**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549


**Form
      10-K**


(Mark
      One)


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


SECURITIES
      EXCHANGE ACT OF 1934





**For
      the fiscal year-ended December 31, 2005**





OR





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


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      transition period from __________ to __________


Commission
      file number: 333-126389





**NTK
                Holdings, Inc.**(exact
                name of registrant as specified in its charter)**Delaware**
            **20-1934298**(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification Number)**50
                Kennedy Plaza**
              **Providence,
                Rhode Island**
            **02903-2360**(Address
                of principal executive offices)
            (zip
                code)Registrant’s
                Telephone Number, Including Area Code:
              **(401)
                751-1600**Securities
                registered pursuant to Section 12(b) of the Act:**None**








Indicate
      by check mark if the registrant is a well-known seasoned issuer (as defined
      in
      Rule 405 of the Securities Act).  Yes
      [_]  No
      [X]





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Exchange Act.  Yes
      [_]  No
      [X]





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [X]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
      Act).





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





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





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





The
      number of shares of Common Stock outstanding as of March 3, 2006 was
      3,000.








**PART
      I**





**Item
      1. Business.**




NTK
        Holdings, Inc. (the “Company” or “NTK Holdings”) is a Delaware corporation that
        was formed to hold the capital stock of Nortek Holdings, Inc. (“Nortek
        Holdings”). NTK Holdings became the parent company of Nortek Holdings on
        February 10, 2005.




**General**





The
      Company is a diversified manufacturer of residential and commercial building
      products, operating within three reporting segments:





·
            the
                Residential Ventilation Products
                Segment,





·
            the
                Home Technology Products Segment, and





·
            the
                Air Conditioning and Heating Products Segment.





Through
      these 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 market, the manufactured
      housing market, the do-it-yourself, or DIY, market and the professional
      remodeling and renovation markets.





The
      levels of residential replacement and remodeling, new residential construction
      and non-residential construction significantly impact the Company’s performance.
      Interest rates, seasonality, inflation, consumer spending habits and
      unemployment are factors that affect these levels.





As
      used
      in this report, the terms “Company” and “NTK Holdings” refer to NTK Holdings,
      Inc., together with its subsidiaries, unless the context indicates otherwise.
      Such terms as “Company” and “NTK Holdings” 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.





Additional
      information concerning the Company’s business is set forth in Management’s
      Discussion and Analysis of Financial Condition and Results of Operations, Item
      7
      of Part II of this report, incorporated herein by reference. Additional
      information on foreign and domestic operations is set forth in Note 11 of the
      Notes to the Consolidated Financial Statements, Item 8 of Part II of this
      report, incorporated herein by reference.





**Residential
      Ventilation Products Segment**





The
      Residential Ventilation Products Segment primarily manufactures and distributes
      room and whole house ventilation products and other products primarily for
      the
      residential new construction, DIY and professional remodeling and renovation
      markets. The principal products of the Segment, which are sold under the Broan®,
      NuTone®, Venmar® and Best® brand names, among others, are:





•
            kitchen
                range hoods,


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


•
            indoor
                air quality products.




The
      Segment is the largest supplier in North America of range hoods and exhaust
      fans
      and one of the leading suppliers in Western Europe and South America of luxury
      “Eurostyle” range hoods. The Segment’s kitchen range hoods expel grease, smoke,
      moisture and odors from the cooking area and are offered under an array of
      price
      points and styles from economy to upscale models. The exhaust fans offered
      by
      the Segment are primarily used in bathrooms to remove odors and humidity and
      include combination units, which may have lights, heaters or both. The Segment’s
      range hood and exhaust fan products are differentiated on the basis of air
      movement as measured in cubic feet per minute and sound output as measured
      in
      sones. The Segment’s range hood and exhaust fan products, as well as its indoor
      air quality products, are certified by the Home Ventilating Institute in the
      United States.





The
      Company’s sales of kitchen range hoods and exhaust fans accounted for
      approximately 15.9% and 14.7%, respectively, of the Company’s consolidated net
      sales in 2005, 18.6% and 17.0%, respectively, of the Company’s consolidated net
      sales in 2004 and 18.6% and 17.4%, respectively, of the Company’s consolidated
      net sales in 2003.





The
      Segment is one of the largest suppliers in North America of indoor air quality
      products, which include air exchangers, and heat or energy recovery ventilators
      (HRVs and ERVs) that provide whole house ventilation. These systems bring in
      fresh air from the outdoors while exhausting stale air from the home. Both
      HRVs
      and ERVs moderate the temperature of the fresh air by transferring heat from
      one
      air stream to the other. In addition, ERVs also modify the humidity content
      of
      the fresh air. The Segment also sells powered attic ventilators, which alleviate
      heat build up in attic areas and prevent deterioration of roof
      structures.





Since
      the
      late 1970s, homes have been built more airtight and insulated in order to
      increase energy efficiency. According to published studies, this trend
      correlates with an increased incidence of respiratory problems such as asthma
      and allergies in individuals. In addition, excess moisture, which may be trapped
      in a home, has the potential to cause significant deterioration to the structure
      and interiors of the home. Proper intermittent ventilation in high concentration
      areas such as kitchens and baths as well as whole house ventilation will
      mitigate these problems.





The
      Segment also sells other products, which leverage its strong brand names and
      extensive distribution network. These products include among others, door
      chimes, medicine cabinets, trash compactors, ceiling fans, and central vacuum
      systems.





The
      Company sells these products to distributors and dealers of electrical and
      lighting products, kitchen and bath dealers, retail home centers and original
      equipment manufacturers under the Broan®, NuTone®, Venmar®, and Best®, brand
      names, among others. Private
      label customers accounted for approximately 21.7% of the total sales of this
      Segment in 2005.





A
      key
      component of the Segment’s operating strategy is the introduction of new
      products and innovations, which capitalize on the strong brand names and the
      extensive distribution system of the Segment’s businesses. These include the new
      QT series of ultra-quiet exhaust fans with new grille styles, decorative and
      recessed fan / light combination units, as well as high performance range hoods
      used in today’s “gourmet” kitchen environments. The Company believes that the
      Segment’s variety of product offerings and new product introductions help it to
      maintain and improve its market position for its principal products. At the
      same
      time, the Company believes that the Segment’s status as a low-cost producer,
      which is in large part due to its advanced manufacturing processes, provides
      the
      Segment with a competitive advantage.





The
      Segment’s primary residential ventilation products compete with many domestic
      and international suppliers in various markets. The Segment competes with
      suppliers of competitive products primarily on the basis of quality,
      distribution, delivery and price. Although the Segment believes it competes
      favorably with other suppliers of residential ventilation products, some of
      its
      competitors have greater financial and marketing resources than the Segment.





Production
      generally consists of fabrication from coil and sheet steel and formed metal
      utilizing stamping, pressing and welding methods, assembly with components
      and
      subassemblies purchased from outside sources (principally motors, fan blades,
      heating elements, wiring harnesses, controlling devices, glass, mirrors,
      lighting fixtures and polyethylene components and electronic components) and
      painting, finishing and packaging. See the discussion on Raw Materials under
      General Considerations below.




The
        Segment had 13 manufacturing plants and employed approximately 2,800 full-time
        people as of December 31, 2005, of which approximately 212 were covered by
        a
        collective bargaining agreement which expired in 2004 and was subsequently
        renewed on January 19, 2006, extending into 2007, approximately 420 are covered
        by a collective bargaining agreement which expired in 2005 and approximately
        224
        are covered by collective bargaining agreements which expire between 2007
        and
        2008. See the discussion on Employees under General Considerations
        below.


The
      Company believes that the Segment’s relationships with its employees are
      satisfactory.





**Home
      Technology Products Segment**





The
      Home
      Technology Products Segment manufactures and distributes products that provide
      convenience and security in residential and light commercial applications.
      The
      principal products sold by the Segment are:




•
            audio
                / video distribution and control
                equipment,


•
            speakers
                and subwoofers,


•
              security
                  and access control products,
 •
              power conditioners and surge
                protectors,
 •
              audio / video wall mounts and fixtures,
                and
 •
              structured
                wiring.





The
      Segment’s audio / video distribution and control equipment products include
      multi-room / multi-source amplifiers, home theatre receivers, intercom systems,
      hard disk media servers and control devices such as keypads, remote controls
      and
      volume controls. The Segment’s speakers are primarily built-in (in-wall or
      in-ceiling) and are primarily used in multi-room or home theatre applications.
      These products are sold under the Niles®, Elan®, SpeakerCraft®, JobSite®,
      Proficient Audio Systems®, Sunfire®, Imerge®, Xantech®, M&S Systems®, and
      ChannelPlus® brand names.





The
      Segment’s security and access control products include residential and light
      commercial intrusion protection systems, garage and gate operators and devices
      to gain entry to buildings and gated properties such as radio transmitters,
      keypads and telephone entry systems. These products are sold under the Linear®,
      Westinghouse®, GTO/PRO®, Mighty Mule® and OSCO® brand names.





Other
      products sold by the Segment include power conditioners and surge protectors
      sold under the Panamax® brand name, audio / video wall mounts and fixtures sold
      under the OmniMount® brand name and structured wiring products sold under the
      OpenHouse® brand name.





The
      Segment sells to distributors and dealers of security and low-voltage equipment,
      professional installers, electronics retailers and original equipment
      manufacturers.





The
      majority of the Segment’s products are used in existing properties. Therefore,
      the Segment is not heavily dependent on the level of new construction in the
      United States. The penetration of audio / video distribution and control systems
      in the United States housing stock is relatively low and is believed to be
      growing. In addition, the demand for security and access control products in
      the
      United States is also believed to be growing due to homeowners’ post-911
      security concerns.





A
      key
      component to the growth of this Segment has been strategic acquisitions of
      companies with similar or complementary products and distribution channel
      strengths. There have been ten acquisitions within the Segment during the past
      three years. Post-acquisition savings and synergies have been realized in the
      areas of manufacturing, sourcing and distribution as well as in the
      administrative, engineering and sales and marketing areas.





The
      Segment offers a broad array of products under various brand names with various
      features and price points. This allows the company to maximize and grow
      distribution in the professional installation and retail markets. Another key
      component of the Segment’s operating strategy is the introduction of new
      products and innovations, which capitalize on its well-known brand names and
      strong customer relationships.





The
      Segment’s primary products compete with many domestic and international
      suppliers in various markets. In the access control market, the Segment’s
      primary competitor is Chamberlain Corporation (a subsidiary of Duchossios
      Industries, Inc.). The Segment competes with suppliers of competitive products
      primarily on the basis of quality, distribution, delivery and price. Although
      the Segment believes it competes favorably with other suppliers of home
      technology products, some of its competitors have greater financial and
      marketing resources than the Segment.





The
      Segment has several administrative and distribution facilities in the United
      States while a majority of its manufacturing facilities are located in China.
      In
      addition, certain products of the Segment are sourced from low cost Asian
      suppliers based on its specifications. The Segment believes that its Asian
      operations provide it with a competitive cost advantage.





The
      Segment had 10 manufacturing plants and employed approximately 2,400 full-time
      people as of December 31, 2005.





The
      Company believes that the Segment’s relationships with its employees are
      satisfactory.





**Air
      Conditioning and Heating Products Segment**





The
      Air
      Conditioning and Heating Products Segment manufactures and sells heating,
      ventilating and air conditioning, or HVAC, systems and products for site-built
      residential and manufactured housing structures, custom-designed commercial
      applications and standard light commercial products. For site-built homes and
      light commercial structures, the Segment markets its products under the licensed
      names Frigidaire®, Tappan®, Philco®, Kelvinator®, Gibson®, Westinghouse® and
      Maytag® and certain private label names.





***Residential
      HVAC Products***




The
        Segment principally manufactures and sells split-system air conditioners,
        heat
        pumps, air handlers, furnaces and related equipment, accessories and parts
        for
        the residential and light commercial markets. Within the residential market,
        the
        Company believes that the Segment is one of the largest suppliers of these
        products for manufactured homes in the United States and Canada. In the
        manufactured housing market, the Segment markets its products under the
        Intertherm® and Miller® brand names.


Demand
      for replacing and modernizing existing equipment, the level of housing starts
      and manufactured housing shipments are the principal factors that affect the
      market for the Segment’s residential HVAC products. The Company anticipates that
      the replacement market will continue to expand as a large number of previously
      installed heating and cooling products become outdated or reach the end of
      their
      useful lives. This growth may be accelerated by a tendency among consumers
      to
      replace older heating and cooling products with higher efficiency models prior
      to the end of such equipment’s useful life. The market for residential cooling
      products, including those sold by the Segment, which excludes window air
      conditioners, is affected by spring and summer temperatures. The window air
      conditioner market is highly seasonal and significantly impacted by spring
      and
      summer temperatures. The Company believes that the Segment’s ability to offer
      both heating and cooling products helps offset the effects of seasonality on
      the
      Segment’s sales.





The
      Segment sells its manufactured housing products to builders of manufactured
      housing and, through distributors, to manufactured housing retailers and owners.
      The majority of sales to builders of manufactured housing consist of furnaces
      designed and engineered to meet or exceed certain standards mandated by the
      U.S.
      Department of Housing and Urban Development (“HUD”) and other federal agencies.
      These standards differ in several important respects from the standards for
      furnaces used in site-built residential homes. The aftermarket channel of
      distribution includes sales of both new and replacement air conditioning units
      and heat pumps and replacement furnaces. The Company believes that the Segment
      has one major competitor in the manufactured housing furnace market, York
      International Corporation, which markets its products primarily under the
“Coleman” name. The Segment competes with most major industry manufacturers in
      the manufactured housing air conditioning market.





This
      Segment sells residential HVAC products for use in site-built homes through
      independently owned distributors who sell to HVAC contractors. The site-built
      residential HVAC market is very competitive. In this market, the Segment
      competes with, among others, Carrier Corporation (a subsidiary of United
      Technologies Corporation), Rheem Manufacturing Company, Lennox Industries,
      Inc.,
      The Trane Company (a subsidiary of American Standard Companies Inc.), York
      International Corporation (a subsidiary of Johnson Controls, Inc.) and Goodman
      Global, Inc. The Company estimates that approximately 57% of the Segment’s sales
      of residential HVAC products in 2005 were attributable to the replacement
      market, which tends to be less cyclical than the new construction market.





The
      Segment competes in both the site-built and manufactured housing markets on
      the
      basis of breadth and quality of its product line, distribution, product
      availability and price. Although the Company believes that the Segment competes
      favorably with respect to certain of these factors, most of the Segment’s
      competitors have greater financial and marketing resources and certain
      competitors may enjoy greater brand awareness than the Segment.





***Commercial
      HVAC Products***





The
      Segment also manufactures and sells HVAC systems that are custom-designed to
      meet customer specifications for commercial offices, manufacturing and
      educational facilities, hospitals, retail stores and governmental buildings.
      Such systems are designed primarily to operate on building rooftops (including
      large self-contained walk-in-units), or on individual floors within a building,
      and to have cooling capacities ranging from 40 to 600 tons. The Segment markets
      its commercial HVAC products under the Governair®, Mammoth®, Temtrol®, Venmar
      CESTM, Ventrol® and WebcoTM brand names. Also part of the Segment, the Company’s
      subsidiary Eaton-Williams Group Limited (“Eaton-Williams”), manufactures and
      markets custom and standard air conditioning and humidification equipment
      throughout Western Europe under the Vapac®, Cubit®, Qualitair®, Edenaire®,
      ColmanTM and ModucelTM brand names.





The
      market for commercial HVAC equipment is divided into standard and
      custom-designed equipment. Standard equipment can be manufactured at a lower
      cost and therefore offered at substantially lower initial prices than
      custom-designed equipment. As a result, standard equipment suppliers generally
      have a larger share of the overall commercial HVAC market than custom-designed
      equipment suppliers, including the Segment. However, because of certain building
      designs, shapes or other characteristics, the Company believes there are many
      applications for which custom-designed equipment is required or is more cost
      effective over the life of the building. Unlike standard equipment, the
      Segment’s commercial HVAC equipment can be designed to match a customer’s exact
      space, capacity and performance requirements. The Segment’s packaged rooftop and
      self-contained walk-in equipment rooms maximize a building’s rentable floor
      space because this equipment is located outside the building. In addition,
      the
      manner of construction and timing of installation of commercial HVAC equipment
      can often favor custom-designed over standard systems. As compared with
      site-built and factory built HVAC systems, the Segment’s systems are factory
      assembled according to customer specifications and then installed by the
      customer or third parties, rather than assembled on site, permitting extensive
      testing prior to shipment. As a result, the Segment’s commercial systems can be
      installed later in the construction process than site-built systems, thereby
      saving the owner or developer construction and labor costs. The Segment sells
      its commercial HVAC products primarily to contractors, owners and developers
      of
      commercial office buildings, manufacturing and educational facilities,
      hospitals, retail stores and governmental buildings. The Segment seeks to
      maintain strong relationships nationwide with design engineers, owners and
      developers, and the persons who are most likely to value the benefits and
      long-term cost efficiencies of the Segment’s custom-designed equipment.





The
      Company estimates that about 42% of the Segment’s air conditioning and heating
      product commercial sales in 2005 came from replacement and retrofit activity,
      which typically is less cyclical than new construction activity and generally
      commands higher margins. The Segment continues to develop product and marketing
      programs to increase penetration in the growing replacement and retrofit market.





The
      Segment’s commercial products are marketed through independently owned
      manufacturers’ representatives and approximately 325 sales, marketing and
      engineering professionals as of December 31, 2005. The independent
      representatives are typically HVAC engineers, a factor which is significant
      in
      marketing the Segment’s commercial products because of the design intensive
      nature of the market segment in which the Segment competes.





The
      Company believes that the Segment is among the largest suppliers of
      custom-designed commercial HVAC products in the United States. The Segment’s
      four largest competitors in the commercial HVAC market are Carrier Corporation,
      York International, McQuay International (a subsidiary of OYL Corporation),
      and
      The Trane Company. The Segment competes primarily on the basis of engineering
      support, quality, design and construction flexibility and total installed system
      cost. Although the Company believes that the Segment competes favorably with
      respect to some of these factors, most of the Segment’s competitors have greater
      financial and marketing resources than the Segment and enjoy greater brand
      awareness. However, the Company believes that the Segment’s ability to produce
      equipment that meets the performance characteristics required by the particular
      product application provides it with advantages that some of its competitors
      do
      not enjoy.





The
      Segment had 14 manufacturing plants and employed approximately 3,300 full-time
      people as of December 31, 2005, of which approximately 125 are covered by a
      collective bargaining agreement which expires in 2007. The Company believes
      that
      the Segment’s relationships with its employees are satisfactory.





**GENERAL
      CONSIDERATIONS**





**Employees**





The
      Company employed approximately 8,600 full time persons at December 31, 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
      expired. That agreement is estimated, as of December 31, 2005, to cover
      approximately 4.9% of the Company’s employees (420 employees) which are located
      at the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc. 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.
      On
      September 6, 2005, the Company notified the union bargaining committee that
      negotiations had reached an impasse and that it was unilaterally implementing
      the terms of its final offer. On March 6, 2006, the Company received notice
      that
      the union filed an unfair labor practice charge with the US National Labor
      Relations Board claiming that the Company had not bargained to impasse and
      that,
      from and after September 6, 2005, it had failed to bargain collectively and
      in
      good faith. The Company denies and will vigorously challenge such allegations.
      The Company’s management has provided temporary manufacturing support to ensure
      that operational disruptions are minimized and the Company’s customers’ needs
      are met without significant delay. NuTone’s operating results are included in
      the Company’s Residential Ventilation Products Segment. See Note 8
      of the
      Notes to the Consolidated Financial Statements, Item 8 of Part II of this
      report, incorporated herein by reference.





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





**Backlog**





Backlog
      expected to be filled during 2006 was approximately $228,100,000 at December
      31,
      2005 ($144,900,000 at December 31, 2004). The higher level of backlog at
      December 31, 2005 as compared to December 31, 2004 is principally due to an
      increase in orders for 10 SEER residential HVAC products in the Company’s Air
      Conditioning and Heating Products Segment prior to the change in the minimum
      SEER rating on January 23, 2006.





Backlog
      is not regarded as a significant factor for operations where orders are
      generally for prompt delivery. While backlog stated for December 31, 2005 is
      believed to be firm, as all orders are supported by either a purchase order
      or a
      letter of intent, the possibility of cancellations makes it difficult to assess
      the firmness of backlog with certainty.





**Research
      and Development**





The
      Company’s research and development activities are principally new product
      development and represent approximately 1.9%, 1.7% and 1.5% of the Company’s
      consolidated net sales in 2005, 2004 and 2003, respectively.





**Environmental
      Considerations**





See
      Part
      III, Legal Proceedings, of this report, incorporated herein by reference for
      more information regarding the material effects that compliance with federal,
      state and local provisions regulating the discharge of materials into the
      environment may have upon capital expenditures, earnings and competitive
      position.





**Patents
      and Trademarks**





The
      Company holds numerous design and process patents that it considers important,
      but no single patent is material to the overall conduct of its business. It
      is
      the Company’s policy to obtain and protect patents whenever such action would be
      beneficial to the Company. The Company owns or licenses numerous trademarks
      that
      it considers material to the marketing of its products, including Broan®,
      NuTone®, Nautilus®, Venmar®, Guardian PlusTM Air Systems, vanEE®, Best®,
      Governair®, Mammoth®, Temtrol®, Miller®, Intertherm®, Frigidaire®, Tappan®,
      Philco®, Kelvinator®, Gibson®, Westinghouse®, Maytag®, Ventrol®, WebcoTM, Vapac®,
      Cubit®, Qualitair®, Edenaire®, Linear®, Channel Plus®, Open House®, Xantech®,
      Elan®, Via!®, SpeakerCraft®, Proficient Audio Systems®, OSCO®, OmniMount®,
      M&S Systems®, Panamax®, Niles®, Sunfire®, Mighty Mule®, JobSite®, Imerge®
and GTO/PRO®. The Company believes that its rights in these trademarks are
      adequately protected.





**Raw
      Materials**





The
      Company purchases raw materials and most components used in its various
      manufacturing processes. The principal raw materials purchased by the Company
      are rolled sheet steel, formed and galvanized steel, copper, aluminum, plate
      mirror glass, various chemicals, paints and plastics.





The
      materials, molds and dies, subassemblies and components purchased from other
      manufacturers, and other materials and supplies used in manufacturing processes
      have generally been available from a variety of sources. From time to time
      increases in raw material costs can affect future supply availability due in
      part to raw material demands by other industries. Whenever practical, the
      Company establishes multiple sources for the purchase of raw materials and
      components to achieve competitive pricing, ensure flexibility and protect
      against supply disruption. The Company employs a company-wide procurement
      strategy designed to reduce the purchase price of raw materials and purchased
      components. The strategy focuses on adopting world-class procurement practices
      to reduce the costs of purchased materials. The Company believes that the use
      of
      world-class strategic sourcing procurement practices will continue to enhance
      its competitive position by reducing costs from its vendors and limiting cost
      increases for goods and services in sectors experiencing rising
      prices.





The
      Company is subject to significant market risk with respect to the pricing of
      its
      principal raw materials. 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. See
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, Item 7 of Part II of this report, incorporated herein by reference
      for further discussion.





**Working
      Capital**





The
      carrying of inventories to support customers and to permit prompt delivery
      of
      finished goods requires substantial working capital. Substantial working capital
      is also required to carry receivables. The demand for the Company’s products is
      seasonal, particularly in the Northeast and Midwest regions of the United States
      and in Canada 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. Certain of the residential product businesses in
      the
      Air Conditioning and Heating Products Segment have in the past been more
      seasonal in nature than the Company’s other businesses’ product categories. As a
      result, the demand for working capital of the Company’s subsidiaries is greater
      from late in the first quarter until early in the fourth quarter. See “Liquidity
      and Capital Resources” in Management’s Discussion and Analysis of Financial
      Condition and Results of Operations, Item 7 of Part II of this report,
      incorporated herein by reference.





**Website**





The
      Company’s periodic and current reports are available on its website,
      www.nortek-inc.com, free of charge, as soon as reasonably practicable after
      such
      materials are filed with, or furnished to the Securities and Exchange Commission
      (“SEC”).





**Item
      1A. Risk Factors.**





***The
      Company’s business is sensitive to economic cycles and to the availability and
      pricing of raw materials, and adverse changes in these factors could have a
      negative impact on the Company’s business.***





A
      significant percentage of the Company’s sales of residential and commercial
      building products is attributable to new residential and non-residential
      construction, which are affected by cyclical factors such as interest rates,
      seasonality, inflation, consumer spending habits and employment. In addition,
      the Company is dependent upon raw materials including, among others, steel,
      copper, packaging material, plastics, glass and aluminum and components that
      we
      purchase from third parties. Accordingly, the Company’s results of operations
      and financial condition have in the past been, and may again in the future
      be,
      adversely affected by such cyclicality and increases in raw material or
      component costs or their lack of availability.





***If
      the Company fails to integrate the businesses it has acquired or will acquire
      in
      the future, it could negatively impact the Company’s
      business.***





Historically,
      the Company has engaged in a significant number of acquisitions. The Company
      will continue to review future acquisition opportunities. The Company cannot
      assure the reader that it will continue to locate and secure acquisition
      candidates on terms and conditions that are acceptable to the Company. There
      are
      several risks in acquisitions, including:





·
            the
                difficulty and expense that the Company incurs in connection with
                the
                acquisition,


·
            the
                difficulty and expense that the Company incurs in the subsequent
                assimilation of the operations of the acquired company into the Company’s
                operations,


·
            adverse
                accounting consequences of conforming the acquired company’s accounting
                policies to the Company’s,


·
            the
                difficulty in operating acquired
                businesses,


·
            the
                diversion of management’s attention from the Company’s other business
                concerns, and


·
            the
                potential loss of key employees previously employed at acquired
                companies.





The
      Company cannot assure the reader that any acquisition it has made or may make
      will be successfully integrated into its on-going operations or that it will
      achieve the estimated cost savings from the acquisition. If the operations
      of an
      acquired business do not meet expectations, the Company may be required to
      restructure the acquired business or write-off the value of some or all of
      the
      assets of the acquired business.





***Because
      the Company competes against competitors with substantially greater resources,
      the Company faces external competitive risks that may negatively impact the
      business.***





Substantially
      all of the markets in which the Company operates are highly competitive and
      many
      of its competitors and potential competitors have substantially greater
      financial and marketing resources than that of the Company. These competitive
      factors could require the Company to reduce prices or increase spending on
      product development, marketing and sales that would adversely affect the
      operating results of the Company.





***A
      significant portion of the Company’s workforce is unionized and labor
      disruptions could adversely affect the business.***




As
        of
        December 31, 2005, approximately 11.5% 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 and were
        subsequently renewed on January 19, 2006, extending into 2007 .
 
 On
        June
        8, 2005 the Company’s collective bargaining agreement with the United Automobile
        Aerospace & Agricultural Implement Workers of America and its Local No. 2029
        expired. That agreement is estimated, as of December 31, 2005, to cover
        approximately 4.9% of the Company’s employees (420 employees) which are located
        at the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc. 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.
        On
        September 6, 2005, the Company notified the union bargaining committee that
        negotiations had reached an impasse and that it was unilaterally implementing
        the terms of its final offer. On March 6, 2006, the Company received notice
        that
        the union filed an unfair labor practice charge with the US National Labor
        Relations Board claiming that the Company had not bargained to impasse and
        that,
        from and after September 6, 2005, it had failed to bargain collectively and
        in
        good faith. The Company denies and will vigorously challenge such allegations.
        The Company’s management has provided temporary manufacturing support to ensure
        that operational disruptions are minimized and the Company’s customers’ needs
        are met without significant delay. NuTone’s operating results are included in
        the Company’s Residential Ventilation Products Segment. See Note 8
        of the
        Notes to the Consolidated Financial Statements, Item 8 of Part II of this
        report, incorporated herein by reference.
 
 A
        work
        stoppage at one of the Company’s facilities that lasts for a significant period
        of time could cause the Company to lose sales, incur increased costs and
        adversely affect its ability to meet customers’ needs. A plant shutdown or a
        substantial modification to a collective bargaining agreement could result
        in
        material gains and losses or the recognition of an asset impairment. As
        agreements expire, until negotiations are completed, it is not known whether
        the
        Company will be able to negotiate collective bargaining agreements on the
        same
        or more favorable terms as the current agreements or at all and without
        production interruptions, including labor stoppages.





***The
      Company faces risks of litigation and liability claims on environmental, product
      liability, workers compensation and other matters, the extent of which exposure
      can be difficult or impossible to estimate and which can negatively impact
      the
      Company’s business, financial condition and results of
      operations.***





The
      Company is subject to legal proceedings and claims arising out of its businesses
      that cover a wide range of matters, including environmental matters, contract
      and employment claims, product liability claims, warranty claims and claims
      for
      modification, adjustment or replacement of component parts of units sold.
      Product liability, environmental and other legal proceedings include those
      related to businesses or properties the Company has previously owned or
      operated. The Company has used and continues to use various substances in its
      products and manufacturing operations and has generated and continues to
      generate waste, which have been or may be deemed to be hazardous or dangerous.
      As such, the Company’s business is subject to and may be materially and
      adversely affected by compliance obligations and other liabilities under
      environmental, health and safety laws and regulations to which it is subject.
      These laws and regulations affect ongoing operations and require capital costs
      and operating expenses in order to achieve and maintain compliance and, if
      violated, may result in fines, penalties and other sanctions. These laws and
      regulations also impose liability, without regard to knowledge or fault,
      relating to the existence of contamination at or associated with properties
      used
      in the Company’s current and former operations or those of its predecessors, or
      at locations to which current or former operations or those of predecessors
      have
      shipped waste. The Company cannot be certain that identification of presently
      unidentified environmental conditions, more vigorous enforcement by regulatory
      agencies, enactment of more stringent laws and regulations, or other
      unanticipated events will not arise in the future and give rise to material
      environmental liabilities which could have a material adverse effect on its
      business, financial condition or results of operations. The extent of the
      Company’s potential liability under environmental, product liability and
      workers’ compensation statutes, rules, regulations and case law cannot be
      quantified at this time. Further, due to the lack of adequate information and
      the potential impact of present and future regulations, there are circumstances
      where no range of potential exposure can be reasonably estimated.





***The
      Company’s business operations could be significantly disrupted if the Company
      lost members of its management team.***





The
      Company’s success depends to a significant degree upon the continued
      contributions of its executive officers and key employees and consultants,
      both
      individually and as a group. The Company’s future performance will be
      substantially dependent on its ability to retain and motivate them. The loss
      of
      the services of any of these executive officers or key employees and
      consultants, particularly the Company’s chairman and chief executive officer,
      Richard L. Bready, and other executive officers named in “Executive Officers of
      the Company” could prevent the Company from executing its business strategy. See
“Directors and Executive Officers of the Registrant”.





***A
      significant equity investor controls the Company and its interests may not
      be in
      line with the reader’s interests.***





Thomas
      H.
      Lee Equity Fund V, L.P. and its co-investors control the ultimate parent company
      of NTK Holdings, which is the sole shareholder of Nortek Holdings, Inc., which
      is the sole shareholder of Nortek, Inc., and exercise control over matters
      requiring approval of the Company’s stockholders and board of directors. Thomas
      H. Lee Equity Fund V, L.P. has the right to designate a majority of the members
      of the management committee of the ultimate parent company of Nortek. In
      addition, THL Managers V, LLC, an affiliate of Thomas H. Lee Equity Fund V,
      L.P., provides the Company with financial advisory and management consulting
      services. Because of this control, transactions may be pursued that could
      enhance this equity investment while involving risks to the reader’s interests.
      There can be no assurance that the interests of the Company’s controlling equity
      investor will not conflict with the reader’s interests. See “Certain
      Relationships and Related Transactions.”





***The
      Company’s substantial debt could negatively impact its business and prevent the
      Company from fulfilling its obligations under the
      notes.***





The
      Company has a substantial amount of debt. At December 31, 2005, the Company
      had
      approximately $1,648,378,000 of total debt outstanding and a debt to equity
      ratio of approximately 8.7:1. The terms of the Company’s other outstanding debt,
      including the Company’s 10 3/4% Senior Discount Notes, Nortek’s 8 1/2% Senior
      Subordinated Notes and Nortek’s Senior Secured Credit Facility limit, but do not
      prohibit, the Company from incurring additional debt. At December 31, 2005,
      Nortek had approximately $70,400,000 of additional borrowing capacity under
      the
      U.S. revolving portion of its Senior Secured Credit Facility and approximately
      $10,000,000 of additional borrowing capacity under the Canadian portion of
      its
      Senior Secured Credit Facility with approximately $19,600,000 in outstanding
      letters of credit. If new debt is added to current debt levels, the related
      risks described below could intensify.





The
      amount of total debt that the Company incurs could have important consequences,
      including the following:





·
            the
                Company’s ability to obtain additional financing for working capital,
                capital expenditures, acquisitions, refinancing indebtedness, or
                other
                purposes could be impaired,


·
            a
                substantial portion of the Company’s cash flow from operations will be
                dedicated to paying principal and interest on its debt, thereby reducing
                funds available for expansion or other
                purposes,


·
            the
                Company may be more leveraged than some of its competitors, which
                may
                result in a competitive
                disadvantage,


·
            the
                Company may be vulnerable to interest rate increases, as borrowings
                under
                the Company’s Senior Secured Credit Facility are at variable
                rates,


·
            the
                Company’s failure to comply with the restrictions in its financing
                agreements would have a material adverse effect on the Company,
                and


·
            the
                Company’s significant amount of debt could make it more vulnerable to
                changes in general economic conditions and could make it difficult
                to
                satisfy its obligations with respect to its outstanding
                debt.





The
      Company believes that it will need to access the capital markets in the future
      to raise the funds to repay its debt. The Company has no assurance that it
      will
      be able to complete a refinancing or that it will be able to raise any
      additional financing, particularly in view of the Company’s anticipated high
      levels of debt and the restrictions under its current debt agreements. If the
      Company is unable to satisfy or refinance its current debt as it comes due,
      the
      Company may default on its debt obligations. If the Company defaults on its
      debt
      obligations, virtually all of its other debt could become immediately due and
      payable.





***The
      terms of our debt covenants could limit how we conduct our business and our
      ability to raise additional funds.***





The
      agreements which govern the terms of the Company’s debt, including the
      indentures that govern the Company’s 10 3/4% Senior Discount Notes, Nortek’s 8
      1/2% Senior Subordinated Notes and Nortek’s Senior Secured Credit Facility,
      contain covenants that restrict the Company’s ability and the ability of its
      subsidiaries to:





·
            incur
                additional indebtedness,


·
            pay
                dividends or make other
                distributions,


·
            make
                loans or investments,


·
            incur
                certain liens,


·
            enter
                into agreements restricting its subsidiaries’ ability to pay
                dividends,


·
            enter
                into transactions with affiliates,
                and


·
            consolidate,
                merge or sell assets.





In
      addition, Nortek’s Senior Secured Credit Facility contains financial maintenance
      covenants, and Nortek cannot assure the reader that such covenants will always
      be met. A breach of the covenants under the indentures that govern the Company’s
      10 3/4% Senior Discount Notes, Nortek’s 8 1/2% Senior Subordinated Notes or
      under Nortek’s Senior Secured Credit Facility could result in an event of
      default under the applicable indebtedness. Such default may allow the creditors,
      if the agreements so provide, to accelerate the related debt and may result
      in
      the acceleration of any other debt to which a cross-acceleration or
      cross-default provision applies. In addition, an event of default under Nortek’s
      Senior Secured Credit Facility would permit the lenders to terminate all
      commitments to extend further credit under that facility. Furthermore, if Nortek
      was unable to repay the amounts due and payable under its Senior Secured Credit
      Facility, those lenders could proceed against the collateral granted to them
      to
      secure that indebtedness. In the event the Company’s lenders or noteholders
      accelerate the repayment of their borrowings, the Company cannot assure the
      reader that it and its subsidiaries would have sufficient assets to repay such
      indebtedness. The Company’s future financing arrangements will likely contain
      similar or more restrictive covenants. As a result of these restrictions, the
      Company may be:





·
            limited
                in how it conduct its business,


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


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





These
      restrictions may affect the Company’s ability to grow in accordance with its
      plans.





***The
      Company may be unable to generate sufficient cash to service all of its
      indebtedness and may be forced to take other actions to satisfy its obligations
      under such indebtedness, which may not be successful.***





The
      Company’s ability to make scheduled payments on or to refinance its debt
      obligations depends on its subsidiaries’ financial condition and operating
      performance, which is subject to prevailing economic and competitive conditions
      and to financial, business and other factors beyond the Company’s control. The
      Company cannot assure the reader that its subsidiaries will maintain a level
      of
      cash flows from operating activities sufficient to permit the Company to pay
      or
      refinance its indebtedness. If the Company’s subsidiaries’ cash flows and
      capital resources are insufficient to fund the Company’s debt service
      obligations, the Company and its subsidiaries could face substantial liquidity
      problems and may be forced to reduce or delay capital expenditures, sell assets,
      seek additional
      capital or restructure or refinance its indebtedness. These alternative measures
      may not be successful and may not permit the Company to meet its scheduled
      debt
      service obligations.





***The
      Company may not be able to satisfy its obligations to holders of the Company’s
      indebtedness upon a change of control.***





Upon
      the
      occurrence of a “change of control”, as defined in the indenture that governs
      the Company’s 10 3/4% Senior Discount Notes, each holder of the notes will have
      the right to require NTK Holdings to purchase the notes at a price equal to
      101%
      of their accreted value. NTK Holdings’ failure to purchase, or give notice of
      purchase of, the notes would be a default under the indenture. In addition,
      a
      change of control may constitute an event of default under Nortek’s Senior
      Secured Credit Facility and would also require Nortek to offer to purchase
      its 8
      1/2% Senior Subordinated Notes at 101% of the principal amount thereof, together
      with accrued and unpaid interest. A default under Nortek’s Senior Secured Credit
      Facility would result in an event of default under the indenture and under
      the
      indenture governing Nortek’s 8 1/2% Senior Subordinated Notes if the lenders
      accelerate the debt under Nortek’s Senior Secured Credit Facility.





If
      a
      change of control occurs, the Company may not have enough assets to satisfy
      all
      obligations under Nortek’s Senior Secured Credit Facility and the indenture that
      governs Nortek’s 8 1/2% Senior Subordinated Notes. Upon the occurrence of a
      change of control, the Company could seek to refinance the indebtedness under
      Nortek’s Senior Secured Credit Facility and Nortek’s 8 1/2% Senior Subordinated
      Notes or obtain a waiver from the lenders under Nortek’s Senior Secured Credit
      Facility and Nortek’s 8 1/2% Senior Subordinated Notes. The Company cannot
      assure the reader, however, that it would be able to obtain a waiver or
      refinance its indebtedness on commercially reasonable terms, if at all.





**Item
      1B. Unresolved Staff Comments.**





None.




**Item
      2. Properties.**





Set
      forth
      below is a brief description of the location and general character of the
      principal administrative and manufacturing facilities and other material real
      properties of the Company’s continuing operations, all of which the Company
      considers to be in satisfactory repair. All properties are owned, except for
      those indicated by an asterisk (*), which are leased under operating leases
      and
      those with a double asterisk (**), which are leased under capital
      leases.





**Approximate****Location
                (1)**
            **Description**
            **Square
                Feet****Residential
                Ventilation Products Segment:**Union,
                IL
            Manufacturing/Warehouse/Administrative
            197,000
            (2)Hartford,
                WI
            Manufacturing/Warehouse/Administrative
            538,000
            (3)Mississauga,
                ONT, Canada
            Manufacturing/Warehouse/Administrative
            110,000Fabriano,
                Italy
            Manufacturing/Warehouse/Administrative
            166,000Cerreto
                D’Esi, Italy
            Manufacturing/Warehouse/Administrative
            180,000Montefano,
                Italy
            Manufacturing/Warehouse/Administrative
            93,000
            (2)Cleburne,
                TX
            Manufacturing/Warehouse/Administrative
            215,000
            (3)Los
                Angeles, CA
            Manufacturing/Administrative
            177,000
            *Drummondville,
                QUE, Canada
            Manufacturing/Warehouse/Administrative
            126,000Cincinnati,
                OH
            Manufacturing/Warehouse/Administrative
            735,000Chenjian,
                Huizhou, PRC
            Manufacturing/Warehouse/Administrative/Other
            198,000**Home
                Technology Products Segment:**Sylmar,
                CA
            Manufacturing/Administrative
            18,000
            *Xiang,
                Bao An County, Shenzhen, PRC
            Manufacturing/Warehouse/Administrative
            142,000
            *Chaiwan,
                Hong Kong
            Administrative
            12,300
            *Lexington,
                KY
            Manufacturing/Warehouse/Administrative
            40,000
            *Carlsbad,
                CA
            Administrative
            53,000
            *Riverside,
                CA
            Manufacturing/Administrative
            82,000
            *Casnovia,
                MI
            Manufacturing/Warehouse/Administrative
            23,000
            *Phoenix,
                AZ
            Manufacturing/Warehouse/Administrative
            45,000
            *Petaluma,
                CA
            Manufacturing/Warehouse/Administrative
            15,000
            *Miami,
                FL
            Manufacturing/Warehouse/Administrative
            83,000
            *Cambridge,
                U.K.
            Manufacturing/Warehouse/Administrative
            10,700
            *Snohomish,
                WA
            Manufacturing/Warehouse/Administrative
            25,000
            *Tallahassee,
                FL
            Manufacturing/Warehouse/Administrative
            72,000
            (3)Summerville,
                SC
            Warehouse/Administrative
            162,000
            *





**Air
                Conditioning and Heating Products Segment:**St.
                Leonard d’Aston, QUE, Canada
            Manufacturing/Administrative
            95,000
            *Saskatoon,
                Saskatchewan, Canada
            Manufacturing/Administrative
            49,000
            *O’Fallon,
                MO
            Warehouse/Administrative
            70,000
            *St.
                Louis, MO
            Manufacturing/Warehouse
            103,000
            *Boonville,
                MO
            Manufacturing
            250,000
            (3)Boonville,
                MO
            Warehouse/Administrative
            150,000
            (2)Tipton,
                MO
            Manufacturing
            50,000
            (3)Poplar
                Bluff, MO
            Manufacturing/Warehouse
            725,000
            **Dyersburg,
                TN
            Manufacturing/Warehouse
            368,000
            **Holland,
                MI
            Manufacturing/Administrative
            45,000
            *Chaska,
                MN
            Manufacturing/Administrative
            230,000
            *Oklahoma
                City, OK
            Manufacturing/Administrative
            127,000
            (3)Okarche,
                OK
            Manufacturing/Warehouse/Administrative
            228,000
            (3)Springfield,
                MO
            Manufacturing/Warehouse/Administrative
            92,000
            *Anjou,
                QUE, Canada
            Manufacturing/Administrative
            122,000
            *Edenbridge,
                Kent, U.K.
            Manufacturing/Administrative
            92,000
            *Fenton,
                Stoke-on-Trent, U.K.
            Manufacturing/Administrative
            104,000
            *Miami,
                FL
            Manufacturing/Warehouse/Administrative
            24,000
            *Anji
              County, Zhejiang, PRC
            Manufacturing/Warehouse/Administrative
            141,000
            *(4)**Other:**Providence,
                RI
            Administrative
            23,400
            *




(1)
            Certain locations may represent more than one property
              and the square footage includes all properties within that
              location.





(2)
            These
                facilities are pledged as security under various subsidiary debt
                agreements. (See Note 6 of the Notes to the Consolidated Financial
                Statements, Item 8 of Part II of this report, incorporated herein
                by
                reference.)





(3)
            These facilities are pledged as security under the
              Company’s Senior Secured Credit Facility.  (4)
            These
              facilities are leased by a subsidiary which the Company had a minority
              interest in at December 31, 2005. In the first quarter of 2006, the
              Company has made further investment and is in the process of obtaining
              a
              majority interest in this subsidiary. During 2006, the Company expects
              to
              relocate from this leased facility to another facility which it will
              own.
              See Management’s Discussion and Analysis of Financial Condition and
              Results of Operations -Overview, Item 7 of Part II of this report,
              incorporated herein by reference.






**Item
      3. Legal Proceedings.**





The
      Company and its subsidiaries are subject to numerous federal, state and local
      laws and regulations, including environmental laws and regulations that impose
      limitations on the discharge of pollutants into the air and water and establish
      standards for the treatment, storage and disposal of solid and hazardous wastes.
      The Company believes that it is in substantial compliance with the material
      laws
      and regulations applicable to it. The Company is involved in current, and may
      become involved in future, remedial actions under federal and state
      environmental laws and regulations which impose liability on companies to clean
      up, or contribute to the cost of cleaning up, sites at which their hazardous
      wastes or materials were disposed of or released. Such claims may relate to
      properties or business lines acquired by the Company after a release has
      occurred. In other instances, the Company may be partially liable under law
      or
      contract to other parties that have acquired businesses or assets from the
      Company for past practices relating to hazardous substances management. The
      Company believes that all such claims asserted against it, or such obligations
      incurred by it, will not have a material adverse effect upon the Company’s
      financial condition or results of operations. Expenditures in 2005, 2004 and
      2003 to evaluate and remediate such sites were not material. However, the
      Company is presently unable to estimate accurately its ultimate financial
      exposure in connection with identified or yet to be identified remedial actions
      due among other reasons to: (i) uncertainties surrounding the nature and
      application of environmental regulations, (ii) the Company’s lack of information
      about additional sites to which it may be listed as a potentially responsible
      part (“PRP”), (iii) the level of clean-up that may be required at specific sites
      and choices concerning the technologies to be applied in corrective actions
      and
      (iv) the time periods over which remediation may occur. Furthermore, since
      liability for site remediation is joint and several, each PRP is potentially
      wholly liable for other PRP’s that become insolvent or bankrupt. Thus, the
      solvency of other PRP’s could directly affect the Company’s ultimate aggregate
      clean-up costs. In certain circumstances, the Company’s liability for clean-up
      costs may be covered in whole or in part by insurance or indemnification
      obligations of third parties.





In
      addition to legal matters described above, the Company and its subsidiaries
      are
      named as defendants in a number of legal proceedings, including a number of
      product liability lawsuits, incident to the conduct of their
      businesses.





The
      Company does not expect that any of the above described proceedings will have
      a
      material adverse effect, either individually or in the aggregate, on the
      Company’s financial position, results of operations, liquidity or competitive
      position. (See Note 9 of the Notes to the Consolidated Financial Statements,
      Item 8 of Part II of this report, incorporated herein by
      reference.)





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





None.





**PART
      II**





**Item
      5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.**




On
        November 20, 2002, Nortek reorganized into a holding company structure and
        each
        outstanding share of capital stock of Nortek was converted into an identical
        share of capital stock of the former Nortek Holdings. The former Nortek Holdings
        became the successor public company, and Nortek became a wholly-owned subsidiary
        of the former Nortek Holdings. As of November 20, 2002, there is no established
        public trading market for Nortek’s capital stock.
 
 NTK
        Holdings was formed to hold the capital stock of Nortek Holdings. Prior to
        February 10, 2005, Nortek Holdings was a direct wholly-owned subsidiary of
        Investors LLC. On February 10, 2005, NTK Holdings issued 3,000 shares of
        capital
        stock to Investors LLC in exchange for Investor LLC’s 3,000 shares of capital
        stock of Nortek Holdings. As of March 3, 2006, there were 3,000 shares of
        common
        stock of the Company authorized and 3,000 shares of common stock of the Company
        outstanding, all of which are owned by Investors LLC.
 
 On
        February 15, 2005, the Company completed the sale of $403,000,000 aggregate
        principal amount at maturity of its 10 3/4% Senior Discount Notes due March
        1,
        2014. The aggregate 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, the Company contributed approximately $57,700,000 to Nortek Holdings,
        Inc. for the purpose of making payments under the Nortek Holdings, Inc. Deferred
        Compensation Plan.
 
 The
          Company’s 10 3/4% Senior Discount Notes contain certain restrictive financing
          and operating covenants that restrict the ability of the Company to pay
          dividends. 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. For
          more
          information see Note 6 of the Notes to the Consolidated Financial Statements,
          Item 8 of Part II of this report, incorporated herein by reference.
 See
        Notes
        1, 2 and 7 of the Notes to the Consolidated Financial Statements, Item 8
        of Part
        II of this report, incorporated herein by reference.


**Item
      6. Consolidated Selected Financial Data.**





**For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Pre-Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -**
            
            **Jan.
                1, 2002 -**
            
            **Jan.
                1, 2001 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003**
            
            **Dec.
                31, 2002**
            
            **Dec.
                31, 2001***(In
                millions except ratios)***Consolidated
                Summary of Operations:**Net
                sales
            
            $
            1,959.2
            
            $
            561.0
            
            $
            1,117.9
            
            $
            1,480.6
            
            $
            24.8
            
            $
            1,376.5
            
            $
            1,286.4Operating
                earnings (loss)
            
            
            236.9
            
            
            42.1
            
            
            32.6
            
            
            159.4
            
            
            (81.8
            )
            
            120.5
            
            
            111.1Earnings
                (loss) from continuing operations
            
            
            56.9
            
            
            (3.6
            )
            
            (111.3
            )
            
            62.1
            
            
            (60.9
            )
            
            44.2
            
            
            33.8Earnings
                (loss) from discontinued operations
            
            
            ---
            
            
            (0.5
            )
            
            67.4
            
            
            12.1
            
            
            (1.0
            )
            
            18.3
            
            
            (25.8
            )Net
                earnings (loss)
            
            
            56.9
            
            
            (4.1
            )
            
            (43.9
            )
            
            74.2
            
            
            (61.9
            )
            
            62.5
            
            
            8.0**Financial
                Position:**Unrestricted
                cash, investments andmarketable securities
            
            $
            77.2
            
            $
            95.0
            
            $
            202.0
            
            $
            194.1
            
            $
            283.6
            
            $
            294.8
            
            $
            255.3Working
                capital
            
            
            283.6
            
            
            215.8
            
            
            (645.2
            )
            
            689.8
            
            
            830.0
            
            
            816.3
            
            
            745.3Total
                assets
            
            
            2,404.6
            
            
            2,264.6
            
            
            1,730.4
            
            
            2,100.0
            
            
            1,781.2
            
            
            1,830.9
            
            
            1,819.9Total
                debt--Current
            
            
            19.7
            
            
            19.8
            
            
            13.4
            
            
            15.3
            
            
            4.4
            
            
            5.5
            
            
            10.0Long-term
            
            
            1,628.7
            
            
            1,350.2
            
            
            30.4
            
            
            1,324.6
            
            
            953.7
            
            
            953.8
            
            
            959.7Current
                ratio
            
            
            1.8:1
            
            
            1.6:1
            
            
            0.5:1
            
            
            2.7:1
            
            
            2.9:1
            
            
            3.1:1
            
            
            2.6:1Debt
                to equity ratio
            
            
            8.7:1
            
            
            4.3:1
            
            
            0.4:1
            
            
            6.7:1
            
            
            3.5:1
            
            
            3.0:1
            
            
            3.6:1Depreciation
                and amortization expenseincluding non-cash interest
            
            
            75.8
            
            
            26.6
            
            
            50.5
            
            
            38.2
            
            
            0.7
            
            
            32.6
            
            
            40.4Amortization
                of goodwill included indepreciation and amortization expense
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            8.7Capital
                expenditures
            
            
            33.7
            
            
            15.1
            
            
            12.8
            
            
            24.7
            
            
            0.2
            
            
            19.0
            
            
            26.9Stockholder’s
                investment
            
            
            190.5
            
            
            321.8
            
            
            114.6
            
            
            200.2
            
            
            272.1
            
            
            317.5
            
            
            271.3





See
      the
      Notes to the Consolidated Financial Statements and Management’s Discussion and
      Analysis of Financial Condition and Results of Operations, included elsewhere
      herein regarding the effect on operating results of acquisitions, discontinued
      operations and other matters. See Part II, Item 5 of this report, incorporated
      herein by reference, for a discussion on certain Stockholder
      Matters.







NTK HOLDINGS, INC. AND SUBSIDIARIES


Management's Discussion and Analysis of Financial Condition and
      Results of Operations


December 31, 2005





**Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operation.**




NTK
          Holdings, Inc. and its continuing wholly-owned subsidiaries (individually
          and
          collectively the “Company” or “NTK Holdings”) are diversified manufacturers of
          residential and commercial building products, operating within three reporting
          segments: the Residential Ventilation Products Segment, the Home Technology
          Products Segment and the Air Conditioning and Heating Products Segment.
          In the
          results of operations presented below, Unallocated includes corporate related
          items, intersegment eliminations and certain income and expense not allocated
          to
          its segments. Through its reporting segments, the Company manufactures
          and
          sells, primarily in the United States, Canada and Europe, a wide variety
          of
          products for the residential and commercial construction, manufactured
          housing
          and the do-it-yourself (“DIY”) and professional remodeling and renovation
          markets. As used in this report, the terms “Company” and “NTK Holdings” refer to
          NTK Holdings, Inc., together with its subsidiaries, unless the context
          indicates
          otherwise. Such terms as “Company” and “NTK Holdings” are used for convenience
          only and are not intended as a precise description of any of the separate
          corporations, each of which manages its own affairs.
 
 During
          2005, the Company changed the composition of its reporting segments to
          reflect
          the Home Technology Products Segment separately. In accordance with Statement
          of
          Financial Standards (“SFAS”) No. 131, “Disclosures about Segments of an
          Enterprise and Related Information”, the Company has restated prior period
          segment disclosures to conform to the new composition.
 
 The
          Residential Ventilation Products Segment manufactures and sells room and
          whole
          house ventilation products and other products primarily for the residential
          new
          construction, DIY and professional remodeling and renovation markets. The
          principal products sold by the Segment include:


•
            kitchen
                range hoods,


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


•
            indoor
                air quality products.





The
      Home
      Technology Products Segment manufactures and sells products that provide
      convenience and security in residential and light commercial applications.
      The
      principal products sold by the Segment are:





•
            audio
                / video distribution and control
                equipment,


•
            speakers
                and subwoofers,


•
              security
                  and access control products,
 •
              power conditioners and surge
                protectors,
 •
              audio / video wall mounts and fixtures,
                and
 •
              structured
                wiring.




The
      Air
      Conditioning and Heating Products 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 principal products sold by the Segment
      are:





·
            split
                system air conditioners and heat
                pumps,


·
            furnaces,


·
            air
                handlers, and


·
            large
                custom roof top cooling and heating
                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, 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 2 of the Notes to the Consolidated Financial Statements
        included elsewhere herein).
  ***NTK
          Holdings Formation***
 NTK
          Holdings is a Delaware corporation that was formed to hold the capital
          stock of
          Nortek Holdings. NTK Holdings became the parent company of Nortek Holdings
          on
          February 10, 2005. Nortek Holdings is a wholly-owned subsidiary of NTK
          Holdings
          and Nortek is a wholly-owned subsidiary of Nortek Holdings.


***The
      Recapitalization***





On
      January 9, 2003, the former Nortek Holdings was acquired by certain affiliates
      of Kelso and certain members of Nortek’s management in a transaction valued at
      approximately $1,600,000,000, including all of Nortek’s indebtedness (the
“Recapitalization”). As a result of the Recapitalization, the former Nortek
      Holdings shares of capital stock were no longer publicly traded. For more
      information on the Recapitalization see Note 2 of the Notes to the Consolidated
      Financial Statements included elsewhere herein.





***Financial
      Statement Presentation***




The
        consolidated financial statements included herein for periods prior to January
        9, 2003 (“Pre-Recapitalization”) reflect the financial position, results of
        operations and cash flows of Nortek, Inc. and its wholly-owned subsidiaries.
        The
        periods subsequent to January 9, 2003 and prior to August 28, 2004
        (“Pre-Acquisition”) reflect the financial position, results of operations and
        cash flows of the former Nortek Holdings, Inc. and all of its wholly-owned
        subsidiaries (the predecessor company). Subsequent to August 27, 2004 and
        prior
        to February 10, 2005, the consolidated financial statements included herein
        reflect the financial position, results of operations and cash flows of Nortek
        Holdings, Inc. and all of its wholly-owned subsidiaries and the periods
        subsequent to February 9, 2005 reflect the financial position, results of
        operations and cash flows of NTK Holdings and its wholly-owned subsidiaries
        (combined the “Post-Acquisition” periods).


***Discontinued
      Operations***





On
      July
      31, 2004, the Company sold the capital stock of its wholly-owned subsidiary,
      La
      Cornue SAS (“La Cornue”). La Cornue was included in the Company’s Residential
      Ventilation Products 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 which 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 10 and 11 of the Notes to the Consolidated Financial Statements
      included elsewhere herein).





***Acquisitions***




On
        December 9, 2005, the Company, through its indirect wholly-owned subsidiary,
        Linear LLC (“Linear”), acquired the stock of GTO, Inc. (“GTO”). GTO is located
        in Tallahassee, FL and designs, manufactures and sells automatic electric
        gate
        openers and access control devices to enhance the security and convenience
        of
        both residential and commercial property fences.
 
 On
        August
        26, 2005, the Company, through its indirect wholly-owned subsidiary, Elan
        Home
        Systems, LLC. (“Elan”), acquired the assets and certain liabilities of Sunfire
        Corporation (“Sunfire”). Sunfire is located in Snohomish, WA and sells and
        designs home audio and home cinema amplifiers, receivers and subwoofers.
 
 On
        August
        8, 2005, the Company, through its indirect wholly-owned subsidiary, Nortek
        (UK)
        Limited (“Nortek UK”), acquired the stock of Imerge Limited (“Imerge”). Imerge
        is located in Cambridge, United Kingdom and designs, manufactures and sells
        hard
        disk media players and multi-room audio servers.
 
 On
        July
        15, 2005, the Company, through Linear, acquired the assets and certain
        liabilities of Niles Audio Corporation (“Niles”). Niles is located in Miami, FL
        and sells and designs products that provide customers with innovative solutions
        for whole-house distribution and integration of audio and video systems,
        including speakers, receivers, amplifiers, automation devices, controls and
        accessories.
 
 On
        June
        13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc.
        (“Nordyne”), acquired the assets and certain liabilities of International
        Marketing Supply, Inc. (“IMS”). IMS is located in Miami, FL and sells heating,
        ventilation and air-conditioning equipment to customers in Latin America.
 
 On
        April
        26, 2005, the Company, through Linear, acquired the stock of Panamax. Panamax
        is
        located in Petaluma, CA and sells and designs innovative power conditioning
        and
        surge protection products that prevent loss or damage of home and small business
        equipment due to power disturbances.
 
 On
        December 17, 2004, the Company, through Linear, acquired the assets and certain
        liabilities of M&S Systems, LP (“M&S”). M&S is located in Dallas, TX
        and principally designs, manufactures and sells distributed audio and
        communication equipment and speakers.
 
 On
        March
        9, 2004, the Company, through Linear, acquired the stock of OmniMount Systems,
        Inc. (“OmniMount”). OmniMount is located in Phoenix, AZ and sells and designs
        speaker and video mountings and other products to maximize the home theater
        experience.
 
 On
        December 15, 2003, the Company, through Linear, acquired the stock of Operator
        Specialty Company, Inc. (“OSCO”). OSCO is located in Casnovia, MI and
        manufactures and sells gate operators and access control devices.
 
 On
        July
        11, 2003, the Company, through Linear, acquired the stock of SpeakerCraft,
        Inc.
        (“SPC”). SPC is located in Riverside, CA and
        manufactures and sells in-wall and in-ceiling speakers, amplifiers and
        subwoofers.
 
 On
        January 17, 2003, the Company, through Linear, acquired the ownership units
        of
        Elan. Elan is located in Lexington, KY and manufactures and sells home
        automation and audio video distribution equipment.
 
 These
        acquisitions have been accounted for under the purchase method of accounting
        and
        are included in the Company’s Home Technology Products Segment, with the
        exception of IMS, which is recorded in the Company’s Air Conditioning and
        Heating Products Segment. Accordingly, the results of these acquisitions
        are
        included in the Company’s consolidated results since the date of their
        acquisition (see “Liquidity and Capital Resources” and Note 3 of the Notes to
        the Consolidated Financial Statements included elsewhere herein).


**Critical
      Accounting Policies**





The
      Company’s discussion and analysis of its financial condition and results of
      operations are based upon the Company’s Consolidated Financial Statements, which
      have been prepared in accordance with U.S. generally accepted accounting
      principles. (See the Notes to the Consolidated Financial Statements included
      elsewhere herein.) Certain of the Company’s accounting policies require the
      application of judgment in selecting the appropriate assumptions for calculating
      financial estimates. By their nature, these judgments are subject to an inherent
      degree of uncertainty. The Company periodically evaluates the judgments and
      estimates used for its critical accounting policies to ensure that such
      judgments and estimates are reasonable for its interim and year-end reporting
      requirements. These judgments and estimates are based on the Company’s
      historical experience, current trends and other information available, 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*





The
      Company recognizes sales based upon shipment of products to its customers and
      has procedures in place at each of its subsidiaries to ensure that an accurate
      cut-off is obtained for each reporting period.





Allowances
      for cash discounts, volume rebates, and other customer incentive programs,
      as
      well as gross customer returns, among others, are recorded as a reduction of
      sales at the time of sales based upon the estimated future outcome. Cash
      discounts, volume rebates and other customer incentive programs are based upon
      certain percentages agreed to with the Company’s various customers, which are
      typically earned by the customer over an annual period. The Company records
      periodic estimates for these amounts based upon the historical results to date,
      estimated future results through the end of the contract period and the
      contractual provisions of the customer agreements. For calendar year customer
      agreements, the Company is able to adjust its periodic estimates to actual
      amounts as of December 31 each year based upon the contractual provisions of
      the
      customer agreements. For those customers who have agreements that are not on
      a
      calendar year cycle, the Company records estimates at December 31 consistent
      with the above described methodology. As a result, at the end of any given
      reporting period, the amounts recorded for these allowances are based upon
      estimates of the likely outcome of future sales with the applicable customers
      and may require adjustment in the future if the actual outcome differs. The
      Company believes that its procedures for estimating such amounts are reasonable
      and historically have not resulted in material adjustments in subsequent periods
      when the estimates are adjusted to the actual amounts.





Customer
      returns are recorded on an actual basis throughout the year and also include
      an
      estimate at the end of each reporting period for future customer returns related
      to sales recorded prior to the end of the period. The Company generally
      estimates customer returns based upon the time lag that historically occurs
      between the date of the sale and the date of the return while also factoring
      in
      any new business conditions that might impact the historical analysis such
      as
      new product introduction. The Company believes that its procedures for
      estimating such amounts are reasonable and historically have not resulted in
      material adjustments in subsequent periods when the estimates are adjusted
      to
      the actual amounts.





Provisions
      for the estimated costs for future product warranty claims and bad debts are
      recorded in cost of sales and selling, general and administrative expense,
      respectively, at the time a sale is recorded. The amounts recorded are generally
      based upon historically derived percentages while also factoring in any new
      business conditions that might impact the historical analysis such as new
      product introduction for warranty and bankruptcies of particular customers
      for
      bad debts. The Company also periodically evaluates the adequacy of its reserves
      for warranty and bad debts recorded in its consolidated balance sheet as a
      further test to ensure the adequacy of the recorded provisions. Warranty claims
      can extend far into the future and bad debt analysis often involves subjective
      analysis of a particular customer’s ability to pay. As a result, significant
      judgment is required by the Company in determining the appropriate amounts
      to
      record and such judgments may prove to be incorrect in the future. The Company
      believes that its procedures for estimating such amounts are reasonable and
      historically have not resulted in material adjustments in subsequent periods
      when the estimates are adjusted to the actual amounts.





*Inventory
      Valuation*





The
      Company values inventories at the lower of the cost or market with approximately
      50% of the Company's inventory as of December 31, 2005 valued using the
      last-in, first-out (“LIFO”) method and the remainder valued using the first-in,
      first-out (“FIFO”) method. In connection with both LIFO and FIFO inventories,
      the Company will record provisions, as appropriate, to write-down obsolete
      and
      excess inventory to estimated net realizable value. The process for evaluating
      obsolete and excess inventory often requires the Company to make subjective
      judgments and estimates concerning future sales levels, quantities and prices
      at
      which such inventory will be able to be sold in the normal course of business.
      Accelerating the disposal process or incorrect estimates of future sales
      potential may cause the actual results to differ from the estimates at the
      time
      such inventory is disposed or sold. The Company believes that its procedures
      for
      estimating such amounts are reasonable and historically have not resulted in
      material adjustments in subsequent periods when the estimates are adjusted
      to
      the actual amounts.





*Prepaid
      Income Tax Assets and Deferred Tax Liabilities*





The
      Company accounts for income taxes using the liability method in accordance
      with
      SFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”), which requires that
      the deferred tax consequences of temporary differences between the amounts
      recorded in the Company’s Consolidated Financial Statements and the amounts
      included in the Company’s federal, state and foreign income tax returns to be
      recognized in the balance sheet. As the Company generally does not file their
      income tax returns until well after the closing process for the December 31
      financial statements is complete, the amounts recorded at December 31 reflect
      estimates of what the final amounts will be when the actual tax returns are
      filed for that fiscal year. In addition, estimates are often required with
      respect to, among other things, the appropriate state income tax rates to use
      in
      the various states that the Company and its subsidiaries are required to file,
      the potential utilization of operating and capital loss carry-forwards for
      both
      federal and state income tax purposes and valuation allowances required, if
      any,
      for tax assets that may not be realizable in the future. The Company requires
      each of its subsidiaries to submit year-end tax information packages as part
      of
      the year-end financial statement closing process so that the information used
      to
      estimate the deferred tax accounts at December 31 is reasonably consistent
      with
      the amounts expected to be included in the filed tax returns. SFAS No. 109
      requires balance sheet classification of current and long-term deferred income
      tax assets and liabilities based upon the classification of the underlying
      asset
      or liability that gives rise to a temporary difference. As such, the company
      has
      historically had prepaid income tax assets due principally to the unfavorable
      tax consequences of recording expenses for required book reserves for such
      things as, among others, bad debts inventory valuation, insurance, product
      liability and warranty that cannot be deducted for income tax purposes until
      such expenses are actually paid. The Company believes that the amounts recorded
      as prepaid income tax assets will be recoverable through future taxable income
      generated by the Company, although there can be no assurance that all recognized
      prepaid income tax assets will be fully recovered. The Company believes the
      procedures and estimates used in its accounting for income taxes are reasonable
      and in accordance with established tax law. The income tax estimates used have
      historically not resulted in material adjustments to income tax expense in
      subsequent periods when the estimates are adjusted to the actual filed tax
      return amounts, although there may be reclassifications between the current
      and
      long-term portion of the deferred tax accounts.





*Goodwill
      and Other Long-Lived Assets*





The
      Company accounts for acquired goodwill and intangible assets in accordance
      with
      SFAS No. 141 which involves judgment with respect to the determination of the
      purchase price and the valuation of the acquired assets and liabilities in
      order
      to determine the final amount of goodwill. The Company believes that the
      estimates that it has used to record its acquisitions are reasonable and in
      accordance with SFAS No. 141.





The
      Company accounts for acquired goodwill and goodwill impairment in accordance
      with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) (see
      Note 1 of the Notes to the Consolidated Financial Statements included elsewhere
      herein) which requires considerable judgment in the valuation of acquired
      goodwill and the ongoing evaluation of goodwill impairment. The Company
      primarily utilizes a discounted cash flow approach in order to value the
      Company’s reporting units required to be tested for impairment by SFAS No. 142,
      which requires that the Company forecast future cash flows of the reporting
      units and discount the cash flow stream based upon a weighted average cost
      of
      capital that is derived from comparable companies within similar industries.
      The
      discounted cash flow calculations also include a terminal value calculation
      that
      is based upon an expected long-term growth rate for the applicable reporting
      unit. The Company believes that its procedures for applying the discounted
      cash
      flow methodology, including the estimates of future cash flows, the weighted
      average cost of capital and the long-term growth rate, are reasonable and
      consistent with market conditions at the time of the valuation. The Company
      has
      evaluated the carrying value of segment goodwill and determined that no
      impairment existed at either the date of the Acquisition or its annual
      evaluation date of October 1, 2005. Accordingly, no adjustments were required
      to
      be recorded in the Company’s Consolidated Financial Statements.




The
        Company performs an annual evaluation for the impairment of long-lived assets,
        other than goodwill, based on expectations of non-discounted future cash
        flows
        compared to the carrying value of the subsidiary in accordance with SFAS
        No.
        144. The Company’s cash flow estimates are based upon historical cash flows, as
        well as future projected cash flows received from subsidiary management in
        connection with the annual Company wide planning process, and include a terminal
        valuation for the applicable subsidiary based upon a multiple of earnings
        before
        interest expense, net, depreciation and amortization expense and income taxes
        (“EBITDA”). The Company estimates the EBITDA multiple by reviewing comparable
        company information and other industry data. The Company believes that its
        procedures for estimating gross futures cash flows, including the terminal
        valuation, are reasonable and consistent with current market conditions.
        The
        Company historically has not had any material impairment
        adjustments.


*Pensions
      and Post Retirement Health Benefits*




The
        Company’s accounting for pensions, including supplemental executive retirement
        plans, and post retirement health benefit liabilities requires the estimating
        of
        such items as the long-term average return on plan assets, the discount rate,
        the rate of compensation increase and the assumed medical cost inflation
        rate.
        These estimates require a significant amount of judgment as items such as
        stock
        market fluctuations, changes in interest rates, plan amendments and curtailments
        can have a significant impact on the assumptions used and therefore on the
        ultimate final actuarial determinations for a particular year. The Company
        believes the procedures and estimates used in its accounting for pensions
        and
        post retirement health benefits are reasonable and consistent with acceptable
        actuarial practices in accordance with U.S. generally accepted accounting
        principles.


*Insurance
      Liabilities*





The
      Company records insurance liabilities and related expenses for health, workers
      compensation, product and general liability losses and other insurance reserves
      and expenses in accordance with either the contractual terms of its policies
      or,
      if self-insured, the total liabilities that are estimable and probable as of
      the
      reporting date. Insurance liabilities are recorded as current liabilities to
      the
      extent they are expected to be paid in the succeeding year with the remaining
      requirements classified as long-term liabilities. The accounting for
      self-insured plans requires that significant judgments and estimates be made
      both with respect to the future liabilities to be paid for known claims and
      incurred but not report claims as of the reporting date. The Company considers
      historical trends when determining the appropriate insurance reserves to record
      in the consolidated balance sheet. In certain cases where partial insurance
      coverage exists, the Company must estimate the portion of the liability that
      will be covered by existing insurance policies to arrive at the net expected
      liability to the Company. The Company believes that its procedures for
      estimating such amounts are reasonable and historically have not resulted in
      material adjustments in subsequent periods when the estimated amounts are
      adjusted to the actual insurance claims paid.





*Contingencies*





The
      Company is subject to contingencies, including legal proceedings and claims
      arising out of its business that cover a wide range of matters, including,
      among
      others, environmental matters, contract and employment claims, worker
      compensations claims, product liability, warranty and modification, adjustment
      or replacement of component parts of units sold, which may include product
      recalls. Product liability, environmental and other legal proceedings also
      include matters with respect to businesses previously owned.





The
      Company provides accruals for direct costs associated with the estimated
      resolution of contingencies at the earliest date at which it is deemed probable
      that a liability has been incurred and the amount of such liability can be
      reasonably estimated. Costs accrued have been estimated based upon an analysis
      of potential results, assuming a combination of litigation and settlement
      strategies and outcomes.





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 or results of operations of the Company. It
      is
      possible, however, that future results of operations for any particular future
      period could be materially affected by changes in our assumptions or strategies
      related to these contingencies or changes out of the Company’s
      control.





**Overview**





We
      are a
      leading, diversified manufacturer and distributor of building products used
      in
      the residential remodeling, replacement and new construction markets (including
      the manufactured housing industry) and to a lesser extent the commercial
      construction and replacement markets. We have a diverse number of products
      that
      serve multiple markets through various distribution channels. We operate through
      three reporting segments: the Residential Ventilation Products Segment (“RVP”),
      the Home Technology Products Segment (“HTP”)  and the Air Conditioning and
      Heating Products Segment (“HVAC”). For the year ended December 31, 2005, RVP
      accounted for about 41% of consolidated net sales and 47% of operating earnings
      before unallocated expense, HTP accounted for about 18% of consolidated net
      sales and 27% of operating earnings before unallocated expense and HVAC
      accounted for the balance. A little more than half of our business is believed
      to be used in the replacement and remodeling markets and the balance serves
      the
      new construction markets. The manufactured housing and commercial construction
      industries have seen significant declines in the level of business activity
      over
      the past several years, which have had an adverse effect on our business,
      particularly for our HVAC Segment. The level of new construction, replacement
      and remodeling activity in site-built residential markets has been strong over
      the past several years and has contributed positively to our operating
      performance.





Key
      industry activity affecting our businesses in the United States for the past
      three years was as follows:





%
                Increase (Decrease)Sourceof
                data
            
            2005
            
            2004
            
            2003Residential
                construction spending
            
            
            1
            
            10
            .0%
            
            20
            .0%
            
            13
            .0%Single
                family housing starts
            
            
            1
            
            7
            .0%
            
            7
            .0%
            
            10
            .0%New
                home sales
            
            
            1
            
            7
            .0%
            
            11
            .0%
            
            12
            .0%Residential
                improvement spending
            
            
            1
            
            4
            .0%
            
            13
            .0%
            
            6
            .0%Air
                conditioning and heat pump shipments
            
            
            2
            
            16
            .0%
            
            9
            .0%
            
            1
            .0%Manufactured
                housing shipments
            
            
            1,3
            
            12
            .0%
            
            ---
            %
            
            (22
            .0)%Non-residential
                construction spending
            
            
            1
            
            3
            .0%
            
            7
            .0%
            
            (7
            .0)%





Based
      on
      data accumulated by the Air Conditioning and Refrigeration Institute, industry
      wide inventory on hand (in units) at December 31, 2005 were estimated to be
      up
      about 10% for distributors and about 32% for manufacturers.





*Source
      of data:*





*(1)*
            *U.S.
                Census Bureau*


*(2)*
            *Air
                Conditioning and Refrigeration
                Institute*


*(3)*
            *Manufactured
                Housing Institute*





Our
      manufactured housing business for 2005 was about 7% of total sales versus about
      13% in 2000. Our HVAC business serving the commercial construction market was
      about 14% of consolidated sales in 2005 versus 17% of consolidated sales in
      2004. A large portion of our manufacturing activity and customers are located
      in
      the United States although we do have manufacturing activity and sell product
      to
      customers in Canada, Europe and China, among other countries. Our foreign sales
      in 2005 were about 18% of total sales. About 15% of total sales are through
      retail distribution and about 51% is to distributors and wholesalers and similar
      channels of distribution.





Principal
      RVP products include kitchen range hoods, exhaust fans (such as bath fans and
      fan, heater and light combination units) and indoor air quality products where
      we have large market shares in North America. Principal HTP products include
      audio / video distribution and control equipment, speakers and subwoofers and
      security and access control products. Principal HVAC products include split
      system air conditioners and heat pumps, furnaces, air handlers and large custom
      roof top cooling and heating products. We have leading market shares in HVAC
      products in both the manufactured housing and custom and semi-custom commercial
      markets that we serve. Across our segments we have employed a strategy of using
      well-recognized and respected brand names (both owned and licensed) and have
      introduced new products and made selected acquisitions to improve growth and
      profitability. As a result, we have experienced stable and strong cash flow
      from
      continuing operations during the past three years. In both the manufactured
      housing and commercial HVAC products markets, we have maintained our market
      shares and we believe that we can quickly respond to rebounds in these markets
      over the long term.





In
      late
      2003 through 2004, our HVAC business serving the residential markets undertook
      a
      significant facilities rationalization and restructuring. This project included
      the start-up of a new 368,000 square foot manufacturing facility in Dyersburg,
      TN, closure of a 214,000 square foot manufacturing facility in St. Louis, MO
      and
      expansion of two other locations, as well as, significant changes in
      distribution and warehouse facilities. The relocation of production lines to
      Dyersburg, TN and other changes in production, as well as, the ramp up of
      production and training of new workforces resulted in unfavorable charges
      (including severance and production inefficiencies) to operating results of
      about $10,200,000 in 2004 in the HVAC segment. During 2005, we saw a return
      to
      expected production levels.





In
      2006
      we expect manufactured housing and commercial construction markets to remain
      weak, residential new construction to decline moderately and remodeling and
      replacement activity to continue to grow moderately. We also expect that our
      brand strategy for residential site-built HVAC products will allow us to gain
      market share. In HTP in 2006 we expect to continue to grow and improve the
      profitability of our home technology products through the integration of our
      acquisitions. In 2006 we also expect to achieve further cost reductions in
      raw
      material and purchased components in all our businesses through our strategic
      sourcing initiatives. During 2003, 2004 and 2005 we experienced significant
      increases in the price we pay for steel, copper, aluminum and steel fabricated
      parts. We also buy some component parts from suppliers that use steel, copper
      and aluminum in their manufacturing process. While we have had some success
      in
      raising prices to our customers for some products (including a January 2005
      price increase on certain HVAC product for residential site-built markets),
      as a
      result of higher material costs, there is no assurance that we will be able
      to
      offset all material cost increases in 2006. We also rely on our strategic
      sourcing initiatives to mitigate the effect of higher material costs. Material
      cost as a percentage of net sales has been fairly stable reflecting higher
      material costs, partially offset from price increases and benefits realized
      from
      our strategic sourcing initiatives, and was approximately 43.7% in 2003, 44.4%
      in 2004 and 44.5% in 2005.





During
      the past three years, the following have been the major Company purchases (on
      a
      consolidated basis), expressed as a percentage of consolidated net sales, of
      raw
      materials and purchased components:





For
                the year ended December 31,2005
            
            2004
            
            2003Steel
            
            6
            .5%
            
            7
            .0%
            
            5
            .4%Compressors
            
            4
            .8%
            
            4
            .4%
            
            4
            .5%Motors
            
            4
            .9%
            
            6
            .2%
            
            6
            .5%Copper
            
            2
            .4%
            
            1
            .8%
            
            1
            .2%Aluminum
            
            0
            .9%
            
            0
            .9%
            
            0
            .9%Packaging
            
            1
            .5%
            
            1
            .0%
            
            1
            .0%





In
      the
      following discussion of the results of operations for the year 2005 as compared
      to 2004 we will talk about the significance of a number of factors that affected
      our operations including, among others, the following:





·
            The
                effect of acquisitions in the HTP
                Segment


·
            The
                softness in commercial HVAC markets


·
            The
                effect of changes in foreign exchange
                rates


·
            The
                effect of the increase in the minimum seasonal energy rating for
                residential air conditioners


·
            The
                effect of the Acquisition and
                Recapitalization




In
        2005,
        we spent approximately $33,700,000 on capital expenditures. In 2006, we expect
        to spend $45,000,000 on capital expenditures and expect to finance a portion
        (particularly foreign investments) with borrowings by our foreign subsidiaries.
        A portion of these capital expenditures together with cash investments in
        foreign subsidiaries in 2005 and 2006 will allow our businesses to expand
        their
        manufacturing capacity, manufacture products at lower costs and broaden our
        markets served. Among other expenditures, our RVP Segment acquired an
        approximate 200,000 square foot manufacturing facility in Chenjian, Huizhou,
        The
        Peoples Republic of China (“PRC”) in late 2005 and began the construction of a
        150,000 square foot manufacturing facility in Gliwice, Poland which is expected
        to be completed in late 2006. In 2005, the Company’s HTP Segment expanded its
        Shenzhen PRC manufacturing facilities from 72,000 square feet to 142,000
        square
        feet of leased space to support future growth. In January 2006, the Company’s
        HVAC business (for commercial products) made a further investment in its
        Anji,
        PRC operations and expects to acquire and relocate its operations into a
        202,000
        square foot manufacturing facility in the second half of 2006.
 
 In
        our
        discussion of Liquidity and Capital Resources we have reviewed a number of
        transactions and summarized and analyzed our cash flow activity during the
        past
        year. We began the year with approximately $95,000,000 of unrestricted cash
        and
        investments and ended the year with about $77,200,000. We have also included
        information with respect to our future cash flow requirements. During the
        past
        year we had a number of transactions that significantly affected our financial
        position including acquisitions in the HTP and HVAC segments. In 2005, we
        used
        about $117,200,000 of our cash for acquisitions to further grow our businesses
        primarily in the HTP Segment.
 
 At
        December 31, 2005, our total indebtedness was about $1,648,400,000 and was
        about
        $1,370,000,000 at December 31, 2004. The primary reason for the increase
        was the
        issuance of our 10 3/4% Senior Discount Notes in 2005, which had an outstanding
        balance of approximately $274,600,000 as of December 31, 2005. The Senior
        Secured Credit Facility provides the Company and its subsidiaries with a
        $100,000,000 revolving credit facility with a maturity in August 2010 that
        includes both a letter of credit sub-facility and swing line loan sub-facility.
        At December 31, 2005, the Company had approximately $70,400,000 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. There were no outstanding borrowings under the U.S. or Canadian
        portions of the revolving credit facility at December 31, 2005. In 2006 we
        expect to amend Nortek’s Senior Secured Credit Facility to modify certain
        covenants and expand the revolver to $200,000,000. See “Liquidity and Capital
        Resources” for further discussion on our total indebtedness, including future
        changes to the terms of Nortek’s Senior Secured Credit Facility.


**Results
      of Operations**




The
      year
      ended December 31, 2005 has been compared to the combined year ended December
      31, 2004 Pre-Acquisition and Post-Acquisition periods and the combined year
      ended December 31, 2003 Pre-Recapitalization and Pre-Acquisition periods for
      purposes of management’s discussion and analysis of the results of operations.
      Any references below to the years ended 2004 and 2003 shall refer to the
      combined periods.





The
      table
      below presents the combined year ended December 31, 2004 Pre-Acquisition and
      Post-Acquisition periods for purposes of management’s discussion and analysis of
      the results of operations.




**Pre-Acquisition**
              
              **Post-Acquisition**
              
              **Combined****Jan.
                  1, 2004 -**
              
              **Aug.
                  28, 2004 -**
              
              **Year
                  Ended****Aug.
                  27, 2004**
              
              **Dec.
                  31, 2004**
              
              **Dec.
                  31, 2004***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              496.9
              
              $
              268.5
              
              $
              765.4Home
                  technology products
              
              
              127.0
              
              
              80.5
              
              
              207.5Air
                  conditioning and heating products
              
              
              494.0
              
              
              212.0
              
              
              706.0Consolidated net sales
              
              $
              1,117.9
              
              $
              561.0
              
              $
              1,678.9**Operating
                  earnings (loss):**Residential
                  ventilation products
              
              $
              79.9
              
              $
              39.7
              
              $
              119.6Home
                  technology products
              
              
              22.9
              
              
              12.9
              
              
              35.8Air
                  conditioning and heating products
              
              
              25.5
              
              
              (2.6
              )
              
              22.9Subtotal
              
              
              128.3
              
              
              50.0
              
              
              178.3**Unallocated:**Expenses
                  and charges arising from the Acquisition
              
              
              (38.5
              )
              
              ---
              
              
              (38.5
              )Stock-based
                  compensation charges
              
              
              (36.4
              )
              
              (0.1
              )
              
              (36.5
              )Foreign
                  exchange (loss) gain on intercompany debt
              
              
              (0.2
              )
              
              0.1
              
              
              (0.1
              )Unallocated,
                  net
              
              
              (20.6
              )
              
              (7.9
              )
              
              (28.5
              )Consolidated operating earnings
              
              $
              32.6
              
              $
              42.1
              
              $
              74.7**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              11.2
              
              $
              8.3
              
              $
              19.5Home
                  technology products
              
              
              4.2
              
              
              7.1
              
              
              11.3Air
                  conditioning and heating products
              
              
              10.0
              
              
              6.7
              
              
              16.7Unallocated
              
              
              0.4
              
              
              0.4
              
              
              0.8$
              25.8
              
              $
              22.5
              
              $
              48.3**Operating
                  earnings (loss) margin:**Residential
                  ventilation products
              
              
              16.1
              %
              
              14.8
              %
              
              15.6
              %Home
                  technology products
              
              
              18.0
              
              
              16.0
              
              
              17.3Air
                  conditioning and heating products
              
              
              5.2
              
              
              (1.2
              )
              
              3.2Consolidated
              
              
              2.9
              %
              
              7.5
              %
              
              4.4
              %**Depreciation
                    and amortization**expense as a % of net
                    sales:Residential
                  ventilation products
              
              
              2.3
              %
              
              3.1
              %
              
              2.5
              %Home
                  technology products
              
              
              3.3
              
              
              8.8
              
              
              5.4Air
                  conditioning and heating products
              
              
              2.0
              
              
              3.2
              
              
              2.4Consolidated
              
              
              2.3
              %
              
              4.0
              %
              
              2.9
              %


The
      table
      below presents the combined year ended December 31, 2003 Pre-Recapitalization
      and Pre-Acquisition periods for purposes of management’s discussion and analysis
      of the results of operations.


**Pre-Recapitalization**
              
              **Pre-Acquisition**
              
              **Combined****Jan.
                  1, 2003 -**
              
              **Jan.
                  10, 2003 -**
              
              **Year
                  Ended****Jan.
                  9, 2003**
              
              **Dec.
                  31, 2003**
              
              **Dec.
                  31, 2003***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              14.4
              
              $
              682.4
              
              $
              696.8Home
                  technology products
              
              
              1.8
              
              
              122.9
              
              
              124.7Air
                  conditioning and heating products
              
              
              8.6
              
              
              675.3
              
              
              683.9Consolidated net sales
              
              $
              24.8
              
              $
              1,480.6
              
              $
              1,505.4**Operating
                  earnings (loss):**Residential
                  ventilation products
              
              $
              2.2
              
              $
              115.6
              
              $
              117.8Home
                  technology products
              
              
              0.5
              
              
              21.6
              
              
              22.1Air
                  conditioning and heating products
              
              
              (1.2
              )
              
              58.4
              
              
              57.2Subtotal
              
              
              1.5
              
              
              195.6
              
              
              197.1**Unallocated:**Expenses
                    and charges arisingfrom the Recapitalization
              
              
              (83.0
              )
              
              ---
              
              
              (83.0
              )Strategic
                  sourcing, software and systemsdevelopment
                  expense
              
              
              (0.1
              )
              
              (3.4
              )
              
              (3.5
              )Stock-based
                  compensation charges
              
              
              ---
              
              
              (1.8
              )
              
              (1.8
              )Foreign
                  exchange gain on intercompany debt
              
              
              ---
              
              
              1.5
              
              
              1.5Unallocated,
                  net
              
              
              (0.2
              )
              
              (32.5
              )
              
              (32.7
              )Consolidated operating earnings (loss):
              
              
              (81.8
              )
              $
              159.4
              
              $
              77.6**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              0.3
              
              $
              13.0
              
              $
              13.3Home
                  technology products
              
              
              ---
              
              
              6.4
              
              
              6.4Air
                  conditioning and heating products
              
              
              0.3
              
              
              11.8
              
              
              12.1Unallocated
              
              
              ---
              
              
              0.6
              
              
              0.6$
              0.6
              
              $
              31.8
              
              $
              32.4**Operating
                  earnings (loss) margin:**Residential
                  ventilation products
              
              
              15.3
              %
              
              16.9
              %
              
              16.9
              %Home
                  technology products
              
              
              27.8
              
              
              17.6
              
              
              17.7Air
                  conditioning and heating products
              
              
              (14.0
              )
              
              8.6
              
              
              8.4Consolidated
              
              
              (329.8
              )%
              
              10.8
              %
              
              5.2
              %**Depreciation
                    and amortizationexpense as a % of net
                    sales:**Residential
                  ventilation products
              
              
              2.1
              %
              
              1.9
              %
              
              1.9
              %Home
                  technology products
              
              
              ---
              
              
              5.2
              
              
              5.1Air
                  conditioning and heating products
              
              
              3.5
              
              
              1.7
              
              
              1.8Consolidated
              
              
              2.4
              %
              
              2.1
              %
              
              2.2
              %


The
      tables that follow present the net sales from continuing operations, operating
      earnings from continuing operations and depreciation and amortization expense
      from continuing operations for the Company’s reporting segments for the year
      ended December 31, 2005 and the combined periods ended December 31, 2004 and
      2003, the dollar amount and percentage change of such results as compared to
      the
      prior year and the percentage to net sales of operating earnings and
      depreciation and amortization expense for the year ended December 31, 2005
      and
      the combined periods ended December 31, 2004 and 2003:


**Net
                  Change****Years
                  Ended December 31,**
              
              **2005
                  to 2004**
              
              **2004
                  to 2003****2005**
              
              **2004
                  (1)**
              
              **2003
                  (1)**
              
              $
              
              %
              
              $
              
              %*(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              794.7
              
              $
              765.4
              
              $
              696.8
              
              $
              29.3
              
              
              3.8
              %
              $
              68.6
              
              
              9.8
              %Home
                  technology products
              
              
              354.8
              
              
              207.5
              
              
              124.7
              
              
              147.3
              
              
              71.0
              
              
              82.8
              
              
              66.4Air
                  conditioning and heating products
              
              
              809.7
              
              
              706.0
              
              
              683.9
              
              
              103.7
              
              
              14.7
              
              
              22.1
              
              
              3.2Consolidated net sales
              
              $
              1,959.2
              
              $
              1,678.9
              
              $
              1,505.4
              
              $
              280.3
              
              
              16.7
              %
              $
              173.5
              
              
              11.5
              %**Operating
                  earnings (loss):**Residential
                  ventilation products
              
              $
              123.9
              
              $
              119.6
              
              $
              117.8
              
              $
              4.3
              
              
              3.6
              %
              $
              1.8
              
              
              1.5
              %Home
                  technology products
              
              
              71.0
              
              
              35.8
              
              
              22.1
              
              
              35.2
              
              
              98.3
              
              
              13.7
              
              
              62.0Air
                  conditioning and heating products
              
              
              66.3
              
              
              22.9
              
              
              57.2
              
              
              43.4
              
              
              189.5
              
              
              (34.3
              )
              
              (60.0
              )Subtotal
              
              
              261.2
              
              
              178.3
              
              
              197.1
              
              
              82.9
              
              
              46.5
              
              
              (18.8
              )
              
              (9.5
              )**Unallocated:**Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              (38.5
              )
              
              ---
              
              
              38.5
              
              
              *
              
              
              (38.5
              )
              
              *Expenses
                  and charges arising from the Recapitalization
              
              
              ---
              
              
              ---
              
              
              (83.0
              )
              
              ---
              
              
              *
              
              
              83.0
              
              
              *Strategic
                    sourcing, software andsystems development
                    expense
              
              
              ---
              
              
              ---
              
              
              (3.5
              )
              
              ---
              
              
              *
              
              
              3.5
              
              
              *Stock-based
                  compensation charges
              
              
              (0.3
              )
              
              (36.5
              )
              
              (1.8
              )
              
              36.2
              
              
              99.2
              
              
              (34.7
              )
              
              *Foreign
                  exchange (loss) gain on intercompany debt
              
              
              (0.9
              )
              
              (0.1
              )
              
              1.5
              
              
              (0.8
              )
              
              *
              
              
              (1.6
              )
              
              *Gain
                  on legal settlement
              
              
              1.4
              
              
              ---
              
              
              ---
              
              
              1.4
              
              
              *
              
              
              ---
              
              
              *Unallocated,
                  net
              
              
              (24.5
              )
              
              (28.5
              )
              
              (32.7
              )
              
              4.0
              
              
              14.0
              
              
              4.2
              
              
              12.8**Consolidated
                  operating earnings**
              
              $
              236.9
              
              $
              74.7
              
              $
              77.6
              
              $
              162.2
              
              
              217.1
              %
              $
              (2.9
              )
              
              (3.7
              )%**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              19.5
              
              $
              19.5
              
              $
              13.3
              
              $
              ---
              
              
              ---
              %
              $
              6.2
              
              
              46.6
              %Home
                  technology products
              
              
              9.9
              
              
              11.3
              
              
              6.4
              
              
              (1.4
              )
              
              (12.4
              )
              
              4.9
              
              
              76.6Air
                  conditioning and heating products
              
              
              15.3
              
              
              16.7
              
              
              12.1
              
              
              (1.4
              )
              
              (8.4
              )
              
              4.6
              
              
              38.0Unallocated
              
              
              1.2
              
              
              0.8
              
              
              0.6
              
              
              0.4
              
              
              50.0
              
              
              0.2
              
              
              33.3$
              45.9
              
              $
              48.3
              
              $
              32.4
              
              $
              (2.4
              )
              
              (5.0
              )%
              $
              15.9
              
              
              49.1
              %**Operating
                  earnings margin:**Residential
                  ventilation products
              
              
              15.6
              %
              
              15.6
              %
              
              16.9
              %Home
                  technology products
              
              
              20.0
              
              
              17.3
              
              
              17.7Air
                  conditioning and heating products
              
              
              8.2
              
              
              3.2
              
              
              8.4Consolidated
              
              
              12.1
              %
              
              4.4
              %
              
              5.2
              %**Depreciation
                    and amortization expenseas a % of net
                    sales:**Residential
                  ventilation products
              
              
              2.5
              %
              
              2.5
              %
              
              1.9
              %Home
                  technology products
              
              
              2.8
              
              
              5.4
              
              
              5.1Air
                  conditioning and heating products
              
              
              1.9
              
              
              2.4
              
              
              1.8Consolidated
              
              
              2.3
              %
              
              2.9
              %
              
              2.2
              %




*
            not
              applicable or not meaningful





(1)
            The
                year ended December 31, 2004 represents the combined Pre-Acquisition
                and
                Post-Acquisition periods of January 1, 2004 to August 27, 2004 and
                August
                28, 2004 to December 31, 2004, respectively. The year ended December
                31,
                2003 represents the combined Pre-Recapitalization and Pre-Acquisition
                periods of January 1, 2003 to January 9, 2003 and January 10, 2003
                to
                December 31, 2003, respectively.




The
      year
      ended December 31, 2005 has been compared to the combined year ended December
      31, 2004 Pre-Acquisition and Post-Acquisition periods and the combined year
      ended December 31, 2003 Pre-Recapitalization and Pre-Acquisition periods for
      purposes of management’s discussion and analysis of the results of operations.
      Any references below to the years ended 2004 and 2003 shall refer to the
      combined periods.





The
      table
      below presents the combined year ended December 31, 2004 Pre-Acquisition and
      Post-Acquisition periods for purposes of management’s discussion and analysis of
      the results of operations.


**Pre-Acquisition**
              
              **Post-Acquisition**
              
              **Combined****Jan.
                  1, 2004 -**
              
              **Aug.
                  28, 2004 -**
              
              **Year
                  Ended****Aug.
                  27, 2004**
              
              **Dec.
                  31, 2004**
              
              **Dec.
                  31, 2004***(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              1,117.9
              
              $
              561.0
              
              $
              1,678.9Cost
                  of products sold
              
              
              792.8
              
              
              409.1
              
              
              1,201.9Selling,
                  general and administrative expenses, net
              
              
              199.9
              
              
              101.4
              
              
              301.3Amortization
                  of intangible assets
              
              
              8.9
              
              
              8.4
              
              
              17.3Expenses
                  and charges arising from the Acquisition
              
              
              83.7
              
              
              ---
              
              
              83.7Operating
                  earnings
              
              
              32.6
              
              
              42.1
              
              
              74.7Interest
                  expense
              
              
              (56.1
              )
              
              (42.5
              )
              
              (98.6
              )Loss
                  from debt retirement
              
              
              (130.7
              )
              
              ---
              
              
              (130.7
              )Investment
                  income
              
              
              1.5
              
              
              0.3
              
              
              1.8(Loss)
                    earnings before (benefit) provision forincome
                    taxes
              
              
              (152.7
              )
              
              (0.1
              )
              
              (152.8
              )(Benefit)
                  provision for income taxes
              
              
              (41.4
              )
              
              3.5
              
              
              (37.9
              )Loss
                  from continuing operations
              
              
              (111.3
              )
              
              (3.6
              )
              
              (114.9
              )Earnings
                  (loss) from discontinued operations
              
              
              67.4
              
              
              (0.5
              )
              
              66.9Net
                  loss
              
              $
              (43.9
              )
              $
              (4.1
              )
              $
              (48.0
              )**Percentage
                  of Net Sales****Pre-Acquisition**
              
              
              **Post-Acquisition**
              
              
              **Combined****Jan.
                  1, 2004 -**
              
              
              **Aug.
                  28, 2004 -**
              
              
              **Year
                  Ended****Aug.
                  27, 2004**
              
              
              **Dec.
                  31, 2004**
              
              
              **Dec.
                  31, 2004**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of products sold
              
              
              70.9
              
              
              72.9
              
              
              71.6Selling,
                  general and administrative expenses, net
              
              
              17.9
              
              
              18.1
              
              
              18.0Amortization
                  of intangible assets
              
              
              0.8
              
              
              1.5
              
              
              1.0Expenses
                  and charges arising from the Acquisition
              
              
              7.5
              
              
              ---
              
              
              5.0Operating
                  earnings
              
              
              2.9
              
              
              7.5
              
              
              4.4Interest
                  expense
              
              
              (5.0
              )
              
              (7.6
              )
              
              (5.9
              )Loss
                  from debt retirement
              
              
              (11.7
              )
              
              ---
              
              
              (7.8
              )Investment
                  income
              
              
              0.1
              
              
              0.1
              
              
              0.1(Loss)
                    earnings before (benefit) provision for income
                    taxes
              
              
              (13.7
              )
              
              0.0
              
              
              (9.2
              )(Benefit)
                  provision for income taxes
              
              
              (3.7
              )
              
              0.6
              
              
              (2.3
              )Loss
                  from continuing operations
              
              
              (10.0
              )
              
              (0.6
              )
              
              (6.9
              )Earnings
                  (loss) from discontinued operations
              
              
              6.0
              
              
              (0.1
              )
              
              4.0Net
                  loss
              
              
              (4.0
              )%
              
              (0.7
              )%
              
              (2.9
              )%




The
      table
      below presents the combined year ended December 31, 2003 Pre-Recapitalization
      and Pre-Acquisition periods for purposes of management’s discussion and analysis
      of the results of operations.


**Pre-Recapitalization**
              
              **Pre-Acquisition**
              
              **Combined****Jan.
                  1, 2003 -**
              
              **Jan.
                  10, 2003 -**
              
              **Year
                  Ended****Jan.
                  9, 2003**
              
              **Dec.
                  31, 2003**
              
              **Dec.
                  31, 2003***(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              24.8
              
              $
              1,480.6
              
              $
              1,505.4Cost
                  of products sold
              
              
              18.5
              
              
              1,054.0
              
              
              1,072.5Selling,
                  general and administrative expenses, net
              
              
              5.0
              
              
              258.1
              
              
              263.1Amortization
                  of intangible assets
              
              
              0.1
              
              
              9.1
              
              
              9.2Expenses
                  and charges arising from the Recapitalization
              
              
              83.0
              
              
              ---
              
              
              83.0Operating
                  (loss) earnings
              
              
              (81.8
              )
              
              159.4
              
              
              77.6Interest
                  expense
              
              
              (1.0
              )
              
              (57.4
              )
              
              (58.4
              )Investment
                  income
              
              
              0.1
              
              
              1.5
              
              
              1.6(Loss)
                    earnings before (benefit) provision forincome
                    taxes
              
              
              (82.7
              )
              
              103.5
              
              
              20.8(Benefit)
                  provision for income taxes
              
              
              (21.8
              )
              
              41.4
              
              
              19.6(Loss)
                  earnings from continuing operations
              
              
              (60.9
              )
              
              62.1
              
              
              1.2(Loss)
                  earnings from discontinued operations
              
              
              (1.0
              )
              
              12.1
              
              
              11.1Net
                  (loss) earnings
              
              $
              (61.9
              )
              $
              74.2
              
              $
              12.3**Percentage
                  of Net Sales******Pre-Recapitalization****
              **Pre-Acquisition**
              
              **Combined****Jan.
                  1, 2003 -**
              
              **Jan.
                  10, 2003 -**
              
              **Year
                  Ended****Jan.
                  9, 2003**
              
              **Dec.
                  31, 2003**
              
              **Dec.
                  31, 2003**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of products sold
              
              
              74.6
              
              
              71.2
              
              
              71.2Selling,
                  general and administrative expenses, net
              
              
              20.2
              
              
              17.4
              
              
              17.5Amortization
                  of intangible assets
              
              
              0.4
              
              
              0.6
              
              
              0.6Expenses
                  and charges arising from the Recapitalization
              
              
              334.7
              
              
              ---
              
              
              5.5Operating
                  (loss) earnings
              
              
              (329.9
              )
              
              10.8
              
              
              5.2Interest
                  expense
              
              
              (4.0
              )
              
              (3.9
              )
              
              (3.9
              )Investment
                  income
              
              
              0.4
              
              
              0.1
              
              
              0.1(Loss)
                    earnings before (benefit) provision forincome
                    taxes
              
              
              (333.5
              )
              
              7.0
              
              
              1.4(Benefit)
                  provision for income taxes
              
              
              (87.9
              )
              
              2.8
              
              
              1.3(Loss)
                  earnings from continuing operations
              
              
              (245.6
              )
              
              4.2
              
              
              0.1(Loss)
                  earnings from discontinued operations
              
              
              (4.0
              )
              
              0.8
              
              
              0.7Net
                  (loss) earnings
              
              
              (249.6
              )%
              
              5.0
              %
              
              0.8
              %






The
      tables that follow set forth, for each of the three years in the period ended
      December 31, 2005 (a) certain consolidated operating results, (b) the percentage
      change of such results as compared to the prior year, (c) the percentage which
      such results bear to net sales and (d) the change of such percentages as
      compared to the prior year as it relates to operating earnings:


**Percentage
                  Change****Year-ended
                  December 31,**
              
              **2005
                  to**
              
              **2004
                  to****2005**
              
              **2004
                  (1)**
              
              **2003
                  (1)**
              
              **2004**
              
              **2003***(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              1,959.2
              
              $
              1,678.9
              
              $
              1,505.4
              
              
              16.7
              %
              
              11.5
              %Cost
                  of products sold
              
              
              1,361.4
              
              
              1,201.9
              
              
              1,072.5
              
              
              (13.3
              )
              
              (12.1
              )Selling,
                  general and administrative expenses, net
              
              
              342.6
              
              
              301.3
              
              
              263.1
              
              
              (13.7
              )
              
              (14.5
              )Amortization
                  of intangible assets
              
              
              18.3
              
              
              17.3
              
              
              9.2
              
              
              (5.8
              )
              
              (88.0
              )Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              83.7
              
              
              ---
              
              
              *
              
              
              *Expenses
                  and charges arising from the Recapitalization
              
              
              ---
              
              
              ---
              
              
              83.0
              
              
              *
              
              
              *Operating
                  earnings
              
              
              236.9
              
              
              74.7
              
              
              77.6
              
              
              217.1
              
              
              (3.7
              )Interest
                  expense
              
              
              (138.6
              )
              
              (98.6
              )
              
              (58.4
              )
              
              (40.6
              )
              
              (68.8
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (130.7
              )
              
              ---
              
              
              *
              
              
              *Investment
                  income
              
              
              1.8
              
              
              1.8
              
              
              1.6
              
              
              ---
              
              
              12.5Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              100.1
              
              
              (152.8
              )
              
              20.8
              
              
              *
              
              
              *Provision
                  (benefit) for income taxes
              
              
              43.2
              
              
              (37.9
              )
              
              19.6
              
              
              *
              
              
              *Earnings
                  (loss) from continuing operations
              
              
              56.9
              
              
              (114.9
              )
              
              1.2
              
              
              *
              
              
              *Earnings
                  from discontinued operations
              
              
              ---
              
              
              66.9
              
              
              11.1
              
              
              *
              
              
              *Net
                  earnings (loss)
              
              $
              56.9
              
              $
              (48.0
              )
              $
              12.3
              
              
              *
              %
              
              *
              %
  **Percentage
                  of Net Sales**
              
              **Change
                  in Percentage****Year-ended
                  December 31,**
              
              **2005
                  to**
              
              **2004
                  to****2005**
              
              **2004
                  (1)**
              
              **2003
                  (1)**
              
              **2004**
              
              **2003**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              ---
              %
              
              ---
              %Cost
                  of products sold
              
              
              69.5
              
              
              71.6
              
              
              71.2
              
              
              2.1
              
              
              (0.4
              )Selling,
                  general and administrative expenses, net
              
              
              17.5
              
              
              18.0
              
              
              17.5
              
              
              0.5
              
              
              (0.5
              )Amortization
                  of intangible assets
              
              
              0.9
              
              
              1.0
              
              
              0.6
              
              
              0.1
              
              
              (0.4
              )Expenses
                  and charges arising from the Acquisition
              
              
              ---
              
              
              5.0
              
              
              ---
              
              
              5.0
              
              
              (5.0
              )Expenses
                  and charges arising from the Recapitalization
              
              
              ---
              
              
              ---
              
              
              5.5
              
              
              ---
              
              
              5.5Operating
                  earnings
              
              
              12.1
              
              
              4.4
              
              
              5.2
              
              
              7.7
              
              
              (0.8
              )Interest
                  expense
              
              
              (7.1
              )
              
              (5.9
              )
              
              (3.9
              )
              
              (1.2
              )
              
              (2.0
              )Loss
                  from debt retirement
              
              
              ---
              
              
              (7.8
              )
              
              ---
              
              
              7.8
              
              
              (7.8
              )Investment
                  income
              
              
              0.1
              
              
              0.1
              
              
              0.1
              
              
              ---
              
              
              ---Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              5.1
              
              
              (9.2
              )
              
              1.4
              
              
              14.3
              
              
              (10.6
              )Provision
                  (benefit) for income taxes
              
              
              2.2
              
              
              (2.3
              )
              
              1.3
              
              
              (4.5
              )
              
              3.6Earnings
                  (loss) from continuing operations
              
              
              2.9
              
              
              (6.9
              )
              
              0.1
              
              
              9.8
              
              
              (7.0
              )Earnings
                  from discontinued operations
              
              
              ---
              
              
              4.0
              
              
              0.7
              
              
              (4.0
              )
              
              3.3Net
                  earnings (loss)
              
              
              2.9
              %
              
              (2.9
              )%
              
              0.8
              %
              
              5.8
              %
              
              (3.7
              )%




* not
      applicable or not meaningful





(1) The
      year ended December 31, 2004 represents the combined Pre-Acquisition and
      Post-Acquisition periods of January 1, 2004 to August 27, 2004 and August 28,
      2004 to December 31, 2004, respectively. The year ended December 31, 2003
      represents the combined Pre-Recapitalization and Pre-Acquisition periods of
      January 1, 2003 to January 9, 2003 and January 10, 2003 to December 31, 2003,
      respectively.




**Year
      ended December 31, 2005 as compared to the year ended December 31,
      2004**




The
        Company’s reporting segments have a significant number of different products
        across a wide range of price points and numerous distribution channels that
        do
        not always allow meaningful quantitative analysis to be performed with respect
        to the effect on net sales of changes in units sold or the price per unit
        sold.
        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 $280,300,000
        or
        16.7% for the year ended December 31, 2005 as compared to the combined year
        ended December 31, 2004 as discussed in the following paragraphs.
 
 In
        the
        Residential Ventilation Products Segment, net sales increased approximately
        $29,300,000 or 3.8% for the year ended December 31, 2005 as compared to the
        combined year ended December 31, 2004. Net sales in this Segment for the
        year
        ended December 31, 2005 include an increase of approximately $6,800,000
        attributable to the effect of changes in foreign currency exchange rates.
 
 The
        increase in net sales in the Residential Ventilation Products Segment for
        the
        year ended December 31, 2005 as compared to the combined year ended December
        31,
        2004 was primarily 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 83% of total segment net sales in the year ended
        December 31, 2005. Sales of range hoods and bathroom exhaust fans increased
        approximately 6.1% over the combined year ended December 31, 2004.
 
 In
        the
        Home Technology Products Segment, net sales increased approximately $147,300,000
        or 71.0% for the year ended December 31, 2005 as compared to the combined
        year
        ended December 31, 2004. The increase in net sales in this Segment for the
        year
        ended December 31, 2005 includes approximately $80,700,000 attributable to
        acquisitions and the balance of the increase is predominately due to increased
        sales volume.
 
 In
        the
        Air Conditioning and Heating Products Segment, net sales increased approximately
        $103,700,000 or 14.7% for the year ended December 31, 2005 as compared to
        the
        combined year ended December 31, 2004. Net sales in this Segment for the
        year
        ended December 31, 2005 include (1) an increase of approximately $2,400,000
        attributable to the effect of changes in foreign currency exchange rates
        and (2)
        approximately $5,700,000 attributable to acquisitions. 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 25.4% over the combined
        year ended December 31, 2004. The increase in net sales in this Segment for
        the
        year ended December 31, 2005 as compared to the combined year ended December
        31,
        2004 was due principally to increased sales volume and prices of products
        sold
        to residential site-built and manufactured housing customers, in part, due
        to
        unusually warm weather in the United States in 2005. To a lesser extent,
        the
        increased sales volume was attributable to customers’ increased purchases of
        cooling products prior to the change in the minimum SEER rating on January
        23,
        2006 and increased manufactured housing sales volume arising from replacements
        as a result of hurricanes. The Company’s net sales to customers serving the
        manufactured housing markets, principally consisting of air conditioners
        and
        furnaces, constituted approximately 6.9% and 6.6% of the Company’s consolidated
        net sales for the year ended December 31, 2005 and 2004, respectively. Sales
        of
        the Company’s commercial HVAC products, before considering the effect of foreign
        exchange, were down slightly in the year ended December 31, 2005 as compared
        to
        the same period in 2004. Although sales of residential products sold to
        manufactured housing customers for the corresponding periods were up, the
        Company does not believe that it will see any meaningful recovery in either
        the
        manufactured housing or commercial markets in 2006.
 
 Consolidated
        cost of products sold was approximately $1,361,400,000 for the year ended
        December 31, 2005 as compared to approximately $1,201,900,000 for the combined
        year ended December 31, 2004. Cost of products sold, as a percentage of net
        sales, decreased from approximately 71.6% in the combined year ended December
        31, 2004 to approximately 69.5% for the year ended December 31, 2005, primarily
        as a result of the factors that follow.
 
 Overall,
        consolidated material costs were approximately 44.5% and 44.4% of net sales
        for
        the years ended December 31, 2005 and 2004, respectively. Although the Company
        continued to experience material cost increases related primarily to purchases
        of steel, copper and aluminum, as well as, increased transportation and energy
        costs, these cost increases were offset by price increases, continued strategic
        sourcing initiatives and improvement in manufacturing efficiency.
 
 During
        the year ended December 31, 2005, the Company experienced an increase in
        freight
        costs due to rising energy prices. This increase in freight costs was partially
        offset by increased sales volume and prices, as well as cost reduction measures,
        thereby reducing the overall effect on cost of goods sold as a percentage
        of net
        sales.
 
 Overall,
        changes in the cost of products sold as a percentage of net sales for one
        period
        as compared to another period may reflect a number of factors including changes
        in the relative mix of products sold, the effect of changes in sales prices,
        material costs and changes in productivity levels.
 
 In
        the
        Residential Ventilation Products Segment, cost of products sold for the year
        ended December 31, 2005 was approximately $544,900,000, or 68.6% as a percentage
        of this Segment’s net sales, as compared to approximately $518,800,000, or 67.8%
        as a percentage of this Segment’s net sales, in the combined year ended December
        31, 2004. The increase in the percentage of cost of products sold to net
        sales
        for 2005 over 2004 reflects the effect of higher overhead costs associated
        with
        the Segment’s NuTone Cincinnati, OH plant as a result of a lock-out of the
        workforce in July 2005, partially offset by lower material costs as a percentage
        of net sales (see Note 8 to the Notes to the Consolidated Financial Statements
        included elsewhere herein). Cost of products sold in this Segment for the
        year
        ended December 31, 2005 includes (1) an increase of approximately $4,200,000
        related to the effect of changes in foreign currency exchange rates, (2)
        approximately $1,100,000 of increased depreciation expense of property and
        equipment arising primarily from capital expenditures subsequent to the
        Acquisition partially offset by the impact of the fair value adjustments
        related
        to the Acquisition that were finalized in the fourth quarter of 2004 and
        (3) a
        non-cash charge of approximately $400,000 related to the amortization of
        purchase price allocated to inventory. Cost of products sold in this Segment
        for
        the combined year ended December 31, 2004 includes a non-cash charge of
        approximately $1,100,000 related to the amortization of purchase price allocated
        to inventory as a result of the Acquisition.
 
 In
        the
        Home Technology Products Segment, cost of products sold for the year ended
        December 31, 2005 was approximately $184,200,000, or 51.9% as a percentage
        of
        this Segment’s net sales, as compared to approximately $105,300,000, or 50.7% as
        a percentage of this Segment’s net sales, in the combined year ended December
        31, 2004. The increase in the percentage of cost of products sold to net
        sales
        for 2005 over 2004 reflects higher material costs of acquisitions as compared
        to
        the businesses in this Segment prior to the acquisitions. Cost of products
        sold
        in this Segment for the year ended December 31, 2005 includes (1) approximately
        $47,500,000 of cost of products sold contributed from acquisitions, (2)
        approximately $100,000 of decreased depreciation expense of property and
        equipment arising primarily from the impact of the fair value adjustments
        related to the Acquisition that were finalized in the fourth quarter of 2004,
        partially offset by acquisitions in this Segment and (3) a non-cash charge
        of
        approximately $500,000, of which approximately $200,000 is included in the
        impact of acquisitions noted above, related to the amortization of purchase
        price allocated to inventory. Cost of products sold in this Segment for the
        combined year ended December 31, 2004 includes (1) a non-cash charge of
        approximately $3,700,000 related to the amortization of purchase price allocated
        to inventory as a result of the Acquisition and (2) a non-cash charge of
        approximately $200,000 related to the amortization of purchase price allocated
        to inventory as a result of an acquisition.
 
 In
        the
        Air Conditioning and Heating Products Segment cost of products sold for year
        ended December 31, 2005 was approximately $632,300,000, or 78.1% as a percentage
        of this Segment’s net sales, as compared to approximately $577,800,000, or 81.8%
        as a percentage of this Segment’s net sales, for the combined year ended
        December 31, 2004. The decrease in the percentage of cost of products sold
        to
        net sales for 2005 over 2004 reflects the effect of increased sales prices
        and
        the factors noted below, partially offset by higher material costs. Cost
        of
        products sold in this Segment in the year ended December 31, 2005 includes
        (1)
        an increase of approximately $2,000,000 related to the effect of changes
        in
        foreign currency exchange rates, (2) approximately $4,200,000 attributable
        to
        acquisitions in this Segment and (3) approximately $300,000 of increased
        depreciation expense of property and equipment arising primarily from capital
        expenditures subsequent to the Acquisition partially offset by the impact
        of the
        fair value adjustments related to the Acquisition that were finalized in
        the
        fourth quarter of 2004. Cost of products sold in this Segment for the combined
        year ended December 31, 2004 includes (1) approximately $2,600,000 of costs
        associated with the closure of certain manufacturing facilities, (2)
        approximately $7,600,000 of estimated inefficient production costs and expenses
        associated with the start-up of a new manufacturing facility and (3) a non-cash
        charge of approximately $900,000 related to the amortization of purchase
        price
        allocated to inventory as a result of the Acquisition.
 
 Consolidated
        selling, general and administrative expense (“SG&A”) was approximately
        $342,600,000 for the year ended December 31, 2005 as compared to approximately
        $301,300,000 for the combined year ended December 31, 2004. SG&A as a
        percentage of net sales decreased from approximately 18.0% for the combined
        year
        ended December 31, 2004 to approximately 17.5% for the year ended December
        31,
        2005.
 
 SG&A
        for the year ended December 31, 2005 includes (1) approximately $24,700,000
        from
        acquisitions in the Home Technology Products Segment and the Air Conditioning
        and Heating Products Segment, (2) an increase of approximately $2,700,000
        of
        displays expense in the Residential Ventilation Products Segment related
        in part
        to the introduction of new products, (3) an increase of approximately $1,800,000
        (of which approximately $1,400,000 is included in the Residential Ventilation
        Products Segment and approximately $400,000 is included in the Air Conditioning
        and Heating Products Segment) related to the effect of changes in foreign
        currency exchange rates, (4) a non-cash foreign exchange loss of approximately
        $2,100,000 (of which approximately $1,200,000 is included in the Residential
        Ventilation Products Segment) related to intercompany debt not indefinitely
        invested in the Company’s subsidiaries, (5) a gain of approximately $1,600,000
        related to the sale of a corporate office building of one of the Company’s
        subsidiaries in the Home Technology Products Segment, (6) approximately $300,000
        of stock-based compensation expense (all of which is recorded in Unallocated)
        and (7) a gain of approximately $1,400,000 from the settlement of certain
        obligations (see Notes 9 and 14 of the Notes to the Consolidated Financial
        Statements included elsewhere herein).
 
 SG&A
        for the combined year ended December 31, 2004 includes (1) approximately
        $3,400,000 of stock-based compensation expense, of which approximately
        $2,400,000 is included in Unallocated and (2) a non-cash foreign exchange
        loss
        of approximately $400,000, of which approximately $300,000 is recorded in
        the
        Residential Ventilation Products Segment, related to intercompany debt not
        indefinitely invested in the Company’s subsidiaries. The decrease in SG&A as
        a percentage of net sales for the year ended December 31, 2005 is primarily
        due
        to lower compensation and employee benefit expense in Unallocated, as well
        as
        the factors noted above.
 
 Amortization
        of intangible assets, as a percentage of net sales from continuing operations,
        decreased from approximately 1.0% in the combined year ended December 31,
        2004
        to approximately 0.9% for the year ended December 31, 2005. This decrease
        is
        principally as a result of utilizing accelerated amortization methods, partially
        offset by increased amortization of intangible assets in the Home Technology
        Products Segment as compared to the same period in 2004 arising primarily
        from
        acquisitions in 2005 and the effect of finalizing the fair value adjustments
        to
        intangible assets in the fourth quarter of 2004 as a result of the Acquisition
        (see Note 2 of the Notes to the Consolidated Financial Statements included
        elsewhere herein).
 
 The
        combined year ended December 31, 2004 includes approximately $83,700,000,
        or
        5.0% as a percentage of net sales, of expenses and charges arising from the
        Acquisition. Included within the $83,700,000 of expenses and charges is
        approximately $45,200,000 (of which approximately $34,100,000 is included
        in
        Unallocated, approximately $3,500,000 is included in the Residential Ventilation
        Products Segment, approximately $1,800,000 is included in the Home Technology
        Products Segment and approximately $5,800,000 is included in the Air
        Conditioning and Heating Products Segment) of stock-based compensation expense
        related to the Acquisition (see Notes 1, 2 and 14 of the Notes to the
        Consolidated Financial Statements included elsewhere herein for further
        discussion of these expenses and charges).
 
 Consolidated
        operating earnings improved by approximately $162,200,000 from approximately
        $74,700,000, or 4.4% as a percentage of net sales, for the combined year
        ended
        December 31, 2004 to approximately $236,900,000, or 12.1% as a percentage
        of net
        sales, for the year ended December 31, 2005 as a result of the factors discussed
        above and that follow.
 
 Operating
        earnings of the Residential Ventilation Products Segment for the year ended
        December 31, 2005 were approximately $123,900,000 as compared to approximately
        $119,600,000 for the combined year ended December 31, 2004. Operating earnings
        of this Segment for the year ended December 31, 2005 reflects (1) an increase
        in
        earnings of approximately $1,300,000 from the effect of foreign currency
        exchange rates, (2) approximately $500,000 of increased depreciation expense
        of
        property and equipment and approximately $100,000 of increased amortization
        of
        intangible assets, (3) a non-cash charge of approximately $400,000 related
        to
        the amortization of purchase price allocated to inventory and (4) a non-cash
        foreign exchange loss of approximately $1,200,000 related to intercompany
        debt
        not indefinitely invested in the Company’s subsidiaries.
 
 Operating
        earnings of the Residential Ventilation Products Segment for the combined
        year
        ended December 31, 2004 reflects (1) approximately $3,800,000 of stock-based
        compensation charges (of which approximately $3,500,000 is included in the
        $83,700,000 of expenses and charges arising from the Acquisition as noted
        above), (2) a non-cash charge of approximately $1,100,000 related to the
        amortization of purchase price allocated to inventory as a result of the
        Acquisition and (3) a non-cash foreign exchange loss of approximately $300,000
        related to intercompany debt not indefinitely invested in the Company’s
        subsidiaries.
 
 In
        addition to the effect of the items noted above, operating earnings in the
        Residential Ventilation Products Segment for the year ended December 31,
        2005
        improved over the same period in 2004 primarily as a result of increased
        sales
        prices of bathroom exhaust fans and range hoods and increased sales volume
        of
        bathroom exhaust fans, 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 Home Technology Products Segment for the year ended December
        31,
        2005 was approximately $71,000,000 as compared to approximately $35,800,000
        for
        the combined year ended December 31, 2004. Operating earnings of this Segment
        for the year ended December 31, 2005 reflects (1) approximately $9,500,000
        of
        operating earnings contributed by acquisitions, (2) approximately
        $500,000 of increased depreciation expense of property and equipment primarily
        attributable to acquisitions, which is included in the impact of acquisitions
        noted above ,
        (3)
        approximately $1,600,000 of increased amortization of intangible assets,
        (4) a
        non-cash charge of approximately $500,000, of which approximately $300,000
        relates to the Acquisition and approximately $200,000 relates to the
        acquisitions as noted above, related to the amortization of purchase price
        allocated to inventory as a result of the Acquisition and (5) a gain of
        approximately $1,600,000 related to the sale of a corporate office building
        of
        one of the Company’s subsidiaries.
 
 Operating
        earnings of the Home Technology Products Segment for the combined year ended
        December 31, 2004 reflects (1) approximately $2,100,000 of stock-based
        compensation charges (of which approximately $1,800,000 is included in the
        $83,700,000 of expenses and charges arising from the Acquisition as noted
        above)
        and (2) a non-cash charge of approximately $3,900,000 of amortization of
        purchase price allocated to inventory primarily as a result of the Acquisition.
 
 In
        addition to the effect of the items noted above, the increase in operating
        earnings in the Home Technology Products Segment in the year ended December
        31,
        2005 improved over the same period in 2004 primarily as a result of increased
        net sales volume of audio and video distribution equipment, speakers and
        access
        control devices.
 
 Operating
        earnings of the Air Conditioning and Heating Products Segment were approximately
        $66,300,000 for the year ended December 31, 2005 as compared to approximately
        $22,900,000 for the combined year ended December 31, 2004. Operating earnings
        of
        this Segment for the year ended December 31, 2005 reflects (1) a decrease
        in
        earnings of approximately $100,000 from the effect of foreign currency exchange
        rates, (2) approximately $200,000 of increased depreciation expense of property
        and equipment and an approximately $800,000 decrease in intangible amortization
        and (3) approximately $400,000 of operating expense contributed by acquisitions.
 
 Operating
        earnings of the Air Conditioning and Heating Products Segment for the combined
        year ended December 31, 2004 reflects (1) approximately $2,600,000 of costs
        associated with the closure of certain manufacturing facilities, (2)
        approximately $7,600,000 of estimated inefficient production costs and expenses
        associated with the start-up of a new manufacturing facility, (3) a non-cash
        charge of approximately $900,000 related to the amortization of purchase
        price
        allocated to inventory as a result of the Acquisition and (4) approximately
        $6,200,000 of stock-based compensation charges (of which approximately
        $5,800,000 is included in the $83,700,000 of expenses and charges arising
        from
        the Acquisition as noted above).
 
 In
        addition to the items noted above, operating earnings in the Air Conditioning
        and Heating Products Segment for the year ended December 31, 2005 improved
        over
        the same period in 2004 as a result of increased sales volume of products
        sold
        to residential customers, in part, due to unusually warm weather in the United
        States during 2005 and other factors, sales price increases and improved
        manufacturing efficiencies, partially offset by material cost increases within
        the entire Segment.
 
 The
        operating expense in Unallocated was approximately $24,300,000 for the year
        ended December 31, 2005 as compared to approximately $103,600,000 for the
        combined year ended December 31, 2004. The decrease in operating expense
        for the
        year ended December 31, 2005 as compared to the same period 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 year ended December 31, 2005 reflects (1) approximately $300,000 of
        stock-based compensation charges, (2) a non-cash foreign exchange loss of
        approximately $900,000 related to intercompany debt not indefinitely invested
        in
        the Company’s subsidiaries, (3) a gain of approximately $1,400,000 from the
        settlement of certain obligations (see Notes 9 and 14 of the Notes to the
        Consolidated Financial Statements included elsewhere herein) and (4)
        approximately $100,000 of increased amortization of intangible assets.
 
 Operating
        expense in Unallocated for the combined year ended December 31, 2004 reflects
        (1) approximately $36,500,000 of stock-based compensation charges (including
        approximately $34,100,000 of charges arising from the Acquisition), (2)
        approximately $38,500,000 of fees and expenses associated with the Acquisition,
        other than stock-based compensation and (3) a non-cash foreign exchange loss
        of
        approximately $100,000 related to intercompany debt not indefinitely invested
        in
        the Company’s subsidiaries.
 
 Operating
        earnings of foreign operations, consisting primarily of the results of
        operations of the Company’s Canadian and European subsidiaries, were
        approximately 8.3% and 11.5% of operating earnings (before unallocated and
        corporate expenses) for the years ended December 31, 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 $40,000,000 or approximately 40.6% during
        the
        year ended December 31, 2005 as compared to the combined year ended December
        31,
        2004. During the year ended December 31, 2005, the Company experienced increases
        in interest expense related to (1) approximately $63,200,000 from additional
        borrowings primarily in connection with the Acquisition, (2) approximately
        $9,400,000 of additional interest expense related to the amortization of
        the
        Nortek Holdings deferred compensation plan and (3) approximately $24,200,000
        of
        interest expense related to the accretion of NTK Holdings’ 10 3/4% Senior
        Discount Notes. These increases were offset
        by
        a reduction in interest expense of approximately $53,500,000 relating to
        the
        redemption and open market purchases of certain debt in 2004 as discussed
        in the
        paragraph below, as well as, a reduction in the amortization of deferred
        financing costs of approximately $3,300,000, relating primarily to the
        amortization of commitment fees and related expenses recorded in the third
        quarter of 2004 of approximately $6,250,000 in connection with the
        bridge-facility entered into by the Company to fund the consummation of the
        Acquisition should it have been necessary (see Notes 2 and 6 of the Notes
        to the
        Consolidated Financial Statements included elsewhere herein).
 
 On
        August
        27, 2004, the Company purchased for cash all of the former Nortek Holdings’ 10%
        Senior Discount Notes due 2011 (the “Senior Discount Notes”), its $200,000,000
        Floating Rate Notes due 2010 (the “Floating Rate Notes”) and most of its 9 7/8%
        Senior Subordinated Notes due 2011 (the “9 7/8% Notes”) and recorded a pre-tax
        loss from debt retirement of approximately $118,800,000 in the combined third
        quarter of 2004. In addition, during the first quarter of 2004, the Company
        called for redemption all of its outstanding 9 1/4% Senior Notes due 2007
        (“9
        1/4% Notes”), all of its outstanding 9 1/8% Senior Notes due 2007 (“9 1/8%
        Notes”) and all of its outstanding 8 7/8% Senior Notes due 2008 (“8 7/8%
        Notes”). The redemption of the 9 1/4% Notes, 9 1/8% Notes and 8 7/8% Notes
        resulted in a pre-tax loss of approximately $11,900,000 in the first quarter
        of
        2004, based upon the difference between the respective redemption prices
        and the
        estimated carrying values at the redemption dates of the 9 1/4% Notes, 9
        1/8%
        Notes and 8 7/8% Notes, which include the principal amount redeemed and the
        estimated remaining unamortized premium recorded in connection with the
        Recapitalization. As a result of all of these transactions, the Company recorded
        a pre-tax loss in the combined year ended December 31, 2004 of approximately
        $130,700,000 (see Note 6 of the Notes to the Consolidated Financial Statements
        included elsewhere herein).
 
 Investment
        income was approximately $1,800,000 for both the years ended December 31,
        2005
        and 2004, respectively.
 
 The
        provision for income taxes from continuing operations was approximately
        $43,200,000 for the year ended December 31, 2005 as compared to an income
        tax
        benefit of approximately $37,900,000 for the combined year ended December
        31,
        2004. The income tax rates in both the year ended December 31, 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 5 of the Notes to
        the
        Consolidated Financial Statements included elsewhere herein).
 
 Discontinued
        operations for the combined year ended December 31, 2004 includes earnings
        of
        approximately $66,900,000 (net of a tax provision of approximately $46,000,000)
        (see Note 10 of the Notes to the 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
        U.S. generally accepted accounting principles (“GAAP”) and should not be
        considered as an alternative or substitute for GAAP profitability measures
        such
        as operating earnings (loss) from continuing operations, discontinued
        operations, extraordinary items and net 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 the Company’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
        year
        ended December 31, 2005 and the periods from August 28, 2004 to December
        31,
        2004 and from January 1, 2004 to August 27, 2004:


**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in thousands)***Net
                  earnings (loss) ***
              
              $
              56,900
              
              $
              (4,100
              )
              $
              (43,900
              )Provision
                    (benefit) for income taxesfrom
                    continuing operations
              
              
              43,200
              
              
              3,500
              
              
              (41,400
              )Provision
                  (benefit) for income taxes from discontinued operations
              
              
              ---
              
              
              500
              
              
              45,500Interest
                  expense from continuing operations **
              
              
              138,578
              
              
              42,487
              
              
              56,073Interest
                  expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              4,609Investment
                  income from continuing operations
              
              
              (1,818
              )
              
              (325
              )
              
              (1,520
              )Investment
                  income from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (52
              )Depreciation
                  expense from continuing operations
              
              
              26,608
              
              
              8,433
              
              
              16,731Depreciation
                    expense from discontinuedoperations
              
              
              ---
              
              
              ---
              
              
              1,212Amortization
                  expense from continuing operations
              
              
              19,261
              
              
              14,095
              
              
              9,092Amortization
                    expense from discontinueddiscontinued
                    operations
              
              
              ---
              
              
              ---
              
              
              201**EBITDA**
              
              $
              282,729
              
              $
              64,590
              
              $
              46,546


*
            EBITDA
                includes approximately $300,000, $100,000 and $48,500,000 of stock-based
                compensation charges recorded in the year ended December 31, 2005
                and the
                periods from August 28, 2004 to December 31, 2004 and from January
                1, 2004
                to August 27, 2004, respectively (see Notes 1 and 14 of the Notes
                to the
                Consolidated Financial Statements included elsewhere herein).




Net
      earnings (loss) includes a loss from discontinued operations of approximately
      $500,000 for the period from August 28, 2004 to December 31, 2004 and includes
      earnings from discontinued operations of approximately $67,400,000 for the
      period from January 1, 2004 to August 27, 2004 (see Note 10 of the Notes to
      the
      Consolidated Financial Statements included elsewhere herein).




EBITDA
      for the period from January 1, 2004 to August 27, 2004 includes approximately
      $83,700,000 (which includes approximately $45,200,000 of the $48,500,000 of
      stock-based compensation expense noted above) of expenses and charges arising
      from the Acquisition and approximately $130,700,000 of loss on debt retirement,
      which are recorded in earnings (loss) from continuing operations (see Notes
      6
      and 14 of the Notes to the Consolidated Financial Statements included elsewhere
      herein). EBITDA for the period from January 1, 2004 to August 27, 2004 also
      includes approximately $6,400,000 of stock-based employee compensation charges
      related to the former Nortek Holdings’ stock options retained by employees of
      Ply Gem subsequent to the sale of Ply Gem, which are recorded in earnings from
      discontinued operations (see Notes 1 and 10 of the Notes to the Consolidated
      Financial Statements included elsewhere herein).




**
            Interest
                expense from continuing operations for the year ended December 31,
                2005
                includes cash interest of approximately $108,665,000 and non-cash
                interest
                of approximately $29,913,000, interest expense from continuing operations
                for the period from August 28, 2004 to December 31, 2004 includes
                cash
                interest of approximately $38,391,000 and non-cash interest of
                approximately $4,096,000 and interest expense from continuing operations
                for the period from January 1, 2004 to August 27, 2004 includes cash
                interest of approximately $31,402,000 and non-cash interest of
                approximately $24,671,000.





**Year
      ended December 31, 2004 as compared to the year ended December 31,
      2003**




Combined
        consolidated net sales from continuing operations increased approximately
        $173,500,000 or 11.5% for the year ended December 31, 2004 as compared to
        the
        year ended December 31, 2003 as discussed in the following paragraphs.
 
 In
        the
        Residential Ventilation Products Segment, combined net sales increased
        approximately $68,600,000 or 9.8% for the year ended December 31, 2004 as
        compared to the year ended December 31, 2003. The year ended December 31,
        2004
        includes an increase of approximately $19,200,000 attributable to the effect
        of
        changes in foreign currency exchange rates. The increase in net sales volume
        in
        the Residential Ventilation Products Segment in 2004 as compared to 2003
        was
        primarily due to increased volume of bathroom exhaust fans and range hoods
        as a
        result of the ongoing stability in the residential housing construction and
        remodeling markets and from the introduction of new products. To a lesser
        extent, net sales increased due to sales price increases.
 
 In
        the
        Home Technology Products Segment, combined net sales increased approximately
        $82,800,000 or 66.4% for the year ended December 31, 2004 as compared to
        the
        year ended December 31, 2003. The year ended December 31, 2004 includes an
        increase of approximately $63,300,000 attributable to acquisitions. Excluding
        the effect of acquisitions the increase in net sales volume in the Home
        Technology Products Segment in 2004 as compared to 2003 was primarily due
        to
        increased sales of surround sound systems, multi-room audio and video
        distribution equipment, garage door operators and wireless security products.
 
 In
        the
        Air Conditioning and Heating Products Segment, combined net sales increased
        approximately $22,100,000 or 3.2% for the year ended December 31, 2004 as
        compared to the year ended December 31, 2003. The year ended December 31,
        2004
        includes increases of approximately $11,000,000 attributable to the effect
        of
        changes in foreign currency exchange rates 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 in 2004 and increased
        approximately 2.5% over 2003. The increase in net sales in this Segment in
        the
        year ended December 31, 2004 as compared to the year ended December 31, 2003
        was
        due principally to growth from this Segment’s brand-name strategy of HVAC
        products sold to customers serving the residential site built market. To
        a
        lesser extent, net sales increased due to sales price increases. Sales of
        the
        Company’s commercial HVAC products and residential products sold to manufactured
        housing customers were up slightly in the year ended December 31, 2004 over
        the
        same period in 2003, before considering the effect of foreign exchange, as
        continued softness is being experienced by this industry. Net sales of HVAC
        products sold to residential site built customers in 2004 were negatively
        impacted due to an unseasonably cool summer, aggravated by severe weather
        conditions in the southeastern portion of the United States in the third
        and
        fourth quarter.
 
 Overall,
        increases in sales levels in the year ended December 31, 2004 reflect the
        ongoing stability of the housing construction and remodeling markets and
        our
        expanded branding effort in the Company’s line of air conditioning and heating
        products. For the years ended December 31, 2004 and 2003, the Company’s net
        sales to customers serving the manufactured housing markets, principally
        consisting of air conditioners and furnaces, constituted approximately 6.6%
        and
        7.1%, respectively, of the Company’s consolidated net sales.
 
 Combined
        consolidated cost of products sold was approximately $1,201,900,000 for the
        year
        ended December 31, 2004 as compared to approximately $1,072,500,000 for the
        year
        ended December 31, 2003. Cost of products sold, as a percentage of net sales,
        increased from approximately 71.2% for the year ended December 31, 2003 to
        approximately 71.6% for the year ended December 31, 2004. These increases
        in
        cost of products sold were primarily as a result of the factors that
        follow.
 
 In
        the Residential
        Ventilation Products Segment ,
        cost of
        products sold for the year ended December 31, 2004 was approximately
        $518,800,000, or 67.8% as a percentage of this Segment’s net sales, as compared
        to approximately $475,600,000, or 68.3% as a percentage of this Segment’s net
        sales, in the year ended December 31, 2003. Cost of products sold in this
        Segment for 2004 includes (1) approximately $3,300,000 of increased depreciation
        expense of property and equipment in 2004 as compared to 2003 arising from
        finalizing the fair value adjustments related to the 2003 Recapitalization
        in
        the fourth quarter of 2003 and the impact of the fair value adjustments related
        to the Acquisition that were finalized in the fourth quarter of 2004 (a more
        complete discussion on depreciation and its impact on the year ended December
        31, 2004 is available in the paragraphs below), (2) an increase of approximately
        $14,400,000 related to the effect of changes in foreign currency exchange
        rates,
        and (3) a non-cash charge of approximately $1,100,000 in 2004 related to
        the
        amortization of purchase price allocated to inventory as a result of the
        Acquisition. Cost of products sold in this Segment for 2003 includes
        approximately $900,000 related to the amortization of purchase price allocated
        to inventory arising from the 2003 Recapitalization.
 
 In
        the Home
        Technology Products Segment ,
        cost of
        products sold for the year ended December 31, 2004 was approximately
        $105,300,000, or 50.7% as a percentage of this Segment’s net sales, as compared
        to approximately $60,000,000, or 48.1% as a percentage of this Segment’s net
        sales, in the year ended December 31, 2003. Cost of products sold in this
        Segment for 2004 includes (1) approximately $37,100,000 of cost of products
        sold
        from acquisitions, (2) approximately $700,000 of increased depreciation expense
        of property and equipment in 2004 as compared to 2003 arising from finalizing
        the fair value adjustments related to the 2003 Recapitalization in the fourth
        quarter of 2003 and the impact of the fair value adjustments related to the
        Acquisition that were finalized in the fourth quarter of 2004 (a more complete
        discussion on depreciation and its impact on the year ended December 31,
        2004 is
        available in the paragraphs below), (3) a non-cash charge of approximately
        $200,000 in 2004 related to the amortization of purchase price allocated
        to
        inventory as a result of the OmniMount acquisition and (4) a non-cash charge
        of
        approximately $3,700,000 in 2004 related to the amortization of purchase
        price
        allocated to inventory as a result of the Acquisition. Cost of products sold
        in
        this Segment for 2003 includes approximately $3,000,000 and $800,000 related
        to
        the amortization of purchase price allocated to inventory arising from the
        2003
        Recapitalization and the acquisitions of Elan and SPC, respectively.
 
 In
        the
        Air Conditioning and Heating Products Segment cost of products sold for the
        year
        ended December 31, 2004 was approximately $577,800,000, or 81.8% as a percentage
        of this Segment’s net sales, as compared to approximately $536,900,000, or 78.5%
        as a percentage of this Segment’s net sales, for the year ended December 31,
        2003. Cost of products sold in this Segment in 2004 includes (1) an increase
        of
        approximately $9,200,000 related to the effect of changes in foreign currency
        exchange rates, (2) approximately $2,600,000 of costs associated with the
        closure of certain manufacturing facilities, (3) approximately $7,600,000
        of
        estimated inefficient production costs and expenses associated with the start-up
        of a new manufacturing facility, (4) approximately $3,100,000 of increased
        depreciation expense of property and equipment in 2004 as compared to 2003
        arising from finalizing the fair value adjustments related to the 2003
        Recapitalization in the fourth quarter of 2003 and the impact of the fair
        value
        adjustments related to the Acquisition that were finalized in the fourth
        quarter
        of 2004 (a more complete discussion on depreciation and its impact on the
        year
        ended December 31, 2004 is available in the paragraphs below) and (5) a non-cash
        charge of approximately $900,000 in 2004 related to the amortization of purchase
        price allocated to inventory as a result of the Acquisition. Cost of products
        sold in this Segment for the year ended December 31, 2003 includes approximately
        $5,800,000 of severance and other costs associated with the closure of certain
        manufacturing facilities, approximately $1,100,000 of costs and expenses
        associated with the startup of a new manufacturing facility and also includes
        in
        2003 a non-cash charge of approximately $600,000 related to the amortization
        of
        purchase price allocated to inventory arising from the 2003 Recapitalization.
 
 Material
        costs were approximately 44.4% and 43.7% of net sales for the year ended
        December 31, 2004 and 2003, respectively. Both the Company’s Residential
        Ventilation Products and Air Conditioning and Heating Products Segments
        experienced material cost increases related primarily to purchases of steel,
        copper and aluminum in the year ended December 31, 2004 as compared to the
        year
        ended December 31, 2003. 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.
 
 The
        Company’s segments experienced higher shipping costs in the year ended December
        31, 2004 as compared to the year ended December 31, 2003, primarily for
        residential HVAC products where shipping costs increased from 3.4% of such
        net
        sales in 2003 to 4.3% in 2004.
 
 Depreciation
        expense increased approximately $7,100,000 in 2004 as compared to 2003, which
        is
        primarily due to the full year impact of the fourth quarter 2003 finalization
        of
        the fair value adjustments related to the 2003 Recapitalization, including
        a
        reduction in the estimated remaining useful lives, and the additional
        depreciation expense associated with capital expenditures. Approximately
        $3,300,000, $700,000 and $3,100,000 of the increase relates to the Residential
        Ventilation Products Segment, the Home Technology Products Segment and Air
        Conditioning and Heating Products Segment, respectively. In connection with
        both
        the initial and final allocations of purchase price to property and equipment
        acquired as part of the Acquisition, the Company assigned new useful lives
        based
        upon the initial estimated and then the final useful lives adopted from the
        date
        of the Acquisition, respectively. Depreciation expense for the period from
        August 28, 2004 to December 31, 2004 reflects an increase of approximately
        $300,000 due to the finalization of the fair value adjustments related to
        the
        Acquisition, which includes a decrease in depreciation expense of approximately
        $500,000 related to revisions to the remaining useful lives and an increase
        in
        depreciation expense of approximately $800,000 related to the increase in
        fixed
        assets as a result of the adjustments to the allocation of purchase price.
        Depreciation expense related to property and equipment acquired as part the
        Acquisition was recorded based upon the historical allocation of purchase
        price
        and initial estimated useful lives for the period from August 28, 2004 to
        October 2, 2004 and based upon the final allocation of purchase price and
        final
        remaining useful lives for the period from October 3, 2004 to December 31,
        2004.
        Depreciation expense would have been approximately $100,000 higher for the
        period from August 28, 2004 to December 31, 2004 if the final allocation
        of
        purchase price and final remaining useful lives adopted had been used to
        record
        depreciation expense for the period from August 28, 2004 to October 2, 2004,
        primarily due to an increase in the amount of the allocation of purchase
        price
        partially offset by the final remaining useful lives being longer than the
        initial estimates.
 
 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.
 
 Combined
        consolidated selling, general and administrative expense (“SG&A”) was
        approximately $301,300,000 for the year ended December 31, 2004 as compared
        to
        approximately $263,100,000 for the year ended December 31, 2003. SG&A as a
        percentage of net sales increased from approximately 17.5% for the year ended
        December 31, 2003 to approximately 18.0% for the year ended December 31,
        2004
        and includes in 2004 (1) approximately $14,300,000 of SG&A from acquisitions
        in the Home Technology Products Segment, (2) an increase of approximately
        $4,600,000 related to the effect of changes in foreign currency exchange
        rates,
        (3) approximately $3,400,000 of stock-based compensation expense and (4)
        a
        non-cash foreign exchange loss of approximately $400,000 on intercompany
        debt
        not indefinitely invested among the Company’s subsidiaries, of which
        approximately $300,000 is included in the Residential Ventilation Products
        Segment. Approximately $2,600,000 of the increase in SG&A related to the
        effect of changes in foreign currency exchange is included in the Residential
        Ventilation Products Segment in the year ended December 31, 2004 and
        approximately $2,000,000 of the increase in SG&A related to the effect of
        foreign currency exchange rates is included in the Air Conditioning and Heating
        Products Segment for the year ended December 31, 2004. SG&A in 2003 includes
        approximately $3,500,000 of direct expenses and fees associated with the
        Company’s strategic sourcing software and systems development and approximately
        $2,000,000 of stock-based compensation, of which approximately $1,400,000
        relates to the adoption of SFAS No. 123 in 2003 and approximately $600,000
        relates to compensation expense in the fourth quarter of 2003 from the sale
        of
        stock. Approximately $1,800,000 of this stock-based compensation expense
        is
        included in Unallocated. The direct expenses and fees associated with the
        Company’s strategic sourcing software and systems development for 2003 are
        set-forth separately in the segment data. The year ended December 31, 2003
        also
        includes a non-cash foreign exchange gain of approximately $1,500,000 on
        intercompany debt not indefinitely invested among the Company’s subsidiaries,
        all of which is included in Unallocated. The increase in the percentage in
        the
        year ended December 31, 2004 is principally due to acquisitions in the Home
        Technology Products Segment, which have a substantially higher level of SG&A
        than the overall segment in addition to the effect of the items noted above.
 
 Combined
        amortization of intangible assets, as a percentage of net sales from continuing
        operations, increased from approximately 0.6% in the year ended December
        31,
        2003 to approximately 1.0% for the year ended December 31, 2004, as a result
        of
        an increase of approximately $8,100,000 in amortization of intangible assets
        in
        2004 as compared to 2003. This increase of $8,100,000 consists of an increase
        of
        approximately $3,300,000 in the fourth quarter of 2004 due to the finalization
        of the fair value adjustments related to the Acquisition, an increase of
        approximately $2,000,000 related to the full year impact of the fourth quarter
        2003 finalization of the fair value adjustments related to the 2003
        Recapitalization, an increase of approximately $2,300,000 related to the
        full
        year impact of acquisitions made in 2003 and the impact of acquisitions made
        in
        2004 in the Home Technology Products Segment and an increase of approximately
        $500,000 related to new intangible assets in 2004. Approximately $2,800,000,
        $3,900,000, $1,200,000 and $200,000 of the increase relates to the Residential
        Ventilation Products Segment, the Home Technology Products Segment, the Air
        Conditioning and Heating Products Segment and Unallocated, respectively.
        The
        increase of approximately $3,300,000 due to the finalization of the fair
        value
        adjustments related to the Acquisition is caused by a combination of an increase
        of approximately $3,100,000 related to revisions to the timing of amortization
        and changes in useful lives and an increase of approximately $200,000 related
        to
        increases in intangible assets as a result of the allocation of purchase
        price.
        The increase of approximately $2,000,000 related to the full year impact
        of the
        fourth quarter 2003 finalization of the fair value adjustments related to
        the
        2003 Recapitalization reflects the impact of both the increase in valuation
        and
        revisions in the estimated useful lives. Amortization of intangible assets
        acquired as part of the Acquisition was recorded based upon the historical
        allocation of purchase price and initial estimated useful lives for the period
        from August 28, 2004 to October 2, 2004 and based upon the final allocation
        of
        purchase price and final remaining useful lives for the period from October
        3,
        2004 to December 31, 2004. Amortization of intangible assets would have been
        approximately $1,300,000 higher for the period from August 28, 2004 to December
        31, 2004 if the final allocation of purchase price and final remaining useful
        lives adopted had been used to record amortization of intangible assets for
        the
        period from August 28, 2004 to October 2, 2004, primarily due to the final
        remaining useful lives being shorter than the initial estimates and an increase
        in the amount of the allocation of purchase price.
 
 The
        operating results for the year ended December 31, 2004 includes approximately
        $83,700,000, or 5.0% as a percentage of net sales, of expenses and charges
        arising from the Acquisition. Approximately $45,200,000 (of which approximately
        $34,100,000 is included in Unallocated) of stock-based compensation expense
        that
        was incurred upon settlement of options in connection with the Acquisition
        was
        recorded in the third quarter of 2004. The year ended December 31, 2003 includes
        approximately $83,000,000, or 5.5% as a percentage of net sales, of expenses
        and
        charges arising from the 2003 Recapitalization.
 
 Combined
        consolidated operating earnings decreased by approximately $2,900,000 from
        approximately $77,600,000, or 5.2% as a percentage of net sales, for the
        year
        ended December 31, 2003 to approximately $74,700,000, or 4.4% as a percentage
        of
        net sales, for the year ended December 31, 2004 as a result of the factors
        discussed above and that follow.
 
 Combined
        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 $48,300,000 and $32,400,000 for the
        years
        ended December 31, 2004 and 2003, respectively. Acquisitions accounted for
        approximately $2,000,000 of the increase in such depreciation and amortization
        expense in 2004. Consolidated operating earnings in the year ended December
        31,
        2004 is net of approximately $7,100,000 of increased depreciation expense
        of
        property and equipment and approximately $8,100,000 of increased amortization
        of
        intangible assets as compared to 2003 arising primarily from finalizing the
        fair
        value adjustments of each in the fourth quarter of 2003 related to the 2003
        Recapitalization and the Acquisition in the fourth quarter of 2004. Depreciation
        and amortization expense noted above for 2004 includes approximately $5,900,000
        of amortization expense from purchase price allocated to inventory primarily
        as
        a result of the Acquisition and includes approximately $5,300,000 for 2003
        of
        amortization expense from purchase price allocated to inventory arising
        primarily from the 2003 Recapitalization.
 
 Combined
        operating earnings of the Residential Ventilation Products Segment for the
        year
        ended December 31, 2004 were approximately $119,600,000 as compared to
        approximately $117,800,000 for the year ended December 31, 2003. Operating
        earnings of this Segment for 2004 include (1) an increase in earnings of
        approximately $2,000,000 from the effect of foreign currency exchange rates,
        (2)
        approximately $3,300,000 of increased depreciation expense of property and
        equipment and approximately $2,800,000 of increased amortization of intangible
        assets during the year ended December 31, 2004 as compared to the same period
        in
        2003 from finalizing the fair value adjustments of each in the fourth quarter
        of
        2003 as a result of the 2003 Recapitalization and of the Acquisition in the
        fourth quarter of 2004, (3) approximately $3,800,000 of stock-based compensation
        charges (including approximately $3,500,000 of charges arising from the
        Acquisition), (4) a non-cash charge of approximately $1,100,000 of amortization
        of purchase price allocated to inventory as a result of the Acquisition and
        (5)
        a non-cash foreign exchange loss of approximately $300,000 on intercompany
        debt
        not indefinitely invested among the Company's subsidiaries. Operating earnings
        of this Segment for the year ended December 31, 2003 include approximately
        $900,000 of amortization expense from purchase price allocated to inventory
        related to the 2003 Recapitalization and approximately $100,000 of stock-based
        compensation charges. In addition to the effect of the items noted above,
        the
        increase in operating earnings in the Residential Ventilation Products Segment
        in the year ended December 31, 2004 was primarily as a result of increased
        sales
        volume, principally bathroom exhaust fans and kitchen range hoods, due to
        the
        continued stability of new home construction and remodeling
        markets.
 
 Combined
        operating earnings of the Home Technology Products Segment for the year ended
        December 31, 2004 were approximately $35,800,000 as compared to approximately
        $22,100,000 for the year ended December 31, 2003. Operating earnings of this
        Segment for 2004 include (1) approximately $9,700,000 of operating earnings
        contributed by acquisitions, (2) approximately $700,000 of increased
        depreciation expense of property and equipment and approximately $3,900,000
        of
        increased amortization of intangible assets during the year ended December
        31,
        2004 as compared to the same period in 2003 from finalizing the fair value
        adjustments of each in the fourth quarter of 2003 as a result of the 2003
        Recapitalization and of the Acquisition in the fourth quarter of 2004, (3)
        approximately $2,100,000 of stock-based compensation charges (including
        approximately $1,800,000 of charges arising from the Acquisition) and (4)
        a
        non-cash charge of approximately $3,900,000 of amortization of purchase price
        allocated to inventory primarily as a result of the Acquisition. Operating
        earnings of this Segment for the year ended December 31, 2003 include
        approximately $3,000,000 of amortization expense from purchase price allocated
        to inventory related to the 2003 Recapitalization and approximately $800,000
        from purchase price allocated to inventory related to 2003 acquisitions.
        In
        addition to the effect of the items noted above, the increase in operating
        earnings in the Home Technology Products Segment in the year ended December
        31,
        2004 was primarily as a result of increased net sales volume of surround
        sound
        systems, multi-room audio and video distribution equipment, garage door openers
        and wireless security products.
 
 Combined
        operating earnings of the Air Conditioning and Heating Products Segment were
        approximately $22,900,000 for the year ended December 31, 2004 as compared
        to
        approximately $57,200,000 for the year ended December 31, 2003. Operating
        earnings of this Segment for 2004 includes (1) approximately $2,600,000 of
        costs
        associated with the closure of certain manufacturing facilities, (2)
        approximately $7,600,000 of estimated inefficient production costs and expenses
        associated with the start-up of a new manufacturing facility, (3) a decrease
        in
        earnings of approximately $200,000 from the effect of foreign currency exchange
        rates, (4) approximately $3,100,000 of increased depreciation expense of
        property and equipment and approximately $1,200,000 of increased amortization
        of
        intangible assets in 2004 as compared to 2003 from finalizing the fair value
        adjustments of each in the fourth quarter of 2003 related to the 2003
        Recapitalization and the Acquisition in the fourth quarter of 2004, (5)
        approximately $900,000 of amortization of purchase price allocated to inventory
        related to the Acquisition and (6) approximately $6,200,000 of stock-based
        compensation charges (including approximately $5,800,000 of charges arising
        from
        the Acquisition). Operating earnings of this Segment during the year ended
        December 31, 2003 include (1) approximately $5,800,000 of costs associated
        with
        the closure of certain manufacturing facilities, (2) approximately $1,100,000
        of
        costs and expenses associated with the startup of a new manufacturing facility,
        (3) approximately $600,000 of amortization expense from purchase price allocated
        to inventory related to the 2003 Recapitalization and (4) approximately $100,000
        of stock-based compensation charges. In addition to the items noted above,
        the
        decrease in operating earnings in the Air Conditioning and Heating Products
        Segment in 2004 was principally due to increased material costs within the
        entire Segment and lower sales volume of commercial product lines due to
        the
        general slow down in the commercial market partially offset by sales price
        increases and by increased shipments in the residential site built market.
 
 The
        combined operating expense in Unallocated was approximately $103,600,000
        for the
        year ended December 31, 2004 as compared to approximately $119,500,000 for
        the
        year ended December 31, 2003. Operating expense in Unallocated for 2004 includes
        approximately $36,500,000 of stock-based compensation charges (including
        approximately $34,100,000 of charges arising from the Acquisition) and a
        non-cash foreign exchange loss of approximately $100,000 on intercompany
        debt
        not indefinitely invested among the Company's subsidiaries. Combined operating
        expense in Unallocated for the year ended December 31, 2003 includes
        approximately $1,800,000 of stock-based compensation charges and $3,500,000
        of
        direct expenses and fees associated with the Company's strategic sourcing
        software and systems development. The year ended December 31, 2003 includes
        a
        non-cash foreign exchange gain of approximately $1,500,000 on intercompany
        debt
        not indefinitely invested among the Company’s subsidiaries. Combined operating
        expense in Unallocated for the year ended December 31, 2004 also includes
        approximately $38,500,000 of fees and expenses associated with the Acquisition
        (other than stock-based compensation) and for the year ended December 31,
        2003
        also includes approximately $83,000,000 of fees and expenses associated with
        the
        2003 Recapitalization.
 
 Combined
        operating earnings of foreign operations, consisting primarily of the results
        of
        operations of the Company's Canadian and European subsidiaries, were
        approximately 11.5% and 6.6% of operating earnings (before unallocated and
        corporate expense) in the years ended December 31, 2004 and 2003, respectively.
        Sales and earnings derived from international markets are subject to, among
        others, the risks of currency fluctuations.
 
 Combined
        interest expense increased approximately $40,200,000 or approximately 68.8%
        in
        the year ended December 31, 2004 as compared to the year ended 2003. The
        increase in interest expense in 2004 is primarily due to (1) approximately
        $34,700,000 of increased interest expense and amortization of deferred financing
        costs from borrowings primarily in connection with the THL Transactions,
        (2)
        approximately $20,600,000 of increased interest expense related to the former
        Nortek Holdings 10% senior discount notes issued in November 2003, (3)
        approximately $4,400,000 of increased interest expense relating to Nortek’s
        floating rate notes issued in January 2004 (both the 10% senior discount
        notes
        and the floating rate notes were redeemed in August 2004 in connection with
        the
        THL Transactions), (4) approximately $6,300,000 of interest expensed on August
        28, 2004 from amortization of the THL Bridge Facility and (5) approximately
        $2,200,000 of increased interest expense related to the amortization of the
        2004
        Nortek Holdings, Inc. Deferred Compensation Plan. These increases were partially
        offset by the effect of approximately $4,100,000 of interest expense in the
        first quarter of 2003 from the amortization of a bridge facility in connection
        with the 2003 Recapitalization and approximately $23,900,000 of reduced interest
        expense relating primarily to the redemption and open market purchases in
        early
        2004 and lower interest rates from the sale of the floating rate notes used
        to
        refinance the 8 7/8% senior notes (see Note 6 of the Notes to the Consolidated
        Financial Statements included elsewhere herein).
 
 Combined
        investment income was approximately $1,800,000 and $1,600,000 for the years
        ended December 31, 2004 and 2003, respectively, and increased approximately
        $200,000 or 12.5% in 2004 as compared to 2003 primarily as a result of higher
        average invested balances.
 
 The
        combined income tax benefit from continuing operations was approximately
        $37,900,000 for the year ended December 31, 2004 as compared to a combined
        provision for income taxes from continuing operations of approximately
        $19,600,000 for the year ended December 31, 2003. The income tax rates in
        both
        2004 and 2003 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, state income tax provisions, and in 2004 due
        to
        the Acquisition and in 2003 due to the 2003 Recapitalization (see Notes 2
        and 5
        of the Notes to the Consolidated Financial Statements included elsewhere
        herein).
 
 Combined
        discontinued operations for the years ended December 31, 2004 and December
        31,
        2003 include earnings of approximately $66,900,000 (net of a tax provision
        of
        approximately $46,000,000) and $11,100,000 (net of a tax provision of
        approximately $6,800,000), respectively (see Note 10 of the Notes to the
        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
        U.S. generally accepted accounting principles (“GAAP”) and should not be
        considered as an alternative or substitute for GAAP profitability measures
        such
        as operating earnings (loss) from continuing operations, discontinued
        operations, extraordinary items and net 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 the Company’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
        periods from August 28, 2004 to December 31, 2004, from January 1, 2004 to
        August 27, 2004, from January 10, 2003 to December 31, 2003 and from January
        1,
        2003 to January 9, 2003:


**For
                  the periods****Post-**
              
              
              
              
              
              **Pre-****Acquisition**
              
              **Pre-Acquisition**
              
              **Recapitalization****Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Net
                  earnings (loss) ***
              
              $
              (4,100
              )
              $
              (43,900
              )
              $
              74,200
              
              $
              (61,900
              )Provision
                    (benefit) for income taxesfrom continuing
                    operations
              
              
              3,500
              
              
              (41,400
              )
              
              41,400
              
              
              (21,800
              )Provision
                  (benefit) for income taxes from discontinued operations
              
              
              500
              
              
              45,500
              
              
              7,400
              
              
              (600
              )Interest
                  expense from continuing operations **
              
              
              42,487
              
              
              56,073
              
              
              57,376
              
              
              1,049Interest
                  expense from discontinued operations
              
              
              ---
              
              
              4,609
              
              
              38,984
              
              
              1,239Investment
                  income from continuing operations
              
              
              (325
              )
              
              (1,520
              )
              
              (1,482
              )
              
              (119
              )Investment
                  income from discontinued operations
              
              
              ---
              
              
              (52
              )
              
              (196
              )
              
              (2
              )Depreciation
                  expense from continuing operations
              
              
              8,433
              
              
              16,731
              
              
              17,438
              
              
              581Depreciation
                    expense from discontinuedoperations
              
              
              ---
              
              
              1,212
              
              
              10,929
              
              
              250Amortization
                  expense from continuing operations
              
              
              14,095
              
              
              9,092
              
              
              14,369
              
              
              64Amortization
                  expense from discontinued discontinued operations
              
              
              ---
              
              
              201
              
              
              5,327
              
              
              73**EBITDA**
              
              $
              64,590
              
              $
              46,546
              
              $
              265,745
              
              $
              (81,165
              )




*
              Net earnings (loss) includes approximately $(500,000),
                $67,400,000, $12,100,000 and $(1,000,000) of earnings (loss) from
                discontinued operations for the periods from August 28, 2004 to December
                31, 2004, from January 1, 2004 to August 27, 2004, from January 10,
                2003
                to December 31, 2003 and from January 1, 2003 to January 9, 2003,
                respectively (see Note 10 of the Notes to the Consolidated Financial
                Statements included elsewhere
                herein).
 
 EBITDA
                  for the period from January 1, 2004 to August 27, 2004 includes
                  approximately $83,700,000 (including approximately $45,200,000
                  of
                  stock-based compensation expense) of expenses and charges arising
                  from the
                  Acquisition, approximately $3,400,000 of stock-based compensation
                  and
                  approximately $130,700,000 of loss on debt retirement, which are
                  recorded
                  in earnings (loss) from continuing operations. EBITDA for the period
                  from
                  January 1, 2004 to August 27, 2004 also includes approximately
                  $6,400,000
                  of stock-based employee compensation charges related to the former
                  Nortek
                  Holdings’ stock options retained by employees of Ply Gem subsequent to the
                  sale of Ply Gem, which are recorded in earnings from discontinued
                  operations. EBITDA for the period from January 1, 2003 to January
                  9, 2003
                  includes approximately $83,000,000 of expenses and charges arising
                  from
                  the 2003 Recapitalization and for the period from January 10, 2003
                  to
                  December 31, 2003 includes approximately $2,000,000 of stock-based
                  compensation, both of which are recorded in earnings (loss) from
                  continuing operations. EBITDA for the period January 10, 2003 to
                  December
                  31, 2003 includes approximately $100,000 of stock-based compensation
                  in
                  earnings from discontinued operations (see Notes 1, 2 and 6 of
                  the Notes
                  to the Consolidated Financial Statements included elsewhere
                  herein).
 
 **
              Interest
                  expense from continuing operations for the period from August 28,
                  2004 to
                  December 31, 2004 includes cash interest of approximately $38,391,000
                  and
                  non-cash interest of approximately $4,096,000, interest expense
                  from
                  continuing operations for the period from January 1, 2004 to August
                  27,
                  2004 includes cash interest of approximately $31,402,000 and non-cash
                  interest of approximately $24,671,000, interest expense from continuing
                  operations for the period from January 10, 2003 to December 31,
                  2003
                  includes cash interest of approximately $51,024,000 and non-cash
                  interest
                  of approximately $6,352,000 and interest expense from continuing
                  operations for the period from January 1, 2003 to January 9, 2003
                  includes
                  cash interest of approximately $924,000 and non-cash interest of
                  approximately $125,000.





**Liquidity
      and Capital Resources**




The
        Company acquired several companies during the year ended December 31, 2005
        utilizing cash and incurring additional indebtedness. Companies acquired
        during
        2005 and the impact on cash flow in 2005 were as follows:
 
 ·
              On
                  December 9, 2005, the Company, through Linear, acquired the stock
                  of GTO
                  for approximately $28,200,000 of cash plus contingent
                  consideration.
 
 ·
              On
                  August 26, 2005, the Company, through Elan, acquired the assets
                  and
                  certain liabilities of Sunfire for approximately $4,000,000 (utilizing
                  approximately $3,500,000 of cash and issuing an unsecured subordinated
                  promissory note in the amount of approximately $500,000) plus contingent
                  consideration, which may be payable in future
                  years.
 
 ·
              On
                  August 8, 2005, the Company, through Nortek UK, acquired the stock
                  of
                  Imerge for approximately $6,100,000 in cash plus contingent consideration,
                  which may be payable in future
                  years.
 
 ·
              On
                  July 15, 2005, the Company, through Linear, acquired the assets
                  and
                  certain liabilities of Niles for approximately $77,700,000, utilizing
                  approximately $67,700,000 of cash and issuing an unsecured promissory
                  note
                  in the amount of approximately
                  $10,000,000.
 
 ·
              On
                  June 13, 2005, the Company, through Nordyne, acquired the assets
                  and
                  certain liabilities of IMS for approximately $4,600,000, utilizing
                  approximately $4,100,000 of cash and issuing an unsecured promissory
                  note
                  in the amount of approximately
                  $500,000.
 
 ·
              On
                  April 26, 2005, the Company, through Linear, acquired the stock
                  of Panamax
                  for approximately $11,800,000 (utilizing approximately $9,550,000
                  of cash
                  and issuing an unsecured promissory note in the amount of approximately
                  $2,250,000) plus contingent
                  consideration.
 
 The
        estimated total potential amount of contingent consideration that may be
        paid in
        the future for all acquisitions is approximately $15,200,000 (see Note 3
        of the
        Notes to the Consolidated Financial Statements included elsewhere herein).
 
 On
        February 15, 2005, the Company completed the sale of $403,000,000 aggregate
        principal amount at maturity ($250,408,080 gross proceeds) of its 10 3/4%
        Senior
        Discount Notes due March 1, 2014 (the
 “10
        3/4%
        Senior Discount Notes”). The 10 3/4% Senior Discount Notes, which are
        structurally subordinate to all debt and liabilities of the Company’s
        subsidiaries, including Nortek Holdings and Nortek, were issued and sold
        in a
        private Rule 144A offering to institutional investors. On
        July
        5, 2005, the Company filed a registration statement with the SEC to exchange
        the
        10 3/4% Senior Discount Notes for registered notes. The registration statement
        went effective on July 21, 2005. During the exchange offer period, which
        closed
        during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
        were
        exchanged for registered notes. The Company will continue to file periodic
        reports with the SEC as required by the indenture governing the 10 3/4% Senior
        Discount Notes.
 
 The
        accreted value of the 10 3/4% Senior Discount Notes will increase from the
        date
        of issuance at a rate of 10 3/4% per annum compounded semi-annually such
        that
        the accreted value would, if no prior redemptions are made, equal the principal
        amount of $403,000,000 in September 2009. No cash interest will accrue on
        the 10
        3/4% Senior Discount Notes prior to September 1, 2009 and, thereafter, cash
        interest will accrue at
 10
        3/4%
        per annum payable semi-annually in arrears on March 1 and September 1 of
        each
        year, commencing on March 1, 2010, until maturity. The 10 3/4% Senior Discount
        Notes are unsecured obligations of the Company, which mature on March 1,
        2014,
        and may be redeemed in whole or in part at the redemption prices as defined
        in
        the indenture governing the 10 3/4% Senior Discount Notes (the “Indenture”). The
        Indenture contains covenants that limit the Company’s ability to engage in
        certain transactions, including incurring additional indebtedness and paying
        dividends or distributions.
 
 The
        net
        proceeds of the offering were used to pay a dividend of approximately
        $187,000,000 to its sole stockholder, Investors LLC. In turn, Investors LLC
        authorized a distribution of approximately $187,000,000 to the equity holders
        of
        Investors LLC in accordance with the terms of the LLC agreement by and among
        Investors LLC and its members. In addition, on February 18, 2005, NTK Holdings
        contributed approximately $57,700,000 to Nortek Holdings for the purpose
        of
        making payments under the Nortek Holdings, Inc. Deferred Compensation Plan,
        which resulted in additional expense of approximately $8,200,000, which the
        Company has included in interest expense in the accompanying consolidated
        statement of operations. All payments related to this contribution have been
        made by Nortek Holdings, Inc.
 
 The
        Company had consolidated debt at December 31, 2005, of approximately
        $1,648,378,000 consisting of (i) $19,701,000 of short-term borrowings and
        current maturities of long-term debt, (ii) $34,848,000 of long-term notes,
        mortgage notes and other indebtedness, (iii) $9,982,000 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) $684,250,000 of long-term debt outstanding
        under Nortek’s Senior Secured Credit Facility and (vi) $274,597,000 of the
        Company’s 10 3/4% Senior Discount Notes.
 
 During
        the year ended December 31, 2005, the Company had a net increase in its
        consolidated debt of approximately $278,400,000 resulting from (1) additional
        borrowings related to the 10 3/4% Senior Discount Notes as discussed above
        of
        approximately $250,400,000, (2) additional borrowings of approximately
        $19,600,000 related, in part, to the acquisitions noted above, (3) approximately
        $24,200,000 of debt accretion related to the 10 3/4% Senior Discount Notes
        and
        (4) approximately $200,000 in net additional borrowings from secured lines
        of
        credit and bank advances of the Company’s European subsidiaries, offset by (5)
        approximately $14,900,000 of principal and other payments made during the
        period
        and (6) an approximate $1,100,000 decrease related to the effects of foreign
        currency translation.
 
 The
        Company’s debt to equity ratio was approximately 8.7:1 at December 31, 2005 as
        compared to approximately 4.3:1 at December 31, 2004. The increase in the
        ratio
        was primarily due to the net increase in indebtedness as discussed above.
 
 Nortek’s
        Senior Secured Credit Facility also provides the Company and its subsidiaries
        with a $100,000,000 revolving credit facility with a maturity in August 2010
        that includes both a letter of credit sub-facility and swing line loan
        sub-facility. At December 31, 2005, Nortek had approximately $70,400,000
        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. There were no outstanding borrowings under the U.S. or Canadian
        portions of Nortek’s revolving credit facility at December 31, 2005.
 
 The
        Company has signed a letter of intent to acquire a business that manufactures
        custom commercial air handlers and related products for its Air Conditioning
        and
        Heating Products Segment. Consummation of the acquisition is expected to
        occur
        by the end of the first quarter of 2006. This business reported unaudited
        net
        sales for the year ended December 31, 2005 of approximately $74,000,000.
        The
        estimated purchase price consists of approximately $40,000,000 of cash at
        closing, a 2-year, 6%, $10,000,000 subordinated note and a contingent earn
        out
        of up to $30,000,000. The Company expects to fund the $40,000,000 of the
        purchase price at the acquisition date from its cash on hand. There can be
        no
        assurances that this acquisition will be consummated, or if consummated,
        will
        happen on the same or similar terms as described.
 
 The
        Company is also negotiating with its banks to expand its revolving credit
        facility from $100,000,000 to $200,000,000 and to modify certain covenants
        by
        amending its Senior Secured Credit Facility. This amendment will permit it
        to
        consummate the proposed acquisition described above and to provide additional
        liquidity to support the Company’s future growth.
 
 The
        Company expects to finalize this amendment by the end of its first quarter
        of
        2006. There can be no assurances that the Company will be successful in closing
        this amendment and expanding its revolving credit facility as
        described.
 
 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
        December 31, 2005, there was approximately $135,000,000 available for the
        payment of cash dividends, stock purchases or other restricted payments
        (“Restricted Payments”) by the Company as defined under the terms of the
        Company’s 10 3/4% Senior Discount Notes’ indenture. Restricted Payments to NTK
        Holdings and Nortek Holdings from Nortek are limited by the terms of Nortek’s
        most restrictive loan agreement, Nortek’s Senior Secured Credit Facility. The
        amount available for such payments under Nortek’s Senior Secured Credit Facility
        was approximately $134,800,000 at December 31, 2005.
 
 The
        Company’s ability to pay interest on or to refinance its indebtedness depends on
        the Company’s future performance, working capital levels and capital structure,
        which are subject to general economic, financial, competitive, legislative,
        regulatory and other factors which may be beyond its control. There can be
        no
        assurance that the Company will generate sufficient cash flow from the operation
        of its subsidiaries or that future financings will be available on acceptable
        terms or in amounts sufficient to enable the Company to service or refinance
        its
        indebtedness, or to make necessary capital expenditures.
 
 The
        following is a summary of the Company’s estimated future cash obligations under
        current and long-term debt obligations (excluding unamortized debt premium
        of
        approximately $17,000), interest expense (based upon interest rates in effect
        at
        the time of the preparation of this summary), capital lease obligations,
        minimum
        annual rental obligations primarily for non-cancelable lease obligations
        (operating leases), purchase obligations, other long-term liabilities and
        other
        obligations. Long-term debt and interest payments in the table below reflect
        the
        financing transactions during the year ended December 31, 2005 as previously
        described (See Notes 3 and 6 of the Notes to the Consolidated Financial
        Statements included elsewhere herein):


**Payments
                due by period****Less
                than**
              **1
                Year**
            
            **Between**
              **1
                & 2 Years**
            
            **Between**
              **3
                & 4 Years**
            
            **5
                Years**
              **or
                Greater**
            
            **Total***(Amounts
                in thousands)*Debt
                obligations
            
            $
            13,456
            
            $
            25,538
            
            $
            179,735
            
            $
            1,410,684
            *
            $
            1,629,413
            *Interest
                payments
            
            
            100,278
            
            
            197,926
            
            
            392,011
            
            
            394,732
            *
            
            1,084,947
            *Capital
                lease obligations
            
            
            1,330
            
            
            2,772
            
            
            3,178
            
            
            11,668
            
            
            18,948Operating
                lease obligations
            
            
            15,461
            
            
            22,557
            
            
            14,029
            
            
            23,178
            
            
            75,225Purchase
                obligations
            
            
            2
            
            
            5
            
            
            6
            
            
            10
            
            
            23Other
                long-term liabilities
            
            
            ---
            
            
            38,651
            
            
            90,312
            
            
            65,560
            
            
            194,523Total
            
            $
            130,527
            
            $
            287,449
            
            $
            679,271
            
            $
            1,905,832
            
            $
            3,003,079





*  Subsidiary
      debt used for working capital purposes such as lines of credit are estimated
      to
      continue through December 31, 2015 in the above table.





As
      of
      December 31, 2005, the Company’s former subsidiary, Ply Gem, has guaranteed
      approximately $23,600,000 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 9 of the
      Notes to the Consolidated Financial Statements included elsewhere herein) and
      has recorded an estimated liability related to this indemnified guarantee of
      approximately $900,000 at December 31, 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 $12,500,000 and $17,800,000
      at December 31, 2005 and 2004, respectively. Approximately $5,800,000 of
      short-term liabilities and approximately $6,700,000 of long-term liabilities
      are
      recorded in accrued expenses and other long-term liabilities, respectively,
      in
      the accompanying consolidated balance sheet at December 31, 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 consolidated statement of operations for the year ended December
      31, 2005 (see Notes 9 and 14 of the Notes to the Consolidated Financial
      Statements included elsewhere herein). Approximately $11,700,000 of these
      indemnifications at December 31, 2005 relate to indemnifications provided to
      a
      buyer in connection with the sale of certain former subsidiaries, including
      Ply
      Gem (see Note 10 of the Notes to the Consolidated Financial Statements included
      elsewhere herein). Accordingly, the Company has included approximately
      $5,000,000 of short-term liabilities and approximately $6,700,000 of long-term
      liabilities in accrued expenses and other long-term liabilities, respectively,
      in the accompanying consolidated balance sheet at December 31, 2005 related
      to
      these indemnifications.





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.





As
      of
      December 31, 2005, approximately $19,600,000 of letters of credit have been
      issued as additional security for (1) approximately $14,000,000 relating to
      certain of the Company’s insurance programs, (2) approximately $4,100,000
      relating to leases outstanding for certain of the Company’s manufacturing
      facilities and (3) approximately $1,500,000 relating to certain of the
      subsidiaries purchases and other requirements.





At
      December 31, 2005, the Company had approximately $77,200,000 of unrestricted
      cash and cash equivalents to fund its cash flow needs for 2006. During 2006,
      the
      Company expects that it is reasonably likely that the following major cash
      requirements will occur as compared to 2005:





**For
                the year ended December 31,****2006**
            
            **2005***(Amounts
                in thousands)*Interest
                payments, net
            
            $
            100,278
            
            $
            105,770Principal
                payments, net
            
            
            13,456
            
            
            7,092Capital
                lease obligations
            
            
            1,330
            
            
            1,232Acquisitions
            
            
            47,700
            
            
            117,200Capital
                expenditures
            
            
            45,000
            
            
            28,890Operating
                lease and other rental payments
            
            
            21,300
            
            
            21,582Income
                tax payments, net
            
            
            40,000
            
            
            15,924$
            269,064
            
            $
            297,690





The
      Company expects to meet its cash flow requirements for fiscal 2006 from cash
      from operations, existing cash and cash equivalents and the use of its Senior
      Secured Credit Facility, as needed, to fund short-term requirements, if any.





Unrestricted
      cash and cash equivalents decreased from approximately $95,000,000 at December
      31, 2004 to approximately $77,200,000 at December 31, 2005, in part, to
      partially fund the acquisitions in 2005 noted above. The Company has classified
      as restricted, in the accompanying consolidated balance sheet, certain cash
      and
      cash equivalents that are not fully available for use in its operations. At
      December 31, 2005, approximately $4,015,000 (all of which is included in
      long-term assets) of cash and cash equivalents are held primarily as collateral
      to fund future capital expenditures within the Company’s segments, as well as
      for insurance and letter of credit requirements.





Capital
      expenditures were approximately $33,700,000 (of which approximately $4,800,000
      was financed under a capital lease) for the year ended December 31, 2005 as
      compared to approximately $27,900,000 (of which approximately $2,600,000 was
      financed under a capital lease) for the combined year ended December 31, 2004.
      Capital expenditures are expected to be approximately $45,000,000 in 2006.
      Under
      Nortek’s Senior Secured Credit Facility, capital expenditures are limited to
      approximately $65,000,000 in 2006.





The
      Company’s working capital and current ratio increased from approximately
      $215,800,000 and 1.6:1 at December 31, 2004 to approximately $283,600,000 and
      1.8:1 at December 31, 2005. This increase in working capital and current ratio
      for the year ended December 31, 2005 was primarily as a result of increases
      in
      accounts receivable and inventory as noted below and a reduction in accrued
      expenses, which was partially offset by the increase in accounts payable as
      noted below and the decrease in cash due to acquisitions as noted above.





Accounts
      receivable increased approximately $46,500,000, or approximately 20.6%, between
      December 31, 2004 and December 31, 2005, while net sales increased approximately
      $103,400,000, or approximately 25.9%, in the fourth quarter of 2005 as compared
      to the fourth quarter of 2004. These increases are primarily a result of
      increased sales levels, timing of cash collections and acquisitions.
      Acquisitions contributed approximately $32,700,000 to the increase in net sales
      in the fourth quarter of 2005 and approximately $13,700,000 to the increase
      in
      accounts receivable at December 31, 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 December 31,
      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 2005.





Inventories
      increased approximately $36,800,000, or approximately 17.9%, between December
      31, 2004 and December 31, 2005 primarily as a result of increased inventory
      levels in the Home Technology Products Segment, in part, due to strong demand
      of
      certain product categories and acquisitions which contributed approximately
      $15,400,000 to the increase in inventories at December 31, 2005. The Company’s
      Air Conditioning and Heating Products Segment experienced an increase in
      residential HVAC products inventory of approximately $14,000,000 at December
      31,
      2005 as compared to December 31, 2004 principally due to an increase in 10
      SEER
      air conditioning products prior to the change in the minimum SEER rating on
      January 23, 2006. Most of this inventory was sold in January 2006.





Accounts
      payable increased approximately $21,700,000, or approximately 15.8%, between
      December 31, 2004 and December 31, 2005 due primarily to increased inventory
      levels and timing of payments. Acquisitions contributed approximately $7,300,000
      to the increase in accounts payable at December 31, 2005.





Changes
      in certain working capital accounts, as noted above, between December 31, 2004
      and December 31, 2005, differ from the changes reflected in the Company’s
      Consolidated Statement of Cash Flows for such period as a result of the specific
      items mentioned in the 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 $17,780,000 and $106,995,000
      for the year ended December 31, 2005 and for the period from August 28, 2004
      to
      December 31, 2004, respectively, and increased approximately $7,830,000 from
      January 1, 2004 to August 27, 2004, principally as a result of the following:




**Condensed
                  Consolidated Cash Flows (*)****January
                  1, 2005 -**
              
              **August
                  28, 2004 -**
              
              **January
                  1, 2004 -****December
                  31, 2005**
              
              **December
                  31, 2004**
              
              **August
                  27, 2004***(Amounts
                  in thousands)***Operating
                  Activities:**Cash flow from operations, net
              
              $
              156,757
              
              $
              23,632
              
              $
              34,246Change in accounts receivable, net
              
              
              (37,322
              )
              
              26,911
              
              
              (26,921
              )Change in inventories
              
              
              (24,290
              )
              
              1,556
              
              
              (34,337
              )Change in prepaids and other current assets
              
              
              (5,153
              )
              
              6,164
              
              
              (14,363
              )Change in accounts payable
              
              
              20,671
              
              
              (34,112
              )
              
              52,669Change in accrued expenses and taxes
              
              
              11,696
              
              
              42,149
              
              
              22,774Change in long-term deferred compensation
              
              
              (57,737
              )
              
              ---
              
              
              ---Change in assets and liabilities of discontinued
                  operations
              
              
              ---
              
              
              ---
              
              
              135**Investing
                  Activities:**Capital expenditures
              
              
              (28,890
              )
              
              (13,476
              )
              
              (11,848
              )Net cash paid for businesses acquired
              
              
              (117,200
              )
              
              (15,500
              )
              
              (16,500
              )Purchase of outstanding equity shares of the former NortekHoldings by Thomas H. Lee Partners, L.P. and affiliates
              
              
              ---
              
              
              (706,189
              )
              
              ---Payment of Acquisition fees and expenses
              
              
              ---
              
              
              (47,500
              )
              
              ---Purchase of investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              (5,000
              )Proceeds from the sale of investments and marketable
                  securities
              
              
              ---
              
              
              ---
              
              
              5,000Investing cash flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              1,756Proceeds from the sale of discontinued businesses
              
              
              ---
              
              
              ---
              
              
              526,000Proceeds from the sale of property and equipment
              
              
              10,750
              
              
              7,805
              
              
              324Change in restricted cash and investments
              
              
              (186
              )
              
              (202
              )
              
              (103
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              (8,324
              )
              
              920
              
              
              (5,370
              )Sale of the 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---
              
              
              ---Dividend to THL-Nortek Investors, LLC
              
              
              (186,970
              )
              
              ---
              
              
              ---Sale of Floating Rate Notes
              
              
              ---
              
              
              ---
              
              
              196,000Redemption of notes
              
              
              ---
              
              
              (919,300
              )
              
              (716,700
              )Net proceeds from the sale of 8 1/2% Notes
              
              
              ---
              
              
              600,873
              
              
              ---Net
                    proceeds from borrowings under the Senior Secured Credit
                    Facility
              
              
              ---
              
              
              680,823
              
              
              ---Equity
                  investment by Thomas H. Lee Partners L. P. and affiliates
              
              
              ---
              
              
              361,841
              
              
              ---Settlement of stock options
              
              
              ---
              
              
              (113,032
              )
              
              ---Financing cash flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              (97
              )Other,
                  net
              
              
              3,710
              
              
              (10,358
              )
              
              165$
              (17,780
              )
              $
              (106,995
              )
              $
              7,830


(*) Summarized
      from the Company’s Consolidated Statement of Cash Flows for the year ended
      December 31, 2005 and the periods from August 28, 2004 to December 31, 2004
      and
      from January 1, 2004 to August 27, 2004 (see Nortek, Inc. and Subsidiaries
      Consolidated 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.





Income
      tax payments, net of refunds were approximately $15,900,000 in 2005. At December
      31, 2005, the Company has approximately $37,000,000 of foreign net operating
      loss carryforwards that if utilized would offset future foreign tax payments.
      In
      addition, the Company has a federal net operating loss carryforward of
      approximately $9,100,000 (tax effect of $3,200,000) and an alternative minimum
      tax credit carryforward of approximately $3,000,000 at December 31, 2005. See
      Notes 4 and 5 of the Notes to the Consolidated Financial Statements included
      elsewhere herein.





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





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





The
      following table presents a reconciliation from net cash provided by (used in)
      operating activities, which is the most directly comparable GAAP liquidity
      measure, to EBITDA for the periods presented:


**For
                  the Periods****Pre-****Post-Acquisition**
              
              
              
              **Pre-Acquisition**
              
              **Recapitalization****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Net
                  cash used in operating activities ***
              
              $
              70,721
              
              $
              56,205
              
              $
              35,038
              
              $
              146,242
              
              $
              (5,352
              )Cash
                  used by working capital andother long-term asset and liability changes
              
              
              86,036
              
              
              (32,573
              )
              
              (792
              )
              
              (16,063
              )
              
              12,853Non-cash
                  interest expense, net
              
              
              (29,913
              )
              
              (4,096
              )
              
              (24,671
              )
              
              (6,352
              )
              
              (125
              )Effect
                  of the Acquisition, net
              
              
              ---
              
              
              ---
              
              
              (38,423
              )
              
              ---
              
              
              ---Effect
                  of the Recapitalization, net
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (62,397
              )Non-cash
                  stock-based compensation
              
              
              (324
              )
              
              (108
              )
              
              (48,561
              )
              
              (2,071
              )
              
              ---Gain
                  on sale of property and equipment
              
              
              1,549
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )
              
              ---
              
              
              ---Gain
                  on sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              125,200
              
              
              ---
              
              
              ---Deferred
                    federal income tax provision (benefit)from continuing
                    operations
              
              
              (25,300
              )
              
              (1,000
              )
              
              46,900
              
              
              4,800
              
              
              (5,900
              )Operating
                    cash flows fromdiscontinued operations
              
              
              ---
              
              
              ---
              
              
              (532
              )
              
              (20,049
              )
              
              (334
              )Deferred
                  federal income tax provision (benefit)from discontinued operations
              
              
              ---
              
              
              ---
              
              
              18,500
              
              
              (500
              )
              
              ---Provision
                    (benefit) for income taxesfrom continuing
                    operations
              
              
              43,200
              
              
              3,500
              
              
              (41,400
              )
              
              41,400
              
              
              (21,800
              )Provision
                    (benefit) for income taxesfrom discontinued
                    operations
              
              
              ---
              
              
              500
              
              
              45,500
              
              
              7,400
              
              
              (600
              )Interest
                  expense from continuing operations **
              
              
              138,578
              
              
              42,487
              
              
              56,073
              
              
              57,376
              
              
              1,049Interest
                  expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              4,609
              
              
              38,984
              
              
              1,239Investment
                  income from continuing operations
              
              
              (1,818
              )
              
              (325
              )
              
              (1,520
              )
              
              (1,482
              )
              
              (119
              )Investment
                  income from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (52
              )
              
              (196
              )
              
              (2
              )Depreciation
                    expense fromdiscontinued operations
              
              
              ---
              
              
              ---
              
              
              1,212
              
              
              10,929
              
              
              250Amortization
                  expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              201
              
              
              5,327
              
              
              73**EBITDA**
              
              $
              282,729
              
              $
              64,590
              
              $
              46,546
              
              $
              265,745
              
              $
              (81,165
              )




*
              Net cash used in operating
                  activities
                  includes approximately $(500,000), $67,400,000, $12,100,000 and
                  $(1,000,000) of earnings (loss) from discontinued operations for
                  the
                  periods from August 28, 2004 to December 31, 2004, from January
                  1, 2004 to
                  August 27, 2004, from January 10, 2003 to December 31, 2003 and
                  from
                  January 1, 2003 to January 9, 2003, respectively (see Note 10 of
                  the Notes
                  to the Consolidated Financial Statements included elsewhere
                  herein).
 
 EBITDA for the period from
                  January 1, 2004
                  to August 27, 2004 includes approximately $83,700,000 (which includes
                  approximately $45,200,000 of the $48,500,000 of stock-based compensation
                  expense noted above) of expenses and charges arising from the Acquisition
                  and approximately $130,700,000 of loss on debt retirement, which
                  are
                  recorded in earnings (loss) from continuing operations (see Notes
                  6 and 14
                  of the Notes to the Consolidated Financial Statements included
                  elsewhere
                  herein). EBITDA for the period from January 1, 2004 to August 27,
                  2004
                  also includes approximately $6,400,000 of stock-based employee
                  compensation charges related to the former Nortek Holdings’ stock options
                  retained by employees of Ply Gem subsequent to the sale of Ply
                  Gem, which
                  are recorded in earnings from discontinued operations (see Notes
                  1 and 10
                  of the Notes to the Consolidated Financial Statements included
                  elsewhere
                  herein).
 
 EBITDA
                  for the period from January 1, 2003 to January 9, 2003 includes
                  approximately $83,000,000 of expenses and charges arising from
                  the
                  Recapitalization and for the period from January 10, 2003 to December
                  31,
                  2003 includes approximately $2,000,000 of stock-based compensation,
                  both
                  of which are recorded in earnings (loss) from continuing operations.
                  EBITDA for the period from January 10, 2003 to December 31, 2003
                  includes
                  approximately $100,000 of stock-based compensation in earnings
                  from
                  discontinued operations (see Notes 1, 2 and 10 of the Notes to
                  the
                  Consolidated Financial Statements included elsewhere
                  herein).
 
 **
              Interest
                  expense from continuing operations for the year ended December
                  31, 2005
                  includes cash interest of approximately $108,665,000 and non-cash
                  interest
                  of approximately $29,913,000, interest expense from continuing
                  operations
                  for the period from August 28, 2004 to December 31, 2004 includes
                  cash
                  interest of approximately $38,391,000 and non-cash interest of
                  approximately $4,096,000, interest expense from continuing operations
                  for
                  the period from January 1, 2004 to August 27, 2004 includes cash
                  interest
                  of approximately $31,402,000 and non-cash interest of approximately
                  $24,671,000, interest expense from continuing operations for the
                  period
                  from January 10, 2003 to December 31, 2003 includes cash interest
                  of
                  approximately $51,024,000 and non-cash interest of approximately
                  $6,352,000 and interest expense from continuing operations for
                  the period
                  from January 1, 2003 to January 9, 2003 includes cash interest
                  of
                  approximately $924,000 and non-cash interest of approximately
                  $125,000.





**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.





Effective
      January 23, 2006, the minimum seasonal energy efficiency rating for residential
      central air conditioners (“SEER”) was raised to 13 SEER by the Department of
      Energy. The prior minimum was 10 SEER. The Company’s Air Conditioning and
      Heating Products Segment currently produces residential central air conditioners
      with a 13 SEER efficiency rating and continues to focus on product improvements
      including energy efficiency as part of its engineering and manufacturing
      efforts. The Company does not expect any significant adverse effect on its
      business subsequent to January 23, 2006 as a result of the increase in the
      minimum SEER rating.




As
        of
        December 31, 2005, approximately 11.5% 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 and were
        subsequently renewed on January 19, 2006, extending into 2007.
 
 On
        June
        8, 2005 the Company’s collective bargaining agreement with the United Automobile
        Aerospace & Agricultural Implement Workers of America and its Local No. 2029
        expired. That agreement is estimated, at December 31, 2005, to cover
        approximately 4.9% of the Company’s employees (420 employees) which are located
        at the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc. 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.
        On
        September 6, 2005, the Company notified the union bargaining committee that
        negotiations had reached an impasse and that it was unilaterally implementing
        the terms of its final offer. On March 6, 2006, the Company received notice
        that
        the union filed an unfair labor practice charge with the US National Labor
        Relations Board claiming that the Company had not bargained to impasse and
        that,
        from and after September 6, 2005, it had failed to bargain collectively and
        in
        good faith. The Company denies and will vigorously challenge such allegations.
        The Company’s management has provided temporary manufacturing support to ensure
        that operational disruptions are minimized and the Company’s customers’ needs
        are met without significant delay. NuTone’s operating results are included in
        the Company’s Residential Ventilation Products Segment. See Note 8 of the Notes
        to the Consolidated Financial Statements, Item 8 of Part II of this report,
        incorporated herein by reference.
 
 A
        work
        stoppage at one of the Company’s facilities that lasts for a significant period
        of time could cause the Company to lose sales, incur increased costs and
        adversely affect its ability to meet customers’ needs. A plant shutdown or a
        substantial modification to a collective bargaining agreement could result
        in
        material gains and losses or the recognition of an asset impairment. As
        agreements expire, until negotiations are completed, it is not known whether
        the
        Company will be able to negotiate collective bargaining agreements on the
        same
        or more favorable terms as the current agreements or at all and without
        production interruptions, including labor stoppages.


**Market
      Risk**





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





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





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





The
      Company’s investing strategy, to manage interest rate exposure, is to invest in
      short-term, highly liquid investments and marketable securities. Short-term
      investments primarily consist of federal agency discount notes, treasury bills
      and bank issued money market instruments with original maturities of 90 days
      or
      less. At December 31, 2005, the fair value of the Company’s unrestricted and
      restricted investments and marketable securities was not materially different
      from their cost basis.





The
      Company manages its borrowing exposure to changes in interest rates by
      optimizing the use of fixed rate debt with extended maturities. At December
      31,
      2005, approximately 57.3% of the carrying values of the Company’s long-term debt
      was at fixed interest rates.





See
      the
      table set forth in item D (Long-term Debt) below and Notes 1 and 6 of the Notes
      to the Consolidated Financial Statements included elsewhere herein for further
      disclosure of the terms of the Company’s debt.





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





The
      Company’s results of operations are affected by fluctuations in the value of the
      U.S. dollar as compared to the value of currencies in foreign markets primarily
      related to changes in the Euro, the Canadian Dollar and the British Pound.
      In
      2005, the net impact of foreign currency changes was not material to the
      Company’s financial condition or results of operations. The impact of foreign
      currency changes related to translation resulted in an decrease in stockholder’s
      investment of approximately $1,659,000 for the year ended December 31, 2005.
      The
      Company manages its exposure to foreign currency exchange risk principally
      by
      trying to minimize the Company’s net investment in foreign assets, including,
      the use of strategic short and long-term borrowings at the foreign subsidiary
      level. Consistent with this strategy, notes payable and other short- term
      obligations at December 31, 2005 consist primarily of short-term borrowings
      by
      certain of the Company’s foreign subsidiaries. At December 31, 2005, the
      Company’s net investment in foreign assets was approximately $127,600,000. An
      overall unfavorable change in foreign exchange rates of 10% would result in
      an
      approximate $11,600,000 reduction in equity as a result of the impact on the
      cumulative translation adjustment. The Company generally does not enter into
      derivative financial instruments to manage foreign currency exposure. At
      December 31, 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, glass and aluminum. If prices of these raw materials were
      to
      increase dramatically, the Company may not be able to pass such increases on
      to
      its customers and, as a result, gross margins could decline significantly.
      The
      Company manages its exposure to commodity pricing risk by continuing to
      diversify its product mix, strategic buying programs and vendor partnering.





The
      Company generally does not enter into derivative financial instruments to manage
      commodity-pricing exposure. At December 31, 2005, the Company did not have
      any
      material outstanding commodity forward contracts.





**D.**  **Long-term
      Debt**





The
      table
      that follows sets forth as of December 31, 2005, the Company’s long-term debt
      obligations, principal cash flows by scheduled maturity, weighted average
      interest rates and estimated fair market values. Less than approximately 1.0%
      of
      the Company’s total long-term indebtedness is denominated in foreign currencies.
      The weighted average interest rates for variable rate debt are based on December
      31, 2005 interest rates.





**Long-term
      Debt:**




**Scheduled
                Maturity**
            
            **Average
                Interest Rate****Fixed**
            
            **Variable**
            
            
            
            **Fixed**
            
            **Variable****Year-ending**
            
            **Rate**
            
            **Rate**
            
            **Total**
            
            **Rate**
            
            **Rate**
            
            **Total***(Dollar
                amounts in millions)*December
                31,2006
            
            $
            6.5
            
            $
            8.3
            
            $
            14.8
            
            6
            .2%
            
            7
            .1%
            
            6
            .7%2007
            
            
            9.7
            
            
            8.6
            
            
            18.3
            
            6
            .2
            
            6
            .4
            
            6
            .32008
            
            
            1.4
            
            
            8.6
            
            
            10.0
            
            6
            .9
            
            6
            .4
            
            6
            .42009
            
            
            1.5
            
            
            8.6
            
            
            10.1
            
            6
            .9
            
            6
            .4
            
            6
            .52010
            
            
            1.7
            
            
            171.1
            
            
            172.8
            
            7
            .0
            
            6
            .9
            
            6
            .9Thereafter
            
            
            921.2
            
            
            496.2
            
            
            1,417.4
            
            9
            .2
            
            6
            .9
            
            8
            .4Total
                Long-term Debt at December 31, 2005 (1)
            
            $
            942.0
            
            $
            701.4
            
            $
            1,643.4
            
            9
            .1%
            
            6
            .9%
            
            8
            .1%Fair
                Market Value of Long-term debt at December 31, 2005
            
            $
            900.6
            
            $
            701.4
            
            $
            1,602.0





(1) Includes
      the Company’s 10 3/4% Senior Discount Notes with an aggregate principal amount
      at maturity of approximately $403,000,000 due on March 1, 2014. The carrying
      value of the 10 3/4% Senior Discount Notes was approximately $274,597,000 at
      December 31, 2005, which is being accreted to the principal amount through
      September 2009.





Includes
      Nortek’s Senior Subordinated Notes with a total principal amount of
      approximately $634,965,000 and a weighted average fixed interest rate of
      approximately 8.5%. The Senior Subordinated Notes mature at various times from
      2011 through 2014.





Also
      includes Nortek’s Senior Secured
      Term Loan with a total principal amount of approximately $691,250,000 and a
      weighted average variable interest rate of approximately 7.0%. The Company’s
      Senior Secured Term loan matures at various times through 2011. (See Liquidity
      and Capital Resources and Note 6 the Notes to the Consolidated Financial
      Statements included elsewhere herein for further information surrounding the
      Company’s outstanding debt obligations.)





**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-K, 10-Q and
      8-K,
      filed with the SEC.





**Item
      7A. 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
      8. Financial Statements and Supplementary Data.**





Financial
      statements and supplementary data required by this Item 8 are set forth at
      the
      pages indicated in Item 15(a), including exhibits, of Part IV of this report,
      incorporated herein by reference.





**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





Not
      applicable.





**Item
      9A. Controls and Procedures.**





An
      evaluation of the Company’s disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the
      supervision and with the participation of the Company’s Chairman and Chief
      Executive Officer along with the Company’s Vice President and Chief Financial
      Officer and the members of the Company’s Disclosure and Controls Committee. The
      Company’s Chairman and Chief Executive Officer along with the Company’s Vice
      President and Chief Financial Officer concluded that the company’s disclosure
      controls and procedures, as of the end of the period covered by this annual
      report on Form 10-K, are effective in ensuring that the information required
      to
      be disclosed by the Company in the reports it files or submits to the SEC,
      is
      (i) accumulated and communicated to the Company’s management (including the
      Chief Executive Officer and Chief Financial Officer) to allow timely decisions
      regarding required disclosure, and (ii) recorded, processed, summarized and
      reported within the time periods specified in the Commission’s rules and
      forms.





**Item
      9B. Other Information.**





None.





**PART
      III**





**Item
      10. Directors and Executive Officers of the Registrant.**





**Directors
      of the Registrant**





NTK
      Holdings, Inc. is the sole stockholder of Nortek Holdings, Inc., which is the
      sole stockholder of Nortek, Inc. NTK Holdings, Inc. is a wholly-owned subsidiary
      of Investors LLC, whose members include affiliates of Thomas H. Lee Partners,
      L.P. and members of the Company’s senior management. Each member of the
      management committee of Investors LLC is also a director of NTK Holdings. For
      more information, see “Certain Relationships and Related Transactions -
      Securityholders Agreement”.





The
      following table sets forth the names of the Company’s directors, their
      positions, ages and the year each of them became a director of NTK Holdings
      and
      Nortek:





Name
            Principal
                Occupation
            Age
            NTK
                Holdings
              Director
                Since
            Nortek
              Director
                SinceRichard
                L. Bready
            Chairman,
                President and Chief Executive Officer
                of the Company
            61
            2004
            1976Jeffrey
                C. Bloomberg
            Director
            58
            2005
            2005Joseph
                M. Cianciolo
            Director
            66
            2005
            2003Anthony
                J. DiNovi
            Director
            43
            2005
            2004David
                V. Harkins
            Director
            65
            2005
            2004David
                B. Hiley
            Director
            67
            2005
            2003Kent
                R. Weldon
            Director
            38
            2005
            2004





*Richard
      L. Bready* has
      served as Chairman of the Board, Chief Executive Officer and President of NTK
      Holdings since November 2004 and of Nortek since December 1990. Mr. Bready
      joined Nortek as Treasurer in 1975 and was elected Director in 1976. Prior
      to
      joining Nortek, Mr. Bready was an independent financial consultant and an audit
      manager at a major public accounting firm.





*Jeffrey
      C. Bloomberg* has been
      a member of the Board of Directors of both NTK Holdings and Nortek since April
      19, 2005. Mr. Bloomberg was previously a member of Nortek’s Board of Directors
      from January 9, 2003 to August 27, 2004. Mr. Bloomberg has served since 2001
      in
      the Office of the Chairman of Gordon Brothers Group LLC, a company which assists
      retail and consumer goods companies in asset redeployment and providing capital
      solutions to middle market companies in the retail and consumer product
      industries. From 1994 to 2001, Mr. Bloomberg served as the President of
      Bloomberg Associates, an investment banking company. Mr. Bloomberg is a director
      of Tweeter Home Entertainment Group, Inc.





*Joseph
      M. Cianciolo* has been
      a member of the Board of Directors of NTK Holdings since February 2005 and
      of
      Nortek since 2003. Mr. Cianciolo retired in June 1999 as the managing partner
      of
      the Providence, Rhode Island office of KPMG LLP. At the time of his retirement,
      Mr. Cianciolo had been a partner of KPMG LLP since 1970. Mr. Cianciolo currently
      serves as a director of United Natural Foods, Inc. and Eagle Bulk Shipping,
      Inc.





*Anthony
      J. DiNovi* has been
      a member of the Board of Directors of NTK Holdings since February 2005 and
      of
      Nortek since August 27, 2004. Mr. DiNovi is a Co-President of Thomas H. Lee
      Partners, L.P. Prior to joining Thomas H. Lee Partners, L.P. in 1988, Mr. DiNovi
      was in the corporate finance departments of Goldman, Sachs & Co. and
      Wertheim Schroder & Co., Inc. Mr. DiNovi currently serves as a director of
      American Media, Inc., Dunkin Brands, Inc., Michael Foods, Inc., US LEC
      Corporation and Vertis, Inc.





*David
      V. Harkins* has been
      a member of the Board of Directors of NTK Holdings since February 2005 and
      of
      Nortek since August 27, 2004. Mr. Harkins currently serves as Vice Chairman
      of
      Thomas H. Lee Partners, L.P. Mr. Harkins also served briefly as the interim
      Chief Executive Officer of Conseco, Inc., an insurance and financial services
      company, from April 2000 until June 2000. Mr. Harkins is currently a director
      of
      National Dentex Corporation.





*David
      B. Hiley* has been
      a member of the Board of Directors of NTK Holdings since February 2005 and
      of
      Nortek since 2003 and has been a financial consultant since 1991. From April
      1,
      1998 through March 1, 2000, Mr. Hiley served as Executive Vice President and
      Chief Financial Officer of Koger Equity, Inc., a real estate investment trust.
      Prior to that, he was head of investment banking at Thomson McKinnon Securities.
      Mr. Hiley currently serves as a director of Eagle Bulk Shipping,
      Inc.





*Kent
      R. Weldon* has been
      a member of the Board of Directors of NTK Holdings since February 2005 and
      of
      Nortek since August 27, 2004. Mr. Weldon is a Managing Director of Thomas H.
      Lee
      Partners, L.P. Mr. Weldon was employed by Thomas H. Lee Partners, L.P. from
      1991
      until 1993 and has been employed by THL since 1995, when he rejoined the firm.
      Prior to joining Thomas H. Lee Partners, L.P., Mr. Weldon worked in the
      corporate finance department at Morgan Stanley & Co. Incorporated. Mr.
      Weldon currently serves as a director of FairPoint Communications, Inc., Michael
      Foods, Inc., and Progressive Moulded Products, Ltd.





**Executive
      Officers of the Company**





The
      following table sets forth the names of the executive officers of the Company,
      their positions, and ages:





Name
            Age
            PositionRichard
                L. Bready
            61
            Chairman,
                President and Chief Executive OfficerAlmon
                C. Hall
            59
            Vice
                President and Chief Financial OfficerEdward
                J. Cooney
            58
            Vice
                President and TreasurerKevin
                W. Donnelly
            51
            Vice
                President, General Counsel and SecretaryBryan
                L. Kelln
            40
            Vice
                President - Operations





Messrs.
      Bready, Hall and Donnelly have served in the same or substantially similar
      executive positions with Nortek for at least the past five years and with NTK
      Holdings since February 10, 2005.





Mr.
      Cooney served as Senior Vice President-Chief Financial Officer and Executive
      Vice President Sales and Marketing at Amtrol Inc. and as Chief Financial Officer
      at Speidel Inc. prior to joining Nortek in August 2001.





On
      June
      13, 2005, the Company appointed Bryan L. Kelln to the newly created position
      of
      Vice President-Operations. Prior to joining the Company, Mr. Kelln served as
      President of Jacuzzi, Inc.; as Operating Executive of The Jordan Company; as
      President and CEO of RockShox, Inc.; and as Senior Vice President at General
      Cable Corporation. Mr. Kelln currently serves as a director of Sensus Metering
      Systems, Inc. See “Executive Compensation - Employment Contracts and Termination
      of Employment and Change of Control Arrangements - Agreement with Bryan L.
      Kelln”.





Executive
      officers are elected annually by the Company’s board of directors and serve
      until their successors are chosen and qualified. The Company’s executive
      officers include only those officers of the Company who perform policy-making
      functions for the Company as a whole and have managerial responsibility for
      major policy-making functions for the Company as a whole and have managerial
      responsibility for major aspects of the Company’s overall operations. A number
      of other individuals who serve as officers of the Company’s subsidiaries perform
      policy-making functions and have managerial responsibilities for the subsidiary
      or division by which they are employed, although not for Nortek overall. Certain
      of these individuals could, depending on earnings of such unit, be more highly
      compensated than some executive officers of the Company.





**Audit
      Committee Financial Expert**





The
      Company’s board of directors has an audit committee currently comprised of
      Joseph M. Cianciolo, Jeffrey C. Bloomberg and David B. Hiley. Although the
      Company is not a “listed issuer” within the meaning of Rule 10A-3 under the
      Exchange Act, the Company’s board of directors has determined that Mr. Cianciolo
      would be considered an “independent” director within the meaning of the rules of
      the New York Stock Exchange for listed companies and within the meaning of
      Rule
      10A-3 under the Exchange Act. In addition, Mr. Cianciolo is an audit committee
      financial expert as that term is used in Item 401(h)(2) of Regulation S-K
      adopted by the Securities and Exchange Commission.





**Code
      of Ethics**





The
      Company has adopted a code of ethics that applies to its President and Chief
      Executive Officer, Vice President and Chief Financial Officer, Vice President
      and Treasurer, Vice President and Controller and other persons performing
      similar functions as identified by the President and Chief Executive Officer.
      The Company filed a copy of its code of ethics as Exhibit 14 to this Form
      10-K.





**Item
      11. Executive Compensation.**





**Summary
      Compensation Table**





The
      following table sets forth, on an accrual basis, information concerning the
      compensation for services to the Company and its subsidiaries for 2005, 2004
      and
      2003 of those persons who were, at December 31, 2005, the Chief Executive
      Officer and the other four most highly compensated executive officers of the
      Company (who together constitute all of the Company’s executive officers at
      December 31, 2005).





**Long-Term
                Compensation****Annual
                Compensation**
            
            **Awards**
            
            **Payouts****Name
                and**
              **Principal
                Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Other
                Annual**
              **Compensation
                (1)**
            
            **Securities**
              **Underlying**
              **Options**
            
            **LTIP**
              **Payouts**
            
            **All
                Other**
              **Compensation
                (2)**Richard
                L. Bready (3)
              Chairman,
                President and
              Chief
                Executive Officer
            
            
            2005
              2004
              2003
            
            $
            3,500,000
              2,833,333
              2,500,000
            
            $
            ---
              3,278,689
              5,000,000
            
            $
            190,999
              66,858
              295,351
            
            
            ---
              ---
              1,869,149
            
            $
            ---
              ---
              ---
            
            $
            40,393,202
              10,584,332
              127,331Almon
                C. Hall (3)
              Vice
                President and
              Chief
                Financial Officer
            
            
            2005
              2004
              2003
            
            $
            450,000
              430,000
              410,000
            
            $
            725,000
              725,000
              725,000
            
            $
            ---
              ---
              ---
            
            
            ---
              ---
              147,900
            
            $
            ---
              ---
              ---
            
            $
            3,132,834
              787,744
              114,760Kevin
                W. Donnelly (3)
              Vice
                President, General
              Counsel
                and Secretary
            
            
            2005
              2004
              2003
            
            $
            300,000
              280,000
              265,000
            
            $
            400,000
              350,000
              350,000
            
            $
            ---
              ---
              ---
            
            
            ---
              ---
              96,047
            
            $
            ---
              ---
              ---
            
            $
            1,927,078
              16,150
              69,000Edward
                J. Cooney
              Vice
                President and
              Treasurer
            
            
            2005
              2004
              2003
            
            $
            270,000
              255,000
              240,000
            
            $
            300,000
              250,000
              250,000
            
            $
            ---
              ---
              ---
            
            
            ---
              ---
              42,500
            
            $
            ---
              ---
              ---
            
            $
            806,161
              67,150
              64,000Bryan
                  L. Kelln (4)
                Vice President-Operations
            
            
            2005
              2004
              2003
            
            $
            221,213
              ---
              ---
            
            $
            200,000
              ---
              ---
            
            $
            ---
              ---
              ---
            
            
            ---
              ---
              ---
            
            $
            ---
              ---
              ---
            
            $
            188,245
              ---
              ---





(1)
            Except
                for Mr. Bready in 2005, 2004 and 2003, the aggregate amount of any
                compensation in the form of perquisites and other personal benefits
                paid
                in each of the years, based on the Company’s incremental cost, did not
                exceed the lesser of 10% of any executive officer’s annual salary and
                bonus or $50,000. The amount for Mr. Bready in 2005 includes $106,731
                relating to executive health reimbursement provided by the Company.
                The
                amount for Mr. Bready in 2004 includes $43,641 relating to personal
                use of
                automobiles provided by the Company and in 2003 includes $246,142
                relating
                to installation of Company products.





(2)
            The
                amounts in 2003, for each of Messrs. Bready and Hall, include premiums
                paid by the Company for split dollar life insurance agreements between
                the
                Company and each of them, of which $31,791 and $49 represent the
                term life
                portion of the premiums and $79,540 and $16,711 represent the non-term
                portion, in each case for Messrs. Bready and Hall, respectively.
                Subsequent to 2003, these agreements were terminated and upon the
                consummation of the THL Transaction, four “split dollar” life insurance
                policies with an aggregate cash surrender value of $8,598,749 held
                by the
                Company were transferred to Mr. Bready and one “split dollar” life
                insurance policy with a cash surrender value of $539,426 held by
                the
                Company was transferred to Mr.
                Hall.





For
      2005,
      includes payments of $40,376,422, $3,116,034, $1,900,278 and $789,361 made
      to
      Messrs. Bready, Hall, Donnelly and Cooney, respectively, under the Deferred
      Compensation Plan of Nortek Holdings. For more information, see “Deferred
      Compensation Plan of Nortek Holdings”.





For
      2004,
      includes $639,518 and $231,168 paid to Messrs. Bready and Hall, respectively
      in
      connection with “lump-sum” cash payments from a former deferred compensation
      plan of Nortek that was terminated upon the consummation of the THL
      Transaction.





For
      2004,
      includes $1,329,915 in loan forgiveness for Mr. Bready under a ten-year loan
      made to Mr. Bready by the Company in 1997. The entire balance was forgiven
      upon
      the consummation of the THL Transaction.





Includes
      change in control payments to Mr. Cooney of $51,000 made in 2004 in connection
      with the THL Transaction and for each of Messrs. Hall, Donnelly and Cooney,
      includes change in control payments of $82,000, $53,000 and $48,000,
      respectively, made in 2003 in connection with the recapitalization of the former
      Nortek Holdings, Inc. in January 2003.





Includes
      $6,300 in matching contributions and $10,500 in profit sharing contributions
      by
      the Company in 2005 for Messrs. Bready, Hall, Donnelly and Cooney under the
      Company’s 401(k) Savings Plan, which is a defined contribution retirement plan.
      Includes $6,150 in matching contributions and $10,000 in profit sharing
      contributions by the Company in 2004 for each of Messrs. Bready, Hall, Donnelly
      and Cooney under the plan. Includes $6,000 in matching contributions and $10,000
      in profit sharing contributions by the Company in 2003 for each of Messrs.
      Bready, Hall, Donnelly and Cooney under the plan.





For
      2005,
      includes a payment of $188,245 made to Mr. Kelln as reimbursement for certain
      relocation expenses.





(3)
              On
                  August 27, 2004, each of Messrs. Bready, Hall and Donnelly entered
                  into
                  amended and restated employment agreements with the Company and
                  Nortek
                  Holdings. For more information, see “Employment Contracts and Termination
                  of Employment and Change in Control Agreements - Amended and Restated
                  Employment Agreement of Richard L. Bready” and “Employment Contracts and
                  Termination of Employment and Change in Control Agreements - Amended
                  and
                  Restated Employment Agreements of Almon C. Hall and Kevin W.
                  Donnelly”.
 
 (4)
              On June 13, 2005, the Company appointed Bryan
                L. Kelln to
                the newly created position of Vice President -
                Operations.







**Options
      Sold or Surrendered in Connection with the THL Transaction**





Prior
      to
      the THL Transaction, 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, Inc. 2002 Stock Option Plan. Certain members of Nortek’s
      management, who would have been entitled to receive cash payments upon
      consummation of the THL Transaction in respect of these options, instead sold
      a
      portion of those options to THL Buildco 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. For purposes of the plan, the value of the stock options cancelled
      was equal to the excess of the fair market 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 nonqualified, unfunded obligation of Nortek Holdings.
      Distributions to participants under the plan proportionately track distributions
      made to the Class A units of the Investors LLC. In connection with the THL
      Transaction, the former Nortek Holdings, Inc. 2002 Stock Option Plan was
      terminated. See “Capitalization”, “Employment Contracts and Termination of
      Employment and Change in Control Arrangements - Deferred Compensation Plan
      of
      Nortek Holdings” and “Certain Relationships and Related Transactions - Limited
      Liability Company Agreement of Investors LLC”.





**Options
      Granted in Last Fiscal Year**





No
      stock
      options were granted to the named executive officers in 2005.





**Aggregated
      Option Exercises in Last Fiscal Year**





No
      stock
      options were exercised by the named executive officers in 2005.





**Pension
      and Similar Plans**





Nortek’s
      qualified pension plan (the “Pension Plan”) was frozen as of December 31, 1995,
      and no further increases in benefits may occur as a result of increases in
      service or compensation. The benefit payable to a participant at normal
      retirement equals the accrued benefit as of December 31, 1995 and will be
      payable as a joint and 50% survivor annuity in the case of a married employee
      and as a single-line annuity in the case of an unmarried employee. The annual
      pension benefits entitled to be paid to the executive officers beginning at
      age
      65 under the Pension Plan are as follows: Mr. Bready $160,922, Mr. Hall $52,163,
      and Mr. Donnelly $15,574.





**Compensation
      of Directors**





For
      their
      services as directors, the Company’s directors who are not officers, employees
      or consultants of the Company or its subsidiaries, or of Thomas H. Lee Partners,
      L.P., receive directors’ fees from the Company. The fees payable to those
      directors are a $50,000 annual retainer, payable quarterly in advance, a $1,500
      per meeting ($1,000 if director participates by telephone) fee and a $1,000
      per
      committee meeting ($750 if director participates by telephone) fee.





**Employment
      Contracts and Termination of Employment and Change-in-Control
      Arrangements**





*Amended
      and Restated Employment Agreement of Richard L. Bready*





Upon
      the
      consummation of the THL Transaction, Mr. Bready’s existing employment agreement
      was amended and restated. As amended and restated, his agreement has an initial
      term commencing on August 27, 2004 and concluding on December 31, 2009,
      renewable thereafter for successive one-year terms unless Nortek and Nortek
      Holdings provide Mr. Bready with written notice of their intent not to renew
      the
      agreement at least 90 days prior to the end of the initial term or any
      successive term. The amended and restated employment agreement provides that
      during the employment term Mr. Bready will serve as Chairman and Chief Executive
      Officer of Nortek and Nortek Holdings.





The
      amended and restated employment agreement provides that the basic annual salary
      for Mr. Bready during the employment term will be not less than $3,500,000,
      subject to increase at the board of directors’ discretion. Mr. Bready was paid a
      cash performance bonus award under the amended and restated employment agreement
      for the period beginning on January 1, 2004 and ending on the closing date
      of
      the THL Transaction of approximately $3,300,000. Mr. Bready will not be eligible
      for any cash performance bonus awards for any period subsequent to the closing
      date of the THL Transaction, unless the board in its sole discretion determines
      otherwise. In addition, Mr. Bready is entitled to receive all other benefits,
      including medical and dental plan participation, generally available to
      executive personnel. Mr. Bready also is entitled to two automobiles and
      reimbursement of associated costs and the use, or reimbursement of the cost,
      of
      private aircraft transportation for business travel and up to 50 hours per
      year
      of personal travel. Under the amended and restated employment agreement, Mr.
      Bready received one-third of the 70,767.07 Class C-1 units and Class C-2 units
      initially authorized by the Investors LLC. For more information on the
      allocation of units initially authorized by Investors LLC, please see “Certain
      Relationships and Related Transactions - Limited Liability Company Agreement
      of
      Investors LLC”.





Under
      the
      amended and restated employment agreement, if the employment of Mr. Bready
      is
      terminated:





·
            by
                Nortek and Nortek Holdings without “cause”, as defined in the amended and
                restated employment agreement,


·
            by
                Mr. Bready for “good reason”, as defined in the amended and restated
                employment agreement,


·
            as
                a result of any notice from Nortek and Nortek Holdings not to renew
                his
                employment as described above, or


·
            as
                a result of his disability or
                death,





then
      Nortek and Nortek Holdings are obligated to provide Mr. Bready or, in the event
      of death, his designated beneficiary or estate, severance pay at the rate of
      $1,750,000 per year and other specified benefits and perquisites, including
      long-term disability insurance, for the period equal to the longer
      of:





·
            one
                year from the date of such termination,
                or


·
            the
                remaining period of the initial employment
                term.





Under
      the
      amended and restated employment agreement, (i) if Mr. Bready’s employment is
      terminated by Nortek and Nortek Holdings without cause, or as a result of
      non-renewal by Mr. Bready for good reason or as a result of disability, he
      will
      be prohibited from competing with Nortek and Nortek Holdings for the longer
      of
      one year or the period from the date of termination through December 31, 2009
      and (ii) if Mr. Bready’s employment is terminated by Nortek and Nortek Holdings
      with cause or as a result of resignation without good reason, he will be
      prohibited from competing with Nortek and Nortek Holdings for one
      year.





Under
      the
      amended and restated employment agreement, following the termination of
      employment of Mr. Bready for any reason, Nortek and Nortek Holdings are required
      to provide, at no additional cost to Mr. Bready, up to $1,000,000 (not including
      any additional tax gross-up payment as described below) in lifetime medical
      coverage to Mr. Bready, his spouse and dependents. In lieu of lifetime medical
      coverage, Mr. Bready or his spouse may request a lump-sum payment in an amount
      to be established by the board of directors as reasonably sufficient to provide
      such coverage. Nortek and Nortek Holdings are also required to make a “gross-up”
payment to Mr. Bready to cover any and all state and federal income taxes that
      may be due as a result of the provision of such lifetime medical coverage or
      lump-sum payment.





If
      it is
      determined that any payment or benefit provided by Nortek, Nortek Holdings
      or
      any of their predecessors to Mr. Bready under his amended and restated
      employment agreement or any other agreement or plan, whether paid before or
      after the date of his amended and restated employment agreement, is subject
      to
      the 20% excise tax imposed by Section 4999 of the Internal Revenue Code, Nortek
      and Nortek Holdings are required to make an additional lump-sum “gross-up”
payment to Mr. Bready sufficient, after giving effect to all federal, state
      and
      other taxes and charges with respect to that payment, to restore him to the
      same
      after-tax position that he would have been in if the excise tax had not been
      imposed.





Pursuant
      to Mr. Bready’s amended and restated employment agreement, the outstanding
      principal balance (and accrued interest thereon) totaling $1,329,915 of a
      ten-year loan made to Mr. Bready by Nortek in 1997 in the original principal
      amount of $3,000,000 was forgiven upon consummation of the THL Transaction.
      Upon
      consummation of the THL Transaction, four “split dollar” life insurance
      policies, with an aggregate cash surrender value of $8,598,749, held by Nortek
      were transferred to Mr. Bready. Also upon consummation of the THL Transaction,
      Mr. Bready received a lump-sum cash payment in the amount of $639,518 in respect
      of obligations by Nortek under a deferred compensation agreement.





*Amended
      and Restated Employment Agreements of Almon C. Hall and Kevin W.
      Donnelly*





Upon
      the
      consummation of the THL Transaction, the existing employment agreements of
      Messrs. Hall and Donnelly were amended and restated. Each such amended and
      restated employment agreement is on terms substantially similar to the prior
      employment agreements of Messrs. Hall and Donnelly and substantially similar
      to
      each other, except as otherwise noted below. Each such amended and restated
      employment agreement became effective upon the consummation of the THL
      Transaction and remains effective until the termination of the employee’s
      employment. The amended and restated employment agreements provide that Mr.
      Hall
      will serve as Vice President and Chief Financial Officer of Nortek and Nortek
      Holdings and that Mr. Donnelly will serve as Vice President, General Counsel
      and
      Secretary of Nortek and Nortek Holdings.





The
      amended and restated employment agreement for Mr. Hall provides that the basic
      annual salary for Mr. Hall is not less than $430,000. The amended and restated
      employment agreement for Mr. Donnelly provides that the basic annual salary
      for
      Mr. Donnelly is not less than $280,000. Messrs. Hall and Donnelly are also
      eligible for incentive compensation in each year of the employment period as
      recommended by the Chief Executive Officer of Nortek and approved by the
      compensation committee of the board of directors of Nortek Holdings. In
      addition, Messrs. Hall and Donnelly are entitled to receive all other benefits,
      including medical and dental plan participation, generally available to Nortek
      executive personnel. Messrs. Hall and Donnelly are also entitled to
      reimbursement of the costs of automobile transportation for personal and
      business use consistent with their employment agreements prior to the THL
      Transaction. Messrs. Hall and Donnelly were also issued approximately 4,246
      and
      2,830 Class C Units of Investors LLC, respectively.





Under
      each amended and restated employment agreement, if employment is
      terminated:





·
            by
                Nortek and Nortek Holdings without “cause”, as defined in the amended and
                restated employment agreement,


·
            by
                the employee for “good reason”, as defined in the amended and restated
                employment agreement, or


·
            as
                a result of the employee’s death or
                disability





then
      Nortek and Nortek Holdings are obligated to provide the employee or, in the
      event of death, his designated beneficiary or estate, severance pay and other
      specified benefits and perquisites, including long-term disability insurance,
      for the period equal to the longer of:





·
            two
                years from the date of termination,
                or


·
            three
                years from the closing date of the THL
                Transaction.





Under
      each amended and restated employment agreement annual severance pay for the
      employee is equal to his annual salary as of the date of termination plus the
      highest amount of bonus or incentive compensation, exclusive of the Nortek
      1999
      equity performance plan, paid or payable in cash to the employee in any one
      of
      the three calendar years immediately prior to the completion of the THL
      Transaction or, if higher, the three calendar years immediately prior to such
      termination.





Under
      each amended and restated employment agreement, (i) if the employment of the
      employee is terminated by Nortek and Nortek Holdings without cause, by the
      employee for good reason or as a result of disability, the employee will be
      prohibited from competing with Nortek and Nortek Holdings for the longer of
      the
      period of two years from the date of termination or three years from the closing
      of the THL Transaction and (ii) if the employment of the employee is terminated
      by Nortek and Nortek Holdings with cause or by the employee as a result of
      resignation without good reason, the employee will be prohibited from competing
      with Nortek and Nortek Holdings for one year.





Under
      each such amended and restated employment agreement, following the termination
      of employment of the employee for any reason, Nortek and Nortek Holdings are
      required to provide, at no additional cost to the employee, up to $1,000,000
      (not including any additional tax gross-up payments as described below) in
      lifetime medical coverage to the employee, his spouse and dependents. In lieu
      of
      lifetime medical coverage, at or following the date of termination or a “change
      in control,” as defined in the amended and restated employment agreement, the
      employee or his spouse may request a lump-sum payment in an amount established
      by the board of directors as reasonably sufficient to provide such coverage,
      but
      not less than $650,000 (not including any additional tax gross-up payment as
      described in the following sentence). Nortek and Nortek Holdings are also
      required to make “gross-up” payments to these employees to cover any and all
      state and federal income taxes that may be due as a result of the provision
      of
      such lifetime medical coverage or lump-sum payment. If it is determined that
      any
      payment or benefit provided by Nortek, Nortek Holdings or any of their
      predecessors to either of Messrs. Hall or Donnelly, under his respective amended
      and restated employment agreement or any other agreement or plan, whether paid
      before or after the date of their respective amended and restated employment
      agreements, is subject to the 20% excise tax imposed by Section 4999 of the
      Internal Revenue Code, Nortek and Nortek Holdings are required to make an
      additional lump-sum “gross-up” payment to the employee sufficient, after giving
      effect to all federal, state and other taxes and charges with respect to such
      payment, to restore him to the same after-tax position that he would have been
      in if the excise tax had not been imposed.





Upon
      consummation of the THL Transaction, a “split dollar” life insurance policy,
      with a cash surrender value of $539,426, held by Nortek was transferred to
      Mr.
      Hall. Also upon consummation of the THL Transaction, Mr. Hall received a
      lump-sum cash payment in the amount of $232,168 in respect of obligations by
      Nortek under a deferred compensation agreement.





*Employment
      Agreement of Bryan L. Kelln*




On
        May
        23, 2005, Nortek entered into an employment agreement with Mr. Bryan L. Kelln.
        Under the terms of the agreement, Mr. Kelln will serve as Vice
        President-Operations of Nortek. The agreement provides that the basic annual
        salary for Mr. Kelln will be $400,000 per year, subject to annual review
        for
        increases. He is also eligible for an incentive bonus with a target level
        of one
        hundred percent of his base salary with a minimum guaranteed bonus of $175,000
        for 2005. In addition, Mr. Kelln is entitled to receive other benefits generally
        available to executive personnel, including reimbursement of relocation costs,
        medical and dental plan participation, disability insurance, and a company
        car.
        Mr. Kelln also received 1,500 Class C-1 units and 3,000 Class C-2 units
        representing membership interests in Investors LLC. The C-1 units vest pro
        rata
        on a quarterly basis over three years. If the employment of Mr. Kelln is
        terminated by Nortek without cause in the first two years of his employment,
        he
        is entitled to receive severance pay in the amount of six months base
        salary.


*Second
      Amended and Restated Change in Control Severance Benefit Plan*





Nortek
      has a retention plan for certain of its key employees which provides that,
      in
      consideration of each covered individual agreeing not to voluntarily terminate
      his employment, if there is an attempted change of control, as that term is
      defined in the plan of Nortek, and, if, within the 24 month period following
      the
      change of control, the employment of the individual is terminated by Nortek
      for
      any reason or by the individual by reason of a material adverse change in the
      terms of employment as provided in the plan, the individual also will be
      entitled at the time of termination to severance pay for a period of 24 months
      following termination at an annual rate equal to his base annual salary plus
      the
      highest amount of bonus or incentive compensation paid or payable to him for
      any
      one of the three preceding calendar years, and to continued medical, life
      insurance and other benefits for the 24 month period (or a payment of an amount
      equal to the cost of providing these benefits). Messrs. Bready, Hall, Donnelly
      and Kelln are not currently participants under this plan. Edward J. Cooney,
      Nortek’s Vice President and Treasurer is currently among the participants under
      the plan.





*Deferred
      Compensation Plan of Nortek Holdings*




In
        connection with the THL Transaction, certain members of Nortek 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 track proportionate distributions to those made
        to
        the Class A units of Investors LLC. The maximum aggregate amount of
        distributions that were initially 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. In connection with the 2005 dividend as described in “Certain
        Relationships and Related Transactions — 2005 Dividend”, payments were made
        under the plan to certain of the named executive officers and directors,
        which
        reduced the maximum amounts of distributions for certain of the named executive
        officers and directors. The payments to the Company’s executive officers,
        directors and all other participants under the plan furthermore reduced the
        aggregate maximum amount payable under the plan to approximately $54,100,000
        for
        all participants. As of March 3, 2006, the balances payable to certain named
        executive officers and directors are as follows: Mr. Bready, $37,773,786;
        Mr.
        Hall, $2,915,176; Mr. Donnelly, $1,787,140; Mr. Cooney, $738,477; Mr. Bloomberg,
        $260,317; Mr. Cianciolo, $173,546; and Mr. Hiley
        $477,556.


**Compensation
      Committee Interlocks and Insider Participation**





Mr.
      Bready and Mr. DiNovi are currently the members of the Company’s board’s
      Compensation Committee. The committee determines compensation of the Company’s
      executive officers other than Mr. Bready. Mr. Bready’s compensation is
      determined by the full board of directors.





**Item
      12. Security Ownership of Certain Beneficial Owners and
      Management.**





Nortek
      is
      a wholly-owned direct subsidiary of Nortek Holdings. Nortek Holdings is a
      wholly-owned direct subsidiary of NTK Holdings, Inc. NTK Holdings, Inc. is
      a
      wholly-owned direct subsidiary of Investors LLC. The following table sets forth
      information regarding the beneficial ownership, as of March 3, 2006, of
      outstanding membership interests or units, of Investors LLC by: (i) each person
      or group known to the Company to own more than five percent of the Class B
      units
      of Investors LLC, (ii) each member of the management committee of Investors
      LLC
      (the composition of which is identical to the board of directors of the Company
      and the board of directors of Nortek Holdings) and each of the Company’s named
      executive officers and (iii) all members of the Investors LLC management
      committee and our executive officers as a group.





The
      outstanding membership interests of Investors LLC consist of 361,841.07
      non-voting Class A units (not including “notional” Class A units allocated to
      members of the Company’s senior management), 473,595.10 voting Class B units and
      68,995.16 non-voting Class C units. The Class C units are divided into two
      series: Class C-1 time-vesting units and Class C-2 performance-vesting units.
      The relative rights and preferences of the Class A units, Class B units and
      Class C units are described in “Certain Relationships and Related Transactions -
      Limited Liability Company Agreement of Investors LLC”. A Securityholders
      Agreement governs the exercise of voting rights with respect to the Class B
      units of Investors LLC as described in “Certain Relationships and Related
      Transactions - Securityholders Agreement”. Unless otherwise noted, to the
      Company’s knowledge, each of the persons listed below has sole voting and
      investment power as to the units shown. Beneficial ownership has been determined
      in accordance with the applicable rules and regulations promulgated under the
      Exchange Act.





**Number
                of**
            
            **Percentage****Number
                of**
            
            **Percentage
                of**
            
            **Number
                of**
            
            **Percentage
                of**
            
            **Class
                C**
            
            **of
                Class C****Name
                and Address**
            
            **Class
                A Units**
            
            **Class
                A Units**
            
            **Class
                B Units**
            
            **Class
                B Units**
            
            **Units
                (1)**
            
            **Units
                (2)****Principal
                Security Holders:**Thomas
                  H. Lee Partners L.P. andaffiliates (3)
            
            
            360,800.02
            
            
            76.18
            %
            
            360,800.02
            
            
            76.18
            %
            
            ---
            
            
            ---**Management
                Committee Members****and Named Executive Officers:**Jeffrey
                C. Bloomberga
            
            
            538.58
            
            
            *
            
            
            538.58
            
            
            *
            
            
            ---
            
            
            ---Richard
                L. Bready (4)a
                f
            
            
            78,150.21
            
            
            16.50
            %
            
            78,150.21
            
            
            16.50
            %
            
            23,586.66
            
            
            34.19
            %Joseph
                M. Cianciolo (4)a
            
            
            359.05
            
            
            *
            
            
            359.05
            
            
            *
            
            
            530.75
            
            
            *Edward
                J. Cooney (4)f
            
            
            1,527.84
            
            
            *
            
            
            1,527.84
            
            
            *
            
            
            2,123.01
            
            
            3.08
            %Anthony
                J. DiNovi (3)a
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---Kevin
                W. Donnelly (4)f
            
            
            3,697.42
            
            
            *
            
            
            3,697.42
            
            
            *
            
            
            2,830.68
            
            
            4.10
            %Almon
                C. Hall (4)f
            
            
            6,031.21
            
            
            1.27
            %
            
            6,031.21
            
            
            1.27
            %
            
            4,246.02
            
            
            6.15
            %David
                V. Harkins (3)a
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---David
                B. Hiley (4)a
            
            
            988.01
            
            
            *
            
            
            988.01
            
            
            *
            
            
            1,061.51
            
            
            1.54
            %Bryan
                L. Kellnf
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            4,500.00
            
            
            6.52
            %Kent
                R. Weldon (3)a
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---All
                management committee members and executive officers as a group (11
                persons) (4)
            
            
            91,292.32
            
            
            19.28
            %
            
            91,292.32
            
            
            19.28
            %
            
            38,878.63
            
            
            56.35
            %




*
              Less than 1%
 
 a
              Director
 
 f
              Named executive
                officer
 
 (1)
              Includes
                  Class C-1 units that will vest within sixty (60) days after March
                  3, 2006
                  for each of the named individuals for the following amounts: Mr.
                  Bready,
                  3,931.11; Mr. Cianciolo, 88.46; Mr. Cooney, 353.84; Mr. Donnelly,
                  471.78;
                  Mr. Hall, 707.67; Mr. Hiley, 176.92; and Mr. Kelln 375.00. Includes
                  Class
                  C-1 units that have not vested and will not vest within sixty (60)
                  days
                  after March 3, 2006 for each of the named individuals for the following
                  amounts: Mr. Bready, 3,931.11; Mr. Cianciolo, 88.46; Mr. Cooney,
                  353.84;
                  Mr. Donnelly, 471.78; Mr. Hall, 707.67; Mr. Hiley, 176.92; and
                  Mr. Kelln
                  1,125.00. Includes Class C-2 units that have not vested for each
                  of the
                  named individuals for the following amounts: Mr. Bready, 15,724.44;
                  Mr.
                  Cianciolo, 353.83; Mr. Cooney, 1,415.34; Mr. Donnelly, 1,887.12;
                  Mr. Hall,
                  2,830.68; Mr. Hiley, 707.67; and Mr. Kelln 3,000.00. There are
                  currently
                  no outstanding vested Class C-2 units. See “Certain Relationships and
                  Related Transactions - Limited Liability Company Agreement of the
                  Investors LLC”.





(2)
              Includes both vested an unvested Class C-1 units
                and
                Class C-2 units.
 
 (3)
              Includes
                  interests owned by each of Thomas H. Lee Equity Fund V, L.P., Thomas
                  H.
                  Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V,
                  L.P.,
                  Putnam Investments Holdings, LLC, Putnam Investments Employees’ Securities
                  Company I, LLC, Putnam Investments Employees’ Securities Company II, LLC,
                  1997 Thomas H. Lee Nominee Trust, and Thomas H. Lee Investors Limited
                  Partnership. Thomas H. Lee Equity Fund V, L.P., Thomas H. Lee Parallel
                  Fund V, L.P. and Thomas H. Lee Equity (Cayman) Fund V, L.P. are
                  Delaware
                  limited partnerships, whose general partner is THL Equity Advisors
                  V, LLC,
                  a Delaware limited liability company. Thomas H. Lee Advisors, LLC,
                  a
                  Delaware limited liability company, is the general partner of Thomas
                  H.
                  Lee Partners, L.P., a Delaware limited partnership, which is the
                  sole
                  member of THL Equity Advisors V, LLC. Thomas H. Lee Investors Limited
                  Partnership is a Massachusetts limited partnership, whose general
                  partner
                  is THL Investment Management Corp., a Massachusetts corporation.
                  The 1997
                  Thomas H. Lee Nominee Trust is a trust with US Bank, N.A. serving
                  as
                  Trustee. Thomas H. Lee, a managing director of Thomas H. Lee Partners,
                  L.P. has voting and investment control over common shares owned
                  of record
                  by the 1997 Thomas H. Lee Nominee Trust. David V. Harkins, Anthony
                  J.
                  DiNovi and Kent R. Weldon are managing directors of Thomas H. Lee
                  Partners, L.P. Each of Messrs. Harkins, DiNovi and Weldon may be
                  deemed to
                  beneficially own member units of Investors LLC held of record by
                  Thomas H.
                  Lee Equity Fund V, L.P., Thomas H. Lee Parallel Fund V, L.P., Thomas
                  H.
                  Lee Equity (Cayman) Fund V, L.P. and Thomas H. Lee Investors Limited
                  Partnership. Each of these individuals disclaims beneficial ownership
                  of
                  these units except to the extent of their pecuniary interest therein.
                  The
                  address of Thomas H. Lee Equity Fund V, L.P., Thomas H. Lee Parallel
                  Fund
                  V, L.P., Thomas H. Lee Equity (Cayman) Fund V, L.P., Thomas H.
                  Lee
                  Investors Limited Partnership, the 1997 Thomas H. Lee Nominee Trust,
                  Anthony J. DiNovi, David V. Harkins and Kent R. Weldon is 100 Federal
                  Street, Boston, MA 02110. Putnam Investments Holdings LLC, Putnam
                  Investments Employees’ Securities Company I, LLC and Putnam Investments
                  Employees’ Securities Company II, LLC each disclaims beneficial ownership
                  of any securities other than the securities held directly by such
                  entity.
                  The address for the Putnam entities is One Post Office Square,
                  Boston, MA
                  02109.





(4)
            With
                respect to the “Number of Class A Units”, represents “notional” Class A
                units allocated to such persons pursuant to the 2004 Nortek Holdings,
                Inc.
                Deferred Compensation Plan. See “Executive Compensation - Deferred
                Compensation Plan of Nortek Holdings and “Certain Relationships and
                Related Transactions - Limited Liability Company Agreement of Investors
                LLC”.





**Item
      13. Certain Relationships and Related Transactions.**





**2005
      Dividend**





On
      February 18, 2005, NTK Holdings declared a cash dividend of $186,970,194.50
      to
      NTK Holdings’ sole stockholder, Investors LLC. In turn, Investors LLC authorized
      a distribution of $186,970,194.50 to the equity holders of Investors LLC in
      accordance with the terms of the LLC Agreement by and among Investors LLC and
      its members. The result was a cash payment to each Class A Unit holder of
      Investors LLC of $516.65 for each Class A Unit held by such unit holder. In
      addition, on February 18, 2005, NTK Holdings contributed $57,737,885.51 to
      Nortek Holdings for the purpose of making payments under the 2004 Nortek
      Holdings, Inc. Deferred Compensation Plan. Payments under the plan were made
      to
      the Company’s named executive officers and directors as follows: Mr. Bready,
      $40,376,422; Mr. Hall, $3,116,034; Mr. Donnelly, $1,910,278; Mr. Cooney,
      $789,361; Mr. Cianciolo, $185,504; and Mr. Hiley, $510,457.





**The
      THL Transaction**





On
      August
      27, 2004, THL Buildco purchased all of the outstanding capital stock of the
      former Nortek Holdings pursuant to the Stock Purchase Agreement among THL
      Buildco, THL Buildco Holdings and the stockholders of the former Nortek
      Holdings, dated July 15, 2004. Immediately upon the completion of this
      acquisition, THL Buildco was merged with and into the former Nortek Holdings,
      with the former Nortek Holdings continuing as the surviving corporation, and
      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.
      (referred to in this Form 10-K filing as “Nortek Holdings”). Nortek Holdings is
      a wholly-owned subsidiary of NTK Holdings, which is a wholly-owned subsidiary
      of
      Investors LLC. In connection with this acquisition, members of Nortek management
      reinvested a portion of their equity interest in the former Nortek Holdings
      and
      received equity interests in Investors LLC and interests in a deferred
      compensation plan established by Nortek Holdings. See “Executive Compensation -
      Deferred Compensation Plan of Nortek Holdings”.





**Limited
      Liability Company Agreement of Investors LLC**





Upon
      the
      consummation of the THL Transaction, the holders of units in Investors LLC
      entered into a limited liability company agreement. In February 2005 the limited
      liability company agreement was amended to reflect the formation of NTK
      Holdings. The limited liability company agreement of Investors LLC authorizes
      Investors LLC to issue three classes of limited liability company interests
      designated as Class A units, Class B units and Class C units.





A
      management committee elected by holders of the Class B units of Investors LLC
      has the exclusive authority to manage and control the business and affairs
      of
      Investors LLC. The management committee’s size and composition is determined in
      accordance with the provisions of a Securityholders Agreement, which states
      that
      the management committee initially will consist of six managers. See
“Securityholders Agreement”.





All
      distributions of property by Investors LLC are made first to the holders of
      Class A units and Class B units until such holders receive a return of all
      their
      invested capital in respect of their units, second, to the holders of Class
      C
      units until such holders receive any amounts from any prior distribution that
      they would have received in such prior distribution with respect to Class C
      units that have vested since the time of such prior distribution had such Class
      C units been vested at the time of such prior distribution; and thereafter
      to
      the holders of Class B units and Class C units (to the extent the Class C units
      are vested at the time of such distribution, as discussed below) proportionately
      based on the number of Class B units and vested Class C units held by such
      holders.





The
      Class
      C units are divided into two series: Class C-1 time-vesting units and Class
      C-2
      performance-vesting units. One-third of the total number of Class C units is
      designated as time-vesting units and two-thirds of the total number of Class
      C
      units is designated as performance-vesting units. The Class C units are issued
      to officers, directors, employees and consultants of Nortek Holdings and its
      subsidiaries as determined by the management committee of Investors
      LLC.





The
      Class
      C-1 time-vesting units vest over a three-year period on a quarterly basis in
      equal amounts. The vesting of the Class C-1 time-vesting units will be
      accelerated and such units will become fully vested if:





·
            Investors
                LLC has sold 90% of the capital stock of NTK Holdings held by it
                in
                exchange for cash or marketable securities,
                or


·
            following
                an initial public offering of equity securities of Investors LLC
                or its
                subsidiaries, Investors LLC has distributed 90% of the capital stock
                of
                NTK Holdings to the unit holders of Investors LLC and the unit holders
                of
                Investors LLC that are affiliated with Thomas H. Lee Equity Fund
                V, L.P.
                have distributed such shares of capital stock to their limited partners
                or
                members.




In
        addition, the Class C-1 time-vesting units will become fully vested upon
        a
        liquidity event that results in the Class C-2 performance-vesting units becoming
        fully vested. The Class C-2 performance-vesting units will vest only in
        connection with certain liquidity events and only upon and to the extent
        of
        satisfaction in connection with such liquidity events of minimum internal
        rate
        of return (at least 17%) and multiple of investment hurdles (ranging between
        2
        and 4 times the original investment) relating to the Class A and Class B
        units
        held by Thomas H. Lee Equity Fund V, L.P. and its affiliates. Unvested Class
        C
        units will be subject to forfeiture in the event of termination of the
        employment or engagement of the holder of such Class C units.





In
      addition, as described under “Executive Compensation - Deferred Compensation
      Plan of Nortek Holdings” as distributions are made to holders of Class A units,
      management participants in Nortek Holdings’ new deferred compensation plan will
      be entitled to receive from Nortek Holdings corresponding amounts in respect
      of
      the notional Class A units credited to their deferred compensation
      accounts.





**Securityholders
      Agreement**





Upon
      the
      consummation of the THL Transaction, Investors LLC and the holders of its Class
      A, Class B and Class C units entered into a securityholders agreement. In
      February 2005 NTK Holdings became a party to the securityholders
      agreement.





Under
      the
      securityholders agreement, the management committee of Investors LLC will
      consist of not less than five and not more than eleven managers, as from time
      to
      time determined by Thomas H. Lee Equity Fund V, L.P. and its affiliates. The
      management committee initially will consist of six managers. Under the terms
      of
      the securityholders agreement, for so long as Richard L. Bready is the holder
      of
      five percent or more of the outstanding Class B Units and Class C Units of
      Investors LLC or the fully diluted equity of any successor entity, Mr. Bready
      will be entitled to designate two managers to serve on the management committee
      and certain transactions between Investors LLC, NTK Holdings, Nortek Holdings,
      Nortek or its subsidiaries, on the one hand, and Thomas H. Lee Fund V, L.P.
      and
      its affiliates, on the other hand, will require the approval of Mr. Bready
      or a
      majority of the independent managers of the management committee, if any, of
      Investors LLC. This securityholders agreement also governs the election of
      directors to the boards of directors of NTK Holdings, Nortek Holdings and Nortek
      and requires that such boards be identical to the management committee of
      Investors LLC.





Under
      the
      securityholders agreement, transfers of equity securities of Investors LLC
      by
      securityholders are permitted only to specified types of related parties who
      agree to sign the securityholders agreement.





The
      securityholders agreement provides for customary tag-along rights, drag along
      rights and registration rights which would apply to shares of capital stock
      of
      NTK Holdings that are distributed to the holders of Investors LLC membership
      units in the event of any dissolution of Investors LLC or to shares of any
      corporate entity succeeding to Investors LLC upon its conversion to a
      corporation.





Under
      the
      securityholders agreement, Thomas H. Lee Equity Fund V, L.P. and its affiliates
      and any members of Nortek’s management that hold at least 5% of the fully
      diluted equity of Investors LLC will be granted the right to participate in
      any
      future equity financings by Investors LLC, subject to customary exceptions,
      in
      an amount necessary to maintain the investor’s fully diluted ownership interest
      in Investors LLC or any successor company.





**Transaction
      Fee; Management Agreement with Affiliate of Thomas H. Lee Partners,
      L.P.**




Upon
        the
        closing of the THL Transaction, Nortek Holdings and Nortek entered into a
        management agreement with THL Managers V, LLC, an affiliate of Thomas H.
        Lee
        Partners, L.P., pursuant to which THL Managers V, LLC provides certain financial
        and strategic advisory and consultancy services. In February 2005, the
        management agreement was amended to reflect the formation of NTK Holdings.
        The
        Company is obligated to pay to THL Managers V, LLC or a designee thereof
        an
        annual management fee equal to the greater of:


·
            $2,000,000
                per annum, or


·
            an
                amount equal to 0.75% of the consolidated earnings before interest,
                taxes,
                depreciation and amortization of the Company and its subsidiaries,
                before
                deduction for such fee.




Such
        annual management fee is payable semi-annually in advance on the first business
        date of each January and July. Under the management agreement, the Company
        is
        obligated to pay all costs and expenses incurred by THL Managers V, LLC and
        its
        affiliates in connection with the provision of future services under the
        management agreement. Nortek expensed approximately $2,154,000 for the year
        ended December 31, 2005 related to this management agreement in the Consolidated
        Statement of Operations included elsewhere herein.


Under
      the
      management agreement Nortek has also agreed to indemnify THL Managers V, LLC
      and
      its affiliates from and against all losses, claims, damages and liabilities
      arising out of or related to the performance by THL Managers V, LLC of the
      services pursuant to the management agreement.





The
      management agreement became effective upon the closing of the THL Transaction
      and will continue in effect until terminated by THL Managers V, LLC. Upon any
      termination in connection with an initial public offering of equity securities
      of Nortek, Nortek Holdings or NTK Holdings, Nortek will be required to pay
      to
      THL Managers V, LLC a lump-sum termination fee equal to the net present value
      of
      all annual management fees that would have otherwise been payable under the
      management agreement during the seven years following the date of such
      termination.





**Fees
      Paid to Consultant**





David
      B.
      Hiley, one of the Company’s directors, retired as a consultant to the Company on
      January 1, 2005 and received a payment of $1,000,000 on January 3, 2005 in
      connection with such retirement under the terms of his consultant agreement.
      So
      long as Mr. Hiley continues as a director of the Company and Nortek following
      such retirement he will be entitled to receive compensation payable to
      non-management directors.





**Item
      14. Principal Accountant Fees and Services.**





**Audit
      Fees**





The
      Company was billed $2,426,746 and $2,988,955 for audit services for the years
      ended December 31, 2005 and 2004, respectively. Audit fees for the year ended
      December 31, 2005 and 2004 include fees for the audit of the Company’s annual
      consolidated financial statements, review of the financial statements included
      in the Company’s quarterly reports on Form 10-Q filed during 2005 and 2004,
      professional services rendered in connection with the Company’s statutory audits
      and fees for professional services rendered in connection with the Company’s
      debt offerings.





**Audit-Related
      Fees**





The
      Company was billed $182,500 and $337,000 for non-audit services that are
      reasonably related to the performance of the audit or review of the Company’s
      financial statements from the Company’s principal accountant during the year
      ended December 31, 2005 and 2004, respectively. Audit-related fees billed during
      2005 and 2004 include fees for the audits of the Company’s employee benefit
      plans, accounting consultations and audit procedures related to acquisitions,
      and consultations related to the Company’s Sarbanes-Oxley Act Section 404
      project.





**Tax
      Fees**





The
      Company was billed $305,600 and $789,000 for professional services rendered
      by
      the Company’s accountants for tax compliance, tax advice and tax planning during
      the years ended December 31, 2005 and 2004, respectively.





**All
      Other Fees**





The
      Company was billed $7,200 and $11,000 for other services by the Company’s
      accountants during the years ended December 31, 2005 and 2004, respectively.
      Other services billed in 2005 and 2004 relate to the Company’s subscription to
      Ernst & Young’s accounting information database.





**PART
      IV**





**Item
      15. Exhibits, Financial Statements and Schedules.**





**(a)**  The
      following documents are filed as part of this report:





1.
            Financial
                Statements


Consolidated
      Statement of Operations for the year ended December 31, 2005 and the periods
      from August 28, 2004 to December 31, 2004, from January 1, 2004 to August 27,
      2004, from January 10, 2003 to December 31, 2003 and from January 1, 2003 to
      January 9, 2003





Consolidated
      Balance Sheet as of December 31, 2005 and 2004





Consolidated
      Statement of Cash Flows for the year ended December 31, 2005 and the periods
      from August 28, 2004 to December 31, 2004, from January 1, 2004 to August 27,
      2004, from January 10, 2003 to December 31, 2003 and from January 1, 2003 to
      January 9, 2003





Consolidated
      Statement of Stockholder’s Investment for the year ended December 31, 2005 and
      the periods from August 28, 2004 to December 31, 2004, from January 1, 2004
      to
      August 27, 2004, from January 10, 2003 to December 31, 2003 and from January
      1,
      2003 to January 9, 2003





Notes
      to
      Consolidated Financial Statements





Report
      of
      Independent Registered Public Accounting Firm





2.
            Financial
                Statement Schedules




Schedule
        I  Consolidated
        Parent Company Financial Statements




Schedule
      II Valuation and Qualifying Accounts





All
      other
      financial statement schedules are not required or are included in the
      consolidated financial statements.





3.
            The
                exhibits are listed in the Exhibit Index, which is incorporated herein
                by
                reference








**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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 on March 9, 2006.






NTK HOLDINGS, INC./s/ Richard L.
              BreadyRichard L. BreadyChairman of the
              Board


Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities indicated, as of March 9, 2006


/s/ Richard L. Bready
            
            /s/ Joseph M.
              CiancioloRichard L. Bready
            
            Joseph M. CiancioloChairman, President and Chief
              Executive Officer
            
            Director/s/ Almon C. Hall
            
            /s/ Anthony J.
              DiNoviAlmon C. Hall
            
            Anthony J. DiNoviVice President and Chief Financial
              Officer
            
            Director/s/ David V.
              HarkinsDavid V. HarkinsDirector/s/ David B. HileyDavid B. HileyDirector/s/ Kent R. WeldonKent R. WeldonDirector/s/ Jeffrey C.
              BloombergJeffrey C. BloombergDirector





**Consolidated
      Statement of Operations**


**For
                  the Periods****Pre-****Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Recapitalization****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Net
                  Sales**
              
              $
              1,959,224
              
              $
              560,978
              
              $
              1,117,860
              
              $
              1,480,556
              
              $
              24,751**Costs
                  and Expenses:**Cost of products sold
              
              
              1,361,427
              
              
              409,052
              
              
              792,759
              
              
              1,053,994
              
              
              18,497Selling, general and administrative expense
              
              
              342,616
              
              
              101,466
              
              
              199,943
              
              
              258,113
              
              
              4,960Amortization of intangible assets
              
              
              18,321
              
              
              8,398
              
              
              8,869
              
              
              9,055
              
              
              64Expenses and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              83,700
              
              
              ---
              
              
              ---Expenses and charges arising from the Recapitalization
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              83,0001,722,364
              
              
              518,916
              
              
              1,085,271
              
              
              1,321,162
              
              
              106,521Operating
                  earnings (loss)
              
              
              236,860
              
              
              42,062
              
              
              32,589
              
              
              159,394
              
              
              (81,770
              )Interest
                  expense
              
              
              (138,578
              )
              
              (42,487
              )
              
              (56,073
              )
              
              (57,376
              )
              
              (1,049
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )
              
              ---
              
              
              ---Investment
                  income
              
              
              1,818
              
              
              325
              
              
              1,520
              
              
              1,482
              
              
              119Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              100,100
              
              
              (100
              )
              
              (152,700
              )
              
              103,500
              
              
              (82,700
              )Provision
                  (benefit) for income taxes
              
              
              43,200
              
              
              3,500
              
              
              (41,400
              )
              
              41,400
              
              
              (21,800
              )**Earnings
                  (loss) from continuing operations**
              
              
              56,900
              
              
              (3,600
              )
              
              (111,300
              )
              
              62,100
              
              
              (60,900
              )**(Loss)
                  earnings from discontinued operations**
              
              
              ---
              
              
              (500
              )
              
              67,400
              
              
              12,100
              
              
              (1,000
              )**Net
                  earnings (loss)**
              
              $
              56,900
              
              $
              (4,100
              )
              $
              (43,900
              )
              $
              74,200
              
              $
              (61,900
              )




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*





**Consolidated
      Balance Sheet**


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


**December
                  31,**
              
              **December
                  31,****2005**
              
              **2004****Assets****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              77,175
              
              $
              94,955Accounts
                    receivable, less allowancesof $6,582 and $5,467
              
              
              272,191
              
              
              225,706Inventories:Raw
                  materials
              
              
              75,159
              
              
              72,166Work
                  in process
              
              
              21,400
              
              
              24,249Finished
                  goods
              
              
              145,753
              
              
              109,134242,312
              
              
              205,549Prepaid
                  expenses
              
              
              10,510
              
              
              8,596Other
                  current assets
              
              
              26,329
              
              
              26,126Prepaid
                  income taxes
              
              
              20,955
              
              
              32,745Total current assets
              
              
              649,472
              
              
              593,677**Property
                  and Equipment, at Cost:**Land
              
              
              8,784
              
              
              8,683Buildings
                  and improvements
              
              
              84,310
              
              
              75,476Machinery
                  and equipment
              
              
              141,112
              
              
              124,644234,206
              
              
              208,803Less
                  accumulated depreciation
              
              
              28,717
              
              
              7,713Total property and equipment, net
              
              
              205,489
              
              
              201,090**Other
                  Assets:**Goodwill
              
              
              1,381,350
              
              
              1,295,105Intangible
                    assets, less accumulated amortizationof $27,328 and
                    $8,436
              
              
              114,474
              
              
              110,715Deferred
                  tax benefit
              
              
              ---
              
              
              2,488Deferred
                  debt expense
              
              
              42,098
              
              
              41,741Restricted
                  investments and marketable securities
              
              
              4,015
              
              
              8,605Other
                  assets
              
              
              7,711
              
              
              11,1541,549,648
              
              
              1,469,808$
              2,404,609
              
              $
              2,264,575**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable and other short-term obligations
              
              $
              4,915
              
              $
              5,364Current
                  maturities of long-term debt
              
              
              14,786
              
              
              14,414Accounts
                  payable
              
              
              159,015
              
              
              137,343Accrued
                  expenses and taxes, net
              
              
              187,183
              
              
              220,784Total current liabilities
              
              
              365,899
              
              
              377,905**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              4,119
              
              
              ---Other
              
              
              215,388
              
              
              214,672219,507
              
              
              214,672**Notes,
                    Mortgage Notes and Obligations Payable, Less Current
                    Maturities**
              
              
              1,628,677
              
              
              1,350,210**Stockholder’s
                  Investment:**Common
                    stock, $0.01 par value, authorized 3,000 shares;3,000 issued and
                    outstanding at December 31, 2005 and 2004
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              130,181
              
              
              316,823Retained
                  earnings (accumulated deficit)
              
              
              52,800
              
              
              (4,100
              )Accumulated
                  other comprehensive income
              
              
              7,545
              
              
              9,065Total
                  stockholder's investment
              
              
              190,526
              
              
              321,788**Total Liabilities and Stockholder's Investment:**
              
              $
              2,404,609
              
              $
              2,264,575




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*





**Consolidated
                  Statement of Cash Flows**
              
              **For
                  the Periods***(Revised,
                  See Note 1)***Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Pre-Recapitalization****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Cash
                  Flows from operating activities:**Earnings
                  (loss) from continuing operations
              
              $
              56,900
              
              $
              (3,600
              )
              $
              (111,300
              )
              $
              62,100
              
              $
              (60,900
              )(Loss)
                  earnings from discontinued operations
              
              
              ---
              
              
              (500
              )
              
              67,400
              
              
              12,100
              
              
              (1,000
              )Net
                  earnings (loss)
              
              
              56,900
              
              
              (4,100
              )
              
              (43,900
              )
              
              74,200
              
              
              (61,900
              )**Adjustments
                  to reconcile net earnings (loss)****to net cash provided by (used in) operating
                  activities:**Depreciation
                  and amortization expense, includingamortization of purchase price allocated to inventory
              
              
              45,869
              
              
              22,528
              
              
              25,823
              
              
              31,807
              
              
              645Non-cash
                  interest expense, net
              
              
              29,913
              
              
              4,096
              
              
              24,671
              
              
              6,352
              
              
              125Effect
                  of the Acquisition, net
              
              
              ---
              
              
              ---
              
              
              38,423
              
              
              ---
              
              
              ---Effect
                  of the Recapitalization, net
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              62,397Non-cash
                  stock-based compensation
              
              
              324
              
              
              108
              
              
              48,561
              
              
              2,071
              
              
              ---Gain
                  on sale of property and equipment
              
              
              (1,549
              )
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              130,736
              
              
              ---
              
              
              ---Gain
                  on the sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              (125,200
              )
              
              ---
              
              
              ---Deferred
                  federal income tax provision (benefit) from continuing
                  operations
              
              
              25,300
              
              
              1,000
              
              
              (46,900
              )
              
              (4,800
              )
              
              5,900Operating
                  cash flows from discontinued operations
              
              
              ---
              
              
              ---
              
              
              532
              
              
              20,049
              
              
              334Deferred
                  federal income tax provision (benefit)from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (18,500
              )
              
              500
              
              
              ---**Changes
                  in certain assets and liabilities, net of****effects from acquisitions and dispositions:**Accounts
                  receivable, net
              
              
              (37,322
              )
              
              26,911
              
              
              (26,921
              )
              
              (18,386
              )
              
              4,298Inventories
              
              
              (24,290
              )
              
              1,556
              
              
              (34,337
              )
              
              (499
              )
              
              (4,457
              )Prepaids
                  and other current assets
              
              
              (5,153
              )
              
              6,164
              
              
              (14,363
              )
              
              (2,152
              )
              
              268Accounts
                  payable
              
              
              20,671
              
              
              (34,112
              )
              
              52,669
              
              
              (6,111
              )
              
              (777
              )Accrued
                  expenses and taxes
              
              
              11,696
              
              
              42,149
              
              
              22,774
              
              
              60,664
              
              
              (19,816
              )Long-term
                  deferred compensation
              
              
              (57,737
              )
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Long-term
                  assets, liabilities and other, net
              
              
              6,099
              
              
              (10,095
              )
              
              835
              
              
              (9,125
              )
              
              5,837Changes
                  in assets and liabilities of discontinued operations
              
              
              ---
              
              
              ---
              
              
              135
              
              
              (8,328
              )
              
              1,794Total adjustments to net earnings (loss)
              
              
              13,821
              
              
              60,305
              
              
              78,938
              
              
              72,042
              
              
              56,548Net cash provided by (used in) operating activities
              
              $
              70,721
              
              $
              56,205
              
              $
              35,038
              
              $
              146,242
              
              $
              (5,352
              )**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              $
              (28,890
              )
              $
              (13,476
              )
              $
              (11,848
              )
              $
              (17,099
              )
              $
              (207
              )Net
                  cash paid for businesses acquired
              
              
              (117,200
              )
              
              (15,500
              )
              
              (16,500
              )
              
              (76,016
              )
              
              ---Purchase
                  of outstanding equity shares of the former NortekHoldings by Thomas H. Lee Partners, L.P. and affiliates
              
              
              ---
              
              
              (706,189
              )
              
              ---
              
              
              ---
              
              
              ---Payment
                  of Acquisition fees and expenses
              
              
              ---
              
              
              (47,500
              )
              
              ---
              
              
              ---
              
              
              ---Redemption
                  of publicly held shares in connection withthe Recapitalization
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (469,655
              )
              
              ---Payment
                    of fees and expenses in connection withthe
                    Recapitalization
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (27,900
              )
              
              ---Purchase
                  of investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              (5,000
              )
              
              (30,015
              )
              
              ---Proceeds
                    from the sale of investments andmarketable
                    securities
              
              
              ---
              
              
              ---
              
              
              5,000
              
              
              30,015
              
              
              ---Investing
                  cash flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              1,756
              
              
              (6,848
              )
              
              (316
              )Proceeds
                  from the sale of discontinued businesses
              
              
              ---
              
              
              ---
              
              
              526,000
              
              
              ---
              
              
              ---Proceeds
                  from the sale of property and equipment
              
              
              10,750
              
              
              7,805
              
              
              324
              
              
              557
              
              
              ---Change
                  in restricted cash and investments
              
              
              (186
              )
              
              (202
              )
              
              (103
              )
              
              1,028
              
              
              (49
              )Other,
                  net
              
              
              (2,185
              )
              
              (294
              )
              
              (615
              )
              
              (1,220
              )
              
              117Net cash (used in) provided by investing activities
              
              $
              (137,711
              )
              $
              (775,356
              )
              $
              499,014
              
              $
              (597,153
              )
              $
              (455
              )**Cash
                  Flows from financing activities:**Change
                  in borrowings, net
              
              $
              (8,324
              )
              $
              920
              
              $
              (5,370
              )
              $
              2,658
              
              $
              (1,313
              )Sale
                  of the 10 3/4% Senior Discount Notes
              
              
              244,708
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,970
              )
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Sale
                  of 10% Senior Discount Notes due 2011, net of fees
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              339,522
              
              
              ---Sale
                  of Floating Rate Notes
              
              
              ---
              
              
              ---
              
              
              196,000
              
              
              ---
              
              
              ---Redemption
                  of notes
              
              
              ---
              
              
              (919,300
              )
              
              (716,700
              )
              
              ---
              
              
              ---Issuance
                  of Preferred and Common stock in connection withthe Recapitalization
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              359,185
              
              
              ---Dividend
                  to Preferred and Common stock holders
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (298,474
              )
              
              ---Cash
                  distributions to stock option holders
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (41,600
              )
              
              ---Issuance
                  of 32,608 shares of Class A common stock
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              1,500
              
              
              ---Net
                  proceeds from the sale of 8 1/2% Notes
              
              
              ---
              
              
              600,873
              
              
              ---
              
              
              ---
              
              
              ---Net
                    proceeds from borrowings under the SeniorSecured Credit
                    Facility
              
              
              ---
              
              
              680,823
              
              
              ---
              
              
              ---
              
              
              ---Equity
                    investment by Thomas H. Lee Partners L. P.and
                    affilitates
              
              
              ---
              
              
              361,841
              
              
              ---
              
              
              ---
              
              
              ---Settlement
                  of stock options
              
              
              ---
              
              
              (113,032
              )
              
              ---
              
              
              ---
              
              
              ---Financing
                  cash flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              (97
              )
              
              (1,367
              )
              
              (45
              )Other,
                  net
              
              
              (204
              )
              
              31
              
              
              (55
              )
              
              7
              
              
              (4,039
              )Net
                  cash (used in) provided by financing activities
              
              
              49,210
              
              
              612,156
              
              
              (526,222
              )
              
              361,431
              
              
              (5,397
              )Net
                    (decrease) increase in unrestricted cash andcash equivalents
              
              
              (17,780
              )
              
              (106,995
              )
              
              7,830
              
              
              (89,480
              )
              
              (11,204
              )Unrestricted
                    cash and cash equivalents at thebeginning of the period
              
              
              94,955
              
              
              201,950
              
              
              194,120
              
              
              283,600
              
              
              294,804Unrestricted
                    cash and cash equivalents at theend of the period
              
              $
              77,175
              
              $
              94,955
              
              $
              201,950
              
              $
              194,120
              
              $
              283,600




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*






**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from January 1, 2003 to January 9, 2003**


*(Dollar
      amounts in thousands)*


**Accumulated****Series
                  B**
              
              **Class
                  A**
              
              
              
              **Special**
              
              **Additional**
              
              
              
              **Other**
              
              **Compre-****Preference**
              
              **Common**
              
              **Common**
              
              **Common**
              
              **Paid-in**
              
              **Retained**
              
              **Comprehensive**
              
              **hensive****Stock**
              
              **Stock**
              
              **Stock**
              
              **Stock**
              
              **Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2002**
              
              $
              ---
              
              $
              ---
              
              $
              10,503
              
              $
              501
              
              $
              108,617
              
              $
              255,366
              
              $
              (57,482
              )
              $
              ---Net
                  loss
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (61,900
              )
              
              ---
              
              
              (61,900
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              1,096
              
              
              1,096Minimum pension liability,net of tax of
                    $9,906
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              18,398
              
              
              18,398Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (42,406
              )Settlement
                  of stock options held byemployees, net of taxes of $1,710
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3,000
              )
              
              ---
              
              
              ---Subtotal
              
              
              ---
              
              
              ---
              
              
              10,503
              
              
              501
              
              
              105,617
              
              
              193,466
              
              
              (37,988
              )Effect
                  of the Recapitalization
              
              
              8,130
              
              
              365
              
              
              (10,503
              )
              
              (501
              )
              
              328,857
              
              
              (193,466
              )
              
              37,988**Balance,
                  January 9, 2003**
              
              $
              8,130
              
              $
              365
              
              $
              ---
              
              $
              ---
              
              $
              434,474
              
              $
              ---
              
              $
              ---




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*






**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from January 10, 2003 to December 31, 2003**


*(Dollar
      amounts in thousands)*


**Accumulated****Series
                  B**
              
              **Class
                  A**
              
              **Additional**
              
              
              
              **Other****Preference**
              
              **Common**
              
              **Paid-in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Stock**
              
              **Stock**
              
              **Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  January 9, 2003**
              
              $
              8,130
              
              $
              365
              
              $
              434,474
              
              $
              ---
              
              $
              ---
              
              $
              ---Net
                  income
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              74,200
              
              
              ---
              
              
              74,200Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              19,501
              
              
              19,501Minimum pension liability, net of tax of $35
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (64
              )
              
              (64
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              93,637Issuance
                  of 32,608 shares of Class A Common Stock
              
              
              ---
              
              
              32
              
              
              1,468
              
              
              ---
              
              
              ---Dividend
                  to common and preferred stockholders
              
              
              ---
              
              
              ---
              
              
              (224,274
              )
              
              (74,200
              )
              
              ---Cash
                  distribution to stock option holders
              
              
              ---
              
              
              ---
              
              
              (41,600
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              ---
              
              
              ---
              
              
              2,179
              
              
              ---
              
              
              ---Other,
                  net
              
              
              ---
              
              
              ---
              
              
              (3
              )
              
              ---
              
              
              ---**Balance,
                  December 31, 2003**
              
              $
              8,130
              
              $
              397
              
              $
              172,244
              
              $
              ---
              
              $
              19,437




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*








**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from January 1, 2004 to August 27, 2004**


*(Dollar
      amounts in thousands)*


**Accumulated****Series
                  B**
              
              **Class
                  A**
              
              **Additional**
              
              
              
              **Other****Preference**
              
              **Common**
              
              **Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Stock**
              
              **Stock**
              
              **Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2003**
              
              $
              8,130
              
              $
              397
              
              $
              172,244
              
              $
              ---
              
              $
              19,437
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (43,900
              )
              
              ---
              
              
              (43,900
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3,958
              )
              
              (3,958
              )Unrealized appreciation in the fair valueof marketable securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              21
              
              
              21Minimum
                  pension liability, net of tax of $10
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              18
              
              
              18Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (47,819
              )Stock-based
                  compensation
              
              
              ---
              
              
              ---
              
              
              5,242
              
              
              ---
              
              
              ---Settlement
                  and cancellation of stock options,net of taxes of $19,131
              
              
              ---
              
              
              ---
              
              
              (43,035
              )
              
              ---
              
              
              ---Subtotal
              
              
              8,130
              
              
              397
              
              
              134,451
              
              
              (43,900
              )
              
              15,518Effect
                  of the Acquisition
              
              
              (8,130
              )
              
              (397
              )
              
              179,986
              
              
              43,900
              
              
              (15,518
              )**Balance,
                  August 27, 2004**
              
              $
              ---
              
              $
              ---
              
              $
              314,437
              
              $
              ---
              
              $
              ---




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*






**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from August 28, 2004 to December 31, 2004**


*(Dollar
      amounts in thousands)*


**Accumulated****Additional**
              
              
              
              **Other****Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  August 28, 2004**
              
              $
              314,437
              
              $
              ---
              
              $
              ---
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              (4,100
              )
              
              ---
              
              
              (4,100
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              9,495
              
              
              9,495Unrealized decline in the fair valueof marketable
                    securities
              
              
              ---
              
              
              ---
              
              
              (20
              )
              
              (20
              )Minimum pension liability, net of tax of $221
              
              
              ---
              
              
              ---
              
              
              (410
              )
              
              (410
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              4,965Stock-based
                  compensation
              
              
              108
              
              
              ---
              
              
              ---Effect
                  of the Acquisition
              
              
              2,278
              
              
              ---
              
              
              ---**Balance,
                  December 31, 2004**
              
              $
              316,823
              
              $
              (4,100
              )
              $
              9,065




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*





**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from January 1, 2005 to December 31, 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
              
              
              ---
              
              
              56,900
              
              
              ---
              
              
              56,900Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (1,659
              )
              
              (1,659
              )Minimum pension liability, net of taxof $75
              
              
              ---
              
              
              ---
              
              
              145
              
              
              145Unrealized decline in the fair value ofmarketable
                    securities
              
              
              ---
              
              
              ---
              
              
              (6
              )
              
              (6
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              55,380Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,966
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              324
              
              
              ---
              
              
              ---**Balance,
                  December 31, 2005**
              
              $
              130,181
              
              $
              52,800
              
              $
              7,545




*The
      accompanying notes are an integral part of these Consolidated Financial
      Statements.*






NTK
      HOLDINGS, INC. AND SUBSIDIARIES


Notes
      to the Consolidated Financial
      Statements


December
      31, 2005





**1.** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**




NTK
        Holdings, Inc. (the “Company” or “NTK Holdings”) is a Delaware corporation that
        was formed to hold the capital stock of Nortek Holdings, Inc. (“Nortek
        Holdings”). NTK Holdings became the parent company of Nortek Holdings on
        February 10, 2005 (see Note 7).
 
 The
        consolidated periods included herein for periods prior to January 9, 2003
        (“Pre-Recapitalization”) reflect the financial position, results of operations
        and cash flows of Nortek, Inc. (“Nortek”) and all of its wholly-owned
        subsidiaries and periods subsequent to January 9, 2003 and prior to August
        28,
        2004 (“Pre-Acquisition”) reflect the financial position, results of operations
        and cash flows of the former Nortek Holdings, Inc. and all of its wholly-owned
        subsidiaries (the predecessor company). Subsequent to August 27, 2004 and
        prior
        to February 10, 2005, the consolidated financial statements included herein
        reflect the financial position, results of operations and cash flows of Nortek
        Holdings, Inc. and all of its wholly-owned subsidiaries (the successor company
        and survivor from the mergers noted below in connection with the THL
        Transaction) and the periods subsequent to February 9, 2005 reflect the
        financial position, results of operations and cash flows of NTK Holdings
        and all
        of its wholly-owned subsidiaries (combined the “Post Acquisition”
periods).
 
 The
        Company is a diversified manufacturer of residential and commercial building
        products, operating within three reporting segments: the Residential Ventilation
        Products Segment, the Home Technology Products Segment and the Air Conditioning
        and Heating Products Segment. Through these reporting 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.


**Principles
      of Consolidation**





The
      Consolidated Financial Statements include the accounts of the Company and all
      of
      its continuing wholly-owned subsidiaries after elimination of intercompany
      accounts and transactions. Certain amounts in the prior years’ Consolidated
      Financial Statements have been reclassified to conform to the current year
      presentation.





In
      2005,
      the Company has separately disclosed the operating, investing and financing
      portions of the cash flows attributable to its discontinued operations (see
      Note
      10), which in prior periods were reported on a combined basis as a single
      amount.





**Accounting
      Policies and Use of Estimates**





The
      preparation of these Consolidated Financial Statements in conformity with U.S.
      generally accepted accounting principles involves estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities as of the date of the financial statements
      and
      the reported amounts of income and expense during the reporting periods. 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.




**Recognition
      of Sales and Related Costs, Incentives and Allowances**





The
      Company recognizes sales upon the shipment of its products net of applicable
      provisions for discounts and allowances. Allowances for cash discounts, volume
      rebates and other customer incentive programs, as well as gross customer
      returns, among others, are recorded as a reduction of sales at the time of
      sale
      based upon the estimated future outcome. Cash discounts, volume rebates and
      other customer incentive programs are based upon certain percentages agreed
      to
      with the Company’s various customers, which are typically earned by the customer
      over an annual period. The Company records periodic estimates for these amounts
      based upon the historical results to date, estimated future results through
      the
      end of the contract period and the contractual provisions of the customer
      agreements. For calendar year customer agreements, the Company is able to adjust
      its periodic estimates to actual amounts as of December 31 each year based
      upon
      the contractual provisions of the customer agreements. For those customers
      who
      have agreements that are not on a calendar year cycle, the Company records
      estimates at December 31 consistent with the above described methodology.
      Customer returns are recorded on an actual basis throughout the year and also
      include an estimate at the end of each reporting period for future customer
      returns related to sales recorded prior to the end of the period. The Company
      generally estimates customer returns based upon the time lag that historically
      occurs between the date of the sale and the date of the return while also
      factoring in any new business conditions that might impact the historical
      analysis such as new product introduction. The Company also provides for its
      estimate of warranty, bad debts and shipping costs at the time of sale. Shipping
      and warranty costs are included in cost of products sold. Bad debt provisions
      are included in selling, general and administrative expense. The amounts
      recorded are generally based upon historically derived percentages while also
      factoring in any new business conditions that might impact the historical
      analysis such
      as
      new product introduction for warranty and bankruptcies of particular customers
      for bad debts.





**Cash
      and Cash Equivalents**





Cash
      equivalents consist of short-term highly liquid investments with original
      maturities of three months or less which are readily convertible into cash.





The
      Company has classified as restricted in the accompanying consolidated balance
      sheet certain cash and cash equivalents that are not fully available for use
      in
      its operations. At December 31, 2005 approximately $4,015,000 of cash and cash
      equivalents (all of which is included in long-term assets) had been pledged
      as
      collateral or were held in pension trusts for certain debt, insurance, employee
      benefits and other requirements. At December 31, 2004 approximately $8,605,000
      of cash and cash equivalents (all of which is included in long-term assets)
      had
      been pledged as collateral or were held in pension trusts for certain debt,
      insurance, employee benefits and other requirements (see Notes 6 and 8).





**Disclosures
      About Fair Value of Financial Instruments**





The
      following methods and assumptions were used to estimate the fair value of each
      class of financial instruments for which it is practicable to estimate that
      value:





***Cash
      and Cash Equivalents --***


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





***Investments
      --***


The
      fair
      value of investments is based on quoted market prices. The fair value of
      investments was not materially different from their cost basis at December
      31,
      2005 or 2004.





***Long-Term
      Debt --***


At
      December 31, 2005 and December 31, 2004, the fair value of long-term
      indebtedness was approximately $41,400,000 lower and $29,100,000 higher,
      respectively, than the amount on the Company’s consolidated balance sheet,
      before unamortized premium, based on market quotations (see Note 6).





**Inventories**





Inventories
      in the accompanying consolidated balance sheet are valued at the lower of cost
      or market. At December 31, 2005 and 2004, approximately $121,031,000 and
      $110,637,000 of total inventories, respectively, were valued on the last-in,
      first-out method (“LIFO”). Under the first-in, first-out method (“FIFO”) of
      accounting, such inventories would have been approximately $2,875,000 and
      $3,455,000 lower at December 31, 2005 and 2004, respectively. All other
      inventories were valued under the FIFO method. In connection with both LIFO
      and
      FIFO inventories, the Company will record provisions, as appropriate, to
      write-down obsolete and excess inventory to estimated net realizable value.
      The
      process for evaluating obsolete and excess inventory often requires the Company
      to make subjective judgments and estimates concerning future sales levels,
      quantities and prices at which such inventory will be able to be sold in the
      normal course of business. Accelerating the disposal process or incorrect
      estimates of future sales potential may cause the actual results to differ
      from
      the estimates at the time such inventory is disposed or sold.





Purchase
      price allocated to the fair value of inventory is amortized over the estimated
      period in which the inventory will be sold.





**Depreciation
      and Amortization**





Depreciation
      and amortization of property and equipment, including capital leases, is
      provided on a straight-line basis over their estimated useful lives, which
      are
      generally as follows:





Buildings
                and improvements
            10-35
                yearsMachinery
                and equipment, including leases
            3-15
                yearsLeasehold
                improvements
            Term
                of lease





Expenditures
      for maintenance and repairs are expensed when incurred. Expenditures for
      renewals and betterments are capitalized. When assets are sold, or otherwise
      disposed, the cost and related accumulated depreciation are eliminated and
      the
      resulting gain or loss is recognized.





**Goodwill
      and Intangible Assets**





The
      Company accounts for acquired goodwill and intangible assets in accordance
      with
      Statement of Financial Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS No. 141”), SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
      No. 142”) and SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (“SFAS No. 144”) which involves judgment with respect to the
      determination of the purchase price and the valuation of the acquired assets
      and
      liabilities in order to determine the final amount of goodwill. The Company
      believes that the estimates that it has used to record its acquisitions are
      reasonable and in accordance with SFAS No. 141 (see Notes 2 and 3).





Under
      SFAS No. 142, goodwill and intangible assets determined to have an indefinite
      useful life are not amortized, instead these assets are evaluated for impairment
      on an annual basis and whenever events or business conditions warrant. The
      Company has evaluated the carrying value of reporting unit goodwill and
      determined that no impairment existed at either the date of the Acquisition
      or
      at its annual evaluation dates as of the first day of the fourth quarter. The
      reporting units evaluated for goodwill impairment by the Company have been
      determined to be the same as the Company’s operating segments in accordance with
      the criteria in FASB 142 for determining reporting units (see Note
      11).





In
      accordance with SFAS No. 144, the Company has evaluated the realizability of
      non
      indefinite-lived and non-goodwill long-lived assets, which primarily consist
      of
      property and equipment and intangible assets (the “SFAS No. 144 Long-Lived
      Assets”), whenever impairment indicators are present, based on expectations of
      non-discounted future cash flows for each subsidiary having a material amount
      of
      SFAS No. 144 Long-Lived Assets. If the sum of the expected non-discounted future
      cash flows is less than the carrying amount of assets including SFAS No. 144
      Long-Lived Assets, the Company would recognize an impairment loss. The Company’s
      cash flow estimates are based upon historical cash flows, as well as future
      projected cash flows received from subsidiary management in connection with
      the
      annual Company wide planning process, and include a terminal valuation for
      the
      applicable subsidiary based upon a multiple of earnings before interest expense,
      net, depreciation and amortization expense and income taxes (“EBITDA”). The
      Company estimates the EBITDA multiple by reviewing comparable company
      information and other industry data. The Company believes that its procedures
      for estimating gross future cash flows, including the terminal valuation, are
      reasonable and consistent with market conditions at the time of estimation.
      Based on its most recent analysis, the Company believes that no material
      impairment of SFAS No. 144 Long-Lived Assets exists at December 31,
      2005.





The
      following table presents a summary of the activity in goodwill for continuing
      operations and discontinued operations for the year ended December 31, 2005,
      the
      period from August 28, 2004 to December 31, 2004, the period from January 1,
      2004 to August 27, 2004, the period from January 10, 2003 to December 31, 2003
      and the period from January 1, 2003 to January 9, 2003.





**Continuing**
            
            **Discontinued****Operations**
            
            **Operations**
            
            **Total***(Amounts
                in thousands)***Balance
                as of December 31, 2002**
            
            **$**
            **285,131**
            
            **$**
            **266,031**
            
            **$**
            **551,162**Impact
                of foreign currency translation
            
            
            269
            
            
            74
            
            
            343**Balance
                as of January 9, 2003**
            
            
            **285,400**
            
            
            **266,105**
            
            
            **551,505**Impact
                of Recapitalization
            
            
            350,807
            
            
            (40,567
            )
            
            310,240Acquisitions
                during the period from January 10, 2003 to December 31,
                2003
            
            
            46,248
            
            
            ---
            
            
            46,248Purchase
                accounting adjustments
            
            
            (11,979
            )
            
            (4,195
            )
            
            (16,174
            )Impact
                of foreign currency translation
            
            
            5,370
            
            
            851
            
            
            6,221**Balance
                as of December 31, 2003**
            
            
            **675,846**
            
            
            **222,194**
            
            
            **898,040**Acquisitions
                during the period from January 1, 2004 to August 27, 2004
            
            
            6,841
            
            
            ---
            
            
            6,841Dispositions
            
            
            ---
            
            
            (222,194
            )
            
            (222,194
            )Purchase
                accounting adjustments
            
            
            (3,229
            )
            
            ---
            
            
            (3,229
            )Impact
                of foreign currency translation
            
            
            1
            
            
            ---
            
            
            1**Balance
                as of August 27, 2004**
            
            
            **679,459**
            
            
            **---**
            
            
            **679,459**Effect
                of the Acquisition
            
            
            607,053
            
            
            ---
            
            
            607,053Acquisitions
                during the period from August 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 year ended December 31, 2005
            
            
            91,881
            
            
            ---
            
            
            91,881Purchase
                accounting adjustments
            
            
            (4,831
            )
            
            ---
            
            
            (4,831
            )Impact
                of foreign currency translation
            
            
            (805
            )
            
            ---
            
            
            (805
            )**Balance
                as of December 31, 2005**
            
            **$**
            **1,381,350**
            
            **$**
            **---**
            
            **$**
            **1,381,350**





Goodwill
      associated with the Acquisition and Recapitalization (see Note 2) will not
      be
      deductible for income tax purposes. Approximately $56,100,000, $6,800,000 and
      $23,100,000 of goodwill associated with certain companies acquired during the
      year ended December 31, 2005, the period from August 28, 2004 to December 31,
      2004 and the period from January 10, 2003 to December 31, 2003, respectively,
      (see Note 3) will be deductible for income tax purposes. Purchase
      accounting adjustments relate principally to final revisions resulting from
      the
      completion of fair value adjustments and adjustments to deferred income taxes
      that impact goodwill.





The
      Company has classified as goodwill the cost in excess of fair value of the
      net
      assets (including tax attributes) of companies acquired in purchase
      transactions. See Note 11 for a rollforward of the activity in goodwill by
      reporting segment for the years ended December 31, 2005 and 2004.





Intangible
      assets consist principally of patents, trademarks, customer relationships and
      non-compete agreements. Patents, trademarks and non-compete agreements are
      amortized on a straight-line basis, while customer relationships are amortized
      on an accelerated basis based upon the estimated consumption of the economic
      benefits of the customer relationship. Amortization of intangible assets charged
      to operations amounted to approximately $18,321,000, $8,398,000, $8,869,000,
      $9,055,000 and $64,000 for the year ended December 31, 2005, the period from
      August 28, 2004 to December 31, 2004, the period from January 1, 2004 to August
      27, 2004, the period from January 10, 2003 to December 31, 2003 and the period
      from January 1, 2003 to January 9, 2003, respectively. The table that follows
      presents the major components of intangible assets as of December 31, 2005
      and
      2004:





**Weighted****Gross**
            
            
            
            **Net**
            
            **Average****Carrying**
            
            **Accumulated**
            
            **Intangible**
            
            **Remaining****Amount**
            
            **Amortization**
            
            **Assets**
            
            **Useful
                Lives***(Amounts
                in thousands except for Useful Lives)***December
                31, 2005:**Trademarks
            
            $
            72,533
            
            $
            (6,311
            )
            $
            66,222
            
            14
            .9Patents
            
            
            22,615
            
            
            (1,962
            )
            
            20,653
            
            14
            .8Customer
                relationships
            
            
            34,183
            
            
            (15,785
            )
            
            18,398
            
            2
            .7Others
            
            
            12,471
            
            
            (3,270
            )
            
            9,201
            
            3
            .7$
            141,802
            
            $
            (27,328
            )
            $
            114,474
            
            6
            .6**December
                31, 2004:**Trademarks
            
            $
            62,114
            
            $
            (1,145
            )
            $
            60,969
            
            15
            .0Patents
            
            
            21,423
            
            
            (723
            )
            
            20,700
            
            14
            .7Customer
                relationships
            
            
            29,124
            
            
            (6,046
            )
            
            23,078
            
            4
            .4Others
            
            
            6,490
            
            
            (522
            )
            
            5,968
            
            3
            .8$
            119,151
            
            $
            (8,436
            )
            $
            110,715
            
            8
            .6





As
      of
      December 31, 2005, the estimated annual intangible asset amortization expense
      for each of the years presented aggregates approximately $114,474,000 as
      follows:





**Year
                Ended**
            
            **Annual
                Amortization****December
                31,**
            
            **Expense***(Amounts
                in thousands)**(Unaudited)*2006
            
            $15,8002007
            
            12,9002008
            
            10,6002009
            
            8,5002010
            
            7,0002011
                and thereafter
            
            59,674





**Pensions
      and Post Retirement Health Benefits**





The
      Company accounts for pensions, including supplemental executive retirement
      plans, and post retirement health benefit liabilities under SFAS No. 87,
“Employers’ Accounting for Pensions” (“SFAS No. 87”) and SFAS No. 106,
“Employers’ Accounting for Post Retirement Benefits Other Than Pensions” (“SFAS
      No. 106”). SFAS No. 87 and SFAS No. 106 require the estimating of such items as
      the long-term average return on plan assets, the discount rate, the rate of
      compensation increase and the assumed medical cost inflation rate. Such
      estimates require a significant amount of judgment (see Note 8).





**Insurance
      Liabilities**





The
      Company records insurance liabilities and related expenses for health, workers
      compensation, product and general liability losses and other insurance reserves
      and expenses in accordance with either the contractual terms of its policies
      or,
      if self-insured, the total liabilities that are estimable and probable as of
      the
      reporting date. Insurance liabilities are recorded as current liabilities to
      the
      extent they are expected to be paid in the succeeding year with the remaining
      requirements classified as long-term liabilities. The accounting for
      self-insured plans requires that significant judgments and estimates be made
      both with respect to the future liabilities to be paid for known claims and
      incurred but not reported claims as of the reporting date. The Company considers
      historical trends when determining the appropriate insurance reserves to record
      in the consolidated balance sheet for a substantial portion of its workers
      compensation and general and product liability losses. In certain cases where
      partial insurance coverage exists, the Company must estimate the portion of
      the
      liability that will be covered by existing insurance policies to arrive at
      the
      net expected liability to the Company.





**Income
      Taxes**





The
      Company accounts for income taxes using the liability method in accordance
      with
      SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which requires
      that the deferred tax consequences of temporary differences between the amounts
      recorded in the Company’s Consolidated Financial Statements and the amounts
      included in the Company’s federal and state income tax returns be recognized in
      the balance sheet. As the Company generally does not file its income tax returns
      until well after the closing process for the December 31 financial statements
      is
      complete, the amounts recorded at December 31 reflect estimates of what the
      final amounts will be when the actual income tax returns are filed for that
      fiscal year. In addition, estimates are often required with respect to, among
      other things, the appropriate state income tax rates to use in the various
      states that the Company and its subsidiaries are required to file, the potential
      utilization of operating and capital loss carry-forwards for both federal and
      state income tax purposes and valuation allowances required, if any, for tax
      assets that may not be realizable in the future. SFAS No. 109 requires balance
      sheet classification of current and long-term deferred income tax assets and
      liabilities based upon the classification of the underlying asset or liability
      that gives rise to a temporary difference (see Note 5).





**Interest
      Allocation to Dispositions**





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.





**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 $300,000 for the year ended December 31, 2005 in accordance with
      SFAS No. 123. In the period from August 28, 2004 to December 31, 2004, the
      Company recorded stock-based compensation charges in continuing operations
      of
      approximately $100,000 related to the C-1 Units described below received by
      certain employees and consultants of the Company in connection with the THL
      Transaction (see Note 2) and in the period from January 1, 2004 to August 27,
      2004, recorded stock-based compensation charges in continuing operations of
      approximately $48,500,000 related to the accelerated vesting and achievement
      of
      the performance criteria for a portion of the Company’s outstanding stock
      options due to the change in control of the Company as a result of the
      Acquisition. A
      portion
      of this expense has been allocated to the Company’s reporting segments for all
      periods presented and a portion has been recorded in Unallocated (see Note
      11).
      In addition, the Company recorded stock-based employee compensation charges
      in
      discontinued operations of approximately $6,400,000 for the period from January
      1, 2004 to August 27, 2004 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 10) due to the change of control of the Company as a result
      of the Acquisition.





In
      connection with the THL Transaction on August 27, 2004, certain employees and
      consultants received approximately 21,184 C-1 units and approximately 42,368
      C-2
      units, which represent equity interests in THL-Nortek Investors, LLC (“Investors
      LLC”) that function similar to stock options. During the second quarter of 2005,
      approximately 1,500 C-1 units and approximately 3,000 C-2 units were granted
      to
      one of the Company’s officers. The C-1 units vest pro rata on a quarterly basis
      over a three-year period and approximately 9,065 and 1,758 were vested at
      December 31, 2005 and 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 $570,000 remains to be amortized at December 31, 2005. The C-2
      units only vest in the event that certain performance-based criteria, as
      defined, are met. As of December 31, 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.





All
      outstanding stock options at August 27, 2004 were fully vested in connection
      with the THL Transaction and were either sold or surrendered for cancellation
      as
      part of the THL Transaction (see Note 2). The following tables summarize the
      Company’s common and special common stock option transactions for stock options
      issued prior to the Acquisition and reflects both stock options issued prior
      to
      the Recapitalization and Class A stock options issued subsequent to the
      Recapitalization, including options held by the Management Investors that were
      exchanged in connection with the Recapitalization. Options issued prior to
      the
      Nortek Holdings Reorganization on November 20, 2002 for the common and special
      common stock of the Company were converted to options to purchase the common
      and
      special common stock of Nortek Holdings in connection with the Nortek Holdings
      Reorganization (see Notes 2 and 7).





**Stock
      Options Issued:**





**Weighted****Average****Number**
            
            **Option
                Price**
            
            **Exercise****of
                Shares**
            
            **Per
                Share**
            
            **Price****Options
                outstanding at December 31, 2002**
            
            
            2,085,546
            
            $
            8.75
                - $44.16
            
            $
            23.69Exercised
                and tendered in connection with the Recapitalization
            
            
            (217,226
            )
            
            20.25
                - 44.16
            
            
            24.81**Options
                canceled and exchanged for new Class A stock options in connection
                with
                the Recapitalization on January 9, 2003**
            
            
            1,868,320
            
            $
            8.75
                - $33.06
            
            $
            23.56Granted
            
            
            443,266
            
            
            46.00
                - 46.00
            
            
            46.00Canceled
            
            
            (2,333
            )
            
            46.00
                - 46.00
            
            
            46.00**Options
                outstanding at December 31, 2003**
            
            
            2,309,253
            
            $
            10.50
                - $11.00
            
            $
            10.62Options
                cancelled in connection with the sale of Ply Gem
            
            
            (74,667
            )
            
            10.50
                - 11.00
            
            
            10.70Options
                sold or surrendered in connection with the THL Transaction
            
            
            (2,234,586
            )
            $
            10.50
                - $11.00
            
            $
            10.59**Options
                outstanding at August 27, 2004**
            
            
            ---





The
      above
      table does not include 846,534 of Class B common stock options issued by the
      former Nortek Holdings, of which 841,867 were outstanding at December 31, 2003
      and August 27, 2004, as 4,667 of Class B common stock options were cancelled
      during fiscal 2003. The Class B stock options fully vested in connection with
      the THL Transaction and were included in the amounts either sold or surrendered
      for cancellation as part of the THL Transaction (see Note 2).





As
      defined under the then existing stock option plans, all options became fully
      vested upon the completion of the Recapitalization on January 9, 2003. Options
      to purchase 217,226 shares of common stock of Nortek Holdings were exercised
      and
      tendered in connection with the Recapitalization for a cash settlement of
      approximately $4,700,000. This charge of approximately $3,000,000, net of tax,
      was reflected as an equity adjustment to additional paid in capital in the
      accompanying consolidated statement of stockholder’s investment for the period
      from January 1, 2003 to January 9, 2003. Options to purchase 1,868,320 shares
      of
      common stock and special common stock of Nortek Holdings, that were rolled-over
      by the Management Investors, were exchanged for fully vested stock options
      to
      purchase an equal number of shares of Class A Common Stock of Nortek Holdings
      at
      the same price per share (the “Rollover Options”).





In
      connection with a shareholder distribution made by Nortek Holdings in November
      2003, option holders of the Rollover Options received a cash distribution of
      approximately $41,600,000 (see Note 7), which was treated as a charge to
      additional paid-in capital in the accompanying consolidated statement of
      stockholder’s investment in accordance with the provisions of SFAS No. 123. The
      distribution to each individual option holder was equal to the number of shares
      held multiplied by the lesser of (i) $35 per share or (ii) $46 per share minus
      the amount per share the exercise price was reduced. In conjunction with this
      shareholder distribution, Nortek Holdings adjusted the exercise price of all
      of
      the Rollover Options to equal $10.50 per share and all of the other Class A
      stock options to equal $11.00 per share, which has been reflected in the above
      table.





In
      addition, in the fourth quarter of 2003, the Company recorded a $600,000
      compensation based charge related to the sale of certain capital
      stock.





The
      Company has historically used the Black-Scholes option pricing model to
      determine the fair value of stock options at the date of grant. There were
      no
      stock options granted during the period from January 1, 2004 to August 27,
      2004
      or during the period from January 1, 2003 to January 9, 2003. The following
      table summarizes the weighted-average assumptions for the periods presented
      during which options were issued. The weighted-average assumptions for options
      granted subsequent to January 1, 2003 were used to calculate the stock-based
      employee compensation charge of approximately $1,400,000 for the period from
      January 10, 2003 to December 31, 2003. As Nortek Holdings was no longer a public
      company during this period, the weighted-average assumptions reflect the use
      of
      the minimum value calculations permitted under SFAS No. 123 for non-public
      companies, whereby a volatility assumption is excluded from the calculation.
      The
      weighted average assumptions related to earnings from continuing operations
      exclude options issued to employees of Ply Gem, which has been treated as a
      discontinued operation for all periods presented.








**For
                the Pre-Acquisition****Period
                January 10, 2003 -****December
                31, 2003****Assumption
                for Earnings from Continuing Operations:**Risk-free
                interest rate
            Between
                2.60% and 3.23%Expected
                life
            5
                yearsExpected
                volatility
            N/AExpected
                dividend yield
            0%Weighted
                average fair value at grant date of option granted
            $8.03**Assumptions
                for Net Earnings:**Risk-free
                interest rate
            Between
                2.60% and 3.23%Expected
                life
            5
                yearsExpected
                volatility
            N/AExpected
                dividend yield
            0%Weighted
                average fair value at grant date of option granted
            $7.93




Pro
      forma
      information for the period from January 1, 2003 to January 9, 2003 has been
      determined as if the Company had been accounting for its employee stock options
      under the fair value method of SFAS No. 123 for all options issued prior to
      January 1, 2003 and subsequent to the initial effective date of SFAS No. 123.
      The pro forma stock-based employee compensation charge for the period from
      January 1, 2003 to January 9, 2003 reflects the pro forma impact of the
      accelerated vesting associated with the immediate vesting of all unvested
      options in connection with the Recapitalization. The weighted-average
      assumptions for options granted prior to January 1, 2003 included in the pro
      forma information for the period from January 1, 2003 to January 9, 2003 include
      a volatility assumption as Nortek Holdings and, prior to the Nortek Holdings
      Reorganization, the Company’s common stock was publicly traded as of the end of
      this period. No historical stock-based employee compensation is reflected for
      the period from January 1, 2003 to January 9, 2003 as no options were issued.
      The pro forma amounts with respect to loss from continuing operations exclude
      the pro forma impact of options issued to employees of Ply Gem, which has been
      treated as a discontinued operation for all periods presented.





**For
                the****Pre-Recapitalization****Period
                Jan. 1, 2003 -****Jan.
                9, 2003**Loss
                from continuing operations, as reported
            $(60,900)Less: Total
                stock-based employee compensation expense determined under the fair
                value
                method for awards issued prior to January 1, 2003, net of related
                tax
                effects
            (500)Pro
                forma loss from continuing operations
            $(61,400)Net
                loss, as reported
            $(61,900)Less: Total
                stock-based employee compensation expense determined under the fair
                value
                method for awards issued prior to January 1, 2003, net of related
                tax
                effects
            (600)Pro
                forma net loss
            $(62,500)





Pro
      forma
      information is not required under SFAS No. 148 for the year ended December
      31,
      2005, the period from August 28, 2004 to December 31, 2004, the period from
      January 1, 2004 to August 27, 2004 and the period from January 10, 2003 to
      December 31, 2003 as the consolidated statement of operations for those periods
      includes the actual stock-based employee compensation for stock options required
      under SFAS No. 123 for those periods.





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





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





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





**Commitments
      and Contingencies**





The
      Company provides accruals for all direct costs associated with the estimated
      resolution of contingencies at the earliest date at which it is deemed probable
      that a liability has been incurred and the amount of such liability can be
      reasonably estimated. Costs accrued are estimated based upon an analysis of
      potential results, assuming a combination of litigation and settlement
      strategies and outcomes (see Note 9).





**Research
      and Development**





The
      Company’s research and development activities are principally new product
      development and represent approximately 1.9%, 1.7% and 1.5% of the Company’s
      consolidated net sales in 2005, 2004 and 2003, respectively.





**Comprehensive
      Income (Loss)**





Comprehensive
      income (loss) includes net earnings and unrealized gains and losses from
      currency translation, marketable securities available for sale and minimum
      pension liability adjustments, net of tax attributes. The components of the
      Company’s comprehensive income (loss) and the effect on earnings for the periods
      presented are detailed in the accompanying consolidated statement of
      stockholder’s investment.





The
      balances of each classification, net of tax attributes, within accumulated
      other
      comprehensive income (loss) as of the periods presented are as follows:





**Unrealized**
            
            
            
            **Total****Gains**
            
            **Minimum**
            
            **Accumulated****Foreign**
            
            **(Losses)
                on**
            
            **Pension**
            
            **Other****Currency**
            
            **Marketable**
            
            **Liability**
            
            **Comprehensive****Translation**
            
            **Securities**
            
            **Adjustment**
            
            **Income
                (Loss)***(Amounts
                in thousands)***Balance
                December 31, 2002**
            
            **$**
            **(11,245**
            **)**
            **$**
            **(378**
            **)**
            **$**
            **(45,859**
            **)**
            **$**
            **(57,482**
            **)**Change
                during the period
            
            
            1,096
            
            
            ---
            
            
            18,398
            
            
            19,494**Balance
                January 9, 2003**
            
            
            **(10,149**
            **)**
            
            **(378**
            **)**
            
            **(27,461**
            **)**
            
            **(37,988**
            **)**Effect
                of the Recapitalization
            
            
            10,149
            
            
            378
            
            
            27,461
            
            
            37,988Change
                during the period
            
            
            19,501
            
            
            ---
            
            
            (64
            )
            
            19,437**Balance
                December 31, 2003**
            
            
            **19,501**
            
            
            **---**
            
            
            **(64**
            **)**
            
            **19,437**Change
                during the period
            
            
            (3,958
            )
            
            21
            
            
            18
            
            
            (3,919
            )**Balance
                August 27, 2004**
            
            
            **15,543**
            
            
            **21**
            
            
            **(46**
            **)**
            
            **15,518**Effect
                of the Acquisition
            
            
            (15,543
            )
            
            (21
            )
            
            46
            
            
            (15,518
            )Change
                during the period
            
            
            9,495
            
            
            (20
            )
            
            (410
            )
            
            9,065**Balance
                December 31, 2004**
            
            
            **9,495**
            
            
            **(20**
            **)**
            
            **(410**
            **)**
            
            **9,065**Change
                during the period
            
            
            (1,659
            )
            
            (6
            )
            
            145
            
            
            (1,520
            )**Balance
                December 31, 2005**
            
            **$**
            **7,836**
            
            **$**
            **(26**
            **)**
            **$**
            **(265**
            **)**
            **$**
            **7,545**





**Foreign
      Currency Translation**





The
      financial statements of subsidiaries outside the United States are measured
      using the foreign subsidiaries’ local currency as the functional currency. The
      Company translates the assets and liabilities of its foreign subsidiaries at
      the
      exchange rates in effect at year-end. Net sales, costs and expenses are
      translated using average exchange rates in effect during the year. Gains and
      losses from foreign currency translation are credited or charged to accumulated
      other comprehensive income (loss) included in stockholder’s investment in the
      accompanying consolidated balance sheet. Transaction gains and losses are
      recorded in selling, general and administrative expense and have not been
      material during any of the periods presented.





**2.** **THE
        ACQUISITION AND RECAPITALIZATION TRANSACTIONS**





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 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 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 NTK
      Holdings, Inc. (“NTK Holdings”), 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”).





On
      November 20, 2002, the Company reorganized into a holding company structure
      and
      each outstanding share of capital stock of Nortek was converted into an
      identical share of capital stock of the former Nortek Holdings, a Delaware
      corporation formed in 2002, with the former Nortek Holdings becoming the
      successor public company and Nortek becoming a wholly-owned subsidiary of the
      former Nortek Holdings (the “Holdings Reorganization”). On January 9, 2003, the
      former Nortek Holdings completed the Recapitalization, which resulted in the
      acquisition of the former Nortek Holdings by certain affiliates and designees
      of
      Kelso & Company L.P. (“Kelso”) and certain members of Nortek’s management.
      As a result, of the Recapitalization, the Company’s shares of capital stock were
      no longer publicly traded.





The
      sections below describe more fully the Acquisition and Recapitalization
      transactions of Nortek and the related pro-forma effect such transactions would
      have had on the consolidated financial statements of the Company.





**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.
 
 As
        noted
        above, 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 December
        31,
        2005, other long-term liabilities include approximately $49,019,000 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 consolidated balance sheet
        relating to the deferred compensation plan. On February 18, 2005, Nortek
        Holdings made a distribution to the participants of its deferred compensation
        plan in the amount of approximately $57,700,000 (see Notes 6 and
        7).
 
 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
        December 31, 2005 the deferred tax benefit was approximately $17,460,000
        (all of
        which is recorded as a long-term asset) and at December 31, 2004 the deferred
        tax benefit was approximately $33,308,000 (of which approximately $17,220,000
        and $16,088,000 is recorded as a current and long-term asset, respectively).
 
 Upon
        consummation of the Acquisition the outstanding principal balance, and accrued
        interest thereon, totaling approximately $900,000 on a loan to one of the
        Company’s officers was forgiven, certain “split dollar” life insurance policies
        with an aggregate cash value of approximately $9,300,000 were transferred
        to two
        of the Company’s officers and approximately $900,000 was paid to such officers
        in settlement of a deferred compensation plan. As a result, Nortek recorded
        an
        approximate $10,200,000 charge to operations on August 27, 2004 (see Note
        14).
 
 The
        total
        amount of transaction fees and related costs incurred by Nortek and THL Buildco
        associated with the Acquisition was approximately $56,500,000, including
        approximately $25,000,000 of advisory and financing fees and expenses paid
        to
        Thomas H. Lee Partners L.P. Approximately $26,000,000 of these fees and expenses
        were recorded by Nortek in “expenses and charges arising from the Acquisition”,
        since they were obligations of Nortek prior to the Acquisition, approximately
        $21,500,000 was recorded as purchase price for the Acquisition (see Note
        14) and
        the balance of $9,000,000 was recorded as deferred financing costs.
 
 Upon
        the
        closing of the THL Transaction, Nortek Holdings and Nortek entered into a
        management agreement with THL Managers V, LLC, an affiliate of Thomas H.
        Lee
        Partners, L.P., pursuant to which THL Managers V, LLC provides certain financial
        and strategic advisory and consultancy services. Under this management
        agreement, the Company is obligated to pay to THL Managers V, LLC, or a designee
        thereof, an annual management fee equal to the greater of (1) $2,000,000
        per
        annum or (2) an amount equal to 0.75% of the consolidated earnings before
        interest, taxes, depreciation and amortization of the Company and its
        subsidiaries, before deduction for such fee. Such annual management fee is
        payable semi-annually in advance on the first business date of each January
        and
        July. A pro rated portion of such fee equal to $688,889 was paid on the closing
        date of the THL Transaction with respect to the period from August 28, 2004
        to
        December 31, 2004. Nortek expensed approximately $2,154,000 for the year
        ended
        December 31, 2005 related to this management agreement in the accompanying
        Consolidated Statement of Operations.
 
 To
        partially finance the purchase price of the Acquisition, affiliates of Thomas
        H.
        Lee Partners, L.P. invested approximately $361,800,000 of cash and certain
        members of the Company’s senior management made a rollover investment of
        approximately $111,800,000. These funds, together with approximately
        $155,300,000 of cash of the former Nortek Holdings, the $700,000,000 proceeds
        from the term loan under the Senior Secured Credit Facility and the $625,000,000
        proceeds from the sale of the 8 1/2% Senior Subordinated Notes due 2014 (the
“8
        1/2% Notes) (see Note 6), were used to finance the Acquisition, to refinance
        certain existing notes of Nortek and the former Nortek Holdings and to pay
        related transaction costs.
 
 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 Nortek 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 Nortek’s equity holders upon completion of the Acquisition, net of a
        deemed dividend of approximately $63,879,000.
 
 Immediately
        prior to the Acquisition, Stockholder’s Investment was approximately
        $114,596,000. The purchase price for the Acquisition of approximately
        $743,154,000 consists of the following:


*(Amounts
              in thousands)*Purchase
                price for Series B Preference stock and Class A Common Stock of the
                former
                Nortek Holdings
            
            $
            706,189Payment
                for the settlement and termination of the former Nortek Holdings
                Stock
                Options
            
            
            113,032Carryover
                basis of continuing investors
            
            
            47,875Cash
                of the former Nortek Holdings
            
            
            (112,839
            )Tax
                benefit related to the Nortek Holdings deferred compensation plan
            
            
            (32,550
            )Fees
                and expenses
            
            
            21,447$
            743,154





During
      the year ended December 31, 2005 and the period from August 28, 2004 to December
      31, 2004, the Company recorded approximately $700,000 and $5,700,000,
      respectively, of amortization of excess purchase price allocated to inventory
      related to the Acquisition as a non-cash charge to cost of goods sold.





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





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





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





**The
      Recapitalization**





On
      January 8, 2003 Nortek’s stockholders approved certain amendments to the
      certificate of incorporation, which were required in order to complete the
      Recapitalization.





Following
      the Stockholder Approval, common stock and special common stock held by the Management
      Investors were exchanged for an equal number of newly created shares of Series
      B
      Preference Stock. In addition, certain options to purchase shares of common
      and
      special common stock held by the Management Investors were exchanged for fully
      vested options to purchase an equal number of shares of the newly created Class
      A Common Stock. The remaining outstanding options, including some held by
      Management Investors, were cancelled in exchange for the right to receive a
      single lump sum cash payment equal to the product of the number of shares of
      common stock or special common stock underlying the option and the amount by
      which the redemption price of $46 per share exceeded the per share exercise
      price of the option.





On
      January 9, 2003, in connection with the Recapitalization, Kelso purchased newly
      issued shares of Series B Preference Stock for approximately $355,923,000 and
      purchased shares of Series B Preference Stock held by the Management Investors
      for approximately $18,077,000. Newly issued Class A Common Stock of
      approximately $3,262,000 was purchased by designated third parties. Shares
      of
      Series B Preference Stock held by the Management Investors that were not
      purchased by Kelso were converted into an equal number of shares of Class A
      Common Stock. In addition, Nortek declared and distributed to the former Nortek
      Holdings a dividend of approximately $120,000,000 and distributed approximately
      $27,900,000 for reimbursement of fees and expenses of Kelso, which were paid
      out
      of Nortek’s unrestricted cash and cash equivalents on hand and were permissible
      under the most restrictive covenants with respect to the indentures of Nortek’s
      8 7/8% Senior Notes due 2008, 9 1/4% Senior Notes due 2007, 9 1/8% Senior Notes
      due 2007 and 9 7/8% Senior Subordinated Notes due 2011 (the “Existing Notes”).





The
      former Nortek Holdings used the proceeds from the purchase by Kelso and
      designated third parties of the newly issued Series B Preference Stock and
      Class
      A Common Stock and the dividend from Nortek to redeem the Company’s Class B
      Common Stock and to cash out options to purchase common and special common
      stock
      totaling approximately $479,185,000. Kelso also purchased from certain
      Management Investors 392,978 shares of Series B Preference Stock for
      approximately $18,077,000.





In
      connection with the Recapitalization, K Holdings received a bridge-financing
      letter from a lender for a senior unsecured term loan facility not to exceed
      $955,000,000 (the “Bridge Facility”). The Bridge Facility was intended to be
      used to fund, if necessary, any change in control offers Nortek might have
      made
      in connection with the Recapitalization. Nortek did not use this Bridge Facility
      because the structure of the Recapitalization did not require Nortek to make
      any
      change of control offers. The commitment letter expired on January 31, 2003.
      As
      a result, the Company’s consolidated interest expense for the period from
      January 10, 2003 to December 31, 2003 includes approximately $4,100,000 of
      interest expense from the amortization of the Bridge Facility commitment fees
      and related expenses.





In
      January 2003, the former Nortek Holdings filed for the deregistration of its
      shares of common and special common stock under the Securities Exchange Act
      of
      1934. The former Nortek Holdings’ shares of common and special common stock are
      no longer publicly traded.





Under
      the
      terms of one of Nortek’s supplemental executive retirement plans (“SERP”),
      Nortek was required to make one-time cash payments to participants in such
      plan
      in satisfaction of obligations under that plan when the Recapitalization was
      completed. Accordingly, Nortek made a distribution of approximately $75,100,000
      to the participants in the plan from funds included in the Company’s
      Consolidated Balance Sheet at December 31, 2002 and classified in long-term
      assets in restricted investments and marketable securities held by pension
      trusts and transferred to one of the participants a life insurance policy with
      approximately $10,300,000 of cash surrender value to satisfy a portion of the
      SERP’s obligation to such participant’s obligation upon the Stockholder
      Approval. The termination and settlement of the obligation of this SERP resulted
      in a curtailment loss on January 9, 2003.





The
      total
      amount of transaction fees and related costs incurred by Nortek and Kelso
      associated with the Recapitalization was approximately $47,300,000, including
      the $27,900,000 noted above, of which approximately $10,500,000 of advisory
      fees
      and expenses was paid to Kelso & Company L.P. A portion of these fees and
      expenses was recorded by Nortek in selling, general and administrative expense,
      since they were obligations of Nortek prior to the Recapitalization.
      Approximately $12,800,000 was recorded as expense on January 9, 2003 since
      these
      fees and expenses became obligations of Nortek upon consummation of the
      Recapitalization (see Note 14).





**3.** **ACQUISITIONS**




On
        December 9, 2005, the Company, through its indirect wholly-owned subsidiary,
        Linear LLC (“Linear”), acquired the stock of GTO, Inc. (“GTO”) for approximately
        $28,200,000 of cash plus contingent consideration. GTO is located in
        Tallahassee, FL and designs, manufactures and sells automatic electric gate
        openers and access control devices to enhance the security and convenience
        of
        both residential and commercial property fences.
 
 On
        August
        26, 2005, the Company, through its indirect wholly-owned subsidiary, Elan
        Home
        Systems, LLC. (“Elan”), acquired the assets and certain liabilities of Sunfire
        Corporation (“Sunfire”) for approximately $4,000,000 (utilizing approximately
        $3,500,000 of cash and issuing an unsecured subordinated promissory note
        in the
        amount of approximately $500,000) plus contingent consideration, which may
        be
        payable in future years. Sunfire is located in Snohomish, WA and sells and
        designs home audio and home cinema amplifiers, receivers and
        subwoofers.
 
 On
        August
        8, 2005, the Company, through its indirect wholly-owned subsidiary, Nortek
        (UK)
        Limited, acquired the stock of Imerge Limited (“Imerge”) for approximately
        $6,100,000 in cash plus contingent consideration, which may be payable in
        future
        years. Imerge is located in Cambridge, United Kingdom and designs, manufactures
        and sells hard disk media players and multi-room audio servers.
 
 On
        July
        15, 2005, the Company, through Linear, acquired the assets and certain
        liabilities of Niles Audio Corporation (“Niles”) for approximately $77,700,000.
        In connection with the acquisition of Niles, the Company utilized approximately
        $67,700,000 of cash and issued an unsecured promissory note in the amount
        of
        approximately $10,000,000. Niles is located in Miami, FL and sells and designs
        products that provide customers with innovative solutions for whole-house
        distribution and integration of audio and video systems, including speakers,
        receivers, amplifiers, automation devices, controls and accessories. For
        the
        year ended December 31, 2004, Niles had unaudited net sales, operating earnings
        and depreciation and amortization expense of approximately $50,000,000,
        $8,500,000 and $500,000, respectively.
 
 On
        June
        13, 2005, the Company, through its wholly-owned subsidiary Nordyne Inc.
        (“Nordyne”), acquired the assets and certain liabilities of International
        Marketing Supply, Inc. (“IMS”) for approximately $4,600,000, utilizing
        approximately $4,100,000 of cash and issuing an unsecured promissory note
        in the
        amount of approximately $500,000. IMS is located in Miami, FL and sells heating,
        ventilation and air-conditioning equipment to customers in Latin
        America.
 
 On
        April
        26, 2005, the Company, through Linear, acquired the stock of Panamax for
        approximately $11,800,000 (utilizing approximately $9,550,000 of cash and
        issuing an unsecured promissory note in the amount of approximately $2,250,000)
        plus contingent consideration. Panamax is located in Petaluma, CA and sells
        and
        designs innovative power conditioning and surge protection products that
        prevent
        loss or damage of home and small business equipment due to power
        disturbances.
 
 On
        December 17, 2004, the Company, through Linear, acquired the assets and
        liabilities of M&S Systems, LP (“M&S”), located in Dallas, TX, for
        approximately $16,500,000 in cash. M&S principally designs, manufactures and
        sells distributed audio and communication equipment and speakers.
 
 On
        March
        9, 2004, the Company, through Linear, acquired the stock of OmniMount Systems,
        Inc. (“OmniMount”) for approximately $16,500,000 in cash plus contingent
        consideration, which may be payable in future years. OmniMount is a seller
        and
        designer of speaker and video mountings and other products to maximize the
        home
        theater experience.
 
 On
        December 15, 2003, the Company, through Linear, acquired the stock of Operator
        Specialty Company, Inc. (“OSCO”), located in Casnovia, MI for approximately
        $2,500,000. OSCO is a manufacturer and designer of gate operators and access
        control devices.
 
 On
        July
        11, 2003, the Company, through Linear, acquired the stock of SpeakerCraft,
        Inc.
        (“SPC”), a leading designer and supplier of architectural loudspeakers and audio
        products used in residential custom applications.
 
 On
        January 17, 2003, the Company, through Linear, acquired the ownership units
        of
        Elan, a seller of consumer electronic equipment that controls whole-house
        entertainment, communication and automation systems for new residential
        construction and retrofit markets.
 
 The
        estimated total potential amount of contingent consideration that may be
        paid in
        the future for these acquisitions is approximately $15,200,000.
 
 Acquisitions
        contributed approximately $86,400,000, $9,900,000 and $800,000 to net sales,
        operating earnings and depreciation and amortization expense, respectively,
        for
        the year ended December 31, 2005. With the exception of IMS, which is included
        in the Air Conditioning and Heating Products Segment, all acquisitions are
        included in the Home Technology Products Segment in the Company’s segment
        reporting (see Note 11).
 
 The
        Company recorded approximately $200,000 during both the year ended December
        31,
        2005 and the period from January 1, 2004 to August 27, 2004 and approximately
        $800,000 during the period from January 10, 2003 to December 31, 2003 of
        amortization of excess purchase price allocated to inventory related to the
        acquisitions noted above as a non-cash charge to cost of goods
        sold.
 
 Acquisitions
        are accounted for as purchases and accordingly have been included in the
        Company’s consolidated results of operations since the acquisition date. For
        recent acquisitions, the Company has made preliminary estimates of the fair
        value of the assets and liabilities of the acquired companies, including
        intangible assets and property and equipment, as of the date of acquisition,
        utilizing information available at the time that the Company’s Consolidated
        Financial Statements were prepared and these estimates are subject to refinement
        until all pertinent information has been obtained. The Company is in the
        process
        of obtaining appraisals of intangible assets and property and equipment and
        finalizing the integration of the acquired companies, which are expected
        to be
        completed by the end of the first half of 2006.
 
 Pro
        forma
        results related to the acquisitions noted herein have not been presented,
        as the
        effect is not significant to the Company’s consolidated operating
        results.
 
 On
        February 22, 2006, the Company, through Linear, acquired the assets and certain
        liabilities of Furman Sound, Inc. (“Furman”) for an initial purchase price of
        approximately $2,900,000. Furman is located in Petaluma, CA and designs and
        sells audio and video signal processors, as well as, innovative AC power
        conditioning and distribution products.


**4.** **CASH
        FLOWS**





Interest
      paid was approximately $105,770,000, $26,242,000, $71,640,000 and $91,991,000
      for the year ended December 31, 2005 and the periods from August 28, 2004 to
      December 31, 2004, from January 1, 2004 to August 27, 2004 and from January
      10,
      2003 to December 31, 2003, respectively. There was no interest paid for the
      period from January 1, 2003 to January 9, 2003.





The
      fair
      value of the assets of the businesses acquired was approximately $149,752,000,
      $20,108,000, $20,786,000 and $95,000,000 for the year ended December 31, 2005
      and for the periods from August 28, 2004 to December 31 2004, from January
      1,
      2004 to August 27, 2004 and from January 10, 2003, to December 31, 2003,
      respectively. Liabilities assumed or created from businesses acquired were
      approximately $17,816,000, $4,605,000, $4,286,000 and $17,184,000 for the year
      ended December 31, 2005 and for the periods from August 28, 2004 to December
      31
      2004, from January 1, 2004 to August 27, 2004 and from January 10, 2003, to
      December 31, 2003, respectively. Net cash paid for acquisitions was
      approximately $117,200,000, $15,500,000, $16,500,000 and $76,000,000 for the
      year ended December 31, 2005 and for the periods from August 28, 2004 to
      December 31 2004, from January 1, 2004 to August 27, 2004 and from January
      10,
      2003 to December 31, 2003, respectively. The Company had no acquisitions during
      the period from January 1, 2003 to January 9, 2003.





Significant
      non-cash financing and investing activities excluded from the accompanying
      consolidated statement of cash flows include capitalized lease additions of
      approximately $4,776,000, $1,613,000, $938,000 and $7,589,000 for the year
      ended
      December 31, 2005 and for the periods from August 28, 2004 to December 31 2004,
      from January 1, 2004 to August 27, 2004 and from January 10, 2003, to December
      31, 2003, respectively.





**5.** **INCOME
        TAXES**





The
      following is a summary of the components of earnings (loss) from continuing
      operations before provision (benefit) for income taxes:





**For
                the Periods****Pre-****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003***(Amounts
                in thousands)*Domestic
            
            $
            73,200
            
            $
            (9,500
            )
            $
            (169,200
            )
            $
            88,100
            
            $
            (82,300
            )Foreign
            
            
            26,900
            
            
            9,400
            
            
            16,500
            
            
            15,400
            
            
            (400
            )$
            100,100
            
            $
            (100
            )
            $
            (152,700
            )
            $
            103,500
            
            $
            (82,700
            )





The
      following is a summary of the provision (benefit) for income taxes from
      continuing operations included in the accompanying consolidated statement of
      operations:





**For
                the Periods****Pre-****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003***(Amounts
                in thousands)*Federal
                income taxesCurrent
            
            $
            400
            
            $
            (3,400
            )
            $
            (3,500
            )
            $
            34,200
            
            $
            (27,800
            )Deferred
            
            
            25,300
            
            
            1,000
            
            
            (46,900
            )
            
            (4,800
            )
            
            5,90025,700
            
            
            (2,400
            )
            
            (50,400
            )
            
            29,400
            
            
            (21,900
            )Foreign
            
            
            14,300
            
            
            5,200
            
            
            7,600
            
            
            8,700
            
            
            100State
            
            
            3,200
            
            
            700
            
            
            1,400
            
            
            3,300
            
            
            ---$
            43,200
            
            $
            3,500
            
            $
            (41,400
            )
            $
            41,400
            
            $
            (21,800
            )





Income
      tax payments, net of refunds, in the year ended December 31, 2005 and the
      periods from January 1, 2004 to August 27, 2004, from January 10, 2003 to
      December 31, 2003 and from January 1, 2003 to January 9, 2003 were approximately
      $15,900,000, $43,600,000, $11,690,000, and $281,000, respectively. For the
      period from August 28, 2004 to December 31, 2004, the Company received income
      tax refunds, net of payments, of approximately $36,500,000.





Income
      tax benefits of approximately $14,600,000 related to a cash distribution of
      approximately $41,600,000 to option holders of Rollover Options in the period
      from January 10, 2003 to December 31, 2003 were reflected as a reduction of
      goodwill. Income tax benefits of approximately $19,131,000 and $1,710,000
      related to the settlement of certain stock options were reflected as an equity
      adjustment to additional paid-in-capital in the periods from January 1, 2004
      to
      August 27, 2004 and from January 1, 2003 to January 9, 2003,
      respectively.





The
      tables that follow reconcile the federal statutory income tax of continuing
      operations dollar amount and rate to the actual income tax provision and
      effective tax rate of approximately 43.2%, 3,500.0%, 27.1%, 40.0% and 26.4%
      for
      the year ended December 31, 2005 and for the periods from August 28, 2004 to
      December 31, 2004, from January 1, 2004 to August 27, 2004, from January 10,
      2003 to December 31, 2003 and from January 1, 2003 to January 9, 2003,
      respectively.





**For
                the Periods****Pre-****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003***(Amounts
                in thousands)*Income
                tax provision (benefit) from continuing operations at the federal
                statutory rate
            
            $
            35,035
            
            $
            (35
            )
            $
            (53,445
            )
            $
            36,225
            
            $
            (28,945
            )**Net
                change from statutory rate:**State
                income tax provision, net of federal income tax effect
            
            
            2,080
            
            
            455
            
            
            910
            
            
            2,145
            
            
            ---Tax
                effect of the Acquisition
            
            
            ---
            
            
            ---
            
            
            9,100
            
            
            ---
            
            
            ---Tax
                effect of the Recapitalization
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            6,900Non-deductible
                expenses, net
            
            
            982
            
            
            128
            
            
            170
            
            
            (311
            )
            
            ---Tax
                effect resulting from foreign activities and foreign
                dividends
            
            
            4,885
            
            
            2,995
            
            
            1,876
            
            
            3,286
            
            
            ---Other,
                net
            
            
            218
            
            
            (43
            )
            
            (11
            )
            
            55
            
            
            245$
            43,200
            
            $
            3,500
            
            $
            (41,400
            )
            $
            41,400
            
            $
            (21,800
            )





**Effective
      tax rate%:**





**For
                the Periods****Pre-****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003***(Amounts
                in thousands)*Income
                tax provision (benefit) from continuing operations at the federal
                statutory rate
            
            
            35.0
            %
            
            35.0
            %
            
            (35.0
            )%
            
            35.0
            %
            
            (35.0
            )%**Net
                change from statutory rate:**State
                income tax provision, net of federal income tax effect
            
            
            2.1
            
            
            455.0
            
            
            0.6
            
            
            2.1
            
            
            ---Tax
                effect of the Acquisition
            
            
            ---
            
            
            ---
            
            
            6.0
            
            
            ---
            
            
            ---Tax
                effect of the Recapitalization
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            8.3Non-deductible
                expenses, net
            
            
            1.0
            
            
            128.0
            
            
            0.1
            
            
            (0.3
            )
            
            ---Tax
                effect resulting from foreign activities and foreign
                dividends
            
            
            4.9
            
            
            2,995.0
            
            
            1.2
            
            
            3.2
            
            
            ---Other,
                net
            
            
            0.2
            
            
            (43.0
            )
            
            ---
            
            
            ---
            
            
            0.343.2
            %
            
            3,500.0
            %
            
            (27.1
            )%
            
            40.0
            %
            
            (26.4
            )%





The
      tax
      effect of temporary differences which give rise to significant portions of
      deferred income tax assets and liabilities for continuing operations as of
      December 31, 2005 and December 31, 2004 are as follows:





**December
                31,****2005**
            
            **2004***(Amounts
                in thousands)***Prepaid
                Income Tax Assets (classified current)****Arising
                From:**Accounts
                receivable
            
            $
            2,786
            
            $
            1,390Inventories
            
            
            (4,992
            )
            
            (8,300
            )Insurance
                reserves
            
            
            5,955
            
            
            10,715Warranty
                accruals
            
            
            5,598
            
            
            4,357Net
                operating loss and tax credits
            
            
            6,195
            
            
            17,220Other
                reserves and assets, net
            
            
            5,413
            
            
            7,363$
            20,955
            
            $
            32,745**Deferred
                Income Tax Assets (Liabilities)****(classified
                non-current)****Arising
                From:**Property
                and equipment, net
            
            $
            (23,142
            )
            $
            (27,586
            )Intangible
                assets, net
            
            
            (31,610
            )
            
            (37,137
            )Pension
                and other benefit accruals
            
            
            33,761
            
            
            35,881Insurance
                reserves
            
            
            7,770
            
            
            3,565Warranty
                accruals
            
            
            5,489
            
            
            5,117Capital
                loss carry forward/net loss carry forward
            
            
            11,800
            
            
            9,721Valuation
                allowances
            
            
            (18,013
            )
            
            (11,958
            )Deferred
                debt expense / debt premium
            
            
            ---
            
            
            19,138Other
                reserves and assets, net
            
            
            9,826
            
            
            5,747$
            (4,119
            )
            $
            2,488





The
      Company has established valuation allowances related to certain reserves and
      foreign net operating loss carry-forwards. Included in the deferred tax asset
      valuation allowance of $18,013,000 at December 31, 2005 are valuation allowances
      of approximately $15,055,000, which will reduce goodwill in the future, should
      the tax assets they relate to be realized, as these tax assets existed at the
      date of the Acquisition and the Recapitalization. The Company has not provided
      United States income taxes or foreign withholding taxes on un-remitted foreign
      earnings as they are considered indefinitely invested. In addition, the
      Company has approximately $37,000,000 of foreign net operating loss
      carry-forwards that if utilized would offset future foreign tax
      payments.





During
      the fourth quarter of 2004, the Company’s Hong Kong subsidiary made a
      distribution out of earnings for which the Company had previously provided
      deferred taxes. The Company’s tax provision related to income from continuing
      and discontinued operations reflects this deferred tax provision. However,
      as a
      result of excess foreign tax credits available from distributions made in
      connection with the Ply Gem transaction, this deferred tax liability was offset
      by additional foreign tax credits. Accordingly, this deferred tax liability
      has
      been reduced, with a corresponding reduction in goodwill since the deferred
      tax
      liabilities had been established prior to the Acquisition.





During
      the year ended December 31, 2005, the Company realized a tax benefit of
      approximately $1,200,000 related to the realization of capital loss
      carryforwards for which a valuation allowance had previously been established.
      This tax benefit reduced goodwill, as the related tax assets existed at the
      date
      of the Acquisition.





The
      valuation allowance increased during the year ended December 31, 2005 primarily
      as a result of an increase in current year foreign losses not benefited, as
      well
      as, an increase in foreign net operating loss carryforwards related to acquired
      companies.





The
      Company files income tax returns in all jurisdictions in which it operates.
      The
      Company has established reserves to provide for additional income taxes that
      may
      be due in future years as these previously filed tax returns are audited. These
      reserves have been established based on the Company’s management’s assessment as
      to the potential exposure attributable to permanent differences and interest
      applicable to both permanent and temporary differences. All tax reserves are
      analyzed periodically and adjustments made as events occur that warrant
      modification.





The
      Company has a federal net operating loss carryforward of approximately
      $9,100,000 (tax effect of $3,200,000) and an alternative minimum tax credit
      carryforward of approximately $3,000,000 at December 31, 2005.





**6.** **NOTES,
        MORTGAGE NOTES AND OBLIGATIONS PAYABLE**





Short-term
      bank obligations at December 31, 2005 and 2004 consist of the
      following:





**December
                31,****2005**
            
            **2004***(Amounts
                in thousands)*Secured
                lines of credit and bank advance of theCompany’s
                European subsidiaries
            
            $
            4,915
            
            $
            5,364





These
      short-term bank obligations are secured by accounts receivable of the Company’s
      European subsidiaries and have a weighted average interest rate of approximately
      4.9% at December 31, 2005.




Notes,
      mortgage notes and obligations payable for continuing operations, including
      in
      the accompanying consolidated balance sheet at December 31, 2005 and 2004,
      consist of the following:





**December
                31,****2005**
            
            **2004***(Amounts
                in thousands)*10
                3/4% Senior Discount Notes due 2014 (the “10 3/4%Senior Discount Notes”),
                net of unamortized discount of $128,403,000
            
            $
            274,597
            
            $
            ---9
                7/8% Senior Subordinated Notes due 2011 (“9 7/8% Notes”), including
                unamortized premium of approximately $17,000 and $21,000 at December
                31,
                2005 and 2004, respectively
            
            
            9,982
            
            
            9,9868
                1/2% Senior Subordinated Notes due 2014 (“8 1/2% Notes”)
            
            
            625,000
            
            
            625,000Senior
                Secured Credit Facility
            
            
            691,250
            
            
            698,250Mortgage
                notes payable
            
            
            4,550
            
            
            5,650Other
            
            
            38,084
            
            
            25,7381,643,463
            
            
            1,364,624Less
                amounts included in current liabilities
            
            
            14,786
            
            
            14,414$
            1,628,677
            
            $
            1,350,210





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, which
      are
      structurally subordinate to all debt and liabilities of the Company’s
      subsidiaries, including Nortek Holdings and Nortek, were issued and sold in
      a
      private Rule 144A offering to institutional investors. On
      July
      5, 2005, the Company filed a registration statement with the SEC to exchange
      the
      10 3/4% Senior Discount Notes for registered notes. The registration statement
      went effective on July 21, 2005. During the exchange offer period, which closed
      during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
      were
      exchanged for registered notes. The Company will continue to file periodic
      reports with the SEC as required by the indenture governing the 10 3/4% Senior
      Discount Notes.





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





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




In
        connection with the Acquisition, on August 27, 2004, under its Senior Secured
        Credit Facility, Nortek borrowed $700,000,000 under a term loan, which is
        being
        amortized through quarterly payments equal to 0.25% of the original principal
        amount of the term loan, or $1,750,000 per quarter for six years, with the
        balance paid in four equal quarterly amounts thereafter. The interest rates
        applicable to loans under Nortek’s Senior Secured Credit facility are, at
        Nortek’s option, equal to either an alternate base rate or an adjusted LIBOR
        rate for a one, two, three or six month interest period (or a nine or 12
        month
        period, if available) chosen by Nortek, plus an applicable margin percentage.
        The alternate base rate will be the greater of (1) the prime rate or (2)
        one-half of 1% over the weighted average of the rates on overnight federal
        funds
        transactions as published by the Federal Reserve Bank of New York. The adjusted
        LIBOR rate is determined by reference to settlement rates established for
        deposits in dollars in the London interbank market for a period equal to
        the
        interest period of the loan and the maximum reserve percentages established
        by
        the Board of Governors of the United States Federal Reserve to which Nortek’s
        lenders are subject. Swing line loans will bear interest at the interest
        rate
        applicable to alternate base rate revolving loans. The applicable margin
        percentage is initially a percentage per annum equal to (1) 1.50% for alternate
        base rate term loans and 1.25% for alternate base rate revolving loans and
        (2)
        2.50% for adjusted LIBOR rate term loans and 2.25% for adjusted LIBOR rate
        revolving loans. At December 31, 2005, the applicable margin was 2.25% and
        1.25%
        for adjusted LIBOR rate term loans and alternate base rate term loans,
        respectively. Nortek is also obligated to pay a commitment fee, quarterly
        in
        arrears, initially equal to 0.5% per annum, declining to 0.375% per annum
        when
        leverage ratios, as defined, are 4.5 or less, in respect to any unused
        commitments under the revolving credit facility. At December 31, 2005, the
        weighted average interest rate for Nortek’s outstanding borrowings under the
        term loan was approximately 6.9%.
 
 The
        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.
        At December 31, 2005, Nortek had approximately $70,400,000 of borrowing
        availability under the U.S. portion of its revolving credit facility and
        approximately $10,000,000 of borrowing availability under the Canadian portion
        of its revolving credit facility. There were no outstanding borrowings under
        the
        U.S. or Canadian portions of Nortek’s revolving credit facility at December 31,
        2005.
 
 The
        weighted average interest rate for borrowings made under Nortek’s Senior Secured
        Credit Facility during the year ended December 31, 2005 was
        5.6%.


The
      obligations under the Senior Secured Credit Facility are guaranteed by Nortek
      Holdings and by all of Nortek’s existing and future significant domestic
“restricted subsidiaries” (as defined in the credit facility) and are secured by
      substantially all of Nortek’s assets and the assets of the guarantors, whether
      now owned or later acquired, including a pledge of all of the Company’s capital
      stock, the capital stock of certain of the Company’s domestic subsidiaries and
      65% of the capital stock of each of the Company’s significant foreign
      subsidiaries that is directly owned by the Company or a guarantor
      subsidiary.





Also
      in
      connection with the Acquisition on August 27, 2004, THL Buildco completed the
      offering of $625,000,000 aggregate principal amount of the 8 1/2% Notes.
      Immediately following the offering of these outstanding notes, and as a result
      of the Acquisition and mergers described in Note 2, Nortek succeeded to all
      of
      the obligations as issuer of the 8 1/2% Notes. The 8 1/2% Notes were issued
      and
      sold in a private Rule 144A offering to institutional investors. On
      October 22, 2004, Nortek filed a registration statement with the SEC to exchange
      the 8 1/2% Notes for registered notes. The registration statement went effective
      on December 20, 2004. During the exchange offer period, which closed during
      the
      first quarter of 2005, 100% of the 8 1/2% Notes were exchanged for registered
      notes. Nortek continues to file periodic reports with the SEC as required by
      the
      indenture governing the 8 1/2% Notes.





On
      August
      27, 2004 in connection with the Acquisition, Nortek purchased for cash through
      a
      tender offer or redeemed for cash pursuant to the applicable indenture governing
      such notes all of the former Nortek Holdings’ 10% Senior Discount Notes due 2011
      (the “Senior Discount Notes) (approximately $376,500,000 of accreted principal
      as of August 27, 2004), all of Nortek’s outstanding $200,000,000 in principal
      amount Floating Rate Notes due 2010 (the “Floating Rate Notes), and
      approximately $240,000,000 principal amount of Nortek’s outstanding 9 7/8%
      Senior Subordinated Notes due 2011 ($250,000,000 in principal amount outstanding
      immediately before the Acquisition) (the “9 7/8% Notes”). Nortek recorded a
      pre-tax loss from debt retirement of approximately $118,778,000 in the period
      from July 4, 2004 to August 27, 2004 as a result of these debt redemptions.
      As
      the indenture governing the 9 7/8% Notes does not allow for redemption, after
      completion of the tender offer on August 27, 2004, approximately $9,965,000
      in
      aggregate principal amount of such notes remains outstanding.





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





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





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





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





Also
      in
      connection with the Acquisition, Nortek received a bridge-financing letter
      from
      a lender for a senior unsecured term loan facility not to exceed $625,000,000
      (the “THL Bridge Facility”). The THL Bridge Facility was intended to be used to
      fund, if necessary, any short fall in raising the financing necessary to
      consummate the Acquisition. Nortek did not use this THL Bridge Facility because
      it was able to obtain the financing necessary to consummate the Acquisition
      through conventional sources. The THL Bridge Facility expired upon the closing
      of the Acquisition. As a result, the Company’s consolidated interest expense for
      the period from August 28, 2004 to December 31, 2004 includes approximately
      $6,250,000 of interest expense from the amortization of the THL Bridge Facility
      commitment fees and related expenses.





Mortgage
      notes payable of approximately $4,550,000 outstanding at December 31, 2005
      includes various mortgage notes and other related indebtedness payable in
      installments through 2019. These notes bear interest at rates ranging from
      approximately 4.8% to 6.3% and are collateralized by property and equipment
      with
      an aggregate net book value of approximately $5,676,000 at December 31,
      2005.





Other
      obligations of approximately $38,084,000 outstanding at December 31, 2005
      include borrowings relating to equipment purchases, notes payable issued for
      acquisitions and other borrowings bearing interest at rates ranging from
      approximately 3.2% to 10.5% and maturing at various dates through 2018.
      Approximately $18,948,000 of such indebtedness is collateralized by property
      and
      equipment with an aggregate net book value of approximately $20,386,000 at
      December 31, 2005.





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





At
      December 31, 2005, there was approximately $135,000,000 available for the
      payment of cash dividends, stock purchases or other restricted payments
      (“Restricted Payments”) by the Company as defined under the terms of the
      Company’s 10 3/4% Senior Discount Notes’ indenture. Restricted Payments to NTK
      Holdings and Nortek Holdings from Nortek are limited by the terms of Nortek’s
      most restrictive loan agreement, Nortek’s Senior Secured Credit Facility. The
      amount available for such payments under Nortek’s Senior Secured Credit Facility
      was approximately $134,800,000 at December 31, 2005.





The
      table
      that follows is a summary of maturities of all of the Company’s debt
      obligations, excluding unamortized debt premium of approximately $17,000 due
      after December 31, 2005:





*(Amounts
                in thousands)*2006
            
            $
            19,7012007
            
            
            18,3012008
            
            
            10,0092009
            
            
            10,1292010
            
            
            298,457Thereafter
            
            
            1,420,167





As
      of
      December 31, 2005, approximately $19,600,000 of letters of credit have been
      issued as additional security for (1) approximately $14,000,000 relating to
      certain of the Company’s insurance programs, (2) approximately $4,100,000
      relating to leases outstanding for certain of the Company’s manufacturing
      facilities and (3) approximately $1,500,000 relating to certain of the
      subsidiaries purchases and other requirements.





**7.** **COMMON
        STOCK, SPECIAL COMMON STOCK, DEFERRED COMPENSATION AND
        DIVIDENDS**





NTK
      Holdings was formed to hold the capital stock of Nortek Holdings in connection
      with the February 15, 2005 offering of the 10 3/4% Senior Discount Notes (see
      Note 6). Prior to February 10, 2005, Nortek Holdings was a direct wholly-owned
      subsidiary of Investors LLC. On February 10, 2005, NTK Holdings issued 3,000
      shares of capital stock to Investors LLC in exchange for Investor LLC’s 3,000
      shares of capital stock of Nortek Holdings. As a result of this exchange, Nortek
      Holdings became a wholly-owned subsidiary of NTK Holdings and NTK Holdings
      became a wholly-owned subsidiary of Investors LLC. NTK Holdings only assets
      are
      100% of the shares of capital stock of Nortek Holdings, which is the holder
      of
      100% of the shares of capital stock of Nortek. At December 31, 2005, these
      3,000
      shares remain authorized and outstanding.





As
      noted
      in Note 2, 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.





On
      February 15, 2005, the Company completed the sale of its 10 3/4% Senior Discount
      Notes. 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.





In
      connection with the Holdings Reorganization on November 20, 2002, Nortek became
      a wholly-owned subsidiary of the former Nortek Holdings as each outstanding
      share of capital stock of Nortek was converted into an identical share of
      capital stock of the former Nortek Holdings with the former Nortek Holdings
      receiving 100 shares of Nortek’s common stock. As a result of the Holdings
      Reorganization, Nortek’s previously outstanding common stock and treasury stock
      balances were reclassified to additional paid-in capital to reflect the former
      Nortek Holdings’ new capital structure.





On
      January 9, 2003, Nortek declared and distributed to the former Nortek Holdings
      a
      cash dividend of approximately $120,000,000 and distributed approximately
      $27,900,000 for reimbursement of fees and expenses of Kelso as contemplated
      by
      the Recapitalization (see Note 2).





**8.** **PENSION,
        PROFIT SHARING AND OTHER POST RETIREMENT BENEFITS**





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
      $12,000,000 for the year ended December 31, 2005, $3,300,000 for the period
      from
      August 28, 2004 to December 31, 2004, approximately $10,400,000 for the period
      from January 1, 2004 to August 27, 2004, approximately $14,400,000 for the
      period from January 10, 2003 to December 31, 2003 and approximately $950,000
      for
      the period from January 1, 2003 to January 9, 2003. The Company’s policy is to
      generally fund currently at least the minimum required annual contribution
      of
      its various qualified defined benefit plans. In 2006, the Company expects to
      contribute approximately $13,300,000 (unaudited) to its defined benefit pension
      plans.





The
      Company uses a September 30 measurement date for its plans. The table that
      follows provides a reconciliation of benefit obligations, plan assets and funded
      status of plans in the accompanying consolidated balance sheet at December
      31,
      2005 and 2004:





**Pension
                Benefits****2005**
            
            **2004***(Amounts
                in thousands)***Change
                in benefit obligation:**Benefit
                obligation at October 1,
            
            $
            172,834
            
            $
            161,699Service
                cost
            
            
            1,346
            
            
            1,152Interest
                cost
            
            
            8,885
            
            
            9,117Amendments
            
            
            ---
            
            
            255(Gain)
                loss due to foreign exchange
            
            
            (3,224
            )
            
            2,134Actuarial
                loss (gain) excluding assumption changes
            
            
            993
            
            
            (238
            )Actuarial
                loss due to assumption changes
            
            
            5,228
            
            
            10,705Actuarial
                loss due to Acquisition
            
            
            ---
            
            
            111Benefits
                and expenses paid
            
            
            (10,903
            )
            
            (12,101
            )**Benefit
                obligation at September 30,**
            
            $
            175,159
            
            $
            172,834**Change
                in plan assets:**Fair
                value of plan assets at October 1,
            
            $
            115,068
            
            $
            108,552Actual
                return on plan assets
            
            
            13,632
            
            
            10,101(Loss)
                gain due to foreign exchange
            
            
            (2,445
            )
            
            1,468Employer
                contribution
            
            
            4,310
            
            
            7,048Benefits
                and expenses paid
            
            
            (10,903
            )
            
            (12,101
            )**Fair
                value of plan assets at September 30,**
            
            $
            119,662
            
            $
            115,068**Funded
                status and statement of financial position:**Fair
                value of plan assets at September 30,
            
            $
            119,662
            
            $
            115,068Benefit
                obligation at September 30,
            
            
            175,159
            
            
            172,834Funded
                status
            
            
            (55,497
            )
            
            (57,766
            )Amount
                contributed during fourth quarter
            
            
            829
            
            
            888Unrecognized
                actuarial loss (gain)
            
            
            1,142
            
            
            (89
            )**Accrued
                benefit cost**
            
            $
            (53,526
            )
            $
            (56,967
            )**Amount
                recognized in the statement of financial position consists
                of:**Accrued
                benefit liabilities
            
            $
            (53,944
            )
            $
            (57,610
            )Accumulated
                other comprehensive loss before tax benefit
            
            
            418
            
            
            643Accrued
                benefit cost
            
            $
            (53,526
            )
            $
            (56,967
            )





The
      projected benefit obligation, accumulated benefit obligation and fair value
      of
      plan assets for the pension plans with accumulated benefit obligations in excess
      of plan assets were approximately $175,159,000, $167,499,000 and $119,662,000,
      respectively, as of December 31, 2005 and $172,834,000, $165,391,000 and
      $115,068,000, respectively, as of December 31, 2004.





The
      table
      that follows is a summary of the expected benefit payments for the Company
      after
      December 31, 2005:





*(Amounts
                in thousands)*2006
            
            $
            9,6142007
            
            
            9,7602008
            
            
            9,9052009
            
            
            10,0762010
            
            
            10,245Thereafter
            
            
            54,956





As
      a
      result of the Acquisition, purchase accounting adjustments were made for all
      defined benefit plans as of the August 27, 2004 transaction date. The purchase
      accounting adjustments reflect the immediate recognition of all unrecognized
      actuarial gains and losses and unrecognized prior service costs as well as
      the
      reversal of the accumulated other comprehensive loss before tax benefit and
      the
      intangible pension asset.





Plan
      assets primarily consist of cash and cash equivalents, common stock, U.S.
      Government securities, corporate debt and mutual funds, as well as other
      investments, and include certain commingled funds. At December 31, 2005 and
      2004, the Company has recorded as long-term restricted investments and
      marketable securities held by pension trusts, in the accompanying consolidated
      balance sheet, approximately $1,513,000 and $1,326,000, respectively, which
      have
      been contributed to trusts. These assets are not included in the amount of
      fair
      value of plan assets at December 31, 2005 and 2004 but are available to fund
      certain of the benefit obligations included in the table above relating to
      certain supplemental retirement plans.





The
      weighted average rate assumptions used in determining pension, supplemental
      retirement plans and post retirement costs and the projected benefit obligation
      are as follows:





**For
                the periods****Pre****Post-Acquisition**
            **Pre-Acquisition**
            **Recapitalization****Jan.
                1, 2005 -**
            **Aug.
                28, 2004 -**
            **Jan.
                1, 2004 -**
            **Jan.
                10, 2003 -**
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            **Dec.
                31, 2004**
            **Aug.
                27, 2004**
            **Dec.
                31, 2003**
            **Jan.
                9, 2003**Discount
                rate for projected benefit obligation
            5.25%
            5.25%
            5.25%
            6.00%
            6.25%Discount
                rate for pension costs
            5.25%
            5.25%
            6.00%
            6.25%
            6.25%Expected
                long-term average return on plan assets
            7.75%
            7.75%
            7.75%
            7.75%
            7.75%Rate
                of compensation increase
            5.00%
            5.00%
            5.00%
            5.00%
            5.00%





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





**For
                the periods****Pre****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003**Service
                cost
            
            $
            1,346
            
            $
            384
            
            $
            768
            
            $
            1,955
            
            $
            80Interest
                cost
            
            
            8,885
            
            
            3,015
            
            
            6,102
            
            
            9,270
            
            
            385Expected
                return on plan assets
            
            
            (8,451
            )
            
            (2,834
            )
            
            (5,269
            )
            
            (7,438
            )
            
            (184
            )Amortization
                of prior service cost
            
            
            ---
            
            
            ---
            
            
            123
            
            
            210
            
            
            70Recognized
                actuarial loss
            
            
            20
            
            
            ---
            
            
            9
            
            
            29
            
            
            210Curtailment
                loss
            
            
            ---
            
            
            ---
            
            
            806
            
            
            123
            
            
            65,766Net
                periodic benefit cost
            
            $
            1,800
            
            $
            565
            
            $
            2,539
            
            $
            4,149
            
            $
            66,327





The
      Company uses a September 30 measurement date for its plans. The Company’s
      pension plan weighted-average asset allocations at December 31, 2005 and 2004,
      by asset category are as follows:





**Plan
                Assets at December 31,****Asset
                Category**
            
            **2005**
            
            **2004**Cash
                and cash equivalents
            
            3
            .2%
            
            3
            .2%Equity
                securities
            
            59
            .6
            
            58
            .3Fixed
                income securities
            
            34
            .7
            
            37
            .8Other
            
            2
            .5
            
            0
            .7100
            .0%
            
            100
            .0%





The
      Company’s domestic qualified defined benefit plans’ assets are invested to
      maximize returns without undue exposure to risk. The investment objectives
      are
      also to produce a total return exceeding the median of a universe of portfolios
      with similar average asset allocation and investment style objectives, and
      to
      earn a return, net of fees, greater or equal to the long-term rate of return
      used by the Company in determining pension expense.





Risk
      is
      controlled by maintaining a portfolio of assets that is diversified across
      a
      variety of asset classes, investment styles and investment managers. The plans’
asset allocation policies are consistent with the established investment
      objectives and risk tolerances. The asset allocation policies are developed
      by
      examining the historical relationships of risk and return among asset classes,
      and are designed to provide the highest probability of meeting or exceeding
      the
      return objectives at the lowest possible risk. For 2006, the target allocation
      is 57% for equity securities, 41% for fixed income securities and 2% for
      cash.





The
      table
      that follows provides a reconciliation of the benefit obligations, plan assets
      and funded status of the Company’s post retirement health benefit plans included
      in the accompanying consolidated balance sheet at December 31, 2005 and
      2004:





**Non-Pension****Post
                Retirement****Health
                Benefits****2005**
            
            **2004***(Amounts
                in thousands)***Change
                in benefit obligation:**Benefit
                obligation at October 1,
            
            $
            44,613
            
            $
            41,492Service
                cost
            
            
            436
            
            
            793Interest
                cost
            
            
            2,103
            
            
            2,412Plan
                participant contributions
            
            
            107
            
            
            128Amendments
            
            
            (22,247
            )
            
            ---Actuarial
                (gain) loss excluding assumption changes
            
            
            (53
            )
            
            1,207Actuarial
                loss due to assumption changes
            
            
            2,596
            
            
            227Actuarial
                gain due to the Acquisition
            
            
            ---
            
            
            (113
            )Benefits
                and expenses paid
            
            
            (1,574
            )
            
            (1,533
            )**Benefit
                obligation at September 30,**
            
            $
            25,981
            
            $
            44,613**Change
                in plan assets:**Fair
                value of plan assets at October 1,
            
            $
            ---
            
            $
            ---Employer
                contribution
            
            
            1,467
            
            
            1,405Plan
                participant contributions
            
            
            107
            
            
            128Benefits
                and expenses paid
            
            
            (1,574
            )
            
            (1,533
            )**Fair
                value of plan assets at September 30,**
            
            $
            ---
            
            $
            ---**Funded
                status and statement of financial position:**Fair
                value of plan assets at September 30,
            
            $
            ---
            
            $
            ---Benefit
                obligation at September 30,
            
            
            25,981
            
            
            44,613Funded
                status
            
            
            (25,981
            )
            
            (44,613
            )Amount
                contributed during fourth quarter
            
            
            147
            
            
            ---Unrecognized
                actuarial loss
            
            
            3,120
            
            
            1,037Unrecognized
                prior service cost
            
            
            (20,865
            )
            
            ---**Accrued
                post-retirement benefit cost**
            
            $
            (43,579
            )
            $
            (43,576
            )





During
      2005, the Company notified certain retirees (approximately 199 former employees
      of the Company’s subsidiary NuTone, Inc.) that post retirement medical benefits
      would no longer be continued by the Company effective July 31, 2005. Such
      retirees were offered medical benefits through other means at their expense.
      This resulted in a plan amendment to the NuTone post retirement medical plan
      and
      the plan reflected a deferred actuarial gain of approximately $22,200,000 which
      is being amortized into income by the Company over approximately five and a
      half
      years beginning September 6, 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 expired. That agreement is estimated, as of December 31, 2005,
      to
      cover approximately 4.9% of the Company’s employees (420 employees) which are
      located at the Cincinnati, OH location of the Company’s subsidiary NuTone, Inc.
      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.
      On
      September 6, 2005, the Company notified the union bargaining committee that
      negotiations had reached an impasse and that it was unilaterally implementing
      the terms of its final offer. On
      March
      6, 2006, the Company received notice that the union filed an unfair labor
      practice charge with the US National Labor Relations Board claiming that the
      Company had not bargained to impasse and that, from and after September 6,
      2005,
      it had failed to bargain collectively and in good faith. The Company denies
      and
      will vigorously challenge such allegations. Among
      other things, this implemented final offer does not provide the NuTone union
      members with post retirement medical benefits. Accordingly, under this
      implemented final offer the Company may experience a curtailment gain of up
      to
      approximately $22,600,000, net of tax, including recording the unamortized
      plan
      amendment related to the retirees noted above.





The
      table
      that follows is a summary of the expected post retirement health benefit
      payments for the Company after December 31, 2005:





*(Amounts
                in thousands)*2006
            
            $
            3722007
            
            
            4292008
            
            
            2,9022009
            
            
            6462010
            
            
            2,073Thereafter
            
            
            6,373





The
      Company’s net periodic benefit cost for its post retirement health benefit plans
      for the periods presented consists of the following components:





**For
                the periods****Pre****Post-Acquisition**
            
            **Pre-Acquisition**
            
            **Recapitalization****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003**Service
                cost
            
            $
            436
            
            $
            147
            
            $
            646
            
            $
            981
            
            $
            13Interest
                cost
            
            
            2,103
            
            
            817
            
            
            1,595
            
            
            2,175
            
            
            62Amortization
                of prior service cost
            
            
            (1,381
            )
            
            ---
            
            
            ---
            
            
            8
            
            
            2Recognized
                actuarial loss (gain)
            
            
            65
            
            
            ---
            
            
            ---
            
            
            (8
            )
            
            35Curtailment
                gain
            
            
            ---
            
            
            ---
            
            
            (14
            )
            
            ---
            
            
            (355
            )Net
                periodic post-retirement health benefit cost (income)
            
            $
            1,223
            
            $
            964
            
            $
            2,227
            
            $
            3,156
            
            $
            (243
            )




For
        purposes of calculating the post retirement health benefit cost, a medical
        inflation rate of 11% and 13% was assumed for 2005 and 2004, respectively.
        For
        both 2005 and 2004, the rate was assumed to decrease gradually to an ultimate
        rate of 5.0% by 2013.


Assumed
      health care cost trend rates have a significant effect on the amounts reported
      for the post retirement health benefit plan. A one-percentage-point change
      in
      assumed health care cost trend rate would have the following
      effect:





**Decrease
                Trend 1%**
            
            **Increase
                Trend 1%***(Amounts
                in thousands)*Effect
                on the total service and interest cost components
            
            $
            (3,268
            )
            $
            4,033Effect
                on the post retirement health benefit obligation
            
            $
            (267
            )
            $
            335





On
      December 8, 2003, President Bush signed into law the Medicare Prescription
      Drug,
      Improvement and Modernization Act of 2003 (“the Act”). The Act expanded Medicare
      to include, for the first time, coverage for prescription drugs. Based upon
      an
      analysis of plan provisions and prescription drug claims experience, it has
      been
      determined that the potential savings that the NuTone Retiree Medical Plan
      could
      realize as a result of the Act would not warrant the administrative cost
      necessary to recover the federal subsidy, accordingly the Company has not
      reflected any reduction in cost under FASB Staff Position No. FAS 106-2 as
      of
      December 31, 2005.





**9.** **COMMITMENTS
        AND CONTINGENCIES**





The
      Company provides accruals for all direct costs associated with the estimated
      resolution of contingencies at the earliest date at which it is deemed probable
      that a liability has been incurred and the amount of such liability can be
      reasonably estimated.





At
      December 31, 2005, the Company and its subsidiaries are obligated under lease
      agreements for the rental of certain real estate and machinery and equipment
      used in its operations. Future minimum rental obligations related to continuing
      operations aggregated approximately $75,225,000 at December 31 2005. The
      obligations are payable as follows:





*(Amounts
                in thousands)*2006
            
            
            $ 
                  15,4612007
            
            
            13,0492008
            
            
            9,5082009
            
            
            7,7102010
            
            
            6,319Thereafter
            
            
            23,178





Certain
      of these lease agreements provide for increased payments based on changes in
      the
      consumer price index. Rental expense charged to continuing operations in the
      accompanying consolidated statement of operations was approximately $21,600,000,
      $6,700,000, $12,700,000, $16,400,000 and $400,000 for the year ended December
      31, 2005 and for the periods from August 28, 2004 to December 31, 2004, from
      January 1, 2004 to August 27, 2004, from January 10, 2003 to December 31, 2003
      and from January 1, 2003 to January 9, 2003, respectively. Under certain of
      these lease agreements, the Company or its subsidiaries are also obligated
      to
      pay insurance and taxes.





As
      of
      December 31, 2005, the Company’s former subsidiary, Ply Gem, has guaranteed
      approximately $23,600,000 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 10) and
      has
      recorded an estimated liability related to this indemnified guarantee of
      approximately $900,000 at December 31, 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 $12,500,000 and $17,800,000
      at December 31, 2005 and 2004, respectively. Approximately $5,800,000 of
      short-term liabilities and approximately $6,700,000 of long-term liabilities
      are
      recorded in accrued expenses and other long-term liabilities, respectively,
      in
      the accompanying consolidated balance sheet at December 31, 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 consolidated statement of operations for the year ended December
      31, 2005 (see Note 14). Approximately $11,700,000 of these indemnifications
      at
      December 31, 2005 relate to indemnifications provided to a buyer in connection
      with the sale of certain former subsidiaries, including Ply Gem (see Note 10).
      Accordingly, the Company has included approximately $5,000,000 of short-term
      liabilities and approximately $6,700,000 of long-term liabilities in accrued
      expenses and other long-term liabilities, respectively, in the accompanying
      consolidated balance sheet at December 31, 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 combined short-term and long-term warranty liabilities (see
      Note 12) during the year ended December 31, 2005 and the periods from August
      28,
      2004 to December 31, 2004 and from January 1, 2004 to August 27, 2004 are as
      follows:





**For
                the periods****Post-Acquisition**
            
            **Pre-**
              **Acquisition****Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**Balance,
                beginning of period
            
            $
            30,319
            
            $
            29,683
            
            $
            29,087Warranties
                provided during period
            
            
            21,315
            
            
            6,321
            
            
            11,437Settlements
                made during period
            
            
            (18,776
            )
            
            (7,105
            )
            
            (10,877
            )Changes
                in liability estimate, including expirations and
                acquisitions
            
            
            1,985
            
            
            1,420
            
            
            36Balance,
                end of period
            
            $
            34,843
            
            $
            30,319
            
            $
            29,683





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





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





**10.** **DISCONTINUED
        OPERATIONS**





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.





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 9), and recorded a net after-tax gain on the sale of approximately
      $74,100,000.





The
      Company allocates interest to dispositions that qualify as a discontinued
      operation for debt instruments which are entered into specifically and solely
      with the entity disposed of and for debt which is settled with proceeds received
      from the disposition. Interest allocated to discontinued operations, included
      in
      interest income (expense), net, in the table below, was approximately $2,800,000
      (net of taxes of approximately $1,600,000) for the period from January 1, 2004
      to August 27, 2004, approximately $23,600,000 (net of taxes of approximately
      $13,800,000) for the period from January 10, 2003 to December 31, 2003 and
      approximately $800,000 (net of taxes of approximately $400,000) for the period
      from January 1, 2003 to January 9, 2003. No interest was allocated to
      discontinued operations for the period from August 28, 2004 to December 31,
      2004.





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





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


**For
                  the Periods****Post-****Acquisition**
              
              **Pre-Acquisition**
              
              **Pre-****Recapitalization****Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)*Net
                  sales
              
              $
              ---
              
              $
              48,900
              
              $
              532,100
              
              $
              9,000Operating
                  earnings (loss) of discontinued operations
              
              $
              ---
              
              $
              (7,743
              )
              $
              58,288
              
              $
              (363
              )Interest
                  expense, net
              
              
              ---
              
              
              (4,557
              )
              
              (38,788
              )
              
              (1,237
              )Earnings
                  (loss) before provision (benefit) for income taxes
              
              
              ---
              
              
              (12,300
              )
              
              19,500
              
              
              (1,600
              )Provision
                  (benefit) for income taxes
              
              
              ---
              
              
              (4,700
              )
              
              7,400
              
              
              (600
              )Earnings
                  (loss) from discontinued operations
              
              
              ---
              
              
              (7,600
              )
              
              12,100
              
              
              (1,000
              )Gain
                  on sale of discontinued operations
              
              
              ---
              
              
              125,200
              
              
              ---
              
              
              ---Income
                  tax provision on sale of discontinued operations
              
              
              500
              
              
              50,200
              
              
              ---
              
              
              ---(500
              )
              
              75,000
              
              
              ---
              
              
              ---Earnings
                  (loss) from discontinued operations
              
              $
              (500
              )
              $
              67,400
              
              $
              12,100
              
              $
              (1,000
              )Depreciation
                  and amortization expense
              
              $
              ---
              
              $
              1,413
              
              $
              16,256
              
              $
              323




* Operating
      earnings for the period from January 1, 2004 to August 27, 2004 reflect the
      pre-tax impact of stock-based employee compensation charges of approximately
      $6,400,000 related to the former Nortek Holdings’ stock options retained by
      employees of Ply Gem subsequent to the sale of Ply Gem (see Note
      1).




**11.** **SEGMENT
        INFORMATION AND CONCENTRATION OF CREDIT RISK**




The
        Company is a diversified manufacturer of residential and commercial building
        products, which is organized within three reporting segments: the Residential
        Ventilation Products Segment, the Home Technology Products Segment and the
        Air
        Conditioning and Heating Products Segment. The Air Conditioning and Heating
        Products Segment combines the results of the Company’s residential and
        commercial heating, ventilating and air conditioning (“HVAC”) businesses. In the
        tables below, Unallocated includes corporate related items, intersegment
        eliminations and certain income and expense items not allocated to reportable
        segments.
 
 During
        2005, the Company changed the composition of its reporting segments to reflect
        the Home Technology Products Segment separately. In accordance with SFAS
        No.
        131, “Disclosures about Segments of an Enterprise and Related Information”, the
        Company has restated prior period segment disclosures to conform to the new
        composition.
 
 The
        Residential Ventilation Products Segment manufactures and distributes built-in
        products primarily for the residential new construction, DIY and professional
        remodeling and renovation markets. The principal products sold by the segment
        include: kitchen range hoods, exhaust fans (such as bath fans and fan, heater
        and light combination units) and indoor air quality products. The Home
        Technology Products Segment manufactures and distributes products that provide
        convenience and security in residential and light commercial applications.
        The
        principal products sold by the segment include: audio / video distribution
        and
        control equipment, speakers and subwoofers, security and access control
        products, power conditioners and surge protectors, audio / video wall mounts
        and
        fixtures and structured wiring. The Air Conditioning and Heating Products
        Segment principally manufactures and sells HVAC systems for site-built and
        manufactured residential housing applications and for custom-designed commercial
        applications.
 
 On
        July
        31, 2004, the Company sold its La Cornue subsidiary which was previously
        part of
        the Residential Ventilation Products segment, on February 12, 2004, the Company
        sold its Ply Gem subsidiary, which encompassed the WDS segment and the corporate
        costs of Ply Gem that were formerly included in Unallocated, net in the
        Company’s segment reporting. Accordingly, the results of La Cornue, which were
        previously part of the Residential Ventilation Products Segment and Ply Gem
        which were previously the WDS Segment, have been excluded from earnings from
        continuing operations and classified separately as discontinued operations
        for
        all periods presented (see Notes 1 and 10). Accordingly, the segment information
        presented below excludes La Cornue and the WDS Segment for all applicable
        periods.
 
 The
        accounting policies of the segments are the same as those described in Note
        1
        Summary of Significant Accounting Policies. The Company evaluates segment
        performance based on operating earnings before allocations of corporate overhead
        costs. Intersegment net sales and intersegment eliminations are not material
        for
        any of the periods presented. The financial statement impact of all purchase
        accounting adjustments, including intangible assets amortization and goodwill,
        are reflected in the applicable operating segment, which are the Company’s
        reporting units. Unallocated assets consist primarily of cash and cash
        equivalents, marketable securities, prepaid and deferred income taxes, deferred
        debt expense and long-term restricted investments and marketable
        securities.
 
 Summarized
        financial information for the Company’s reportable segments is presented in the
        tables that follow for each of the periods presented:


**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Pre-****Recapitalization****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Net
                  sales:**Residential
                  ventilation products
              
              $
              794,737
              
              $
              268,524
              
              $
              496,840
              
              $
              682,408
              
              $
              14,392Home
                  technology products
              
              
              354,841
              
              
              80,426
              
              
              127,019
              
              
              122,845
              
              
              1,746Air
                  conditioning and heating products
              
              
              809,646
              
              
              212,028
              
              
              494,001
              
              
              675,303
              
              
              8,613Consolidated net sales
              
              $
              1,959,224
              
              $
              560,978
              
              $
              1,117,860
              
              $
              1,480,556
              
              $
              24,751**Operating
                  earnings (loss):**Residential
                  ventilation products
              
              $
              123,876
              
              $
              39,684
              
              $
              79,906
              
              $
              115,576
              
              $
              2,251Home
                  technology products
              
              
              71,028
              
              
              12,928
              
              
              22,902
              
              
              21,673
              
              
              525Air
                  conditioning and heating products
              
              
              66,280
              
              
              (2,630
              )
              
              25,507
              
              
              58,408
              
              
              (1,258
              )Subtotal
              
              
              261,184
              
              
              49,982
              
              
              128,315
              
              
              195,657
              
              
              1,518**Unallocated:**Expenses
                    and charges arising fromthe Acquisition
              
              
              ---
              
              
              ---
              
              
              (38,500
              )
              
              ---
              
              
              ---Expenses
                  and charges arising from the Recapitalization
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (83,000
              )Strategic
                    sourcing, software andsystems development
                    expense
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3,400
              )
              
              (100
              )Stock-based
                  compensation charges
              
              
              (300
              )
              
              (100
              )
              
              (36,400
              )
              
              (1,800
              )
              
              ---Foreign
                  exchange (loss) gain on intercompany debt
              
              
              (900
              )
              
              100
              
              
              (200
              )
              
              1,500
              
              
              ---Gain
                  on legal settlement
              
              
              1,400
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---Unallocated,
                  net
              
              
              (24,524
              )
              
              (7,920
              )
              
              (20,626
              )
              
              (32,563
              )
              
              (188
              )Consolidated
                  operating earnings (loss)
              
              
              236,860
              
              
              42,062
              
              
              32,589
              
              
              159,394
              
              
              (81,770
              )Interest
                  expense
              
              
              (138,578
              )
              
              (42,487
              )
              
              (56,073
              )
              
              (57,376
              )
              
              (1,049
              )Loss
                  from debt retirement
              
              
              ---
              
              
              ---
              
              
              (130,736
              )
              
              ---
              
              
              ---Investment
                  income
              
              
              1,818
              
              
              325
              
              
              1,520
              
              
              1,482
              
              
              119Earnings
                    (loss) before provision
                    (benefit)for income taxes
              
              $
              100,100
              
              $
              (100
              )
              $
              (152,700
              )
              $
              103,500
              
              $
              (82,700
              )





See
      Notes
      1, 2, 13 and 14 with respect to restructuring charges and certain other income
      (expense) items affecting segment earnings (loss).


**For
                  the Periods****Pre-****Post-Acquisition**
              
              **Pre-Acquisition**
              
              **Recapitalization****Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Segment
                  Assets:**Residential
                  ventilation products
              
              $
              1,139,308
              
              $
              1,143,061
              
              $
              698,923
              
              $
              693,038
              
              $
              479,639Home
                  technology products
              
              
              525,578
              
              
              359,727
              
              
              190,800
              
              
              162,487
              
              
              58,093Air
                  conditioning and heating products
              
              
              584,400
              
              
              565,955
              
              
              522,209
              
              
              494,830
              
              
              257,4752,249,286
              
              
              2,068,743
              
              
              1,411,932
              
              
              1,350,355
              
              
              795,207**Unallocated:**Cash
                  and cash equivalents
              
              
              77,175
              
              
              94,955
              
              
              209,535
              
              
              195,343
              
              
              286,411Prepaid
                  income taxes
              
              
              20,955
              
              
              35,233
              
              
              45,921
              
              
              17,741
              
              
              53,714Assets
                  of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              502,811
              
              
              575,092Other
                  assets
              
              
              57,193
              
              
              65,644
              
              
              62,998
              
              
              33,730
              
              
              70,793Consolidated assets
              
              $
              2,404,609
              
              $
              2,264,575
              
              $
              1,730,386
              
              $
              2,099,980
              
              $
              1,781,217**Depreciation
                  Expense:**Residential
                  ventilation products
              
              $
              11,343
              
              $
              3,675
              
              $
              7,129
              
              $
              7,393
              
              $
              263Home
                  technology products
              
              
              2,405
              
              
              582
              
              
              1,366
              
              
              1,069
              
              
              27Air
                  conditioning and heating products
              
              
              11,991
              
              
              3,984
              
              
              7,828
              
              
              8,407
              
              
              276Unallocated
              
              
              869
              
              
              192
              
              
              408
              
              
              569
              
              
              15Consolidated depreciation expense
              
              $
              26,608
              
              $
              8,433
              
              $
              16,731
              
              $
              17,438
              
              $
              581**Amortization
                  expense *:**Residential
                  ventilation products
              
              $
              8,186
              
              $
              4,686
              
              $
              4,042
              
              $
              5,566
              
              $
              41Home
                  technology products
              
              
              7,492
              
              
              6,495
              
              
              2,837
              
              
              5,328
              
              
              9Air
                  conditioning and heating products
              
              
              3,256
              
              
              2,741
              
              
              2,213
              
              
              3,475
              
              
              14Unallocated
              
              
              327
              
              
              173
              
              
              ---
              
              
              ---
              
              
              ---Consolidated amortization expense
              
              $
              19,261
              
              $
              14,095
              
              $
              9,092
              
              $
              14,369
              
              $
              64**Capital
                  Expenditures **:**Residential
                  ventilation products
              
              $
              13,300
              
              $
              6,258
              
              $
              5,598
              
              $
              8,749
              
              $
              68Home
                  technology products
              
              
              2,596
              
              
              901
              
              
              1,358
              
              
              1,756
              
              
              23Air
                  conditioning and heating products
              
              
              17,276
              
              
              7,734
              
              
              5,483
              
              
              13,434
              
              
              116Unallocated
              
              
              494
              
              
              196
              
              
              347
              
              
              749
              
              
              ---Consolidated capital expenditures
              
              $
              33,666
              
              $
              15,089
              
              $
              12,786
              
              $
              24,688
              
              $
              207




* For
      the
      year ended December 31, 2005, the period from August 28, 2004 to December 31,
      2004 and the period from January 10, 2003 to December 31, 2003, the Company
      reflected amortization of approximately $400,000, $1,100,000 and $900,000,
      respectively, of excess purchase price allocated to inventory as a non-cash
      charge to cost of products sold in the Residential Ventilation Products
      Segment.





For
      the
      year ended December 31, 2005, the period from August 28, 2004 to December 31,
      2004, the period from January 1, 2004 to August 27, 2004 and the period from
      January 10, 2003 to December 31, 2003, the Company reflected amortization of
      approximately $500,000, $3,700,000, $200,000 and $3,800,000, respectively,
      of
      excess purchase price allocated to inventory as a non-cash charge to cost of
      products sold in the Home Technology Products Segment.





For
      the
      period from August 28, 2004 to December 31, 2004 and the period from January
      10,
      2003 to December 31, 2003, the Company reflected amortization of approximately
      $900,000 and $600,000, respectively, of excess purchase price allocated to
      inventory as a non-cash charge to cost of products sold in the Air Conditioning
      and Heating Products Segment.





** Includes
      capital expenditures financed under capital leases of approximately $4,800,000,
      $1,600,000, $900,000 and $7,600,000 for the year ended December 31, 2005 and
      the
      periods from August 28, 2004 to December 31, 2004, from January 1, 2004 to
      August 27, 2004 and from January 10, 2003 to December 31, 2003, respectively.





The
      following table presents a summary of the activity in goodwill for continuing
      operations by reporting segment for the year ended December 31, 2005 and the
      periods from August 28, 2004 to December 31, 2004, from January 1, 2004 to
      August 27, 2004, from January 10, 2003 to December 31, 2003 and from January
      1,
      2003 to January 9, 2003:





**Air****Residential**
            
            **Home**
            
            **Conditioning****Ventilation**
            
            **Technology**
            
            **and
                Heating**
            
            **Consolidated****Products**
            
            **Products**
            
            **Products**
            
            **Nortek***(Amounts
                in thousands)***Balance,
                December 31, 2002**
            
            **$**
            **218,896**
            
            **$**
            **31,357**
            
            **$**
            **34,878**
            
            **$**
            **285,131**Impact
                of foreign currency translation
            
            
            264
            
            
            ---
            
            
            5
            
            
            269**Balance,
                January 9, 2003**
            
            
            **219,160**
            
            
            **31,357**
            
            
            **34,883**
            
            
            **285,400**Effect
                of the Recapitalization
            
            
            154,201
            
            
            9,194
            
            
            187,412
            
            
            350,807Acquisitions
                during the period from January 10, 2003 to December 31,
                2003
            
            
            ---
            
            
            46,248
            
            
            ---
            
            
            46,248Purchase
                accounting adjustments
            
            
            (7,042
            )
            
            (765
            )
            
            (4,172
            )
            
            (11,979
            )Impact
                of foreign currency translation
            
            
            1,327
            
            
            ---
            
            
            4,043
            
            
            5,370**Balance,
                December 31, 2003**
            
            
            **367,646**
            
            
            **86,034**
            
            
            **222,166**
            
            
            **675,846**Acquisitions
                during the period from January 1, 2004 to August 27, 2004 (see Note
                3)
            
            
            ---
            
            
            6,841
            
            
            ---
            
            
            6,841Purchase
                accounting adjustments
            
            
            (1,953
            )
            
            (212
            )
            
            (1,064
            )
            
            (3,229
            )Impact
                of foreign currency translation
            
            
            (29
            )
            
            ---
            
            
            30
            
            
            1**Balance,
                August 27, 2004**
            
            
            **365,664**
            
            
            **92,663**
            
            
            **221,132**
            
            
            **679,459**Effect
                of the Acquisition
            
            
            413,303
            
            
            139,363
            
            
            54,387
            
            
            607,053Acquisitions
                during the period from August 28, 2004 to December 31,
                2004
            
            
            ---
            
            
            8,805
            
            
            ---
            
            
            8,805Purchase
                accounting adjustments
            
            
            (1,064
            )
            
            (563
            )
            
            (378
            )
            
            (2,005
            )Impact
                of foreign currency translation
            
            
            501
            
            
            ---
            
            
            1,292
            
            
            1,793**Balance,
                December 31, 2004**
            
            
            **778,404**
            
            
            **240,268**
            
            
            **276,433**
            
            
            **1,295,105**Acquisitions
                during the year ended December 31, 2005
            
            
            ---
            
            
            89,085
            
            
            2,796
            
            
            91,881Purchase
                accounting adjustments
            
            
            (1,207
            )
            
            (2,667
            )
            
            (957
            )
            
            (4,831
            )Impact
                of foreign currency translation
            
            
            1,496
            
            
            (292
            )
            
            (2,009
            )
            
            (805
            )**Balance,
                December 31, 2005**
            
            **$**
            **778,693**
            
            **$**
            **326,394**
            
            **$**
            **276,263**
            
            **$**
            **1,381,350**





In
      accordance with SFAS No. 141 and SFAS No. 142, the Company allocated the effect
      of the Recapitalization and Acquisition on goodwill to its reportable segments
      (see Notes 1 and 2). Purchase accounting adjustments relate principally to
      fair
      value revisions resulting from the completion of the final valuation of assets
      and liabilities and adjustments to deferred income taxes that impact
      goodwill.





Foreign
      net sales were approximately 18.0%, 22.0%, 19.5%, 19.8% and 20.8% of
      consolidated net sales for the year ended December 31, 2005 and for the periods
      from August 28, 2004 to December 31, 2004, from January 1, 2004 to August 27,
      2004, from January 10, 2003 to December 31, 2003 and from January 1, 2003 to
      January 9, 2003, respectively. Foreign Long-Lived Assets were approximately
      6.2%
      and 6.6% of consolidated Long-Lived Assets for the years ended December 31,
      2005
      and December 31, 2004, respectively. Foreign net sales are attributed based
      on
      the location of the Company’s subsidiary responsible for the sale. As required,
      Long-Lived Assets exclude financial instruments and deferred income taxes.





No
      single
      customer accounts for 10% or more of consolidated net sales or accounts
      receivable.





The
      Company operates internationally and is exposed to market risks from changes
      in
      foreign exchange rates. Financial instruments, which potentially subject the
      Company to concentrations of credit risk, consist principally of temporary
      cash
      investments and trade receivables. The Company places its temporary cash
      investments with high credit quality financial institutions and limits the
      amount of credit exposure to any one financial institution. Concentrations
      of
      credit risk with respect to trade receivables are limited due to the large
      number of customers comprising the Company’s customer base and their dispersion
      across many different geographical regions. At December 31, 2005, the Company
      had no significant concentrations of credit risk.





**12.** **ACCRUED
        EXPENSES AND TAXES, NET**





Accrued
      expenses and taxes, net, included in current liabilities in the accompanying
      consolidated balance sheet, consist of the following at December 31, 2005 and
      2004:





**December
                31,****2005**
            
            **2004***(Amounts
                in thousands)*Payroll,
                pension and employee benefits
            
            $
            48,880
            
            $
            46,147Deferred
                Compensation
            
            
            ---
            
            
            49,200Insurance
                and employee health benefit accruals
            
            
            15,834
            
            
            19,243Interest
            
            
            18,358
            
            
            18,858Product
                warranty
            
            
            18,429
            
            
            15,218Sales
                and marketing
            
            
            32,424
            
            
            24,456Employee
                termination and other costs
            
            
            1,272
            
            
            3,180Other,
                net
            
            
            51,986
            
            
            44,482$
            187,183
            
            $
            220,784








Accrued
      expenses, included in other long-term liabilities in the accompanying
      consolidated balance sheet, consist of the following at December 31, 2005 and
      2004:





**December
                31,****2005**
            
            **2004***(Amounts
                in thousands)*Employee
                pension retirement benefit obligation
            
            $
            53,222
            
            $
            56,583Deferred
                Compensation
            
            
            49,019
            
            
            45,964Product
                warranty
            
            
            16,414
            
            
            15,101Post
                retirement health benefit obligations
            
            
            42,180
            
            
            42,189Insurance
            
            
            27,764
            
            
            25,220Other,
                net
            
            
            26,789
            
            
            29,615$
            215,388
            
            $
            214,672





**13.** **RESTRUCTURING
        CHARGES**





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





Within
      the Air Conditioning and Heating Products Segment, the Company, in the second
      quarter of 2003, initiated restructuring activities related to the closure
      of
      two facilities owned by the Company in St. Louis, MO, in order to relocate
      the
      operations to other facilities. The facilities supported warehousing and
      distribution activities of the segment’s residential HVAC products. Since the
      initiation of these restructuring activities in 2003, a total of approximately
      439 employees have been terminated to date and no future terminations are
      expected to occur. During the periods from August 28, 2004 to December 31,
      2004,
      from January 1, 2004 to August 27, 2004 and from January 10, 2003 to December
      31, 2003, the Company provided approximately $400,000, $2,200,000 and
      $5,800,000, respectively, in cost of goods sold related to liabilities incurred
      as a result of this restructuring. The Company sold one of the facilities on
      March 30, 2005 and recorded a gain of approximately $200,000.





During
      August of 2004, the Company accrued approximately $3,400,000 related to
      severance benefits for certain of the Company’s employees at its corporate
      office. Approximately $1,400,000 was included as a charge in the Company’s
      consolidated statement of operations on August 27, 2004 and the balance was
      recorded as an intangible asset related to a non-compete agreement. No
      additional amounts have been incurred or are expected to be incurred related
      to
      these severance benefits. It is expected that these severance benefits will
      be
      paid through August 2006 (See Note 2).





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





**Employee**
            
            
            
            **Total****Separation**
            
            
            
            **Restructuring****Expenses**
            
            **Other**
            
            **Costs***(Amounts
                in thousands)***Balance
                at December 31, 2002**
            
            **$**
            **820**
            
            **$**
            **645**
            
            **$**
            **1,465**Other
                adjustments
            
            
            (90
            )
            
            (110
            )
            
            (200
            )**Balance
                at January 9, 2003**
            
            
            **730**
            
            
            **535**
            
            
            **1,265**Provision
            
            
            3,629
            
            
            2,128
            
            
            5,757Payments
                and asset write downs
            
            
            (2,369
            )
            
            (2,205
            )
            
            (4,574
            )Other
                adjustments
            
            
            (352
            )
            
            (253
            )
            
            (605
            )**Balance
                at December 31, 2003**
            
            **$**
            **1,638**
            
            **$**
            **205**
            
            **$**
            **1,843****Balance
                at December 31, 2003**
            
            **$**
            **1,638**
            
            **$**
            **205**
            
            **$**
            **1,843**Provision
            
            
            3,547
            
            
            1,988
            
            
            5,535Payment
                and asset write downs
            
            
            (1,355
            )
            
            (2,049
            )
            
            (3,404
            )**Balance
                at August 27, 2004**
            
            
            **3,830**
            
            
            **144**
            
            
            **3,974**Provision
            
            
            74
            
            
            427
            
            
            501Payments
                and asset write downs
            
            
            (754
            )
            
            (541
            )
            
            (1,295
            )**Balance
                at December 31, 2004**
            
            **$**
            **3,150**
            
            **$**
            **30**
            
            **$**
            **3,180****Balance
                at December 31, 2004**
            
            **$**
            **3,150**
            
            **$**
            **30**
            
            **$**
            **3,180**Provision
            
            
            (42
            )
            
            263
            
            
            221Payments
                and asset write downs
            
            
            (2,067
            )
            
            (52
            )
            
            (2,119
            )Other
                adjustments
            
            
            (10
            )
            
            ---
            
            
            (10
            )**Balance
                at December 31, 2005**
            
            **$**
            **1,031**
            
            **$**
            **241**
            
            **$**
            **1,272**





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.





**14.** **OTHER
        INCOME AND EXPENSE**





Operating
      results for the year ended December 31, 2005 include a gain of approximately
      $1,400,000, which has been recorded in Unallocated, from the settlement of
      certain obligations (see Note 9) and a gain of approximately $1,600,000 in
      the
      Home Technology Products Segment from the sale of a corporate office building
      of
      one of the Company’s subsidiaries.





The
      operating results of the Air Conditioning and Heating Products Segment for
      the
      periods from August 28, 2004 to December 31, 2004, from January 1, 2004 to
      August 27, 2004 and from January 10, 2003 to December 31, 2003 include
      approximately $400,000, $2,200,000 and $5,800,000, respectively, of costs
      associated with the closure of certain manufacturing facilities (see Note 13).
      There were no costs recorded in the period from January 1, 2003 to January
      9,
      2003 related to the closure of these manufacturing facilities. The operating
      results of the Air Conditioning and Heating Products Segment for the period
      from
      January 10, 2003 to December 31, 2003 also include approximately $1,100,000
      of
      expenses associated with the start-up of a new manufacturing
      facility.





Operating
      results for the year ended December 31, 2005 include non-cash foreign exchange
      losses of approximately $2,100,000 related to intercompany debt not indefinitely
      invested in the Company’s subsidiaries. Operating results for the period from
      August 28, 2004 to December 31, 2004 include non-cash foreign exchange gains
      of
      approximately $400,000 and for the period from January 1, 2004 to August 27,
      2004 operating results include non-cash foreign exchange losses of approximately
      $800,000 related to intercompany debt not indefinitely invested in the Company’s
      subsidiaries. For the period from January 10, 2003 to December 31, 2003,
      operating results include non-cash foreign exchange gains of approximately
      $1,500,000 related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries. There were no foreign exchange gains or losses recorded
      in the period from January 1, 2003 to January 9, 2003 related to intercompany
      debt not indefinitely invested in the Company’s subsidiaries. A portion of these
      expenses has been allocated to the Company’s reporting segments for the
      applicable periods presented (see Note 11).





During
      the year ended December 31, 2005 and the periods from August 28, 2004 to
      December 31, 2004, from January 1, 2004 to August 27, 2004 and from January
      10,
      2003 to December 31, 2003, the Company recorded a pre-tax charge to continuing
      operations of approximately $300,000, $100,000, $48,500,000 and $1,400,000,
      respectively, for compensation expense related to stock options issued to
      employees, officers and directors in accordance with SFAS No. 123 (see Note
      1).
      Additionally, in the fourth quarter of 2003, the Company recorded compensation
      expense of approximately $600,000 in connection with the issuance of common
      stock. A portion of these expenses has been allocated to the Company’s reporting
      segments for all periods presented (see Note 11) and a portion of these expenses
      for the period from January 1, 2004 to August 31, 2004 has been recorded in
      “expenses and charges arising from the Acquisition” as shown in the table
      below.





For
      the
      period from January 1, 2004 to August 27, 2004, the Company incurred certain
      expenses and charges in connection with the Acquisition (see Note 2) which
      are
      summarized as follows:





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





For
      the
      nine day period ended January 9, 2003, the Company incurred charges in
      connection with the Recapitalization (see Note 2). These charges were as
      follows:





*(Amounts
                in thousands)*Curtailment
                loss upon termination of SERP
            
            
            $70,142Recapitalization
                fees, expenses and other
            
            
            12,848Other
            
            
            10$83,000





Additionally,
      during the periods from January 10, 2003 to December 31, 2003 and from January
      1, 2003 to January 9, 2003, the Company incurred approximately $3,400,000 and
      $100,000, respectively, of direct expenses and fees associated with the
      Company’s strategic sourcing software and systems development, which were
      recorded in Unallocated in the Company’s segment reporting.




**15.** **SUMMARIZED
        QUARTERLY FINANCIAL DATA (UNAUDITED)**





The
      tables that follow summarize unaudited quarterly financial data for the years
      ended December 31, 2005 and December 31, 2004:





**For
                the Quarter Ended****April
                2**
            
            **July
                2**
            
            **October
                1**
            
            **December
                31***(Amounts
                in thousands)***2005**Net
                sales
            
            $
            434,118
            
            $
            498,860
            
            $
            522,866
            
            $
            503,380Gross
                profit
            
            
            124,659
            
            
            148,454
            
            
            161,598
            
            
            163,086Selling,
                general and administrative expense
            
            
            79,588
            
            
            85,090
            
            
            89,739
            
            
            88,199Depreciation
                expense
            
            
            6,851
            
            
            6,707
            
            
            6,876
            
            
            6,174Amortization
                expense
            
            
            4,764
            
            
            4,385
            
            
            4,760
            
            
            5,352Operating
                earnings
            
            
            40,738
            
            
            58,979
            
            
            67,468
            
            
            69,675Net
                earnings
            
            $
            2,300
            
            $
            16,500
            
            $
            19,700
            
            $
            18,400








**For
                the Quarter Ended****April
                3**
            
            **July
                3**
            
            **October
                2 (1)**
            
            **December
                31***(Amounts
                in thousands)***2004**Net
                sales
            
            $
            405,012
            
            $
            446,012
            
            $
            427,864
            
            $
            399,950Gross
                profit
            
            
            118,130
            
            
            131,208
            
            
            120,899
            
            
            106,790Selling,
                general and administrative expense
            
            
            73,148
            
            
            80,781
            
            
            74,280
            
            
            73,200Acquisition
                fees and expenses
            
            
            ---
            
            
            ---
            
            
            83,700
            
            
            ---Depreciation
                expense
            
            
            5,790
            
            
            7,002
            
            
            6,463
            
            
            5,909Amortization
                expense
            
            
            3,472
            
            
            3,598
            
            
            5,805
            
            
            10,312Operating
                earnings (loss)
            
            
            41,673
            
            
            46,887
            
            
            (40,505
            )
            
            26,596Earnings
                (loss) from continuing operations
            
            
            3,000
            
            
            17,100
            
            
            (132,200
            )
            
            (2,800
            )Earnings
                (loss) from discontinued operations
            
            
            68,100
            
            
            (1,200
            )
            
            500
            
            
            (500
            )Net
                earnings (loss)
            
            $
            71,100
            
            $
            15,900
            
            $
            (131,700
            )
            $
            (3,300
            )





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





During
      the year ended December 31, 2004, the Acquisition of the Company in connection
      with the THL Transaction occurred in the third quarter ended October 2, 2004
      (see Note 2) and the redemption of certain of the Company’s debt occurred in the
      first quarter ended April 2, 2004 and in the third quarter ended October 2,
      2004
      (see Note 6).





See
      Notes
      1, 2, 3, 5, 6, 10 and 13 and Management’s Discussion and Analysis of Financial
      Condition and Results of Operations, Item 7 of Part II of this report, regarding
      certain other quarterly transactions which impact the operating results in
      the
      above tables including dispositions, financing activities, new accounting
      pronouncements, income taxes, acquisitions, sales volume, material costs,
      rationalization and relocation of manufacturing operations, material procurement
      strategies and weakness in the manufactured housing industry.





Report
      of
      Independent Registered Public Accounting Firm





To
      the
      Board of Directors and Shareholder of NTK Holdings, Inc.:




We
        have
        audited the accompanying consolidated balance sheets of NTK Holdings, Inc.
        (a
        Delaware corporation) and subsidiaries as of December 31, 2005 and 2004,
        and the
        related consolidated statements of operations, stockholder’s investment, and
        cash flows for the year ended December 31, 2005, the period from August 28,
        2004
        to December 31, 2004, the period from January 1, 2004 to August 27, 2004,
        the
        period from January 10, 2003 to December 31, 2003 and the period from January
        1,
        2003 to January 9, 2003. Our audits also included the financial statement
        schedules listed in the Index at Item 15(a). These financial statements and
        schedules are the responsibility of the Company’s management. Our responsibility
        is to express an opinion on these financial statements and schedules based
        on
        our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. We were not engaged to perform
        an
        audit of the Company’s internal control over financial reporting. Our audits
        included consideration of internal control over financial reporting as a
        basis
        for designing audit procedures that are appropriate in the circumstances,
        but
        not for the purpose of expressing an opinion on the effectiveness of the
        Company’s internal control over financial reporting. Accordingly, we express no
        such opinion. An audit also includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements, assessing
        the accounting principles used and significant estimates made by management,
        and
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of NTK Holdings,
        Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated
        results of their operations and their cash flows for the year ended December
        31,
        2005, the period from August 28, 2004 to December 31, 2004, the period from
        January 1, 2004 to August 27, 2004 , the period from January 10, 2003 to
        December 31, 2003 and the period from January 1, 2003 to January 9, 2003,
        in
        conformity with U.S. generally accepted accounting principles. Also, in our
        opinion, the related financial statement schedules, when considered in relation
        to the basic financial statements taken as a whole, presents fairly in all
        material respects the information set forth therein.
 
 ERNST
        & YOUNG, LLP
 
 Boston,
        Massachusetts
 March
        6,
        2006






**NTK
      HOLDINGS, INC. (PARENT
      COMPANY)**


**SCHEDULE
      I**


**CONDENSED
      FINANCIAL INFORMATION OF NTK
      HOLDINGS, INC.**





**CONDENSED
      BALANCE SHEET**


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


**December
                  31, 2005****ASSETS:****Investments
                  and Other Assets:**Net
                  intercompany balance and investment in subsidiaries
              
              $
              457,107Deferred
                  debt expense
              
              
              5,230Deferred
                  tax benefit
              
              
              2,909Total other long-term assets
              
              
              465,246Total assets
              
              $
              465,246**LIABILITIES
                  AND STOCKHOLDER'S INVESTMENT:****Current
                  Liabilities:**Accrued
                  expenses and taxes, net
              
              $
              123**Long-term
                  debt**
              
              
              274,597**Commitments
                  and Contingencies (Note 3)**Common
                    stock, $0.01 par value, authorized 3,000 shares;3,000 issued and
                    outstanding at December 31, 2005
              
              
              ---Additional
                  paid-in capital
              
              
              130,181Retained
                  Earnings
              
              
              52,800Accumulated
                  other comprehensive income
              
              
              7,545Total stockholder's investment
              
              
              190,526Total liabilities and stockholder's investment
              
              $
              465,246




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






**CONDENSED
      STATEMENT OF OPERATIONS**


**For
                  the Period****February
                  10, 2005 -****December
                  31, 2005***(Amounts
                  in thousands)***Revenues:**Investment
                  income
              
              $
              46**Expenses:**Selling,
                  general and administrative expense
              
              
              187Interest
                  expense
              
              
              24,65924,846Loss
                  from continuing operations before equity in subsidiaries'
                  earnings
              
              
              (24,800
              )Equity
                  in subsidiaries' earnings before provision for income
                  taxes
              
              
              120,400Earnings
                  from continuing operations before provision for income
                  taxes
              
              
              95,600Provision
                  for income taxes
              
              
              41,800**Net
                  earnings**
              
              $
              53,800


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






**CONDENSED
      STATEMENT OF CASH FLOWS**


**For
                  the Period****February
                  10, 2005 -****December
                  31, 2005***(Amounts
                  in thousands)***Cash
                  flows from operating activities:**Net
                  earnings
              
              $
              53,800**Adjustments
                  to reconcile net earnings to cash:**Non-cash
                  interest expense
              
              
              24,659Equity
                  in subsidiaries' earnings before provision for income
                  taxes
              
              
              (120,400
              )Current
                  income tax provision
              
              
              17,300Deferred
                  federal income tax provision
              
              
              24,500**Changes
                  in certain assets and liabilities, net of effects
                  from****acquisitions and dispositions:**Accrued
                  expenses and taxes
              
              
              141Total
                  adjustments to net earnings
              
              
              (53,800
              )Net
                  cash provided by operating activities
              
              
              ---**Cash
                  flows from investing activities:**Capital
                  contribution to Nortek Holdings, Inc.
              
              
              (57,738
              )Net
                  cash used in investing activities
              
              
              (57,738
              )**Cash
                  flows from financing activities:**Sale
                  of the 10 3/4% Senior Discount Notes
              
              
              244,708Dividend
                  to THL-Nortek Investors, LLC
              
              
              (186,970
              )Net
                  cash provided by financing activities
              
              
              57,738Net
                  change in unrestricted cash and cash equivalents
              
              
              ---Unrestricted
                  cash and cash equivalents at the beginning of the period
              
              
              ---Unrestricted
                  cash and cash equivalents at the end of the period
              
              $
              ---


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







**NTK
        HOLDINGS, INC. (PARENT
        COMPANY)**
 **SCHEDULE
        I**
 **CONDENSED
        FINANCIAL INFORMATION OF NTK
        HOLDINGS, INC.**
 NOTES
        TO CONDENSED FINANCIAL
        STATEMENTS
 For
        the period from February 10, 2005 to
        December 31, 2005


1. 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 Inc.’s (“Nortek’) former parent
      company (referred to herein as “the former Nortek Holdings”), including
      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 Transactions 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 January 9, 2003, the former Nortek
      Holdings was acquired by Kelso and certain members of Nortek’s management in a
      transaction valued at approximately $1,600,000,000 including all of the
      Company’s indebtedness (the “Recapitalization”).





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”), which was 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 Transactions”).




On
        February 10, 2005, NTK Holdings, Inc (“NTK Holdings” or the “Company”), a
        Delaware Corporation, issued 3,000 shares of capital stock to Investors LLC
        in
        exchange for Investor LLC’s shares of capital stock of Nortek Holdings (the “NTK
        Holdings Formation”). As a result of this exchange, Nortek Holdings became a
        wholly-owned subsidiary of NTK Holdings and NTK Holdings became a wholly-owned
        subsidiary of Investors LLC.
 
 NTK
        Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial Information
        of NTK Holdings, Inc., included in this Form 10-K, provides all parent company
        information for the periods subsequent to the NTK Holdings Formation, when
        NTK
        Holdings became the parent company, that are required to be presented in
        accordance with SEC rules and regulations for financial statement schedules.
        The
        Nortek Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial
        Information of Nortek Holdings, Inc., which cover the required periods
        subsequent to the THL Transaction and prior to the NTK Holdings Formation
        and
        the Former Nortek Holdings, Inc. (Parent Company) — Schedule I — Condensed
        Financial Information of the Former Nortek Holdings, Inc., which cover the
        required periods prior to the THL Transaction, are included elsewhere in
        this
        Form 10-K and are incorporated herein by reference. The accompanying condensed
        financial statements have been prepared in accordance with the reduced
        disclosure requirements permitted by Form 10-K, Item 12, Schedule I — Condensed
        Financial Information of the Registrant. The NTK Holdings, Inc. and Subsidiaries
        Consolidated Financial Statements are included elsewhere in this Form 10-K
        and
        are incorporated herein by reference.


Beginning
      on August 28, 2004, NTK Holdings accounted for the Acquisition as a purchase
      in
      accordance with the provisions of 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 No. 54, “Push Down Basis of Accounting
      Required in Certain Limited Circumstances”, 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. Refer to Notes 1 and 2 of the
      Notes to the NTK Holdings, Inc. and Subsidiaries Consolidated Financial
      Statements, which are incorporated herein by reference for a complete discussion
      of the Acquisition and the Recapitalization.





2. Refer
      to
      Notes 1 and 10 of the Notes to the NTK Holdings, Inc. and Subsidiaries
      Consolidated Financial Statements, which are incorporated herein by reference,
      for information pertaining to the accounting for discontinued operations,
      including the sale of La Cornue SAS and Ply Gem Industries, Inc. during fiscal
      2004.





3. Descriptions
      of material contingencies, significant provisions of long-term debt obligations
      and commitments of NTK Holdings and its subsidiaries are included in Notes
      1, 2,
      6 and 9 of the Notes to the NTK Holdings, Inc. and Subsidiaries Consolidated
      Financial Statements, which are incorporated herein by reference, including
      information related to debt issued and repaid in connection with the
      Acquisition.





4. At
      December 31, 2005, NTK Holdings’ subsidiaries, principally Nortek, had
      unrestricted cash and investments of approximately $77,175,000.





5. At
      December 31, 2005, there was approximately $135,000,000 available for the
      payment of cash dividends, stock purchases or other restricted payments
      (“Restricted Payments”) by the Company as defined under the terms of the
      Company’s 10 3/4% Senior Discount Notes’ indenture. Restricted Payments to NTK
      Holdings and Nortek Holdings from Nortek are limited by the terms of Nortek’s
      most restrictive loan agreement, Nortek’s Senior Secured Credit Facility. The
      amount available for such payments under Nortek’s Senior Secured Credit Facility
      was approximately $134,800,000 at December 31, 2005. See Note 6 of the Notes
      to
      the NTK Holdings, Inc. and Subsidiaries Consolidated Financial Statements,
      which
      are incorporated herein by reference.





6. The
      combined liabilities, excluding deferred income taxes, of NTK Holdings’
subsidiaries as of December 31, 2005 were approximately $1,941,135 consisting
      of
      $1,373,781 of short and long-term debt, $159,015 of accounts payable and
      $408,339 of short and long-term accruals, taxes and other obligations (of which
      approximately $192,951 are classified as short-term).





7. 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, which
      are
      structurally subordinate to all debt and liabilities of the Company’s
      subsidiaries, including Nortek Holdings and Nortek, were issued and sold in
      a
      private Rule 144A offering to institutional investors. On
      July
      5, 2005, the Company filed a registration statement with the SEC to exchange
      the
      10 3/4% Senior Discount Notes for registered notes. The registration statement
      went effective on July 21, 2005. During the exchange offer period, which closed
      during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
      were
      exchanged for registered notes.




The
      Company will continue to file periodic reports with the SEC as required by
      the
      indenture governing the 10 3/4% Senior Discount Notes.





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





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








**NTK
        HOLDINGS, INC. (PARENT
        COMPANY)**
 **SCHEDULE
        I**
 **CONDENSED
        FINANCIAL INFORMATION OF NTK
        HOLDINGS, INC.**


**CONDENSED
      BALANCE SHEET**


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


**December
                  31, 2004****ASSETS:****Current
                  Assets:**Prepaid
                  income taxes
              
              $
              17,220**Investments
                  and Other Assets:**Net
                  intercompany balance and investment in subsidiaries
              
              
              383,645Deferred
                  tax benefit
              
              
              16,087Total other long-term assets
              
              
              399,732Total assets
              
              $
              416,952**LIABILITIES
                  AND STOCKHOLDER'S INVESTMENT:****Current
                  Liabilities:**Accrued
                  expenses and taxes, net
              
              $
              49,200**Other
                  long-term liabilities**
              
              
              45,964**Commitments
                  and Contingencies (Note 3)**Common
                    stock, $0.01 par value, authorized 3,000 shares;3,000 issued and
                    outstanding at December 31, 2005
              
              
              ---Additional
                  paid-in capital
              
              
              316,823Accumulated
                  deficit
              
              
              (4,100
              )Accumulated
                  other comprehensive income
              
              
              9,065Total stockholder's investment
              
              
              321,788Total liabilities and stockholder's investment
              
              $
              416,952




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






**CONDENSED
      STATEMENT OF OPERATIONS**


**For
                  the Periods From****January
                  1, 2005 -**
              
              **August
                  28, 2004 -****February
                  9, 2005**
              
              **December
                  31, 2004***(Amounts
                  in thousands)***Expenses:**Selling,
                  general and administrative expense
              
              $
              30
              
              $
              36Interest
                  expense
              
              
              670
              
              
              2,164700
              
              
              2,200Loss
                  from continuing operations before equity in subsidiaries'
                  earnings
              
              
              (700
              )
              
              (2,200
              )Equity
                  in subsidiaries' earnings before provision for income
                  taxes
              
              
              5,200
              
              
              2,100Earnings
                  (loss) from continuing operations before provision for income
                  taxes
              
              
              4,500
              
              
              (100
              )Provision
                  for income taxes
              
              
              1,400
              
              
              3,500**Earnings
                  (loss) from continuing operations**
              
              
              3,100
              
              
              (3,600
              )**Loss
                  from discontinued operations**
              
              
              ---
              
              
              (500
              )**Net
                  earnings (loss)**
              
              $
              3,100
              
              $
              (4,100
              )




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






**CONDENSED
      STATEMENT OF CASH FLOWS**


**For
                  the Periods From****January
                  1, 2005 -**
              
              **August
                  28, 2004 -****February
                  9, 2005**
              
              **December
                  31, 2004***(Amounts
                  in thousands)***Cash
                  flows from operating activities:**Earnings
                  (loss) from continuing operations
              
              $
              3,100
              
              $
              (3,600
              )Loss
                  from discontinued operations
              
              
              ---
              
              
              (500
              )Net
                  earnings (loss)
              
              
              3,100
              
              
              (4,100
              )**Adjustments
                  to reconcile net earnings to cash:**Non-cash
                  interest expense
              
              
              670
              
              
              2,164Equity
                  in subsidiaries' earnings before provision for income
                  taxes
              
              
              (5,200
              )
              
              (2,100
              )Current
                  income tax provision from continuing operations
              
              
              600
              
              
              2,500Deferred
                  federal income tax provision from continuing operations
              
              
              800
              
              
              1,000Current
                  income tax provision for discontinued operations
              
              
              ---
              
              
              500**Changes
                  in certain assets and liabilities, net of effects
                  from****acquisitions
                  and dispositions:**Accrued
                  expenses and taxes
              
              
              30
              
              
              36Total
                  adjustments to net loss
              
              
              (3,100
              )
              
              4,100Net
                  cash provided by operating activities
              
              
              ---
              
              
              ---Net change
                  in unrestricted cash and cash equivalents
              
              
              ---
              
              
              ---Unrestricted
                  cash and cash equivalents at the beginning of the period
              
              
              ---
              
              
              ---Unrestricted
                  cash and cash equivalents at the end of the period
              
              $
              ---
              
              $
              ---




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








**NTK
      HOLDINGS, INC. (PARENT
      COMPANY)**


**SCHEDULE
      I**


**CONDENSED
      FINANCIAL INFORMATION OF NTK
      HOLDINGS, INC.**


NOTES
      TO CONDENSED FINANCIAL
      STATEMENTS


For
      the period from August 28, 2004 to
      February 9, 2005






1. 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 Inc.’s (“Nortek’) former parent
      company (referred to herein as “the former Nortek Holdings”), including
      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 Transactions 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 January 9, 2003, the former Nortek
      Holdings was acquired by Kelso and certain members of Nortek’s management in a
      transaction valued at approximately $1,600,000,000 including all of the
      Company’s indebtedness (the “Recapitalization”).





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”), which was 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 Transactions”).





On
      February 10, 2005, NTK Holdings, Inc (“NTK Holdings” or the "Company"), a newly
      formed Delaware Corporation, issued 3,000 shares of capital stock to Investors
      LLC in exchange for Investor LLC’s shares of capital stock of Nortek Holdings
      (the “NTK Holdings Formation”). As a result of this exchange, Nortek Holdings
      became a wholly-owned subsidiary of NTK Holdings and NTK Holdings became a
      wholly-owned subsidiary of Investors LLC.





Nortek
      Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial Information
      of Nortek Holdings, Inc., included in this Form 10-K, provides all parent
      company information for the periods subsequent to the THL Transaction and prior
      to the NTK Holdings Formation, when NTK Holdings became the parent company,
      that
      are required to be presented in accordance with SEC rules and regulations for
      financial statement schedules. The NTK Holdings, Inc. (Parent Company) —
Schedule I — Condensed Financial Information of NTK Holdings, Inc., which cover
      the required periods subsequent to the NTK Holdings Formation, and the Former
      Nortek Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial
      Information of the Former Nortek Holdings, Inc., which cover the required
      periods prior to the THL Transaction, are included elsewhere in this Form 10-K
      and are incorporated herein by reference. The accompanying condensed financial
      statements have been prepared in accordance with the reduced disclosure
      requirements permitted by Form 10-K, Item 12, Schedule I — Condensed Financial
      Information of the Registrant. The NTK Holdings, Inc. and Subsidiaries
      Consolidated Financial Statements are included elsewhere in this Form 10-K
      and
      are incorporated herein by reference.




Beginning
      on August 28, 2004, NTK Holdings accounted for the Acquisition as a purchase
      in
      accordance with the provisions of 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 No. 54, “Push Down Basis of Accounting
      Required in Certain Limited Circumstances”, 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. Refer to Notes 1 and 2 of the
      Notes to the NTK Holdings, Inc. and Subsidiaries Consolidated Financial
      Statements, which are incorporated herein by reference for a complete discussion
      of the Acquisition and the Recapitalization.





2. Refer
      to
      Notes 1 and 10 of the Notes to the NTK Holdings, Inc. and Subsidiaries
      Consolidated Financial Statements, which are incorporated herein by reference,
      for information pertaining to the accounting for discontinued operations,
      including the sale of La Cornue SAS and Ply Gem Industries, Inc. during fiscal
      2004.





3. Accrued
      expenses of approximately $49,200,000 and other long-term liabilities of
      approximately $45,964,000 as of December 31, 2004 relate to the 2004 Nortek
      Holdings, Inc. Deferred Compensation Plan, which was set up in connection with
      the Acquisition. Refer to Note 2 of the Notes to the NTK Holdings, Inc. and
      Subsidiaries Consolidated Financial Statements for a more complete discussion
      of
      the deferred compensation plan and 4. below for payments made in fiscal 2005
      under the Plan.





4.   
      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, which
      are
      structurally subordinate to all debt and liabilities of the Company’s
      subsidiaries, including Nortek Holdings and Nortek, were issued and sold in
      a
      private Rule 144A offering to institutional investors. On July 5, 2005, the
      Company filed a registration statement with the SEC to exchange the 10 3/4%
      Senior Discount Notes for registered notes. The registration statement went
      effective on July 21, 2005. During the exchange offer period, which closed
      during the third quarter of 2005, 100% of the 10 3/4% Senior Discount Notes
      were
      exchanged for registered notes. The Company will continue to file periodic
      reports with the SEC as required by the indenture governing the 10 3/4% Senior
      Discount Notes.





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





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








**THE
      FORMER NORTEK HOLDINGS, INC. (PARENT
      COMPANY)**


**SCHEDULE
      I**


**CONDENSED
      FINANCIAL INFORMATION OF THE FORMER
      NORTEK HOLDINGS, INC.**





**CONDENSED
      STATEMENT OF OPERATIONS**


**For
                  the Periods From****January
                  1, 2004 -**
              
              **January
                  10, 2003 -**
              
              **January
                  1, 2003 -****August
                  27, 2004**
              
              **December
                  31, 2003**
              
              **January
                  9, 2003***(Amounts
                  in thousands)***Revenues:**Investment
                  income
              
              $
              40
              
              $
              131
              
              $
              ---**Expenses:**Selling,
                  general and administrative expense
              
              
              4
              
              
              37
              
              
              ---Interest
                  expense
              
              
              24,206
              
              
              3,594
              
              
              ---Loss
                  on debt redemption
              
              
              67,030
              
              
              ---
              
              
              ---91,240
              
              
              3,631
              
              
              ---Loss
                    from continuing operations before equityin subsidiaries' (loss)
                    earnings
              
              
              (91,200
              )
              
              (3,500
              )
              
              ---Equity
                    in subsidiaries' (loss) earnings before(benefit) provision for
                    income taxes
              
              
              (61,500
              )
              
              107,000
              
              
              (82,700
              )(Loss)
                    earnings from continuing operations before(benefit) provision for
                    income taxes
              
              
              (152,700
              )
              
              103,500
              
              
              (82,700
              )(Benefit)
                  provision for income taxes
              
              
              (41,400
              )
              
              41,400
              
              
              (21,800
              )**Loss
                  (earnings) from continuing operations**
              
              
              (111,300
              )
              
              62,100
              
              
              (60,900
              )**Earnings
                  (loss) from discontinued operations**
              
              
              67,400
              
              
              12,100
              
              
              (1,000
              )**Net
                  (loss) earnings**
              
              $
              (43,900
              )
              $
              74,200
              
              $
              (61,900
              )




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






**CONDENSED
      STATEMENT OF CASH FLOWS**


**For
                  the Periods****Jan.
                  1, 2004 -**
              
              **Jan.
                  10, 2003 -**
              
              **Jan.
                  1, 2003 -****Aug.
                  27, 2004**
              
              **Dec.
                  31, 2003**
              
              **Jan.
                  9, 2003***(Amounts
                  in thousands)***Cash
                  Flows from operating activities:**(Loss)
                  earnings from continuing operations
              
              $
              (111,300
              )
              $
              62,100
              
              $
              (60,900
              )Earnings
                  (loss) from discontinued operations
              
              
              67,400
              
              
              12,100
              
              
              (1,000
              )Net
                  (loss) earnings
              
              
              (43,900
              )
              
              74,200
              
              
              (61,900
              )**Adjustments
                    to reconcile net earnings (loss)to net cash provided by (used in)
                    operating activities:**Non-cash
                  interest expense, net
              
              
              24,206
              
              
              3,593
              
              
              ---Loss
                  from debt retirement
              
              
              67,030
              
              
              ---
              
              
              ---Equity
                    in subsidiaries' (earnings) loss before provision(benefit) for
                    income taxes
              
              
              61,500
              
              
              (107,000
              )
              
              82,700(Earnings)
                    loss from discontinued operations before provision(benefit) for
                    income taxes
              
              
              (112,900
              )
              
              (19,500
              )
              
              1,600Current
                  income tax provision (benefit) from continuing operations
              
              
              5,500
              
              
              46,200
              
              
              (27,700
              )Deferred
                  federal income tax (credit) provision from continuing
                  operations
              
              
              (46,900
              )
              
              (4,800
              )
              
              5,900Current
                  income tax provision (benefit) from discontinued
                  operations
              
              
              64,000
              
              
              6,900
              
              
              (600
              )Deferred
                  federal income tax (credit) provision from discontinued
                  operations
              
              
              (18,500
              )
              
              500
              
              
              ---**Changes
                    in certain assets and liabilities, net ofeffects from acquisitions
                    and dispositions:**Accounts
                  payable
              
              
              23
              
              
              8
              
              
              ---Accrued
                  expenses and taxes
              
              
              (11,796
              )
              
              5,195
              
              
              ---Total adjustments to net (loss) earnings
              
              
              32,163
              
              
              (68,904
              )
              
              61,900Net cash (used in) provided by operating activities
              
              
              (11,737
              )
              
              5,296
              
              
              ---**Cash
                  Flows from investing activities:**Redemption
                    of publicly held shares in connection withthe
                    Recapitalization
              
              
              ---
              
              
              (469,655
              )
              
              ---Payment
                    of fees and expenses in connection withthe
                    Recapitalization
              
              
              ---
              
              
              (27,900
              )
              
              ---Net cash used in investing activities
              
              
              ---
              
              
              (497,555
              )
              
              ---**Cash
                  Flows from financing activities:**Sale
                  of 10% Senior Discount Notes due 2011, net of fees
              
              
              ---
              
              
              339,522
              
              
              ---Issuance
                    of Series B preference stock in connection withthe
                    Recapitalization
              
              
              ---
              
              
              355,923
              
              
              ---Issuance
                    of Class A common stock in connection withthe
                    Recapitalization
              
              
              ---
              
              
              3,262
              
              
              ---Issuance
                  of Class A common stock
              
              
              ---
              
              
              1,500Dividend
                  to Preferred and Common stock holders
              
              
              ---
              
              
              (298,474
              )
              
              ---Dividends
                  and distributions received from Nortek, Inc.
              
              
              ---
              
              
              ---
              
              
              147,900Purchase
                  of Nortek, Inc. common stock
              
              
              ---
              
              
              (41,000
              )
              
              (4,603
              )Net
                  cash provided by financing activities
              
              
              ---
              
              
              360,733
              
              
              143,297Net
                    (decrease) increase in unrestricted cash andcash equivalents
              
              
              (11,737
              )
              
              (131,526
              )
              
              143,297Cash
                  and cash equivalents at the beginning of the period
              
              
              11,771
              
              
              143,297
              
              
              ---Cash
                  and cash equivalents at the end of the period
              
              $
              34
              
              $
              11,771
              
              $
              143,297




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







**THE
        FORMER NORTEK HOLDINGS, INC. (PARENT
        COMPANY)**
 **SCHEDULE
        I**
 **CONDENSED
        FINANCIAL INFORMATION OF THE FORMER
        NORTEK HOLDINGS, INC.**
 NOTES
        TO CONDENSED FINANCIAL
        STATEMENTS
 For
        the period from January 1, 2004 to August
        27, 2004 and the year ended December 31, 2003


1. 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 Inc.’s (“Nortek’) former parent
      company (referred to herein as “the former Nortek Holdings”), including
      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 Transactions 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 January 9, 2003, the former Nortek
      Holdings was acquired by Kelso and certain members of Nortek’s management in a
      transaction valued at approximately $1,600,000,000 including all of the
      Company’s indebtedness (the “Recapitalization”).





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”), which was 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”).





On
      February 10, 2005, NTK Holdings, Inc (“NTK Holdings”), a newly formed Delaware
      Corporation, issued 3,000 shares of capital stock to Investors LLC in exchange
      for Investor LLC’s shares of capital stock of Nortek Holdings (the “NTK Holdings
      Formation”). As a result of this exchange, Nortek Holdings became a wholly-owned
      subsidiary of NTK Holdings and NTK Holdings became a wholly-owned subsidiary
      of
      Investors LLC.





The
      Former Nortek Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial
      Information of the Former Nortek Holdings, Inc., included in this Form 10-K,
      provides all parent company information for the periods prior to the THL
      Transaction, when the former Nortek Holdings was the parent company, that are
      required to be presented in accordance with SEC rules and regulations for
      financial statement schedules. The NTK Holdings, Inc. (Parent Company) —
Schedule I — Condensed Financial Information of the NTK Holdings, Inc., which
      cover the required periods subsequent to the NTK Holdings Formation and the
      Nortek Holdings, Inc. (Parent Company) — Schedule I — Condensed Financial
      Information of Nortek Holdings, Inc., which cover the required periods
      subsequent to the THL Transaction and prior to the NTK Holdings Formation,
      are
      included elsewhere in this Form 10-K and are incorporated herein by reference.
      The accompanying condensed financial statements have been prepared in accordance
      with the reduced disclosure requirements permitted by Form 10-K, Item 12,
      Schedule I — Condensed Financial Information of the Registrant. The NTK
      Holdings, Inc. and Subsidiaries Consolidated Financial Statements are included
      elsewhere in this Form 10-K and are incorporated herein by reference.




Refer
      to
      Notes 1 and 2 of the Notes to the NTK Holdings, Inc. and Subsidiaries
      Consolidated Financial Statements, which are incorporated herein by reference
      for a complete discussion of the Acquisition and the Recapitalization.





2. Refer
      to
      Notes 1 and 10 of the Notes to the NTK Holdings, Inc. and Subsidiaries
      Consolidated Financial Statements, which are incorporated herein by reference,
      for information pertaining to the accounting for discontinued operations,
      including the sale of La Cornue SAS and Ply Gem Industries, Inc. during fiscal
      2004.





3. On
      August 27, 2004, in connection with the Acquisition, the Former Nortek Holdings
      redeemed for cash pursuant to the applicable indenture governing such notes
      all
      of the former Nortek Holdings’ Senior Discount Notes (approximately $376,500,000
      of accreted principal as of August 27, 2004) and recorded a pre-tax loss from
      debt retirement of approximately $67,030,000 in the period from January 1,
      2004
      to August 27, 2004.





Descriptions
      of material contingencies, significant provisions of long-term debt obligations
      and commitments of NTK Holdings and its subsidiaries are included in Notes
      1, 2,
      6 and 9 of the Notes to the NTK Holdings, Inc. and Subsidiaries Consolidated
      Financial Statements, which are incorporated herein by reference, including
      information related to debt issued and repaid in connection with the
      Acquisition.








**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**SCHEDULE
      II**


**VALUATION
      AND QUALIFYING ACCOUNTS**




**Balance
                  at**
              
              
              
              **Charge
                  to**
              
              **Deduction**
              
              **Balance
                  at****Beginning**
              
              **Charged
                  to Cost**
              
              **Other**
              
              **from**
              
              **End
                  of****of
                  Year**
              
              **and
                  Expense**
              
              **Accounts**
              
              **Reserves**
              
              **Year***(Amounts
                  in thousands)***Classification****For
                  the year-ended December 31, 2003**Allowance
                  for doubtful accounts and sales allowances
              
              $
              5,968
              
              $
              3,397
              
              $
              711
                  (b
              )
              $
              (4,265)
                  (a
              )
              $
              5,811**For
                  the year-ended December 31, 2004**Allowance
                  for doubtful accounts and sales allowances
              
              $
              5,811
              
              $
              1,573
              
              $
              509
                  (b
              )
              $
              (2,426)
                  (a
              )
              $
              5,467**For
                  the year-ended December 31, 2005**Allowance
                  for doubtful accounts and sales allowances
              
              $
              5,467
              
              $
              2,888
              
              $
              1,130
                  (b
              )
              $
              (2,903)
                  (a
              )
              $
              6,582
 
 (a)
              Amounts
                  written off, net of recoveries
 (b)
              Other,
                  including acquisitions




**EXHIBIT
      INDEX**


Exhibits
      marked with an asterisk (*) are filed herewith. The remainder of the exhibits
      has heretofore been filed with the Commission and is incorporated herein by
      reference. Exhibits marked with a double asterisk (**) identify each management
      contract or compensatory plan or arrangement.





2.1
            Stock
                Purchase Agreement among CI Investment Holdings, Inc., Nortek, Inc.
                and
                WDS LLC dated as of December 19, 2003 (Exhibit 2.1 to Nortek Form
                8-K
                filed December 22, 2003).2.2
            Stock
                Purchase Agreement among Kelso Investment Associates VI, L.P., the
                other
                sellers named therein, THL Buildco Holdings, Inc. and THL Buildco,
                Inc.
                dated as of July 15, 2004 (Exhibit 2.1 to Nortek Form 8-K filed July
                16,
                2004).2.3
            Amendment
                No. 1 to Stock Purchase Agreement by and among Kelso & Company, L.P.,
                Third party Stockholders, Richard L. Bready, as the Management
                Representative on behalf of the Management Stockholders and the Option
                Sellers, and THL Buildco, Inc. dated August 27, 2004 (Exhibit 10.1
                to
                Nortek Form 8-K filed September 1, 2004).2.4
            THL
                Buildco, Inc. and Nortek, Inc. $625,000,000 8 1⁄2% Senior Subordinated Notes
                due 2014 Purchase Agreement dated August 12, 2004 by and among Initial
                Issuer and the Initial Purchasers (Exhibit 2.9 for Nortek Form S-4
                filed
                October 22, 2004).2.5
            Purchase
                Agreement, dated as of February 10, 2005 (Exhibit 2.10 to NTK Holdings
                S-4
                filed July 5, 2005).3.1
            Amended
                and Restated Certificate of Incorporation of Nortek, Inc. (Exhibit
                3.1 for
                Nortek Form S-4 filed October 22, 2004).3.2
            By-Laws
                of Nortek, Inc. (Exhibit 3.2 to Nortek Form S-4 filed October 22,
                2004).3.3
            Certificate
                of Incorporation of NTK Holdings (Exhibit 3.1 to NTK Holdings S-4
                filed
                July 5, 2005).3.4
            By-Laws
                of NTK Holdings, Inc. (Exhibit 3.2 to NTK Holdings S-4 filed July
                5,
                2005).4.1
            Indenture
                dated as of June 12, 2001 between Nortek, Inc. and State Street Bank
                and
                Trust Company, as Trustee, relating to the 9 7/8% Senior Subordinated
                Notes due 2011 (Exhibit 4.1 to Nortek Registration Statement No.
                333-64120
                filed July 11, 2001).4.2
            Indenture
                dated as of August 27, 2004 between THL Buildco, Inc., Guarantors
                named
                therein and U.S. Bank National Association, relating to the 8 1⁄2% Senior
                Subordinated Notes due 2014 (Exhibit 4.1 to Nortek Form 8-K filed
                September 1 2004).





4.3
            First
                Supplemental Indenture dated as of August 5, 2004 between Nortek,
                Inc. and
                U.S. Bank National Association as the successor in interest to State
                Street Bank and Trust Company, as Trustee under the Indenture dated
                June
                12, 2001 (Exhibit 4.3 to Nortek Form S-4 filed October 22,
                2004).4.4
            Registration
                Rights Agreement dated as of August 27, 2004 by and among THL Buildco,
                Inc., Nortek, Inc., the Guarantors and UBS Securities LLC and Credit
                Suisse First Boston LLC, Banc of America Securities LLC, Bear, Stearns
                & Co. Inc., and Sovereign Securities Corporation, LLC as Initial
                Purchasers of 8 1⁄2% Senior Subordinated Notes due 2014 (Exhibit 4.1 to
                Nortek Form 8-K filed September 1, 2004).4.5
            Indenture
                dated as of February 15, 2005 between NTK Holdings, Inc. and U.S.
                Bank
                National Association relating to the 103⁄4% Senior Discount Notes due 2014
                (Exhibit 4.5 to NTK Holdings S-4 filed July 5, 2005).4.6
            Registration
                Rights Agreement dated as of February 15, 2005 by and among NTK Holdings,
                Inc. and Credit Suisse First Boston LLC, as Representative and Banc
                of
                America Securities LLC and UBS Securities LLC as Initial Purchasers
                for
                the 103⁄4% Senior Discount Notes due 2014 (Exhibit 4.6 to NTK Holdings S-4
                filed July 5, 2005).**
            10.1
            Form
                of Indemnification Agreement between Nortek, Inc. and its directors
                and
                certain officers (Appendix C to Nortek Proxy Statement dated March
                23,
                1987 for Annual Meeting of Nortek Stockholders, File No.
                1-6112).**
            10.2
            Nortek,
                Inc. Supplemental Executive Retirement Plan C, dated December 18,
                2003
                (Exhibit 10.23 to Nortek Form 10-K filed March 30,
                2004).**
            10.3
            Amended
                and Restated Employment Agreement of Richard L. Bready, dated as
                of August
                27, 2004 (Exhibit 10.2 to Nortek Form 8-K filed September 1,
                2004).**
            10.4
            Amended
                and Restated Employment Agreement of Almon C. Hall, III, dated as
                of
                August 27, 2004 (Exhibit 10.3 to Nortek Form 8-K filed September
                1,
                2004).**
            10.5
            Amended
                and Restated Employment Agreement of Kevin W. Donnelly, dated as
                of August
                27, 2004 (Exhibit 10.4 to Nortek Form 8-K filed September 1,
                2004).10.6
            Consulting
                Agreement with David B. Hiley, dated as of August 27, 2004 (Exhibit
                10.5
                to Nortek Form 8-K filed September 1, 2004).10.7
            Nortek,
                Inc. Second Amended and Restated Change in Control Severance Benefit
                Plan
                for Key Employees and dated August 27, 2004 (Exhibit 10.7 to Nortek
                From
                8-K filed September 1, 2004).10.8
            Deferred
              Compensation Plan of Nortek Holdings, Inc. dated August 27, 2004 (Exhibit
              10.8 to Nortek Form 8-K filed September 1, 2004).10.9
            Management
              Agreement among Nortek Holdings, Inc., Nortek, Inc. and THL Managers
              V,
              LLC dated August 27, 2004 (Exhibit 10.9 to Nortek From 8-K filed September
              1, 2004).10.10
            Credit
                Agreement dated August 27, 2004 among Nortek, Inc., Nortek Holdings,
                Inc.
                (f/k/a THL Buildco, Inc., THL Buildco Holdings, Inc.), UBS AG, Stamford
                Branch, UBS AG Canada Branch, Bank of America N.A., Bank of America
                N.A.
                (Canada Branch), and certain other Lenders Party thereto (Exhibit
                10.10 to
                Nortek Form 8-K filed September 1, 2004).**
            10.11
            First
                Amendment to Nortek, Inc. Supplemental Executive Retirement Plan
                C, dated
                December 6, 2004. (Exhibit 10.12 to Nortek Form 10-K filed March
                29,
                2005).10.12
            Brian Kelln
              Employment Offer Letter dated May 19, 2005 (Exhibit 99 to Nortek Form
              8-K
              filed June 6, 2005).10.13
            Amendment
                No. 1, dated as of March 29, 2005, to Credit Agreement dated August
                27,
                2004 among Nortek, Inc., Nortek Holdings, Inc. (f/k/a THL Buildco,
                Inc.,
                THL Buildco Holdings, Inc.), UBS AG, Stamford Branch, UBS AG Canada
                Branch, Bank of America N.A., Bank of America N.A. (Canada Branch),
                and
                certain other Lenders Party thereto (Exhibit 10.15 to NTK Holdings,
                Inc.
                S-4 filed July 5, 2005).**
            10.14
            Limited
                Liability Company Agreement of THL-Nortek Investors, LLC dated as
                of
                August 27, 2004. (Exhibit 10.14 to Nortek Form 10-K filed March 9,
                2006).**
            10.15
            First
                Amendment to Limited Liability Company Agreement of THL-Nortek Investors,
                LLC dated as of February 10, 2005. (Exhibit 10.15 to Nortek Form
                10-K
                filed March 9, 2006).10.16
            Amendment
                No. 1 to Management Agreement among Nortek Holdings, Inc., Nortek,
                Inc.
                and THL Managers V, LLC dated February 10, 2005. (Exhibit 10.16 to
                Nortek
                Form 10-K filed March 9, 2006).*
            14.1
            Code of
              Ethics.*
            21.1
            List
                of subsidiaries.*
            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
            Section
                1350 Certification.*
            32.2
            Section
              1350
              Certification.