0
                
                
                2.4
                
                
                (0.4
                )Earnings
                    from discontinued operations
                
                
                ---
                
                
                7.8
                
                
                (7.8
                )Net
                    earnings
                
                
                2.0
                %
                
                10.2
                %
                
                (8.2
                )%


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 $52,900,000 or
      11.9% for the second quarter of 2005 as compared to the second quarter of 2004
      and increased approximately $82,000,000 or 9.6% for the first six months of
      2005
      as compared to the first six months of 2004. Net sales increased for the second
      quarter and first six months of 2005 as compared to the second quarter and
      first
      six months of 2004 as a result of acquisitions in the Residential Building
      Products and Air Conditioning and Heating Products Segments, price increases,
      higher net sales volume and the effect of changes in foreign currency exchange
      rates.





In
      the
      Residential Building Products Segment, net sales increased approximately
      $35,700,000 or 14.7% for the second quarter of 2005 as compared to the second
      quarter of 2004 and increased approximately $62,600,000 or 13.1% for the first
      six months of 2005 as compared to the first six months of 2004. The second
      quarter and first six months of 2005 include (1) increases of approximately
      $2,900,000 and $6,500,000, respectively, attributable to the effect of changes
      in foreign currency exchange rates and (2) approximately $10,800,000 and
      $23,000,000, respectively, attributable to acquisitions in this segment.





The
      increase in net sales in the Residential Building Products Segment in the second
      quarter and first six months of 2005 as compared to the second quarter and
      first
      six months of 2004 was primarily due to increased sales volume, in part due
      to
      acquisitions, of the Company’s surround sound systems and multi-room audio and
      video distribution equipment. Sales of these built-in electronic products (which
      include products for multi-room audio and video distribution, wireless security
      and access control products, among others) increased approximately 38.5% over
      the second quarter of 2004 and increased approximately 43.4% over the first
      six
      months of 2004. As a percentage of the Company’s total net sales, sales of
      built-in electronic products increased from approximately 13.5% in the second
      quarter of 2004 to approximately 16.7% in the second quarter of 2005 and from
      approximately 12.6% in the first six months of 2004 to approximately 16.5%
      in
      the first six months of 2005. Net sales in this segment also increased due
      to
      higher sales volume of bathroom exhaust fans 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
      33.4% and 35.6% of total net sales in the second quarter and first six months
      of
      2005, respectively. Sales of range hoods and bathroom exhaust fans as a
      percentage of the Company’s total net sales increased approximately 9.6% over
      the second quarter of 2004 and approximately 7.3% over the first six months
      of
      2004.





In
      the
      Air Conditioning and Heating Products Segment, net sales increased approximately
      $17,200,000 or 8.5% for the second quarter of 2005 as compared to the second
      quarter of 2004 and increased approximately $19,400,000 or 5.2% for the first
      six months of 2005 as compared to the first six months of 2004. The second
      quarter and first six months of 2005 include (1) increases of approximately
      $900,000 and $2,200,000, respectively, attributable to the effect of changes
      in
      foreign currency exchange rates in this segment and (2) approximately $400,000
      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 11.7% over the second quarter of 2004 and
      increased approximately 7.8% over the first six months of 2004. The increase
      in
      net sales in this segment in the second quarter and first six months of 2005
      as
      compared to the second quarter and first six months of 2004 was due principally
      to increased sales prices of products sold to the residential site-built
      customers. Sales of the Company’s commercial HVAC products, before considering
      the effect of foreign exchange, were up slightly in the second quarter of 2005
      and flat for the first six 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 6.1% and 6.6% of the Company’s consolidated net sales for the
      second quarter ended July 2, 2005 and July 3, 2004, respectively, and
      constituted approximately 6.1% and 6.4% of the Company’s consolidated net sales
      for the first six months of 2005 and 2004, respectively. Although
      sales of residential products sold to manufactured housing customers for the
      same period were up slightly, the Company does not believe that it will see
      any
      meaningful recovery in either the manufactured housing or commercial markets
      in
      the second half of 2005.





Consolidated
      cost of products sold was approximately $350,400,000 for the second quarter
      of
      2005 as compared to approximately $314,800,000 for the second quarter of 2004
      and approximately $659,900,000 for the first six months of 2005 as compared
      to
      approximately $601,700,000 for the first six months of 2004. Cost of products
      sold, as a percentage of net sales, decreased from approximately 70.6% in the
      second quarter of 2004 to approximately 70.2% for the second quarter of 2005
      and
      remained unchanged at 70.7% for the first six months of 2005 and
      2004.





Cost
      of
      products sold for the second quarter and first six months of 2005 includes
      (1)
      approximately $7,400,000 and $16,000,000, respectively, of cost of products
      sold
      from acquisitions, (2) approximately $1,000,000 of increased depreciation
      expense of property and equipment in the first six months of 2005 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 $2,800,000 and $6,600,000, respectively, related to the effect
      of
      changes in foreign currency exchange rates and (4) a non-cash charge of
      approximately $400,000 recorded in the first six months of 2005 related to
      the
      amortization of purchase price allocated to inventory primarily as a result
      of
      the Acquisition. Cost of products sold for the second quarter and first six
      months of 2004 includes (1) approximately $600,000 and $1,900,000, respectively,
      of severance and other costs associated with the closure of certain
      manufacturing facilities, (2) approximately $1,800,000 and $5,900,000,
      respectively, 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 $100,000 and $200,000, respectively, related to the amortization
      of purchase price allocated to inventory as a result of the OmniMount
      acquisition.





In
      the
      Residential Building Products Segment, cost of products sold for the second
      quarter of 2005 was approximately $178,200,000 as compared to approximately
      $155,000,000 in the second quarter of 2004 and approximately $348,400,000 for
      the first six months of 2005 as compared to approximately $302,600,000 for
      the
      first six months of 2004. Cost of products sold in this segment for the second
      quarter and first six months of 2005 includes (1) approximately $7,000,000
      and
      $15,600,000, respectively, of cost of products sold from acquisitions, (2)
      approximately $600,000 of increased depreciation expense of property and
      equipment in the first six months of 2005 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 $2,000,000 and
      $4,700,000, respectively, related to the effect of changes in foreign currency
      exchange rates and (4) a non-cash charge of approximately $400,000 recorded
      in
      the first six months of 2005 related to the amortization of purchase price
      allocated to inventory primarily as a result of the Acquisition. Cost of
      products sold in this segment for the second quarter and first six months of
      2004 includes a non-cash charge of approximately $100,000 and $200,000,
      respectively, 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
      second quarter of 2005 was approximately $172,200,000 as compared to
      approximately $159,800,000 in the second quarter of 2004 and approximately
      $311,500,000 for the first six months of 2005 as compared to approximately
      $299,100,000 for the first six months of 2004. Cost of products sold in this
      segment in the second quarter and first six months of 2005 includes (1) an
      increase of approximately $800,000 and $1,900,000, respectively, related to
      the
      effect of changes in foreign currency exchange rates, (2) approximately $400,000
      of increased depreciation expense of property and equipment in the first six
      months of 2005 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
      $400,000 attributable to acquisitions in this segment .
      Cost of
      products sold in this segment in the second quarter and first six months of
      2004
      includes (1) approximately $600,000 and $1,900,000, respectively, of costs
      associated with the closure of certain manufacturing facilities and (2)
      approximately $1,800,000 and $5,900,000 of estimated inefficient production
      costs and expenses associated with the start-up of a new manufacturing
      facility.





Material
      costs were approximately 45.5% and 44.7% of net sales for the second quarter
      of
      2005 and 2004, respectively, and approximately 45.2% and 44.0% of net sales
      for
      the first six months of 2005 and 2004, respectively. Both of the Company’s
      segments experienced material cost increases related primarily to purchases
      of
      steel, copper and aluminum in the second quarter and first six months of 2005
      as
      compared to the same periods in 2004. These cost increases were partially offset
      by the effect of increased sales prices of certain of the Company’s products and
      material cost improvements due to the Company’s strategic sourcing initiatives.





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
      $85,100,000 for the second quarter of 2005 as compared to approximately
      $80,800,000 for the second quarter of 2004 and approximately $164,700,000 for
      the first six months of 2005 as compared to approximately $153,900,000 for
      the
      first six months of 2004. SG&A as a percentage of net sales decreased from
      approximately 18.1% for the second quarter of 2004 to approximately 17.1% for
      the second quarter of 2005 and decreased from approximately 18.1% for the first
      six months of 2004 to approximately 17.6% for the first six months of
      2005.





SG&A
      in the second quarter and first six months of 2005 includes (1) approximately
      $2,700,000 and $5,700,000, 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 $2,300,000,
      respectively, of displays expense in the Residential Building Products Segment
      related in part to the introduction of new products, (3) an increase of
      approximately $700,000 (of which approximately $500,000 is included in the
      Residential Building Products Segment and approximately $200,000 is included
      in
      the Air Conditioning and Heating Products Segment) and $1,600,000 (of which
      approximately $1,100,000 is included in the Residential Building Products
      Segment and approximately $500,000 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 $200,000,
      respectively, of stock-based compensation expense, (5) a non-cash foreign
      exchange loss of approximately $900,000 and $1,400,000, respectively, on
      intercompany debt not permanently invested among the Company’s subsidiaries, of
      which approximately $600,000 and $1,000,000, respectively, is included in the
      Residential Building Products Segment and approximately $100,000 is included
      in
      the Air Conditioning and Heating Products Segment and (6) a
      gain of
      approximately $1,400,000 from the settlement of certain obligations of former
      subsidiaries recorded in the first six months of 2005 (see Note I of the Notes
      to the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein) .





SG&A
      in the second quarter and first six months of 2004 includes (1) approximately
      $3,100,000 and $3,300,000, respectively, of stock-based compensation expense,
      of
      which approximately $2,100,000 and $2,300,000, respectively, is included in
      Unallocated and (2) a non-cash foreign exchange gain of approximately $100,000,
      all of which is recorded in the Residential Building Products Segment, in the
      second quarter of 2004 and a non-cash foreign exchange loss of approximately
      $500,000, of which approximately $300,000 is recorded in the Residential
      Building Products Segment, in the first six months of 2004 on intercompany
      debt
      not permanently invested among the Company’s subsidiaries.





The
      decrease in SG&A as a percentage of net sales in the second quarter and
      first six months of 2005 is primarily due to lower
      compensation and employee benefit expense in Unallocated, as well as the factors
      noted above, and in the second quarter of 2005, higher sales volume of HVAC
      products in the Air Conditioning and Heating Products Segment to customers
      serving the commercial market without a proportionate increase in expense.





Amortization
      of intangible assets, as a percentage of net sales from continuing operations,
      increased from approximately 0.8% for the second quarter of 2004 to
      approximately 0.9% for the second quarter of 2005 and increased from
      approximately 0.8% in the first six months of 2004 to approximately 1.0% for
      the
      first six months of 2005. This increase is principally a result of approximately
      $700,000 and $1,700,000 of increased amortization of intangible assets in the
      Residential Building Products Segment in the second quarter and first six 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).





Consolidated
      operating earnings increased by approximately $12,100,000 from approximately
      $46,900,000, or 10.5% as a percentage of net sales, for the second quarter
      of
      2004 to approximately $59,000,000, or 11.8% as a percentage of net sales, for
      the second quarter of 2005 and increased by approximately $11,100,000 from
      approximately $88,600,000, or 10.4% as a percentage of net sales, for the first
      six months of 2004 to approximately $99,700,000, or 10.7% as a percentage of
      net
      sales, for the first six months of 2005 as a result of the factors discussed
      above.





Consolidated
      operating earnings have been reduced by depreciation and amortization expense
      (other than amortization of deferred debt expense and debt premium and discount)
      of approximately $11,100,000 and $10,600,000 for the second quarters of 2005
      and
      2004, respectively, and approximately $22,700,000 and $19,900,000 for the first
      six months of 2005 and 2004, respectively. Acquisitions accounted for
      approximately $100,000 and $200,000 of the increase in depreciation and
      amortization expense in the second quarter and first six months of 2005,
      respectively. Consolidated operating earnings in the second quarter and first
      six months of 2005 is net of approximately $900,000 and $1,900,000,
      respectively, of increased amortization of intangible assets arising primarily
      from finalizing the fair value adjustments related to the Acquisition that
      were
      finalized in the fourth quarter of 2004 and approximately $1,000,000 of
      increased depreciation expense of property and equipment in the first six months
      of 2005 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.
      Depreciation and amortization expense noted above for the first six months
      of
      2005 includes approximately $400,000 of amortization expense from purchase
      price
      allocated to inventory primarily as a result of the Acquisition and for the
      second quarter and first six months of 2004 includes approximately $100,000
      and
      $200,000, respectively, of amortization expense from purchase price allocated
      to
      inventory arising primarily from an acquisition in the Residential Building
      Products Segment.





Operating
      earnings of the Residential Building Products Segment for the second quarter
      of
      2005 were approximately $45,900,000 as compared to approximately $41,900,000
      for
      the second quarter of 2004 and approximately $83,600,000 for the first six
      months of 2005 as compared to approximately $82,100,000 for the first six months
      of 2004. Operating earnings of this segment for the second quarter and first
      six
      months of 2005 reflects (1) an increase in earnings of approximately $400,000
      and $700,000, respectively, from the effect of foreign currency exchange rates,
      (2) approximately $1,300,000 and $1,800,000, respectively, of operating earnings
      contributed by acquisitions, (3) approximately $600,000 of increased
      depreciation expense of property and equipment in the first six months of 2005
      and approximately $700,000 and $1,700,000, respectively, of increased
      amortization of intangible assets, (4) a non-cash charge of approximately
      $400,000 recorded in the first six months of 2005 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 $600,000 and
      $1,000,000, respectively, on intercompany debt not permanently invested among
      the Company’s subsidiaries.





Operating
      earnings of the Residential Building Products Segment for the second quarter
      and
      first six months of 2004 include (1) approximately $600,000 recorded in the
      second quarter of 2004 of stock-based compensation charges, (2) a non-cash
      charge of approximately $100,000 and $200,000, respectively, of amortization
      of
      purchase price allocated to inventory primarily as a result of the acquisitions
      in this segment and (3) a non-cash foreign exchange gain of approximately
      $100,000 for the second quarter of 2004 and a non-cash foreign exchange loss
      of
      approximately $300,000 in the first six months of 2004 on intercompany debt
      not
      permanently invested among the Company’s subsidiaries.





In
      addition to the effect of the items noted above, operating earnings in the
      Residential Building Products Segment in the second quarter and first six months
      of 2005 improved over 2004 as a result of  increased sales volume
      of
      the Company’s surround sound systems and multi-room audio and video distribution
      equipment and bathroom exhaust fans, sales price increases 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
      $20,500,000 for the second quarter of 2005 as compared to approximately
      $16,200,000 for the second quarter of 2004 and approximately $27,800,000 for
      the
      first six months of 2005 as compared to approximately $25,300,000 for the first
      six months of 2004. Operating earnings of this segment for the second quarter
      and first six months of 2005 reflects (1) a decrease in earnings of
      approximately $100,000 in the first six months of 2005 from the effect of
      foreign currency exchange rates, (2) approximately $400,000 of increased
      depreciation expense of property and equipment in the first six months of 2005,
      (3) approximately $100,000 of operating expense contributed by acquisitions
      in
      the second quarter of 2005 and (4) a non-cash foreign exchange loss of
      approximately $100,000 recorded in the second quarter of 2005 on intercompany
      debt not permanently invested among the Company’s subsidiaries.





Operating
      earnings of the Air Conditioning and Heating Products Segment for the second
      quarter and first six months of 2004 includes (1) approximately $600,000 and
      $1,900,000, respectively, of costs associated with the closure of certain
      manufacturing facilities, (2) approximately $1,800,000 and $5,900,000,
      respectively, of estimated inefficient production costs and expenses associated
      with the start-up of a new manufacturing facility and (3) approximately $400,000
      recorded in the second quarter of 2004 of stock-based compensation charges.





In
      addition to the items noted above, operating earnings in the Air Conditioning
      and Heating Products Segment in the second quarter and first six months of
      2005
      improved over 2004 as a result of sales price increases and improved
      manufacturing efficiencies of products serving residential markets, partially
      offset by material cost increases within the entire segment.




The
      operating expense in Unallocated was approximately $7,400,000 for the second
      quarter of 2005 as compared to approximately $11,200,000 for the second quarter
      of 2004 and approximately $11,700,000 for the first six months of 2005 as
      compared to approximately $18,800,000 for the first six months of 2004. The
      decrease in operating expense for the second quarter and first six months of
      2005 as compared to the second quarter and first six months 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 second quarter and first six months of 2005 includes (1) approximately
      $100,000 and $200,000, respectively, of stock-based compensation charges, (2)
      a
      non-cash foreign exchange loss of approximately $200,000 and $300,000,
      respectively, on intercompany debt not permanently invested among the Company’s
      subsidiaries and (3) a
      gain of
      approximately $1,400,000 from the settlement of certain obligations of former
      subsidiaries recorded in the first six months of 2005 (see Note I of the Notes
      to the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein) .
      Operating expense in Unallocated for the second quarter and first six months
      of
      2004 includes approximately $2,100,000 and $2,300,000, respectively, of
      stock-based compensation charges and a non-cash foreign exchange loss of
      approximately $200,000 recorded in the first six months of 2004 on intercompany
      debt not permanently invested among the Company’s subsidiaries. There were no
      non-cash foreign exchange losses recorded in Unallocated in the second 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 8.1% and 10.0% of operating earnings (before unallocated and
      corporate expenses) in the second quarters of 2005 and 2004, respectively,
      and
      approximately 7.3% and 10.5% of operating earnings (before unallocated and
      corporate expenses) in the first six 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 $14,300,000 or approximately 77.7% in the second
      quarter of 2005 as compared to the second quarter of 2004 and increased
      approximately $25,900,000 or approximately 58.9% in the first six months of
      2005
      as compared to the first six months of 2004. The increase in interest expense
      in
      the second quarter and first six months of 2005 is due to (1) approximately
      $24,000,000 and $47,600,000, respectively, of increased interest expense and
      amortization of deferred financing costs from borrowings primarily in connection
      with the Acquisition, (2) approximately
      $800,000 and $10,100,000, respectively, of additional interest expense related
      to the amortization of the Nortek Holdings deferred compensation plan, (3)
      approximately $6,700,000 and $10,200,000, respectively, of interest expense
      related to the accretion of NTK Holdings’ 10 3/4% Senior Discount Notes and (4) a
      reduction in interest expense of approximately $17,200,000 and $42,000,000,
      respectively, relating to the redemption and open market purchases of certain
      debt in 2004 as discussed in the paragraph below (see Notes B and C of the
      Notes
      to the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein).





During
      the first quarter of 2004, Nortek called for redemption all of it’s outstanding
      9 1/4% Senior Notes due 2007 (“9 1/4% Notes”), all of it’s outstanding 9 1/8%
      Senior Notes due 2007 (“9 1/8% Notes”) and all of it’s 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 $11,958,000
      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 (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 second quarter of 2005 and 2004
      and approximately $800,000 and $1,200,000 for the first six months of 2005
      and
      2004, respectively. The decrease in investment income in the first six 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
      $10,100,000 for the second quarter of 2005 as compared to approximately
      $11,700,000 for the second quarter of 2004 and approximately $11,800,000 for
      the
      first six months of 2005 as compared to approximately $13,800,000 for the first
      six 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).





The
      second quarter of 2004 includes a loss from discontinued operations of
      approximately $1,200,000 (net of a tax benefit of approximately $300,000) and
      the first six months of 2004 includes earnings from discontinued operations
      of
      approximately $66,900,000 (net of a tax provision of approximately $47,500,000)
      (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 second
      quarter ended July 2, 2005 and July 3, 2004:





**For
                  the Three Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)*Net
                  earnings *
              
              $
              16,500
              
              $
              15,900Provision for income taxes from continuing operations
              
              
              10,100
              
              
              11,700Benfit from income taxesfrom
                    discontinued operations
              
              
              ---
              
              
              (300
              )Interest expense from continuing operations **
              
              
              32,741
              
              
              18,422Interest expense from discontinued operations
              
              
              ---
              
              
              10Investment income from continuing operations
              
              
              (362
              )
              
              (335
              )Investment income from discontinued operations
              
              
              ---
              
              
              (5
              )Depreciation expense from continuing operations
              
              
              6,707
              
              
              7,002Depreciation expense from discontinued operations
              
              
              ---
              
              
              26Amortization expense from continuing operations
              
              
              4,385
              
              
              3,598EBITDA
              
              $
              70,071
              
              $
              56,018


*  Includes
      a loss of approximately $1,200,000 from discontinued operations for the second
      quarter ended July 3, 2004 (see Note F of the Notes to the Unaudited Condensed
      Consolidated Financial Statements included elsewhere herein).





EBITDA
      includes approximately $100,000 and $3,100,000 of stock-based compensation
      charges recorded in the second quarter ended July 2, 2005 and July 3, 2004,
      respectively (see Notes A and G of the Notes to the Unaudited Condensed
      Consolidated Financial Statements included elsewhere herein) .





**  Interest
      expense from continuing operations for the second quarter ended July 2, 2005
      includes cash interest of approximately $25,743,000 and non-cash interest of
      approximately $6,998,000 and interest expense from continuing operations for
      the
      second quarter ended July 3, 2004 includes cash interest of approximately
      $8,678,000 and non-cash interest of approximately $9,744,000.





The
      following table presents a reconciliation from net earnings, which is the most
      directly comparable GAAP operating performance measure, to EBITDA for the first
      six months ended July 2, 2005 and July 3, 2004:





**For
                  the Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)*Net
                  earnings *
              
              $
              18,800
              
              $
              87,000Provision for income taxes from continuing operations
              
              
              11,800
              
              
              13,800Provision for income taxes from discontinued operations
              
              
              ---
              
              
              47,500Interest expense from continuing operations **
              
              
              69,925
              
              
              43,981Interest expense from discontinued operations
              
              
              ---
              
              
              4,597Investment income from continuing operations
              
              
              (808
              )
              
              (1,279
              )Investment income from discontinued operations
              
              
              ---
              
              
              (34
              )Depreciation expense from continuing operations
              
              
              13,558
              
              
              12,792Depreciation expense from discontinued operations
              
              
              ---
              
              
              1,202Amortization expense from continuing operations
              
              
              9,149
              
              
              7,070Amortization expense from discontinued operations
              
              
              ---
              
              
              203EBITDA
              
              $
              122,424
              
              $
              216,832


*  Includes
      earnings of approximately $66,900,000 from discontinued operations for the
      first
      six months ended July 3, 2004 (see Note F of the Notes to the Unaudited
      Condensed Consolidated Financial Statements included elsewhere
      herein).





EBITDA
      includes approximately $200,000 and $3,300,000 of stock-based compensation
      charges recorded in the first six months ended July 2, 2005 and July 3, 2004,
      respectively (see Notes A and G of the Notes to the Unaudited Condensed
      Consolidated Financial Statements included elsewhere herein) .




**  Interest
      expense from continuing operations for the first six months ended July 2, 2005
      includes cash interest of approximately $56,784,000 and non-cash interest of
      approximately $13,141,000 and interest expense from continuing operations for
      the first six months ended July 3, 2004 includes cash interest of approximately
      $25,641,000 and non-cash interest of approximately $18,340,000.





**Liquidity
      and Capital Resources**





On
      July
      15, 2005, the Company acquired the assets and certain liabilities of Niles
      for
      an initial purchase price of approximately $75,400,000. In connection with
      the
      acquisition of Niles, the Company utilized approximately $40,400,000 of cash
      on
      hand, borrowed approximately $25,000,000 against Nortek’s U.S. portion of its
      revolving credit facility (which effectively reduced its borrowing availability
      by such amount) and issued 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 $5,000,000 (utilizing approximately $4,500,000 of cash on
      hand
      and issuing an unsecured promissory note in the amount of approximately
      $500,000) and on April 26, 2005, the Company, through its indirect wholly-owned
      subsidiary, Linear, acquired Panamax for approximately $11,750,000 (utilizing
      approximately $9,500,000 of cash on hand and issuing an unsecured promissory
      note in the amount of approximately $2,250,000).





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, Inc. and
      Nortek, Inc., 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 and the Company is currently in the exchange
      offer period for the 10 3/4% Senior Discount Notes. The exchange offer period
      expires on August 23, 2005. 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 unaudited condensed consolidated
      statement of operations included elsewhere herein. All
      payments related to this contribution have been made by Nortek Holdings,
      Inc.





The
      Company had consolidated debt at July 2, 2005, of approximately $1,626,476,000
      consisting of (i) $18,036,000 of short-term borrowings and current maturities
      of
      long-term debt, (ii) $25,054,000 of long-term notes, mortgage notes and other
      indebtedness, (iii) $9,984,000 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) $687,750,000 of long-term debt outstanding under Nortek’s Senior Secured
      Credit Facility and (vi) $260,652,000 of the Company’s 10 3/4% Senior Discount
      Notes. During the first six months ended July 2, 2005, the Company had a net
      increase in its consolidated debt of approximately $256,500,000 primarily
      due to (1) additional borrowings, including the 10 3/4% senior discount notes
      as
      discussed above, of approximately $258,100,000, (2) debt accretion related
      to
      the 10 3/4% senior discount notes of approximately $10,200,000 and (3) principal
      payments made during the period of approximately $ 11,800,000.





Nortek’s
      Senior Secured Credit Facility also provides Nortek 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.
      Subsequent to the acquisition of Niles, Nortek repaid approximately $15,000,000
      of the outstanding balance of the U.S. portion of its revolving credit facility
      and at August 4, 2005, had approximately $10,000,000 of remaining outstanding
      borrowings and approximately $61,700,000 of borrowing availability under the
      U.S. portion of its revolving credit facility and approximately $10,000,000
      of
      borrowing availability under the Canadian credit facility.





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





At
      July
      2, 2005, there was approximately $63,700,000 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
      $49,400,000 at July 2, 2005. Any restricted payments made by Nortek in excess
      of
      $10,000,000 would require an equal prepayment of Nortek’s Senior Secured Credit
      Facility.





At
      July
      2, 2005, the Company had consolidated unrestricted cash and cash equivalents
      of
      approximately $74,600,000 as compared to approximately $95,000,000 at December
      31, 2004. The Company’s debt to equity ratio was approximately 11.1:1 at July 2,
      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.





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 $19,000 at July 2, 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 quarter of 2005 previously described (see Note C of the Notes
      to the Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein):





**Payments
                due by period****Remaining
                6**
              **Months
                of 2005**
            
            **2006
                - 2007**
            
            **2008
                - 2009**
            
            **2010
                and****Thereafter**
            
            **Total***(Amounts
                in thousands)*Debt
                obligations
            
            $
            12,770
            
            $
            17,505
            
            $
            14,789
            
            $
            1,561,906
            
            $
            1,606,970Interest
                payments
            
            
            57,661
            
            
            246,857
            
            
            255,457
            
            
            477,034
            *
            
            1,037,009
            *Capital
                lease obligations
            
            
            596
            
            
            2,640
            
            
            2,948
            
            
            13,303
            
            
            19,487Total
            
            $
            71,027
            
            $
            267,002
            
            $
            273,194
            
            $
            2,052,243
            
            $
            2,663,466





*
            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, debt accretion 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
      July 2, 2005, approximately $19,000,000 of letters of credit have been issued
      as
      additional security for (1) approximately $4,100,000 relating to leases
      outstanding for certain of the Company’s manufacturing facilities, (2)
      approximately $13,000,000 of letters of credit have been issued as additional
      security for certain of the Company’s insurance programs and (3) approximately
      $1,900,000 of letters of credit have been issued as additional security for
      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 $74,600,000 at July 2, 2005, in part, to partially
      fund increases in working capital at the Company’s subsidiaries. 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 July 2, 2005, approximately $5,441,000 (of which approximately
      $468,000 is included in short-term assets) of investments is held primarily
      as
      collateral to fund construction costs of an addition to a facility within the
      Company’s Air Conditioning and Heating Products Segment, as well as for
      insurance and letter of credit requirements.





Capital
      expenditures were approximately $7,100,000 (of which approximately $1,600,000
      was financed under a capital lease) in the second quarter of 2005 as compared
      to
      approximately $4,700,000 in the second quarter of 2004 and approximately
      $12,700,000 (of which approximately $3,500,000 was financed under a capital
      lease) in the first six months of 2005 as compared to approximately $9,600,000
      in the first six months of 2004. Capital expenditures were approximately
      $25,300,000 for the year ended December 31, 2004 and are expected to be between
      $40,000,000 and $45,000,000 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, respectively, at December 31, 2004 to approximately
      $304,900,000 and 1.9:1, respectively, at July 2, 2005. This increase in working
      capital for the first six months of 2005 was primarily as a result of increased
      cash flow from operating activities invested in seasonal subsidiary needs for
      increased levels of accounts receivable and inventory as discussed
      below.





Accounts
      receivable increased approximately $58,500,000, or approximately 25.9%, between
      December 31, 2004 and July 2, 2005, while net sales increased approximately
      $98,900,000, or approximately 24.7%, in the second 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, which
      contributed approximately $11,200,000 to net sales in the second quarter of
      2005
      and approximately $2,400,000 to accounts receivable at July 2, 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 July 2, 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 second quarter of 2005.





Inventories
      increased approximately $24,000,000, or approximately 11.7%, between December
      31, 2004 and July 2, 2005 primarily as a result of increases in products
      available for sale to customers serving the residential site-built market within
      the HVAC segment in anticipation of increased seasonal customer demand in the
      third quarter, increased inventory levels in the Residential Building Products
      Segment, in part, due to contingency plans implemented to ensure that
      operational disruptions are minimized from the possibility of a work stoppage
      at
      the Company’s NuTone Cincinnati, OH facility, strong demand of certain product
      categories and acquisitions which contributed approximately $1,400,000 to the
      increase in inventories at July 2, 2005. (See Note L of the Notes to the
      Unaudited Condensed Consolidated Financial Statements included elsewhere
      herein.)





Accounts
      payable increased approximately $30,500,000, or approximately 22.2%, between
      December 31, 2004 and July 2, 2005 due primarily to increased inventory levels
      and timing of payments. Acquisitions contributed approximately $1,900,000 to
      the
      increase in accounts payable at July 2, 2005.





Changes
      in certain working capital accounts, as noted above, between December 31, 2004
      and July 2, 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 $20,340,000 and approximately
      $66,558,000 from December 31, 2004 to July 2, 2005 and from December 31, 2003
      to
      July 3, 2004, respectively, principally as a result of the
      following:





**Condensed
                  Consolidated****Cash
                  Flows (*)****For
                  the Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)***Operating
                  Activities:**Cash flow from operations, net
              
              $
              59,800
              
              $
              11,001Increase in accounts receivable, net
              
              
              (60,602
              )
              
              (48,357
              )Increase in inventories
              
              
              (23,964
              )
              
              (38,057
              )(Increase) / decrease in prepaids and other current assets
              
              
              (7,825
              )
              
              4,895Increase in net assets of discontinued operations
              
              
              ---
              
              
              (3,496
              )Increase
                  in accounts payable
              
              
              31,844
              
              
              45,937Decrease in accrued expenses and taxes
              
              
              (923
              )
              
              (689
              )Decrease in long-term deferred compensation
              
              
              (57,737
              )
              
              ---**Investing
                  Activities:**Capital expenditures
              
              
              (9,238
              )
              
              (9,616
              )Net cash paid for businesses acquired
              
              
              (13,400
              )
              
              (16,500
              )Purchase of investments and marketable securities
              
              
              ---
              
              
              (5,000
              )Proceeds from the sale of discontinued businesses
              
              
              ---
              
              
              520,138Proceeds from the sale of property and equipment
              
              
              6,084
              
              
              ---Change in restricted cash and investments
              
              
              (275
              )
              
              (111
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              (5,983
              )
              
              (4,011
              )Sale of 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---Dividend to THL-Nortek Investors, LLC
              
              
              (186,971
              )
              
              ---Sale of Floating Rate Notes
              
              
              ---
              
              
              196,000Redemption of Senior Notes
              
              
              ---
              
              
              (716,700
              )Other,
                  net
              
              
              4,142
              
              
              (1,992
              )$
              (20,340
              )
              $
              (66,558
              )


(*) Summarized
          from the Company’s Unaudited Condensed Consolidated Statement of Cash Flows for
          the six months ended July 2, 2005 and July 3, 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 used in operating
      activities, which is the most directly comparable GAAP liquidity measure, to
      EBITDA for the first six months ended July 2, 2005 and July 3,
      2004:





**For
                  the Six Months Ended****Post-**
              
              **Pre-****Acquisition**
              
              **Acquisition****July
                  2, 2005**
              
              **July
                  3, 2004***(Amounts
                  in thousands)*Net cash used in operating activities *
              
              $
              (54,154
              )
              $
              (30,658
              )Cash used by working capital and other long-term asset and liability
                  changes
              
              
              113,954
              
              
              41,659Deferred federal income tax provision from continuing
                  operations
              
              
              (5,500
              )
              
              (9,800
              )Deferred federal income tax credit from discontinued
                  operations
              
              
              ---
              
              
              18,500Non-cash stock based compensation
              
              
              (158
              )
              
              (5,241
              )Gain on sale of discontinued operations
              
              
              ---
              
              
              122,700Gain on sale of fixed assets
              
              
              506
              
              
              ---Non-cash interest expense, net
              
              
              (13,141
              )
              
              (18,340
              )Loss from debt retirement
              
              
              ---
              
              
              (11,958
              )Provision for income taxes from continuing operations
              
              
              11,800
              
              
              13,800Provision for income taxes from discontinued operations
              
              
              ---
              
              
              47,500Interest expense from continuing operations **
              
              
              69,925
              
              
              43,981Interest expense from discontinued operations
              
              
              ---
              
              
              4,597Investment income from continuing operations
              
              
              (808
              )
              
              (1,279
              )Investment income from discontinued operations
              
              
              ---
              
              
              (34
              )Depreciation expense from discontinued operations
              
              
              ---
              
              
              1,202Amortization expense from discontinued operations
              
              
              ---
              
              
              203EBITDA
              
              $
              122,424
              
              $
              216,832


*  Includes
      earnings of approximately $66,900,000 from discontinued operations for the
      first
      six months ended July 3, 2004 (see Note F of the Notes to the Unaudited
      Condensed Consolidated Financial Statements included elsewhere
      herein).





EBITDA
      includes approximately $200,000 and $3,300,000 of stock-based compensation
      charges recorded in the first six months ended July 2, 2005 and July 3, 2004,
      respectively (see Notes A and G of the Notes to the Unaudited Condensed
      Consolidated Financial Statements included elsewhere herein) .





**  Interest
      expense from continuing operations for the first six months ended July 2, 2005
      includes cash interest of approximately $56,784,000 and non-cash interest of
      approximately $13,141,000 and interest expense from continuing operations for
      the first six months ended July 3, 2004 includes cash interest of approximately
      $25,641,000 and non-cash interest of approximately $18,340,000.




**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.





As
      of
      July 2, 2005, approximately 11.7% of the Company’s workforce was subject to
      various collective bargaining agreements. Collective bargaining agreements
      covering approximately 2.5% of the Company’s workforce expired in 2004, which
      are currently being renegotiated, and those covering an additional 5.1% expired
      in 2005. 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 (covering approximately 5.1% of the Company’s workforce as of
      July 2, 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. Nonetheless, 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. 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
      July
      2, 2005, approximately 57.0% 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 second quarter and first six 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 a decrease
      in stockholder’s investment of approximately $4,372,000 and $6,615,000 for the
      second quarter and first six months of 2005, respectively. The Company manages
      its exposure to foreign currency exchange risk principally by trying to minimize
      the Company’s net investment in foreign assets through the use of strategic
      short and long-term borrowings at the foreign subsidiary level. The Company
      generally does not enter into derivative financial instruments to manage foreign
      currency exposure. At July 2, 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 July 2, 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 Chief Financial
              OfficerAugust 5, 2005