**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, 2006**





OR





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


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      transition period from __________ to __________


Commission
      file number: 333-133866





**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
      [X]  No
      [_]





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
      [_]  No
      [X]





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 30, 2007 was
      3,000.








NTK
      HOLDINGS, INC. AND SUBSIDIARIES


December
      31, 2006


**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
        leading diversified manufacturer of innovative, branded residential and
        commercial products, operating within three reporting segments:
 
 ·
            the
                Residential Ventilation Products, or RVP,
                segment, 
 ·
            the
                Home
                Technology Products, or HTP, segment, and 
 ·
            the
                Air
                Conditioning and Heating Products, or HVAC,
                segment. 
 Through
        these
        segments, the Company manufactures and sells, primarily in the United States,
        Canada and Europe, a wide variety of products for the professional remodeling
        and replacement markets, the residential and commercial construction markets,
        the manufactured housing market and the do-it-yourself, or DIY,
        market.
 
 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.
 
 **Our
        Business Segments**
 
 ***Residential
        Ventilation Products Segment***
 
 The
        Company’s
        Residential Ventilation Products segment primarily manufactures and distributes
        room and whole house ventilation products and other products primarily for
        the
        professional remodeling and replacement markets, residential new construction
        market and DIY market. The principal products of the segment, which are sold
        under the Broan®, NuTone®, Venmar®, Best® and Zephyr® 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
        Company is one
        of the world’s largest suppliers of residential range hoods and exhaust fans,
        and is the largest supplier of these products in North America. The Company
        is
        also one of the leading suppliers in Europe of luxury “Eurostyle” range hoods.
        The Company’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 the Company offers are primarily
        used in bathrooms to remove odors and humidity and include combination units,
        which may have lights, heaters or both. The Company’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 Home Ventilating
        Institute in the United States certifies the Company’s range hood and exhaust
        fan products, as well as its indoor air quality products.
 
 The
        Company’s sales
        of kitchen range hoods and exhaust fans accounted for approximately 15.9%
        and
        13.0%, respectively, of the Company’s consolidated net sales in 2006, 15.9% and
        14.7%, respectively, of the Company’s consolidated net sales in 2005 and 18.6%
        and 17.0%, respectively, of the Company’s consolidated net sales in
        2004.
 
 The
        Company is one
        of the largest suppliers in North America of indoor air quality products,
        which
        include air exchangers, as well as 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 Company also sells powered attic ventilators, which alleviate
        heat build up in attic areas and reduce 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
        Company sells
        other products in this segment, including among others, door chimes, medicine
        cabinets, trash compactors, ceiling fans and central vacuum systems, by
        leveraging its strong brand names and distribution network.
 
 The
        Company sells
        the products in its RVP segment 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®, Best® and Zephyr®
brand names, among others. Private label customers accounted for approximately
        24.3% of the net sales of this segment in 2006.
 
 A
        key component of
        the Company’s operating strategy for this segment 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 its
        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 its status as a low-cost producer provides the
        segment
        with a competitive advantage.
 
 The
        Company’s
        primary residential ventilation products compete with many domestic and
        international suppliers in various markets. The Company competes with suppliers
        of competitive products primarily on the basis of quality, distribution,
        delivery and price. Although the Company believes it competes favorably with
        other suppliers of residential ventilation products, some of the Company’s
        competitors have greater financial and marketing resources than this segment
        of
        the Company’s business.
 
 Product
        manufacturing in the RVP segment 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.
 
 The
        Company’s RVP
        segment had 13 manufacturing plants and employed approximately 3,100 full-time
        people as of December 31, 2006, of which approximately 300 are covered by
        collective bargaining agreements which expire in 2007 and approximately 100
        are
        covered by collective bargaining agreements which expire in 2008. See
“Employees” for more information regarding the Company’s collective bargaining
        agreement which expired in 2005.
 
 ***Home
        Technology Products Segment***
 
 The
        Company’s Home
        Technology Products segment manufactures and distributes a broad array of
        products designed to provide convenience and security for residential and
        light
        commercial applications. The principal products the Company sells in this
        segment are:
 
 ·
            audio/video
                distribution and control equipment, ·
            speakers
                and
                subwoofers, ·
            security
                and
                access control products, ·
            power
                conditioners and surge protectors, ·
            audio/video
                wall mounts and fixtures, ·
            lighting
                controls, 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
        Channel Plus® 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 and contacts,
        keypads and telephone entry systems. These products are sold under the Linear®,
        GTO/PRO®, Mighty Mule®, OSCO® and other private label brand names, as well as
        Westinghouse®, which is licensed.
 
 Other
        products in
        this segment include power conditioners and surge protectors sold under the
        Panamax® and Furman® brand names, audio/video wall mounts and fixtures sold
        under the OmniMount® brand name, structured wiring products sold under the
        OpenHouse® and Channel Plus® brand names, audio/video products distributing,
        extending and converting signals to multiple display screens under the MagentaTM
and Gefen® brand names, radio frequency control products and accessories sold
        under the iJet® brand name for use with Apple’s iPod® brand products and
        lighting control products sold under the Litetouch® brand name (which was
        acquired in 2007).
 
 The
        Company sells
        the products in its HTP segment to distributors, professional installers,
        electronics retailers and original equipment manufacturers. The majority
        of the
        sales in this segment are driven by demand factors other than new construction
        such as replacement applications, new installations in existing properties
        and
        the purchases of high-priced audio/video equipment such as flat panel
        televisions and displays. Therefore, this 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’ security concerns.
 
 A
        key component to
        the Company’s growth of this segment has been strategic acquisitions of
        companies with similar or complementary products and distribution channel
        strengths. There have been 13 acquisitions within the segment since December
        31,
        2003. 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 widely-recognized brand names with various
        features and price points, which the Company believes allows it to expand
        its
        distribution in the professional installation and retail markets. Another
        key
        component of the Company’s operating strategy is the introduction of new
        products and innovations, which capitalize on the Company’s 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 Duchossois Industries, Inc.).
        The
        segment competes with suppliers of competitive products primarily on the
        basis
        of quality, distribution, delivery and price. Although the Company believes
        it
        competes favorably with other suppliers of home technology products, some
        of the
        Company’s competitors have greater financial and marketing resources than this
        segment of the Company’s business.
 
 The
        Company has
        several administrative and distribution facilities in the United States in
        this
        segment and a significant amount of its products are manufactured in
        its facility located in China. In addition, certain products are sourced
        from
        low cost Asian suppliers based on our specifications. The Company believes
        that
        its Asian operations provide the Company with a competitive cost
        advantage.
 
 The
        Company’s HTP
        segment had 6 manufacturing plants and employed approximately 2,400 full-time
        people as of December 31, 2006. The Company believes that its relationships
        with
        its employees in this segment are satisfactory.
 
 ***Air
        Conditioning and Heating Products Segment***
 
 The
        Company’s 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 applications.
 
 *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. 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®
as well as several private label names. Within the residential market, the
        Company is one of the largest suppliers of HVAC 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. The market for residential cooling products, including those
        the
        segment sells into, 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 its ability to offer both heating and cooling products
        helps offset the effects of seasonality on this 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, or 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 it has one major competitor
        in the manufactured housing furnace market, York International Corporation
        (a
        subsidiary of Johnson Controls, Inc.) which markets its products primarily
        under
        the “Coleman” name. The segment competes with most major industry manufacturers
        in the manufactured housing air conditioning market.
 
 The
        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 between approximately 55% and 60% of this segment’s sales of
        residential HVAC products in 2006 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 it competes favorably with respect
        to
        certain of these factors, most of the segment’s competitors have greater
        financial and marketing resources and the products of certain competitors
        may
        enjoy greater brand awareness than the Company’s residential HVAC
        products.
 
 *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, clean rooms and governmental buildings. These 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 tons to 600 tons. The segment markets
        its commercial HVAC products under the Governair®, Mammoth®, Temtrol®, Venmar
        CESTM, Ventrol®, WebcoTM, Huntair® and CleanpakTM brand names. The Company’s
        subsidiary, Eaton-Williams Group Limited, 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,
        such as
        the Company. 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,
        clean rooms 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 its custom-designed equipment.
 
 The
        Company
        estimates that between approximately 30% and 35% of its air conditioning
        and
        heating product commercial sales in 2006 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 HVAC products are marketed through independently owned manufacturers’
representatives and approximately 327 sales, marketing and engineering
        professionals as of December 31, 2006. 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 it competes.
 
 The
        Company
        believes that it 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 it competes favorably with respect to some of these
        factors, most of its competitors have greater financial and marketing resources
        than this segment of the Company’s business and enjoy greater brand awareness.
        However, the Company believes that its 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
        Company’s HVAC
        segment had 18 manufacturing plants and employed approximately 4,300 full-time
        people as of December 31, 2006, of which approximately 100 are covered by
        collective bargaining agreements which expire in 2007 and approximately 100
        are
        covered by collective bargaining agreements which expire in 2008. The Company
        believes that its relationships with its employees in this segment are
        satisfactory.
  **Backlog**
 
 Backlog
        expected to
        be filled within the next twelve months as of December 31, 2006 was
        approximately $275.8 million and was approximately $228.1 million as of December
        31, 2005. The increase in backlog from December 31, 2005 to December 31,
        2006
        primarily reflects an increase of backlog related to commercial HVAC customers
        of approximately $106.1 million (including approximately $57.9 million from
        acquisitions), partially offset by a reduction in the backlog for residential
        HVAC cooling products.
 
 Backlog
        is not
        regarded as a significant factor for operations where orders are generally
        for
        prompt delivery. While backlog stated for all periods 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, and therefore there can be no assurance that the
        Company’s backlog will result in actual revenues.
 
 **Raw
        Materials**
 
 The
        Company
        purchases raw materials and most components used in its various manufacturing
        processes. The principal raw materials the Company purchases 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 Company believes
        that the use of these 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.
 
 The
        Company has
        certain sole-source suppliers in Italy and Poland that are currently
        experiencing financial difficulty. See “Risk Factors” included elsewhere
        herein.
 
 **Research
        and Development**
 
 The
        Company’s
        research and development activities are principally new product development
        and
        represent approximately 2.0%, 1.9% and 1.7% of the Company’s consolidated net
        sales in 2006, 2005 and 2004, respectively.
 
 **Trademarks
        and Patents**
 
 The
        Company owns or
        licenses numerous trademarks that it uses in the marketing of its products.
        Certain of the trademarks the Company owns, including Broan® and NuTone®, are
        particularly important in the marketing of its products. The Company also
        holds
        numerous design and process patents, but no single patent is material to
        the
        overall conduct of the Company’s business. It is the Company’s policy to obtain
        and protect patents whenever such action would be beneficial to it.
 
 **Environmental
        and Regulatory Matters**
 
 The
        Company is
        subject to numerous federal, state, local and foreign laws and regulations,
        relating to protection of the environment, including those that impose
        limitations on the discharge of pollutants into the air and water, establish
        standards for the use, treatment, storage and disposal of solid and hazardous
        materials and wastes and govern the cleanup of contaminated sites. 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 currently or formerly owned or operated
        by
        such companies or 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 materials or wastes. Expenditures in 2006, 2005 and 2004 to evaluate
        and remediate such sites were not material. While the Company is able to
        reasonably estimate its losses, the Company is unable to estimate with certainty
        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 current or future environmental
        regulations, (ii) the Company’s lack of information about additional sites to
        which it may be listed as a potentially responsible party, or 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 may be joint and several, each PRP is potentially wholly liable
        for
        other PRPs that become insolvent or bankrupt. Thus, the solvency of other
        PRPs
        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.
 
 The
        Company’s HVAC
        products must be designed and manufactured to meet various regulatory standards.
        The United States and other countries have implemented a protocol on
        ozone-depleting substances that limits its ability to use HCFCs, a refrigerant
        used in air conditioning and heat pump products. In addition, the Company’s
        residential HVAC products are subject to federal minimum efficiency standards,
        which increased to 13 SEER in 2006. The Company’s residential HVAC products for
        manufactured housing include furnaces which must be designed and engineered
        to
        meet certain standards required by the U.S. Department of Housing and Urban
        Development and other federal agencies. The Company must continue to improve
        its
        products to meet these and other applicable standards as they develop and
        become
        more stringent over time.
 
 **Employees**
 
 The
        Company
        employed approximately 9,800 full time persons as of December 31,
        2006.
 
 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
        or losses or the recognition of an asset impairment. As agreements expire
        and
        until negotiations are completed, the Company does not know whether it 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.
 
 On
        June 8, 2005,
        the Company's collective bargaining agreement with the United Automobile
        Aerospace & Agricultural Implement Workers of America and its Local No. 2029
        expired. That bargaining unit covered approximately 4.4% of the Company's
        employees (414 employees), which were located at the Cincinnati, OH location
        of
        the Company's subsidiary NuTone. On or about June 8, 2005, the Company presented
        its final proposal to the union bargaining committee but such proposal was
        not
        accepted by the union members. On July 16, 2005, the Company locked out the
        union employees at the NuTone Cincinnati, OH facility. On September 6, 2005,
        the
        Company notified the union bargaining committee that negotiations had reached
        an
        impasse and that it was unilaterally implementing the terms of its final
        offer.
        Among other things, this implemented final offer does not provide the NuTone
        union members with post retirement medical and life insurance benefits. In
        late
        June 2006, the Company informed the union that the Company would close the
        manufacturing operations at the Cincinnati, OH facility on or about August
        30,
        2006. NuTone’s operating results are included in the RVP segment.
 
 On
        July 27, 2006
        the union members ratified a Closedown Agreement providing for the closedown
        and
        permanent layoff of all bargaining unit employees employed at the NuTone
        plant
        effective August 30, 2006, and the release by the union of any claims it
        may
        have against the Company. In 2007, the Company expects to record additional
        restructuring expenses of approximately $2.1 million as it completes the
        closedown of this facility.
 
 **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 dependent upon the levels of remodeling and replacement
        activity and new construction activity and could be hurt by economic
        downturns.***
 
 Critical
        factors in
        the level of the Company’s sales, profitability and cash flows are the levels of
        residential remodeling and replacement activity and new residential and
        non-residential construction activity. The level of new residential and
        non-residential construction activity and, to a lesser extent, the level
        of
        residential remodeling and replacement activity are affected by seasonality
        and
        cyclical factors such as interest rates, inflation, consumer spending habits,
        employment levels and other macroeconomic factors, over which the Company
        has no
        control. Any decline in economic activity as a result of these or other factors
        typically results in a decline in new construction and, to a lesser extent,
        residential remodeling and replacement purchases, which would result in a
        decrease in the Company’s sales, profitability and cash flows. For example,
        reduced levels of home sales and housing starts and other softening in the
        housing markets in 2006 negatively affected the Company’s results of operations
        over the second half of 2006 and these factors are expected to continue to
        negatively affect the Company’s results of operations in 2007.
 
 ***Fluctuations
        in the cost or availability of raw materials and components and increases
        in
        freight and other costs could have an adverse effect on the Company’s
        business.***
 
 The
        Company is
        dependent upon raw materials and purchased components, including, among others,
        steel, motors, compressors, copper, packaging material, aluminum, plastics,
        glass and various chemicals and paints that it purchases from third parties.
        As
        a result, the Company’s results of operations, cash flows and financial
        condition may be adversely affected by increases in costs of raw materials
        or
        components, or in limited availability of raw materials or components. The
        Company does not typically enter into long-term supply contracts for raw
        materials and components. In addition, the Company generally does not hedge
        against its supply requirements. Accordingly, the Company may not be able
        to
        obtain raw materials and components from its current or alternative suppliers
        at
        reasonable prices in the future, or may not be able to obtain raw materials
        and
        components on the scale and within the time frames the Company requires.
        Further, if the Company’s suppliers are unable to meet the Company’s supply
        requirements, the Company could experience supply interruptions and/or costs
        increases which (to the extent the Company was unable to find alternate
        suppliers or pass along these additional costs to its customers) could adversely
        affect the Company’s results of operations, cash flows and financial
        condition.
 
 For
        example, during
        2004, 2005 and 2006, the Company experienced significant increases in the
        prices
        it paid for steel, copper, aluminum and steel fabricated parts. In addition,
        the
        Company has experienced and may continue to experience an increase in freight
        and other costs due to rising oil and other energy prices. While the Company
        was
        able to offset a portion of these cost increases in these periods by raising
        prices to its customers for some products, as well as through strategic sourcing
        initiatives and improvements in manufacturing efficiency, there can be no
        assurance that the Company will be able to offset all material cost increases
        in
        2007 or in any future periods.
 
 ***The
        availability of certain raw materials and component parts from sole or limited
        sources of supply may have an adverse effect on the Company’s
        business.***
 
 Sources
        of raw
        materials or component parts for certain of the Company’s operations may be
        dependent upon limited or sole sources of supply which may impact the Company’s
        ability to manufacture finished product. While the Company continually reviews
        alternative sources of supply, there can be no assurance that the Company
        will
        not face disruptions in sources of supply which could adversely affect the
        Company’s results of operations, cash flows and financial position.
 
 Certain
        sole source
        suppliers of various fabricated material components and sub-assemblies
        (“material components”) to the Company’s kitchen range hood subsidiaries based
        in Italy and Poland experienced financial difficulties in January 2007. The
        Company is working and will continue to work closely with these suppliers
        to
        help them in meeting the supply needs of these subsidiaries for the foreseeable
        future. The Company has not experienced any significant difficulties in its
        production or shipments to its customers as a result of these suppliers’
difficulties in maintaining its production as of March 30, 2007. However,
        there
        can be no assurance that the Company will be able to continue to prevent
        a
        disruption in the supply of such material components or be able to find
        alternative suppliers. Should these suppliers be unable to continue in operation
        and the Company is unable to find alternative suppliers for a lengthy period
        of
        time, the Company could experience a material adverse effect on its operations.
        These subsidiaries based in Italy and Poland accounted for approximately
        7% of
        the Company’s consolidated net sales and 5%, before the loss described below, of
        consolidated operating earnings for the year ended December 31, 2006 and
        accounted for approximately 7% of the Company’s consolidated net sales and 4% of
        consolidated operating earnings for the year ended December 31, 2005 and
        approximately 6.5% and 6.2% of consolidated assets at December 31, 2006 and
        2005, respectively. The Company recorded approximately $16.0 million of
        estimated losses in the RVP segment in the fourth quarter of 2006 in selling,
        general and administrative expense, net resulting from the unlikelihood that
        these suppliers will be able to repay advances from our subsidiaries based
        in
        Italy and Poland and amounts due under other arrangements. While the Company
        has
        recorded its best estimate of the losses related to these suppliers, the
        actual
        losses may be different than the amounts recorded at December 31,
        2006.
 
 ***Weather
        fluctuations may negatively impact the Company’s
        business.***
 
 Weather
        fluctuations may adversely affect the Company’s operating results and its
        ability to maintain sales volume. In the Company’s HVAC segment, operations may
        be adversely affected by unseasonably warm weather in the months of November
        to
        February and unseasonably cool weather in the months of May to August, which
        has
        the effect of diminishing customer demand for heating and air conditioning
        products. In all of the Company’s segments, adverse weather conditions at any
        time of the year may negatively affect overall levels of new construction
        and
        remodeling and replacement activity, which in turn may lead to a decrease
        in
        sales. Many of the Company’s operating expenses are fixed and cannot be reduced
        during periods of decreased demand for its products. Accordingly, the Company’s
        results of operations and cash flows will be negatively impacted in quarters
        with lower sales due to weather fluctuations.
 
 ***If
        the
        Company fails to identify suitable acquisition candidates, or 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, and those
        acquisitions have contributed significantly to the Company’s growth in sales and
        profitability, particularly in the HTP segment. The Company believes that
        acquisitions will continue to be a key component of its growth strategy.
        However, the Company cannot assure that it will continue to locate and secure
        acquisition candidates on terms and conditions that are acceptable to the
        Company. If the Company is unable to identify attractive acquisition candidates,
        its growth, particularly in the HTP segment, could be impaired.
 
 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
                difficulties and expense of developing, implementing and monitoring
                systems of internal controls at acquired companies, including disclosure
                controls and procedures and internal controls over financial
                reporting, ·
            the
                difficulty in operating acquired
                businesses, ·
            the
                diversion
                of management's attention from the Company’s other business
                concerns, ·
            the
                potential
                loss of customers or key employees of acquired
                companies, ·
            the
                impact on
                the Company’s financial condition due to the timing of the acquisition or
                the failure to meet operating expectations for the acquired business,
                and ·
            the
                assumption of unknown liabilities of the acquired
                company. 
 The
        Company cannot
        assure that any acquisition it has made or may make will be successfully
        integrated into the Company’s on-going operations or that the Company will
        achieve any expected cost savings from any acquisition. If the operations
        of an
        acquired business do not meet expectations, the Company’s profitability and cash
        flows may be impaired and 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 its
        business.***
 
 The
        Company’s RVP
        and HTP segments compete with many domestic and international suppliers in
        various markets. The Company competes with suppliers of competitive products
        primarily on the basis of quality, distribution, delivery and price. Some
        of the
        Company’s competitors in these markets have greater financial and marketing
        resources than the Company does.
 
 In
        the HVAC
        segment, the Company’s residential HVAC products compete in both the site-built
        and manufactured housing markets on the basis of breadth and quality of product
        line, distribution, product availability and price. Most of the Company’s
        residential HVAC competitors have greater financial and marketing resources
        and
        the products of certain of the Company’s competitors may enjoy greater brand
        awareness than the Company’s residential HVAC products. The Company’s commercial
        HVAC products compete primarily on the basis of engineering support, quality,
        design and construction flexibility and total installed system cost. Most
        of the
        Company’s competitors in the commercial HVAC market have greater financial and
        marketing resources and enjoy greater brand awareness than the Company
        does.
 
 Competitive
        factors
        could require the Company to reduce prices or increase spending on product
        development, marketing and sales, either of which could adversely affect
        its
        operating results.
 
 ***Fluctuations
        in currency exchange rates could adversely affect the Company’s revenues,
        profitability and cash flows.***
 
 The
        Company’s
        foreign operations expose the Company to fluctuations in currency exchange
        rates
        and currency devaluations. The Company reports its financial results in U.S.
        dollars, but a portion of its sales and expenses are denominated in Euros
        and
        other currencies. As a result, changes in the relative values of U.S. dollars,
        Euros and other currencies will affect the Company’s levels of revenues and
        profitability. If the value of the U.S. dollar increases relative to the
        value
        of the Euro and other currencies, the Company’s levels of revenue and
        profitability will decline since the translation of a certain number of Euros
        or
        units of such other currencies into U.S. dollars for financial reporting
        purposes will represent fewer U.S. dollars. In addition, in the case of sales
        to
        customers in certain locations, the Company’s sales are denominated in U.S.
        dollars or Euros but all or a substantial portion of the Company’s associated
        costs are denominated in a different currency. As a result, changes in the
        relative values of U.S. dollars, Euros and any such different currency will
        affect the Company’s profitability and cash flows.
 
 ***Because
        the Company has substantial operations outside the United States, the Company
        is
        subject to the economic and political conditions of foreign
        nations.***
 
 The
        Company has
        manufacturing facilities in several countries outside of the United States.
        In
        2006, the Company sold products in approximately 100 countries other than
        the
        United States. Foreign net sales, which are attributed based upon the location
        of the Company’s subsidiary responsible for the sale, were approximately 18.5%
        and 19.5% of consolidated net sales for the years ended December 31, 2005
        and
        2006, respectively. The Company’s foreign operations are subject to a number of
        risks and uncertainties, including risks that:
 
 ·
            foreign
                governments may impose limitations on the Company’s ability to repatriate
                funds, ·
            foreign
                governments may impose withholding or other taxes on remittances
                and other
                payments to the Company, or the amount of any such taxes may
                increase, ·
            an
                outbreak
                or escalation of any insurrection, armed conflict or act of terrorism,
                or
                another form of political instability, may
                occur, ·
            natural
                disasters may occur, and local governments may have difficulties
                in
                responding to these events, ·
            foreign
                governments may nationalize foreign assets or engage in other forms
                of
                government protectionism, ·
            foreign
                governments may impose or increase investment barriers, customs or
                tariffs
                or other restrictions affecting the Company’s business,
                and ·
            development,
                implementation and monitoring of systems of internal controls of
                the
                Company’s international operations, including disclosure controls and
                procedures and internal controls over financial reporting, may be
                difficult and expensive. 
 The
        occurrence of
        any of these conditions could disrupt the Company’s business in particular
        countries or regions of the world, or prevent the Company from conducting
        business in particular countries or regions, which could reduce sales and
        adversely affect profitability. In addition, the Company relies on dividends
        and
        other payments or distributions from its subsidiaries to meet its debt
        obligations. If foreign governments impose limitations on the Company’s ability
        to repatriate funds or impose or increase taxes on remittances or other payments
        to the Company, the amount of dividends and other distributions the Company
        receives from its subsidiaries could be reduced, which could reduce the amount
        of cash available to the Company to meet its debt obligations.
 
 ***Varying
        international business practices.***
 
 The
        Company
        currently purchases raw materials, components and finished products from
        various
        foreign suppliers. To the
        extent that any
        such foreign supplier utilizes labor or other practices that vary from those
        commonly accepted in the United States, the Company’s business and reputation
        could be adversely affected by any resulting litigation, negative publicity,
        political pressure or otherwise.
 
 ***A
        decline in the Company’s relations with its key distributors and dealers or loss
        of major customers may negatively impact the Company’s
        business.***
 
 The
        Company’s
        operations depend upon its ability to maintain relations with its independent
        distributors and dealers and the Company does not typically enter into long-term
        contracts with them. If the Company’s key distributors or dealers are unwilling
        to continue to sell the Company’s products or if any of them merge with or are
        purchased by a competitor, the Company could experience a decline in sales.
        If
        the Company is unable to replace such distributors or dealers or otherwise
        replace the resulting loss of sales, the Company’s business, results of
        operations and cash flows could be adversely affected. For the year ended
        December 31, 2006, approximately 54% of the Company’s consolidated net sales
        were made through its independent distributors and dealers, and the Company’s
        largest distributor or dealer accounted for approximately 5.1% of consolidated
        net sales for the year ended December 31, 2006.
 
 In
        addition, the
        loss of one or more of the Company’s other major customers, or a substantial
        decrease in such customers' purchases from the Company, could have a material
        adverse effect on results of operations and cash flows. Because the Company
        does
        not generally have binding long-term purchasing agreements with its customers,
        there can be no assurance that the Company’s existing customers will continue to
        purchase products from the Company. The Company’s largest customer (other than a
        distributor or dealer) accounted for approximately 4.6% of consolidated net
        sales for the year ended December 31, 2006.
 
 ***Labor
        disruptions or cost increases could adversely affect the Company’s
        business.***
 
 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 employment terms (including the collective bargaining agreements
        affecting the Company’s unionized employees) could result in material gains or
        losses or the recognition of an asset impairment. As collective bargaining
        agreements expire and 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 without
        production interruptions, including labor stoppages. Currently, approximately
        6.7% of the Company’s employees are unionized, and from time to time the Company
        experiences union organizing efforts directed at the Company’s non-union
        employees. The Company may also experience labor cost increases or disruptions
        in its non-union facilities in circumstances where the Company must compete
        for
        employees with necessary skills and experience or in tight labor
        markets.
 
 ***The
        Company must continue to innovate and improve its products to maintain its
        competitive advantage.***
 
 The
        Company’s
        ability to maintain and grow its market shares depends on the ability to
        continue to develop high quality, innovative products. An important part
        of the
        Company’s competitive strategy includes leveraging its distributor and dealer
        relationships and its existing brands to introduce new products. In addition,
        some of the Company’s HVAC products are subject to federal minimum efficiency
        standards and/or protocols concerning the use of ozone-depleting substances
        that
        have and are expected to continue to become more stringent over time. The
        Company cannot assure that its investments in product innovation and
        technological development will be sufficient or that it will be able to create
        and market new products to enable the Company to successfully compete with
        new
        products or technologies developed by the Company’s competitors or meet
        heightened regulatory requirements in the future.
 
 ***The
        Company could incur substantial costs, including cleanup costs, fines and
        civil
        or criminal sanctions, as a result of violations of or liabilities under
        environmental laws.***
 
 The
        Company’s
        operations are subject to numerous federal, state, local and foreign laws
        and
        regulations relating to protection of the environment, including those that
        impose limitations on the discharge of pollutants into the air and water,
        establish standards for the use, treatment, storage and disposal of solid
        and
        hazardous materials and wastes and govern the cleanup of contaminated sites.
        The
        Company has used and continues to use various substances in its products
        and
        manufacturing operations, and has generated and continues to generate wastes,
        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. These laws and regulations affect ongoing
        operations and require capital costs and operating expenditures in order
        to
        achieve and maintain compliance. For example, the United States and other
        countries have established programs for limiting the production, importation
        and
        use of certain ozone depleting chemicals, including hydrochlorofluorocarbons,
        or
        HCFCs, a refrigerant used in the Company’s air conditioning and heat pump
        products. Some of these chemicals have been banned completely, and others
        are
        currently scheduled to be phased out in the United States by the year 2010.
        Modifications to the design of the Company’s products may be necessary in order
        to utilize alternative refrigerants.
 
 In
        addition, the
        Company could incur substantial costs, including cleanup costs, fines and
        civil
        or criminal sanctions, and third party property damage or personal injury
        claims, as a result of violations of or liabilities under environmental laws
        or
        non-compliance with environmental permits required at its facilities. Certain
        environmental 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
        the Company’s predecessors, or at locations to which current or former
        operations or those of the Company’s predecessors have shipped waste for
        disposal. Contaminants have been detected at certain of the Company’s former
        sites, and the Company has been named as a potentially responsible party
        at
        several third-party waste disposal sites. While the Company is not currently
        aware of any such sites as to which material outstanding claims or obligations
        exist, the discovery of additional contaminants or the imposition of additional
        cleanup obligations at these or other sites could result in significant
        liability. In addition, 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
        the
        Company’s business, financial condition, results of operations and cash
        flows.
 
 ***The
        Company faces risks of litigation and liability claims on 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, results of operations and cash
        flows.***
 
 The
        Company is
        subject to legal proceedings and claims arising out of its businesses that
        cover
        a wide range of matters, including contract and employment claims, product
        liability claims, warranty claims and claims for modification, adjustment
        or
        replacement of component parts of units sold. Product liability and other
        legal
        proceedings include those related to businesses the Company has acquired
        or
        properties it has previously owned or operated.
 
 The
        development,
        manufacture, sale and use of the Company’s products involve risks of product
        liability and warranty claims, including personal injury and property damage
        arising from fire, soot, mold and carbon monoxide. The Company currently
        carries
        insurance and maintains reserves for potential product liability claims.
        However, the Company’s insurance coverage may be inadequate if such claims do
        arise and any liability not covered by insurance could have a material adverse
        effect on the Company’s business. To date, the Company has been able to obtain
        insurance in amounts it believes to be appropriate to cover such liability.
        However, the Company’s insurance premiums may increase in the future as a
        consequence of conditions in the insurance business generally or the Company’s
        situation in particular. Any such increase could result in lower profits
        or
        cause the need to reduce the Company’s insurance coverage. In addition, a future
        claim may be brought against the Company which would have a material adverse
        effect on the Company. Any product liability claim may also include the
        imposition of punitive damages, the award of which, pursuant to certain state
        laws, may not be covered by insurance. The Company’s product liability insurance
        policies have limits that if exceeded, may result in material costs that
        would
        have an adverse effect on future profitability. In addition, warranty claims
        are
        generally not covered by the Company’s product liability insurance. Further, any
        product liability or warranty issues may adversely affect the Company’s
        reputation as a manufacturer of high-quality, safe products and could have
        a
        material adverse effect on its business.
 
 ***Product
        recalls or reworks may adversely affect the Company’s
        business.***
 
 In
        the event the
        Company produces a product that is alleged to contain a design or manufacturing
        defect, the Company could be required to incur costs involved to recall or
        rework that product. While the Company has undertaken several voluntary product
        recalls and reworks over the past several years, additional product recalls
        and
        reworks could result in material costs. Many of the Company’s products,
        especially certain models of bath fans, range hoods and residential furnaces
        and
        air conditioners, have a large installed base, and any recalls and reworks
        related to products with a large installed base could be particularly costly.
        The costs of product recalls and reworks are not generally covered by insurance.
        In addition, the Company’s reputation for safety and quality is essential to
        maintaining its market share and protecting its brands. Any recalls or reworks
        may adversely affect the Company’s reputation as a manufacturer of high-quality,
        safe products and could have a material adverse effect on its financial
        condition, results of operations and cash flows.
 
 ***The
        Company’s business operations could be significantly disrupted if it 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 the Company’s other
        executive officers, could prevent the Company from executing its business
        strategy.
 
 ***The
        Company’s business operations could be negatively impacted if it fails to
        adequately protect its intellectual property rights, if it fails to comply
        with
        the terms of its licenses or if third parties claim that the Company is in
        violation of its intellectual property rights.***
 
 The
        Company is
        highly dependent on certain of the brand names under which it sells its
        products, including Broan® and NuTone®. Failure to protect these brand names and
        other intellectual property rights or to prevent their unauthorized use by
        third
        parties could adversely affect the Company’s business. The Company seeks to
        protect its intellectual property rights through a combination of trademark,
        copyright, patent and trade secret laws, as well as confidentiality agreements.
        These protections may not be adequate to prevent competitors from using the
        Company’s brand names and trademarks without authorization or from copying the
        Company’s products or developing products equivalent to or superior to the
        Company’s. The Company licenses several brand names from third parties. In the
        event the Company fails to comply with the terms of these licenses, the Company
        could lose the right to use these brand names. In addition, the Company faces
        the risk of claims that the Company is infringing third parties' intellectual
        property rights. Any such claim, even if it is without merit, could be expensive
        and time-consuming; could cause the Company to cease making, using or selling
        certain products that incorporate the disputed intellectual property; could
        require the Company to redesign its products, if feasible; could divert
        management time and attention; and could require the Company to enter into
        costly royalty or licensing arrangements.
 
 ***The
        Company’s substantial debt could negatively impact its business, prevent the
        Company from fulfilling its outstanding debt obligations and adversely affect
        its financial condition.***
 
 The
        Company has a
        substantial amount of debt. As of December 31, 2006, the Company had
        approximately $1,926.5 million of total debt outstanding and a debt to equity
        ratio of approximately 26.5:1. The terms of the Company’s outstanding debt,
        including NTK Holdings’ 10 3/4% senior discount notes, NTK Holdings’ senior
        unsecured loan facility, 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. As of March 30, 2007, Nortek had approximately
        $34.0
        million outstanding and approximately $133.2 million of additional borrowing
        capacity under the U.S. revolving portion of its senior secured credit facility,
        with approximately $22.8 million in outstanding letters of credit, and had
        no
        outstanding borrowings and approximately $10.0 million of additional borrowing
        capacity under the Canadian revolving portion of its senior secured credit
        facility. If additional debt is added to current debt levels, the related
        risks
        described below could intensify.
 
 The
        substantial
        amount of the Company’s debt 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 certain of its
                borrowings, including those under the Nortek 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, ·
            the
                Company’s
                significant amount of debt could make it more vulnerable to changes
                in
                general economic conditions, ·
            the
                Company
                may be restricted from making strategic acquisitions, investing in
                new
                products or capital assets or taking advantage of business opportunities,
                and ·
            the
                Company
                may be limited in its flexibility in planning for, or reacting to,
                changes
                in its business and the industries in which it
                operates. 
 The
        Company
        believes that it will need to access the capital markets in the future to
        raise
        the funds to repay its debt that remains outstanding at December 31, 2006.
        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 the Company’s other
        debt would become immediately due and payable. Any default on the Company’s debt
        obligations or the acceleration of its debt will likely have a substantial
        adverse effect on the Company’s financial condition, results of operations and
        cash flows.
 
 ***The
        terms of the Company’s debt covenants could limit how the Company conducts its
        business and its ability to raise additional funds.***
 
 The
        agreements
        which govern the terms of the Company’s debt, including the indentures that
        govern NTK Holdings’
 10
        3/4% senior
        discount notes and Nortek's 8 1/2% senior subordinated notes and the agreements
        that govern NTK Holdings’ senior unsecured loan facility and Nortek's senior
        secured credit facility, contain covenants that restrict the Company’s ability
        and the ability of the Company’s subsidiaries to:
 
 ·
            incur
                additional indebtedness, ·
            pay
                dividends
                or make other distributions, ·
            make
                loans or
                investments, ·
            incur
                certain
                liens, ·
            enter
                into
                transactions with affiliates, and ·
            consolidate,
                merge or sell assets. 
 In
        addition,
        Nortek's senior secured credit facility contains financial maintenance
        covenants, which become more restrictive over time, and the Company cannot
        assure that these covenants will always be met. A breach of the covenants
        under
        the indentures that govern NTK Holdings' 10 3/4% senior discount notes, and
        Nortek's 8 1/2% senior subordinated notes or under the agreements that govern
        NTK Holdings' senior unsecured loan facility and Nortek's senior secured
        credit
        facility could result in an event of default under the applicable indebtedness.
        Such default may allow the creditors 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 that
        the
        Company 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 the Company conducts its business, ·
            unable
                to
                raise additional debt or equity financing to operate during general
                economic or business downturns, or ·
            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. Refer to
        Note 6 of the Notes to the Consolidated Financial Statements, Item 8 of Part
        II
        of this report, incorporated herein by reference.
 
 ***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 the Company’s 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 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.
 
 ***If
        the
        Company is unable to access funds generated by its subsidiaries the Company
        may
        not be able to meet its financial obligations.***
 
 Because
        the Company
        conducts all of its operations through its subsidiaries, the Company depends
        on
        those entities for dividends, distributions and other payments to generate
        the
        funds necessary to meet its financial obligations. Legal restrictions in
        the
        United States and foreign jurisdictions applicable to the Company’s subsidiaries
        and contractual restrictions in certain agreements governing current and
        future
        indebtedness of the Company’s subsidiaries, as well as the financial condition
        and operating requirements of the Company’s subsidiaries, may limit the
        Company’s ability to obtain cash from its subsidiaries. All of the Company’s
        subsidiaries are separate and independent legal entities and have no obligation
        whatsoever to pay any dividends, distributions or other payments to the
        Company.
 
 
 **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
              735,000
              (4)Chenjian,
                  Huizhou, PRC
              Manufacturing/Warehouse/Administrative/Other
              198,000San
                  Francisco, CA
              Warehouse/Administrative
              50,000
              *Gliwice,
                  Poland
              Manufacturing/Warehouse/Administrative
              151,000**Home
                  Technology Products Segment:**Sylmar,
                  CA
              Administrative
              18,000
              *Xiang,
                  Bao An County, Shenzhen, PRC
              Manufacturing/Warehouse/Administrative/Other
              251,000
              *Chaiwan,
                  Hong Kong
              Administrative
              15,000
              *Lexington,
                  KY
              Warehouse/Administrative
              48,000
              *Carlsbad,
                  CA
              Warehouse/Administrative
              64,000
              *Vista,
                  CA
              Warehouse
              55,000
              *Riverside,
                  CA
              Administrative
              82,000
              *Casnovia,
                  MI
              Manufacturing/Warehouse/Administrative
              23,000
              *Phoenix,
                  AZ
              Manufacturing/Warehouse/Administrative
              51,000
              *Petaluma,
                  CA
              Warehouse/Administrative
              26,000
              *Miami,
                  FL
              Warehouse/Administrative
              62,000
              *Cambridge,
                  U.K.
              Warehouse/Administrative
              11,000Snohomish,
                  WA
              Manufacturing/Warehouse/Administrative
              25,000
              *Tallahassee,
                  FL
              Manufacturing/Warehouse/Administrative
              71,000
              (3)Summerville,
                  SC
              Warehouse/Administrative
              162,000
              *New
                  Milford, CT
              Manufacturing/Warehouse/Administrative
              17,000
              **Woodland
                  Hills, CA
              Warehouse/Administrative
              10,000
              *Salt
                  Lake City, UT
              Manufacturing/Warehouse/Administrative
              25,000
              ***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
              113,000
              *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
              202,000
              (2)Clackamas,
                  OR
              Manufacturing/Warehouse/Administrative
              172,000
              *Tualatin,
                  OR
              Manufacturing/Warehouse/Administrative
              191,000
              ***Other:**Providence,
                  RI
              Administrative
              23,000
              *


(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.





(3)
            These
                facilities are pledged as security under Nortek’s senior secured credit
                facility.





(4)
            This
                property and facility is currently under agreement to be
                sold.





**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 2006, 2005
          and
          2004 to evaluate and remediate such sites were not material. While the
          Company
          is able to reasonably estimate its losses, the Company is unable to estimate
          with certainty 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 30, 2007, 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
          May 5, 2006, the
          Company filed a registration statement on Form S-1 (most recently amended
          on
          September 15, 2006) with the SEC for an initial public offering of shares
          of its
          common stock (the “Offering”). Although the Company has not withdrawn its
          registration statement on Form S-1, there can be no assurance that the
          Company
          will complete the Offering in the foreseeable future.
 
 On
          May 10, 2006,
          NTK Holdings borrowed an aggregate principal amount of $205.0 million under
          a
          senior unsecured loan facility. The net proceeds of this borrowing were
          utilized
          to (1) pay a cash dividend of approximately $174.9 million to Investors
          LLC,
          which, in turn, made a distribution to the holders of its Class A and Class
          B
          membership interests, including affiliates of Thomas H. Lee Partners, L.P.
          and
          certain members of the Company’s management, (2) contribute capital of
          approximately $25.9 million to Nortek Holdings, which was used by Nortek
          Holdings, together with a dividend of approximately $28.1 million from
          Nortek,
          to make a distribution of approximately $54.0 million to participants under
          the
          2004 Nortek Holdings, Inc. Deferred Compensation Plan (including certain
          of the
          Company’s executive officers) and (3) pay related fees and expenses. As a result
          of these distributions, the holders of the Class A membership interests
          in
          Investors LLC and the participants in the 2004 Nortek Holdings, Inc. Deferred
          Compensation Plan are not entitled to any further distributions.
 
 On
          February 18,
          2005, using the net proceeds of the sale of NTK Holdings’ 10 3/4% senior
          discount notes, the Company paid a cash dividend of approximately $187.0
          million
          to Investors LLC and made a cash contribution of approximately $57.7 million
          to
          Nortek Holdings. The net proceeds distributed to Investors LLC were distributed
          by Investors LLC to the holders of its Class A and Class B membership interests,
          including affiliates of Thomas H. Lee Partners, L.P. and certain members
          of the
          Company’s management. The net proceeds contributed to Nortek Holdings were
          distributed by Nortek Holdings to participants in the 2004 Nortek Holdings,
          Inc.
          Deferred Compensation Plan (including certain of the Company’s executive
          officers) in accordance with the terms of that plan.
 
 The
          terms of the
          indenture governing the Company’s 10 3/4% senior discount notes and the
          agreement governing the Company’s senior unsecured loan
          facility restrict the Company’s ability to pay cash dividends, stock
          purchases or other restricted distributions. In addition, since NTK Holdings
          is
          a holding company, substantially all of the assets on its consolidated
          balance
          sheet are held by the Company’s subsidiaries. Accordingly, the Company’s
          earnings and cash flow and the ability to pay dividends are dependent upon
          the
          earnings and cash flows of the Company’s subsidiaries and the distribution and
          other payment of such earnings and cash flows to the Company in the form
          of
          dividends or other distributions. Nortek's senior secured credit facility
          and
          the indenture governing Nortek’s 8 1/2% senior subordinated notes contain
          restrictions on its ability to pay dividends or make other distributions
          in
          respect of its capital stock, including to NTK Holdings. The agreements
          governing any future indebtedness incurred by the Company or any of the
          Company’s subsidiaries could include additional restrictions.
 
 See
          Notes 1, 2, 6
          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, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -**
            
            **Jan.
                10, 2003 -**
            
            **Jan.
                1, 2003 -**
            
            **Jan.
                1, 2002 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**
            
            **Dec.
                31, 2003**
            
            **Jan.
                9, 2003**
            
            **Dec.
                31, 2002***(In
                millions except ratios)***Consolidated
                Summary of Operations:**Net
                sales
            
            $
            2,218.4
            
            $
            1,959.2
            
            $
            561.0
            
            $
            1,117.9
            
            $
            1,480.6
            
            $
            24.8
            
            $
            1,376.5Operating
                earnings (loss) (1)
            
            
            264.5
            
            
            236.9
            
            
            42.1
            
            
            32.6
            
            
            159.4
            
            
            (81.8
            )
            
            120.5Earnings
                (loss) from continuing operations
            
            
            57.7
            
            
            56.9
            
            
            (3.6
            )
            
            (111.3
            )
            
            62.1
            
            
            (60.9
            )
            
            44.2Earnings
                (loss) from discontinued operations
            
            
            ---
            
            
            ---
            
            
            (0.5
            )
            
            67.4
            
            
            12.1
            
            
            (1.0
            )
            
            18.3Net
                earnings (loss)
            
            
            57.7
            
            
            56.9
            
            
            (4.1
            )
            
            (43.9
            )
            
            74.2
            
            
            (61.9
            )
            
            62.5**Financial
                Position:**Unrestricted
                cash, investments andmarketable
                securities
            
            $
            57.4
            
            $
            77.2
            
            $
            95.0
            
            $
            202.0
            
            $
            194.1
            
            $
            283.6
            
            $
            294.8Working
                capital
            
            
            210.2
            
            
            283.6
            
            
            215.8
            
            
            (645.2
            )
            
            689.8
            
            
            830.0
            
            
            816.3Total
                assets
            
            
            2,635.9
            
            
            2,404.6
            
            
            2,264.6
            
            
            1,730.3
            
            
            2,100.0
            
            
            1,781.2
            
            
            1,830.9Total
                debt--Current
            
            
            43.3
            
            
            19.7
            
            
            19.8
            
            
            13.4
            
            
            15.3
            
            
            4.4
            
            
            5.5Long-term
            
            
            1,883.2
            
            
            1,628.7
            
            
            1,350.2
            
            
            30.4
            
            
            1,324.6
            
            
            953.7
            
            
            953.8Current
                ratio
            
            
            1.4:1
            
            
            1.8:1
            
            
            1.6:1
            
            
            0.5:1
            
            
            2.7:1
            
            
            2.9:1
            
            
            3.1:1Debt
                to equity ratio
            
            
            26.5:1
            
            
            8.7:1
            
            
            4.3:1
            
            
            0.4:1
            
            
            6.7:1
            
            
            3.5:1
            
            
            3.0:1Depreciation
                and amortization expenseincluding
                non-cash interest
            
            
            108.8
            
            
            75.8
            
            
            26.6
            
            
            50.5
            
            
            38.2
            
            
            0.7
            
            
            32.6Capital
                expenditures (2)
            
            
            42.3
            
            
            33.7
            
            
            15.1
            
            
            12.7
            
            
            24.7
            
            
            0.2
            
            
            19.0Stockholder’s
                investment
            
            
            72.8
            
            
            190.5
            
            
            321.9
            
            
            114.6
            
            
            200.1
            
            
            272.1
            
            
            317.5





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.
 
 (1) See Note
        14
        of the Notes to the Consolidated Financial Statements included elsewhere
        herein.
 
 (2) Includes
        capital expenditures financed under capital leases of approximately $4.8
        million, $1.6 million, $0.9 million and $7.6 million 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 were no capital leases for the year ended December 31,
        2006,
        the period from January 1, 2003 to January 9, 2003 and the year ended December
        31, 2002.


NTK
      HOLDINGS, INC. AND SUBSIDIARIES


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


December
      31, 2006


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




NTK
        Holdings, Inc.
        and its wholly-owned subsidiaries (individually and collectively the “Company”
or “NTK Holdings”) are diversified manufacturers of innovative, branded
        residential and commercial building products, operating within three reporting
        segments:
 
 ·
            the
                Residential Ventilation Products, or RVP, segment, ·
            the
                Home
                Technology Products, or HTP, segment, and ·
            the
                Air
                Conditioning and Heating Products, or HVAC, segment. 
 Through
        these
        segments, the Company manufactures and sells, primarily in the United States,
        Canada and Europe, a wide variety of products for the professional remodeling
        and replacement markets, the residential and commercial construction markets,
        the manufactured housing market and the do-it-yourself (“DIY”) market.
 
 The
        Residential
        Ventilation Products segment manufactures and sells room and whole house
        ventilation products and other products primarily for the professional
        remodeling and replacement markets, the residential new construction market
        and
        the DIY market. The principal products sold by 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 a broad array of products designed
        to
        provide convenience and security for 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, ·
            lighting
                controls, and ·
            structured
                wiring. 
 The
        Air
        Conditioning and Heating Products segment manufactures and sells heating,
        ventilating and air conditioning (“HVAC”) systems for site-built residential and
        manufactured housing structures, custom-designed commercial applications
        and
        standard light commercial applications. The principal products sold by the
        segment are:
 
 ·
            split
                system
                air conditioners and heat pumps, ·
            furnaces
                and
                related equipment, ·
            air
                handlers,
                and ·
            large
                custom
                roof top cooling and heating products. 
 In
        the results of
        operations presented below, Unallocated includes corporate related items,
        intersegment eliminations and certain income and expense not allocated to
        its
        segments.
  ***Changes
        in Structure and Ownership***
 
 Over
        the past
        several years, the Company has undergone changes in its structure and ownership
        that are useful to an understanding of the Company’s financial results over this
        time period.
 
 ·
            Nortek
                had
                been a public company for over thirty-five years until November 2002
                when
                the former Nortek Holdings was formed to become its holding company
                and
                successor public company. ·
            The
                former
                Nortek Holdings was then taken private in an acquisition by affiliates
                and
                designees of Kelso & Company L.P., together with members of the
                Company’s management, in January 2003. ·
            Affiliates
                of
                Thomas H. Lee Partners, L.P., together with members of the Company’s
                management, purchased the former Nortek Holdings from affiliates
                and
                designees of Kelso & Company L.P. in August 2004. The former Nortek
                Holdings was merged out of existence and a newly formed acquisition
                subsidiary became the parent company of Nortek and was renamed Nortek
                Holdings. ·
            NTK
                Holdings,
                then a newly formed company, became the parent company of Nortek
                Holdings
                in February 2005 in order to facilitate a financing and related
                dividend. 
 These
        events, as
        well as further developments and recent acquisitions and discontinued
        operations, are discussed in more detail below.
 
 ***The
        THL
        Transaction***
 
 On
        August 27, 2004,
        THL Buildco, a newly formed corporation affiliated with Thomas H. Lee Partners,
        L.P. and a subsidiary of THL Buildco Holdings, Inc., purchased all of the
        outstanding capital stock of the former Nortek Holdings pursuant to a stock
        purchase agreement for a purchase price of approximately $743.2 million.
        The
        Company refers to this transaction as 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, Inc., with Nortek, Inc. 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 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”.
 
 ***NTK
        Holdings Formation***
 
 NTK
        Holdings is a
        Delaware corporation that was formed to hold the capital stock of Nortek
        Holdings in order to facilitate a financing and related dividend. 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.
 
 ***Financial
        Statement Presentation***
 
 The
        consolidated
        financial statements included herein for the period from January 1, 2004
        to
        August 28, 2004 (“Pre-Acquisition”) reflects 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***
 
 The
        Company has
        made the following acquisitions since January 1, 2004:


Acquired
                  Company
              Date
                  of
                Acquisition
              Primary
                  Business
                of
                  Acquired Company
              Reporting
                SegmentLiteTouch,
                  Inc.
              March
                  2, 2007
              Design,
                  manufacture and sale of automated lighting control for a variety
                  of
                  applications including residential, commercial, new construction
                  and
                  retro-fit.
              HTPGefen,
                  Inc.
              December
                  12, 2006
              Design
                  and sale of audio and video products which extend, switch, distribute
                  and
                  convert signals in a variety of formats, including high definition,
                  for
                  both the residential and commercial markets.
              HTPZephyr
                  Corporation
              November
                  11, 2006
              Design
                  and sale of upscale range hoods.
              RVPPacific
                  Zephyr Range Hood, Inc.
              November
                  11, 2006
              Design,
                  sale and installation of range hoods and other kitchen products
                  for Asian
                  cooking markets in the United States.
              RVPMagenta
                  Research, Ltd.
              July
                  18, 2006
              Design
                  and sale ofproducts
                  that distribute audio and video signals over Category 5 and fiber
                  optic
                  cable to multiple display screens.
              HTPSecure
                  Wireless, Inc.
              June
                  26, 2006
              Design
                  and sale of wireless security products for the residential and
                  commercial
                  markets.
              HTPAdvanced
                  Bridging Technologies, Inc.
              June
                  26, 2006
              Design
                  and sale of innovative radio frequency control products and
                  accessories.
              HTPHuntair,
                  Inc.
              April
                  14, 2006
              Design,
                  manufacture and sale of custom air handlers and related products
                  for
                  commercial and clean room applications.
              HVACCleanpak
                  International, LLC
              April
                  14, 2006
              Design,
                  manufacture and sale of custom air handlers and related products
                  for
                  commercial and clean room applications.
              HVACFurman
                  Sound, Inc.
              February
                  22, 2006
              Design
                  and sale of audio and video signal processors and innovative power
                  conditioning and surge protection products.
              HTPMammoth
                  (Zhejiang) EG Air Conditioning Ltd. (1)
              January
                  25, 2006
              Design,
                  manufacture and sale of commercial HVAC products, including water
                  source
                  heat pumps.
              HVACShanghai
                  Mammoth Air Conditioning Co., Ltd. (1)
              January
                  25, 2006
              Design,
                  manufacture and sale of commercial HVAC products, including water
                  source
                  heat pumps.
              HVACGTO,
                  Inc.
              December
                  9, 2005
              Design,
                  manufacture and sale of automatic electric gate openers and access
                  control
                  devices to enhance the security and convenience of both residential
                  and
                  commercial property fences.
              HTPSunfire
                  Corporation
              August
                  26, 2005
              Design,
                  manufacture and sale of home audio and home cinema amplifiers,
                  receivers
                  and subwoofers.
              HTPImerge
                  Limited
              August
                  8, 2005
              Design
                  and sale of hard disk media players and multi-room audio
                  servers.
              HTPNiles
                  Audio Corporation
              July
                  15, 2005
              Design,
                  manufacture and sale of whole-house audio/video distribution equipment,
                  including speakers, receivers, amplifiers, automation devices,
                  controls
                  and accessories.
              HTPInternational
                  Marketing Supply, Inc.
              June
                  13, 2005
              Sale
                  of heating, ventilation and air conditioning equipment to customers
                  in
                  Latin America and the Caribbean.
              HVACPanamax,
                  Inc.
              April
                  26, 2005
              Design
                  and sale of innovative power conditioning and surge protection
                  products
                  that prevent loss or damage of home and small business equipment
                  due to
                  power disturbances.
              HTPM&S
                  Systems, LP
              December
                  17, 2004
              Design
                  and sale of distributed audio and communication equipment and
                  speakers
              HTPOmniMount
                  Systems, Inc.
              March
                  9, 2004
              Design,
                  manufacture and sale of audio/video wall mounts and
                  fixtures.
              HTP


(1)  Increase
      in ownership to 60%





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





**Critical
      Accounting Policies**




The
        Company’s
        discussion and analysis of its financial condition and results of operations
        are
        based upon the Company’s 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, Accounts Receivable 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.
 
 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.
 
 Provisions
        for the
        estimated costs for future product warranty claims are recorded in cost of
        sales
        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. The Company also periodically evaluates the adequacy of its
        reserves for warranty 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. 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.
 
 Provisions
        for the
        estimated allowance for doubtful accounts are recorded in selling, general
        and
        administrative expense, net 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 changes
        in economic
        conditions, past due and nonperforming accounts, bankruptcies or
        other events affecting particular customers .
        The Company also
        periodically evaluates the adequacy of its allowance for doubtful accounts
        recorded in its consolidated balance sheet as a further test to ensure the
        adequacy of the recorded provisions. The analysis for allowance for doubtful
        accounts 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.
 
 *Inventory
        Valuation*
 
 The
        Company values
        inventories at the lower of the cost or market with approximately 39.6% of
        the
        Company’s inventory as of December 31, 2006 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.
 
 *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 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.
 
 In
        June 2006, the
        Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement
        No. 109)”, (“FIN 48”). FIN 48 clarifies the criteria that an individual tax
        position must satisfy for some or all of the benefits of that position to
        be
        recognized in a company’s financial statements. FIN 48 prescribes a recognition
        threshold of “more-likely-than-not” and a measurement attribute for all tax
        positions taken or expected to be taken on a tax return in order for those
        tax
        positions to be recognized in the financial statements. FIN 48 is effective
        for
        fiscal years beginning after December 31, 2006. Accordingly, the Company
        will
        adopt FIN 48 on January 1, 2007. The cumulative effect of applying the
        provisions of FIN 48 will be reported as an adjustment of the Company’s opening
        balance of retained earnings (or other appropriate components of equity or
        net
        assets in the statement of financial position). The
        Company has
        assessed the impact of this interpretation on its domestic subsidiaries and
        currently estimates that the application of this standard on such subsidiaries
        will result in a reduction of retained earnings of between $3.0 million
        (unaudited) and $4.0 million (unaudited), and an increase of goodwill
        related to pre-acquisition tax uncertainties of between $6.0 (unaudited)
        and
        $7.0 million (unaudited). The Company is currently in the process of assessing
        the impact of this interpretation on its foreign subsidiaries.
 
 *Goodwill
        and
        Other Long-Lived Assets*
 
 The
        Company
        accounts for acquired goodwill and intangible assets in accordance with SFAS
        No.
        141, “Business Combinations” (“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 reporting unit goodwill and determined that no impairment existed
        at
        either the date of the Acquisition, its annual evaluation date of October
        1,
        2006 or December 31, 2006 in accordance with SFAS No. 142. Accordingly, no
        adjustments were required to be recorded in the Company’s Consolidated Financial
        Statements.
 
 The
        Company
        performs an annual evaluation, and more frequently if impairment indicators
        are
        identified, 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, “Accounting for the
        Impairment or Disposal of Long-Lived Assets (“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.
 
 On
        December 31,
        2006, the Company adopted SFAS
        No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
        Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No.
        158”). SFAS No. 158 requires the Company to: (a) recognize the over-funded or
        under-funded status of its defined benefit post-retirement plans as an asset
        or
        liability in its statement of financial position; (b) recognize changes in
        the
        funded status in the year in which the changes occur through comprehensive
        income and (c) measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end. The Company is required to initially recognize the
        funded status of its defined benefit plans and to provide the required
        disclosures for the fiscal year ended December 31, 2006. The requirement
        to
        measure benefit obligations as of the date of the employer’s fiscal year-end
        statement of financial position is effective for the Company for the fiscal
        year
        ended December 31, 2008. See Notes 1 and 8 of the Notes to the Consolidated
        Financial Statements included elsewhere herein.
 
 *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 payments are expected to be made in the succeeding year by the Company
        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. 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.
 
 *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 of innovative, branded residential and commercial
        products, operating within three reporting segments: the Residential Ventilation
        Products, or RVP, segment, the Home Technology Products, or HTP, segment,
        and
        the Air Conditioning and Heating Products, or HVAC, segment. Through these
        segments, we manufacture and sell, primarily in the United States, Canada
        and
        Europe, a wide variety of products for the professional remodeling and
        replacement markets, the residential and commercial construction markets,
        the
        manufactured housing market and the do-it-yourself, or DIY, market. We
        manufacture a broad array of residential and commercial products for a wide
        range of end markets and many of our products have leading market positions.
        We
        have achieved organic growth in each of our segments and have augmented this
        growth with a number of strategic acquisitions, primarily in our HTP segment.
        We
        are one of the world's largest suppliers of residential range hoods and exhaust
        fans, and are the largest supplier of these products in North America. We
        are
        also one of the leading suppliers in Europe of luxury “Eurostyle” range hoods.
        We are also one of the largest suppliers in North America of residential
        indoor
        air quality products. Within the residential market, we are one of the largest
        suppliers of HVAC products for manufactured homes in the United States and
        Canada and are among the largest suppliers of custom designed commercial
        HVAC
        products in the United States. For the year ended December 31, 2006, the
        RVP
        segment accounted for approximately 37% of consolidated net sales and 48%
        of
        operating earnings before unallocated expense, the HTP segment accounted
        for
        approximately 22% of consolidated net sales and 29% of operating earnings
        before
        unallocated expense and the HVAC segment accounted for approximately 41%
        of
        consolidated net sales and 23% of operating earnings before unallocated expense.
 
 From
        2001 through
        2006, our net sales grew at a Compound Annual Growth Rate (“CAGR”) of
        approximately 12%, and our operating earnings grew at a CAGR of approximately
        19%. Our net sales and operating earnings increased by approximately 13%
        and
        12%, respectively, for 2006 as compared to 2005. For 2006, operating earnings
        include an approximate $35.9 million gain from curtailment of post-retirement
        medical and
        life
        insurance benefits,
        partially offset by approximately $21.9 million of net other expense items
        included in cost of products sold and selling, general and administrative
        expense, net. We have generated cash flow from operations as a result of
        our
        EBITDA growth and expanding EBITDA margins. Our EBITDA margins increased
        in 2006
        from 2001 while capital expenditures have averaged approximately 2% of net
        sales
        per year since 2001. The resulting cash flow has given us the ability to
        reinvest in our business, through both acquisitions and new product
        development.
 
 We
        achieved growth
        in the past several years through a focus on our operating strategy and through
        acquisitions. Our operations are managed by an experienced management team
        at
        both the corporate and divisional levels. Our management team has grown our
        business organically, while reducing overhead, rationalizing costs and
        integrating acquisitions through market cycles and under a leveraged capital
        structure. Also, we have identified, acquired and integrated 18 companies
        since
        December 31, 2003, across all of our business segments. In addition to
        integrating these acquisitions, we have reduced costs, in many cases by
        relocating production or sourcing of materials and component parts to
        manufacturing operations in China.
 
 In
        particular, we
        have created a Home Technology Products segment which has generated net sales
        and operating earnings CAGR’s of approximately 57% and 56%, respectively, from
        2003 through 2006. Growth in this segment has been driven by both organic
        growth
        and acquisitions of companies with similar or complementary products and
        distribution channels which allows us to leverage our dealer and distributor
        relationships to generate additional organic growth. We continually evaluate
        a
        wide variety of acquisition opportunities, which can provide scale, enhance
        product offerings, expand our geographic presence, obtain cost savings and
        generate other synergies.
 
 We
        have a history
        of developing and branding new products and marketing them to customers.
        Across
        our segments we have employed a strategy of using well-recognized brand names
        (most of which are owned, such as Broan® and NuTone®, and several of which are
        licensed, such as Frigidaire®, Westinghouse® and Maytag®) and have introduced
        new products and made selected acquisitions to improve growth and profitability.
        In both the manufactured housing and commercial HVAC products markets, we
        have
        maintained our market shares. We have been able to recognize market needs
        and
        create products that address these opportunities. For example, we recently
        introduced our QT series of ultra-quiet exhaust fans, which generated net
        sales
        of $42.9 million during 2005, its first full year in the market, and $58.6
        million in 2006.
 
 Our
        products are
        marketed through our portfolio of brand names that facilitate the introduction
        of new products and extend existing product lines. Additionally, we continue
        to
        capitalize on our dealers’ and distributors’ desire to carry many of our leading
        branded products, and are able to drive additional product lines through
        our
        distribution channels and sell a wider portfolio of products to our
        customers.
 
 Our
        manufacturing
        strategy focuses on providing quality products at low costs. We source an
        increasing amount of our raw materials and components from lower cost regions.
        To further reduce costs we are positioning ourselves to be able to move certain
        manufacturing and production to our existing locations in China and to other
        lower cost regions such as Poland. Additionally, we began implementing Demand
        Flow Technology practices in the early 1990s at a number of our manufacturing
        facilities. This program allows us to manufacture products according to actual
        demand, rather than manufacturing to forecast, providing us with improved
        product quality, increased manufacturing efficiency and flexibility, improved
        response time to our customers and lower working capital needs.
 
 Sales
        of our
        products are affected by the level of residential improvement and repair
        activity, the level of new residential construction and to a lesser extent
        the
        level of private non-residential construction spending and manufactured housing
        shipments. A little more than half of the products we sell are believed to
        be
        used in the remodeling and replacement markets and the balance serves the
        new
        construction market. Through the end of 2005, the levels of remodeling and
        replacement activity and new construction activity in the site-built residential
        market had been strong for several years and this strength contributed
        positively to our operating performance in these periods. Reduced levels
        of home
        sales and housing starts and other softening in the housing markets in 2006
        negatively affected our business over the second half of 2006 and these factors
        are expected to continue to negatively affect our business in 2007. The level
        of
        business activity in the manufactured housing industry has been weak in recent
        years and in 2006 became weaker. Although the level of business activity
        in the
        private non-residential construction industry has improved over the past
        several
        years, our HVAC business has grown mostly through acquisitions. As we entered
        2007, our backlog of commercial HVAC product was approximately $193.9 million,
        of which approximately $57.9 million was contributed by acquisitions, as
        compared to approximately $87.8 million at December 31, 2005.


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





%
                Increase (Decrease)Sourceof
                data
            
            2006
            2005
            2004Private
                residential construction spending
            
            
            1
            
            
            (2
            )%
            
            14
            %
            
            19
            %Total
                housing starts
            
            
            1
            
            
            (13
            )%
            
            6
            %
            
            6
            %New
                home sales
            
            
            1
            
            
            (17
            )%
            
            7
            %
            
            11
            %Residential
                improvement spending
            
            
            1
            
            
            *
            
            
            8
            %
            
            12
            %Central
                air conditioning and heat pump shipments
            
            
            2
            
            
            (18
            )%
            
            16
            %
            
            9
            %Private
                non-residential construction spending
            
            
            1
            
            
            16
            %
            
            7
            %
            
            6
            %Manufactured
                housing shipments
            
            
            1
            
            
            (20
            )%
            
            12
            %
            
            ---
            %





*Source
      of data:*


***   *Data
      not yet available for the year ended December 31, 2006*


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


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




Our
        manufactured
        housing business for the year ended December 31, 2006 was approximately 5%
        of
        consolidated net sales versus approximately 13% in the year 2000. Our HVAC
        business serving the commercial construction market was approximately 18%
        and
        14% of consolidated net sales for the years ended December 31, 2006 and 2005,
        respectively, versus approximately 17% of consolidated net sales in 2004.
        The
        increase in the commercial HVAC business in 2006 is primarily as a result
        of
        acquisitions in 2006. In 2006, approximately 14.0% of consolidated net sales
        were through retail distribution and approximately 54% was to distributors
        and
        wholesalers and similar channels of distribution.
 
 Although
        a
        significant majority of our manufacturing activity and customers are located
        in
        the United States, we do have manufacturing activity and sell products to
        customers in Canada, Latin America, Europe and China. Our foreign net sales,
        which are attributed based on the location of the Company's subsidiary
        responsible for the sale, were approximately 19.5% and 18.5% of consolidated
        net
        sales for the years ended December 31, 2006 and 2005, respectively, and
        principally relate to our Canadian and European operations. Our Chinese
        operations primarily manufacture products for sale by our other subsidiaries.
        Our Canadian operations include RVP and HVAC facilities and our European
        operations include RVP facilities in Italy and Poland and HVAC and HTP
        facilities in the United Kingdom. A significant majority of our current Chinese
        operations relate to our HTP segment although we also have both RVP and HVAC
        facilities in China and, as discussed below, we are continuing to make
        additional investments to expand these operations. Both our foreign operations
        and our U.S. operations sell to customers located in all parts of the world,
        particularly Canada, Europe and the Far East. Foreign operations generate
        proportionately lower operating earnings from their sales volume due primarily
        to the mix of products sold by the foreign operations and, in part, the impact
        of foreign currency exchange. We expect the overall percentage of our net
        sales
        and operating earnings from foreign operations to remain relatively consistent
        for the foreseeable future, although our foreign operations are subject to
        the
        risks of currency fluctuations, which could negatively impact such net sales
        and
        operating earnings.
 
 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. The markets for HTP products are highly
        fragmented and, in part as a result of such fragmentation, we do not have
        a
        large share of these markets. Principal HVAC products include split system
        air
        conditioners and heat pumps, furnaces, air handlers and large custom roof
        top
        cooling and heating products.
 
 In
        late 2003
        through 2004, our HVAC business serving the residential markets undertook
        a
        restructuring to eliminate certain higher cost facilities and replace them
        with
        a more cost-effective facility and make operational improvements at existing
        facilities. 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 approximately $10.2 million in 2004 in the HVAC segment.
        During 2005 and 2006, we saw a return to expected production
        levels.
 
 In
        2007, we expect
        to continue our brand strategy for residential site-built HVAC products
        with a view to gaining market share. In HTP in 2007, we will continue the
        integration of our recent acquisitions in this segment, which we expect will
        contribute to the profitability of this segment. In 2007 we plan to achieve
        further cost reductions in raw material and purchased components in all our
        businesses through our strategic sourcing initiatives. During 2004, 2005
        and
        2006 we experienced significant increases in the prices 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 as a result of higher material costs, there is no assurance
        that
        we will be able to offset all material cost increases in 2007. 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 by sales price increases
        and
        benefits realized from our strategic sourcing initiatives, and were
        approximately 44% in 2004 and 45% in both 2005 and 2006.





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




For
                the year ended December 31,2006
            2005
            2004Steel
            6%
            6%
            6%Motors
            5%
            6%
            6%Compressors
            3%
            3%
            5%Copper
            2%
            2%
            2%Plastics
            2%
            2%
            2%Aluminum
            1%
            1%
            1%Packaging
            1%
            1%
            1%Electrical
            1%
            1%
            2%Fans
                & Blowers
            1%
            1%
            1%





In
        the following
        discussion of the results of operations for the year 2006 as compared to
        the
        year 2005 and the year 2005 as compared to the year 2004, we will talk about
        the
        significance of a number of factors that affected our operations including,
        among others, the following:
 
 ·
            the
                effect of
                the curtailment gain related to the NuTone, Inc. post-retirement
                medicaland
                life
                insurancebenefits, ·
            lossesas
                a result
                of the unlikelihood that certain suppliers to our kitchen range hood
                subsidiaries based in Italy and Poland will be able to repay advances
                and
                amounts due under other arrangements, ·
            the
                effect of
                the closure of our NuTone, Inc. Cincinnati, Ohio
                facility, ·
            the
                effect of
                product safety upgrades in the RVP and HTP
                segments, ·
            the
                effect of
                acquisitions in all three reporting
                segments, ·
            the
                effect of
                higher material costs and increased transportation and energy
                costs, ·
            the
                effect of
                changes in foreign currency exchange
                rates, ·
            the
                effect of
                the increase in the minimum seasonal energy efficiency rating for
                residential air conditioners, and ·
            the
                effect of
                the Acquisition 
 Our
        operating
        earnings for the years ended December 31, 2006 and 2005 have been higher
        than
        previous periods and may not be indicative of future results.
 
 In
        2006, we spent
        approximately $42.3 million on capital expenditures. In 2007, we expect to
        spend
        between approximately $35 million and $40 million 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 2006 and 2007 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 was completed in mid 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 relocated its operations into a 202,000 square foot
        manufacturing facility in 2006.
 
 **Results
        of
        Operations**
  The
        tables that
        follow include combined information for net sales and cost of products sold
        for
        the year ended December 31, 2004. The year ended December 31, 2004 combined
        amounts reflect the combination of the Pre-Acquisition period from January
        1,
        2004 to August 27, 2004 and the Post-Acquisition period from August 28, 2004
        to
        December 31, 2004.


The
      following table presents financial information for the Company’s reporting
      segments for the historical periods indicated and combined net sales for the
      year ended December 31, 2004:




**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
              
              $
              39.7Home
                  technology products
              
              
              22.9
              
              
              12.9Air
                  conditioning and heating products
              
              
              25.5
              
              
              (2.6
              )Subtotal
              
              
              128.3
              
              
              50.0**Unallocated:**Expenses
                      and
                      charges arising from the Acquisition
              
              
              (38.5
              )
              
              ---Stock-based
                  compensation charges
              
              
              (36.4
              )
              
              (0.1
              )Foreign
                  exchange (loss) gain on intercompany debt
              
              
              (0.2
              )
              
              0.1Unallocated,
                  net
              
              
              (20.6
              )
              
              (7.9
              )Consolidated operating earnings
              
              $
              32.6
              
              $
              42.1**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              11.2
              
              $
              8.3Home
                  technology products
              
              
              4.2
              
              
              7.1Air
                  conditioning and heating products
              
              
              10.0
              
              
              6.7Unallocated
              
              
              0.4
              
              
              0.4$
              25.8
              
              $
              22.5**Operating
                  earnings (loss) margin:**Residential
                  ventilation products
              
              
              16.1
              %
              
              14.8
              %Home
                  technology products
              
              
              18.0
              
              
              16.0Air
                  conditioning and heating products
              
              
              5.2
              
              
              (1.2
              )Consolidated
              
              
              2.9
              %
              
              7.5
              %**Depreciation
                      and amortization expense as a % of net
                      sales:**Residential
                  ventilation products
              
              
              2.3
              %
              
              3.1
              %Home
                  technology products
              
              
              3.3
              
              
              8.8Air
                  conditioning and heating products
              
              
              2.0
              
              
              3.2Consolidated
              
              
              2.3
              %
              
              4.0
              %




The
      following table presents the financial information for the Company’s reporting
      segments for the years ended December 31, 2006 and 2005 and the combined net
      sales for the Company’s reporting segments for the year ended December 31,
      2004:




**Net
                  Change****Years
                  Ended December 31,**
              
              **2006
                  to 2005**
              
              **2005
                  to 2004****2006**
              
              **2005**
              
              **2004**
              
              $
              
              %
              
              $
              
              %**Net
                  sales:**
              
              *(Dollar
                  amounts in millions)*Residential
                  ventilation products
              
              $
              821.0
              
              $
              794.7
              
              $
              765.4
              
              $
              26.3
              
              
              3.3
              %
              $
              29.3
              
              
              3.8
              %Home
                  technology products
              
              
              484.5
              
              
              354.8
              
              
              207.5
              
              
              129.7
              
              
              36.6
              
              
              147.3
              
              
              71.0Air
                  conditioning and heating products
              
              
              912.9
              
              
              809.7
              
              
              706.0
              
              
              103.2
              
              
              12.7
              
              
              103.7
              
              
              14.7Consolidated net sales
              
              $
              2,218.4
              
              $
              1,959.2
              
              $
              1,678.9
              
              $
              259.2
              
              
              13.2
              %
              $
              280.3
              
              
              16.7
              %**Operating
                  earnings (loss):**Residential
                  ventilation products (1)
              
              $
              139.5
              
              $
              123.9
              
              
              
              
              $
              15.6
              
              
              12.6
              %Home
                  technology products (2)
              
              
              83.9
              
              
              71.0
              
              
              
              
              
              12.9
              
              
              18.2Air
                  conditioning and heating products (3)
              
              
              64.9
              
              
              66.3
              
              
              
              
              
              (1.4
              )
              
              (2.1
              )Subtotal
              
              
              288.3
              
              
              261.2
              
              
              
              
              
              27.1
              
              
              10.4**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.3
              )
              
              (0.3
              )
              
              
              
              
              ---
              
              
              ---Foreign
                  exchange gain (loss) on intercompany debt
              
              
              1.2
              
              
              (0.9
              )
              
              
              
              
              2.1
              
              
              *Expenses
                  of an
                  IPO not yet completed
              
              
              (2.5
              )
              
              ---
              
              
              
              
              
              (2.5
              )
              
              *Compensation
                  reserve adjustment
              
              
              3.5
              
              
              ---
              
              
              
              
              
              3.5
              
              
              *Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4
              
              
              
              
              
              (1.4
              )
              
              (100.0
              )Unallocated,
                  net
              
              
              (25.7
              )
              
              (24.5
              )
              
              
              
              
              (1.2
              )
              
              (4.9
              )**Consolidated
                  operating earnings**
              
              $
              264.5
              
              $
              236.9
              
              
              
              
              $
              27.6
              
              
              11.7
              %**Depreciation
                  and amortization expense:**Residential
                  ventilation products (4)
              
              $
              19.3
              
              $
              19.5
              
              
              
              
              $
              (0.2
              )
              
              (1.0
              )%Home
                  technology products (5)
              
              
              15.8
              
              
              9.9
              
              
              
              
              
              5.9
              
              
              59.6Air
                  conditioning and heating products (6)
              
              
              24.9
              
              
              15.3
              
              
              
              
              
              9.6
              
              
              62.7Unallocated
              
              
              1.2
              
              
              1.2
              
              
              
              
              
              ---
              
              
              ---$
              61.2
              
              $
              45.9
              
              
              
              
              $
              15.3
              
              
              33.3
              %**Operating
                  earnings margin:**Residential
                  ventilation products (1)
              
              
              17.0
              %
              
              15.6
              %Home
                  technology products (2)
              
              
              17.3
              
              
              20.0Air
                  conditioning and heating products (3)
              
              
              7.1
              
              
              8.2Consolidated
              
              
              11.9
              %
              
              12.1
              %**Depreciation
                  and amortization expense****as a % of net sales:**Residential
                  ventilation products (4)
              
              
              2.4
              %
              
              2.5
              %Home
                  technology products (5)
              
              
              3.3
              
              
              2.8Air
                  conditioning and heating products (6)
              
              
              2.7
              
              
              1.9Consolidated
              
              
              2.8
              %
              
              2.3
              %


(1)
            The
                operating
                results of the RVP segment for year ended December 31, 2006 include
                an
                approximate $35.9 million curtailment gain related to post-retirement
                medical and life insurance benefits, reserves of approximately $16.0
                million related to estimated losses as a result of the unlikelihood
                that
                certain suppliers to our kitchen range hood subsidiaries based in
                Italy
                and Poland will be able to repay advances and amounts due under other
                arrangements, an approximate $3.5 million charge related to the closure
                of
                the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note 13 of the
                Notes to the Consolidated Financial Statements included elsewhere
                herein)
                and an increase in warranty expense in the first quarter of 2006
                of
                approximately $1.5 million related to a product safety upgrade. The
                operating results of the RVP segment for the year ended December
                31, 2005
                include a non-cash foreign exchange loss of approximately $1.2 million
                related to intercompany debt not indefinitely invested in the Company’s
                subsidiaries. (2)
            The
                operating
                results of the HTP segment for the year ended December 31, 2006 include
                an
                increase in warranty expense of approximately $2.3 million related
                to a
                product safety upgrade. The operating results of the HTP segment
                for the
                year ended December 31, 2005 include a gain of approximately $1.6
                million
                related to the sale of a corporate office building of one of the
                Company’s
                subsidiaries. (3)
            The
                operating
                results of the HVAC segment for the year ended December 31, 2006
                include
                an approximate $1.6 million gain related to the favorable settlement
                of
                litigation and a charge of approximately $1.2 million, net of minority
                interest of approximately $0.8 million, related to a reserve for
                amounts
                due from a customer in China related to a Chinese construction project. (4)
            Includes
                amortization of approximately $0.3 million and $0.4 million for the
                years
                ended December 31, 2006 and 2005, respectively, of excess purchase
                price
                allocated to inventory recorded as a non-cash charge to cost of products
                sold. (5)
            Includes
                amortization of approximately $0.2 million and $0.5 million for years
                ended December 31, 2006 and 2005, respectively, of excess purchase
                price
                allocated to inventory recorded as a non-cash charge to cost of products
                sold. (6)
            Includes
                amortization of approximately $2.8 million for the year ended December
                31,
                2006 of excess purchase price allocated to inventory recorded as
                a
                non-cash charge to cost of products sold. * not
        meaningful




The
      following table presents consolidated financial information for the historical
      periods indicated and combined net sales and cost of products sold for the
      year
      ended December 31, 2004:





**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
              
              
              101.4Amortization
                  of intangible assets
              
              
              8.9
              
              
              8.4Expenses
                  and
                  charges arising from the Acquisition
              
              
              83.7
              
              
              ---Operating
                  earnings
              
              
              32.6
              
              
              42.1Interest
                  expense
              
              
              (56.1
              )
              
              (42.5
              )Loss
                  from debt
                  retirement
              
              
              (130.7
              )
              
              ---Investment
                  income
              
              
              1.5
              
              
              0.3(Loss)
                  earnings before (benefit) provision forincome
                  taxes
              
              
              (152.7
              )
              
              (0.1
              )(Benefit)
                  provision for income taxes
              
              
              (41.4
              )
              
              3.5Loss
                  from
                  continuing operations
              
              
              (111.3
              )
              
              (3.6
              )Earnings
                  (loss) from discontinued operations
              
              
              67.4
              
              
              (0.5
              )Net
                  loss
              
              $
              (43.9
              )
              $
              (4.1
              )
   **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
              
              
              18.1Amortization
                  of intangible assets
              
              
              0.8
              
              
              1.5Expenses
                  and
                  charges arising from the Acquisition
              
              
              7.5
              
              
              ---Operating
                  earnings
              
              
              2.9
              
              
              7.5Interest
                  expense
              
              
              (5.0
              )
              
              (7.6
              )Loss
                  from debt
                  retirement
              
              
              (11.7
              )
              
              ---Investment
                  income
              
              
              0.1
              
              
              0.1(Loss)
                  earnings before (benefit) provision forincome taxes
              
              
              (13.7
              )
              
              ---(Benefit)
                  provision for income taxes
              
              
              (3.7
              )
              
              0.6Loss
                  from
                  continuing operations
              
              
              (10.0
              )
              
              (0.6
              )Earnings
                  (loss) from discontinued operations
              
              
              6.0
              
              
              (0.1
              )Net
                  loss
              
              
              (4.0
              )%
              
              (0.7
              )%





The
      following table presents financial information for the years ended December
      31,
      2006 and 2005 and the combined consolidated net sales and cost of products
      sold
      for the year ended December 31, 2004:





**Percentage
                  Change****Year-ended
                  December 31,**
              
              **2006
                  to**
              
              **2005
                  to****2006**
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004***(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              2,218.4
              
              $
              1,959.2
              
              $
              1,678.9
              
              
              13.2
              %
              
              16.7
              %Cost
                  of
                  products sold
              
              
              1,547.3
              
              
              1,361.4
              
              
              1,201.9
              
              
              (13.7
              )
              
              (13.3
              )Selling,
                  general and administrative expenses, net (1)
              
              
              381.7
              
              
              342.6
              
              
              
              
              
              (11.4
              )Amortization
                  of intangible assets
              
              
              24.9
              
              
              18.3
              
              
              
              
              
              (36.1
              )Operating
                  earnings
              
              
              264.5
              
              
              236.9
              
              
              
              
              
              11.7Interest
                  expense
              
              
              (162.9
              )
              
              (138.6
              )
              
              
              
              
              (17.5
              )Investment
                  income
              
              
              2.2
              
              
              1.8
              
              
              
              
              
              22.2Earnings
                  before provision for income taxes
              
              
              103.8
              
              
              100.1
              
              
              
              
              
              3.7Provision
                  for
                  income taxes
              
              
              46.1
              
              
              43.2
              
              
              
              
              
              (6.7
              )Net
                  earnings
              
              $
              57.7
              
              $
              56.9
              
              
              
              
              
              1.4
              %




**Percentage
                  of Net Sales**
              
              **Change
                  in Percentage****Year-ended
                  December 31,**
              
              **2006
                  to**
              
              **2005
                  to****2006**
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  sales
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              ---
              %
              
              ---
              %Cost
                  of
                  products sold
              
              
              69.8
              
              
              69.5
              
              
              71.6
              
              
              (0.3
              )
              
              2.1Selling,
                  general and administrative expenses, net (1)
              
              
              17.2
              
              
              17.5
              
              
              
              
              
              0.3Amortization
                  of intangible assets
              
              
              1.1
              
              
              0.9
              
              
              
              
              
              (0.2
              )Operating
                  earnings
              
              
              11.9
              
              
              12.1
              
              
              
              
              
              (0.2
              )Interest
                  expense
              
              
              (7.3
              )
              
              (7.1
              )
              
              
              
              
              (0.2
              )Investment
                  income
              
              
              0.1
              
              
              0.1
              
              
              
              
              
              ---Earnings
                  before provision for income taxes
              
              
              4.7
              
              
              5.1
              
              
              
              
              
              (0.4
              )Provision
                  for
                  income taxes
              
              
              2.1
              
              
              2.2
              
              
              
              
              
              0.1Net
                  earnings
              
              
              2.6
              %
              
              2.9
              %
              
              
              
              
              (0.3
              )%




(1) 
See
        Note
        14 of the Notes to the Consolidated Financial Statements included elsewhere
        herein.


*    not meaningful




**Year
      ended December 31, 2006 as compared to the year ended December 31,
      2005**




The
        Company’s
        reporting segments have a significant number of different products across
        a wide
        range of price points and numerous distribution channels that do not always
        allow meaningful quantitative analysis to be performed with respect to the
        effect on net sales of changes in units sold or the price per unit sold.
        However, whenever the underlying causes of material increases or decreases
        in
        consolidated net sales can be adequately analyzed and quantified, the Company
        attempts to make appropriate disclosure of such reasons, including changes
        in
        price, volume and the mix of products sold.
 
 *Net
        Sales.* Consolidated
        net
        sales increased approximately $259.2 million or 13.2% for the year ended
        December 31, 2006 as compared to the year ended December 31, 2005 as discussed
        further in the following paragraphs.
 
 In
        the RVP segment,
        net sales increased approximately $26.3 million or 3.3% for the year ended
        December 31, 2006 as compared to the year ended December 31, 2005. Net sales
        in
        the RVP segment for the year ended December 31, 2006 reflects an increase
        of
        approximately $8.8 million attributable to the effect of changes in foreign
        currency exchange rates and includes approximately $4.2 million attributable
        to
        acquisitions.
 
 The
        change in net
        sales in the RVP segment for the year ended December 31, 2006 as compared
        to the
        year ended December 31, 2005 reflects higher average unit sales prices of
        kitchen range hoods and bath fans, partially offset by lower sales volume
        of
        bath fans, which principally occurred in the second half of 2006. Higher
        average
        unit sales prices of kitchen range hoods and bath fans reflect, in part,
        the
        impact of the sale of new products with higher price points. Range hoods
        and
        bathroom exhaust fans are the largest product category sold in the RVP segment,
        accounting for approximately 84.8% of the total RVP segment’s net sales for the
        year ended December 31, 2006. Overall, sales of range hoods and bathroom
        exhaust
        fans increased approximately 4.0% in the year ended December 31, 2006 over
        the
        year ended December 31, 2005.
 
 In
        the HTP segment,
        net sales increased approximately $129.7 million or 36.6% for the year ended
        December 31, 2006 as compared to the year ended December 31, 2005. The increase
        in net sales in the HTP segment for the year ended December 31, 2006 includes
        approximately $93.5 million attributable to acquisitions and the balance
        of the
        increase is predominately due to increased sales volume of audio and video
        distribution equipment, speakers and access control devices, partially offset
        by
        the decline in sales of certain security and garage door operators.
 
 In
        the HVAC
        segment, net sales increased approximately $103.2 million or 12.7% for the
        year
        ended December 31, 2006 as compared to the year ended December 31, 2005.
        Net
        sales in the HVAC segment for the year ended December 31, 2006 include an
        increase of approximately $114.8 million attributable to acquisitions and
        an
        increase of approximately $4.4 million attributable to the effect of changes
        in
        foreign currency exchange rates. The change in net sales in the HVAC segment
        for
        the year ended December 31, 2006 as compared to the year ended December 31,
        2005
        includes lower sales volume, partially offset by the effect of higher average
        sales prices of products with a rating of 13 SEER or higher sold to residential
        site-built and manufactured housing customers. Sales of the Company’s commercial
        HVAC products, excluding the effect of foreign exchange and acquisitions,
        increased slightly in 2006 as compared to 2005. Net sales in the HVAC segment
        for HVAC products sold to residential site-built customers constituted the
        largest category of product sold to a particular group of customers within
        the
        HVAC segment. Sales of products to residential site-built customers increased
        approximately 1.3% over the year ended December 31, 2005. The Company’s net
        sales to customers serving the manufactured housing markets, principally
        consisting of air conditioners and furnaces, constituted approximately 5.3%
        and
        6.9% of the Company’s consolidated net sales for the years ended December 31,
        2006 and 2005, respectively. The decrease in net sales to customers serving
        the
        manufactured housing markets is due, in part, to the effect of higher 2005
        sales
        for FEMA related business caused by Hurricane Katrina.
 
 Foreign
        net sales,
        which are attributed based on the location of the Company’s subsidiary
        responsible for the sale, were approximately 19.5% and 18.5% of consolidated
        net
        sales for the years ended December 31, 2006 and 2005, respectively. Net sales
        from the Company’s Canadian subsidiaries were approximately 8.2% and 8.1% of
        consolidated net sales for the years ended December 31, 2006 and 2005,
        respectively. Net sales from the Company’s Canadian subsidiaries include net
        sales from the Company’s RVP and HVAC segments. Net sales from the Company’s
        European subsidiaries were approximately 9.7% and 9.9% of consolidated net
        sales
        for the years ended December 31, 2006 and 2005, respectively. Net sales from
        the
        Company’s European subsidiaries include net sales primarily from the Company’s
        RVP and HVAC segments and to a lesser extent the Company’s HTP
        segment.
 
 *Cost
        of
        Products Sold.* Consolidated
        cost
        of products sold was approximately $1,547.3 million for the year ended December
        31, 2006 as compared to approximately $1,361.4 million for the year ended
        December 31, 2005. Cost of products sold, as a percentage of net sales,
        increased from approximately 69.5% for the year ended December 31, 2005 to
        approximately 69.8% for the year ended December 31, 2006, primarily as a
        result
        of the factors that follow.
 
 Overall,
        consolidated material costs were approximately 44.8% and 44.5% of net sales
        for
        the years ended December 31, 2006 and 2005, respectively. Although the Company
        continued to experience higher material costs related primarily to purchases
        of
        copper, aluminum and related purchased components, as well as increased
        transportation and energy costs, these cost increases were partially offset
        by
        continued strategic sourcing initiatives and improvements in manufacturing
        efficiency, as well as sales price increases.
 
 As
        noted in the
        previous paragraph, during the year ended December 31, 2006, the Company
        experienced an increase in freight costs due primarily to increased sales
        volume
        and rising energy prices. This increase was partially offset by favorable
        shipping rates for lower cost “full truckload” shipments and higher dollars per
        shipment based on the increased volumes, as well as cost reduction measures,
        thereby reducing the overall effect of increased freight costs on cost of
        goods
        sold as a percentage of net sales.
 
 Overall,
        changes in
        the cost of products sold as a percentage of net sales for one period as
        compared to another period may reflect a number of factors including changes
        in
        the relative mix of products sold, the effect of changes in sales prices,
        material costs and changes in productivity levels.
 
 In
        the RVP segment,
        cost of products sold for the year ended December 31, 2006 was approximately
        $573.8 million, or 69.9% as a percentage of the RVP segment’s net sales, as
        compared to approximately $544.9 million, or 68.6% as a percentage of the
        RVP
        segment’s net sales, for the year ended December 31, 2005. Cost of products sold
        in the RVP segment for the year ended December 31, 2006 includes (1) an increase
        of approximately $5.9 million related to the effect of changes in foreign
        currency exchange rates, (2) approximately $2.7 million of cost of products
        sold
        from acquisitions, (3) approximately $1.8 million of severance charges related
        to the closure of the Company’s NuTone facility, (4) increased warranty expense
        in the first quarter of 2006 of approximately $1.5 million related to a product
        safety upgrade and (5) a non-cash charge of approximately $0.3 million related
        to the amortization of purchase price allocated to inventory. Cost of products
        sold in the RVP segment for the year ended December 31, 2005 includes a non-cash
        charge of approximately $0.4 million related to the amortization of purchase
        price allocated to inventory. The increase in the percentage of cost of products
        sold to net sales for the year ended December 31, 2006 over the same period
        of
        2005 reflects increased material costs and a slight decline in sales volume
        of
        kitchen range hoods and bath fans without a proportionate decrease in costs,
        partially offset by higher average unit sales prices of kitchen range hoods
        and
        bath fans.
 
 In
        the HTP segment,
        cost of products sold for the year ended December 31, 2006 was approximately
        $254.5 million, or 52.5% as a percentage of the HTP segment’s net sales, as
        compared to approximately $184.2 million, or 51.9% as a percentage of the
        HTP
        segment’s net sales, for the year ended December 31, 2005. Cost of products sold
        in the HTP segment for the year ended December 31, 2006 reflects (1)
        approximately $46.3 million of cost of products sold contributed from
        acquisitions, including a non-cash charge of approximately $0.2 million related
        to the amortization of purchase price allocated to inventory and (2) increased
        warranty expense of approximately $2.3 million related to a product safety
        upgrade. Cost of products sold in the HTP segment for the year ended December
        31, 2005 includes a non-cash charge of approximately $0.5 million related
        to the
        amortization of purchase price allocated to inventory. The increase in the
        percentage of cost of products sold to net sales for the year ended December
        31,
        2006 over the same period of 2005 also reflects increased material costs,
        including purchased components and sourced products.
 
 In
        the HVAC
        segment, cost of products sold for the year ended December 31, 2006 was
        approximately $719.0 million, or 78.8% as a percentage of the HVAC segment’s net
        sales, as compared to approximately $632.3 million, or 78.1% as a percentage
        of
        the HVAC segment’s net sales, for the year ended December 31, 2005. Cost of
        products sold in the HVAC segment for the year ended December 31, 2006 includes
        (1) an increase of approximately $82.5 million attributable to acquisitions,
        including non-cash charges of approximately $2.8 million related to the
        amortization of purchase price allocated to inventory and (2) an increase
        of
        approximately $3.5 million related to the effect of changes in foreign currency
        exchange rates. The change in cost of products sold as a percentage of net
        sales
        for the year ended December 31, 2006 over the same period of 2005 reflects
        the
        effect of lower sales volume, in part due to 2005 sales for FEMA related
        business caused by Hurricane Katrina, and higher material costs related
        primarily to purchases of copper and aluminum, which experienced cost increases
        during 2006, partially offset by continued strategic sourcing initiatives,
        improvements in manufacturing efficiency and the effect of acquisitions,
        which
        had a lower level of material costs as compared to the businesses in the
        HVAC
        segment prior to the acquisitions. Increased average unit sales prices of
        products sold to residential site-built customers as noted above was also
        a
        factor.
 
 *Selling,
        General and Administrative Expense.* Consolidated
        selling, general and administrative expense (“SG&A”) was approximately
        $381.7 million for the year ended December 31, 2006 as compared to approximately
        $342.6 million for the year ended December 31, 2005. SG&A as a percentage of
        net sales decreased from approximately 17.5% for the year ended December
        31,
        2005 to approximately 17.2% for the year ended December 31, 2006. This decrease
        in SG&A as a percentage of net sales is principally due to a curtailment
        gain of approximately $35.9 million recorded in the RVP segment related to
        post-retirement medical and life insurance benefits from the final
        implementation of a union contract that no longer provides such benefits,
        a
        decrease of approximately $3.5 million related to the reduction of a
        compensation accrual originally provided in 2004 that was determined to be
        no
        longer required, the impact of acquisitions in the HVAC segment which have
        a
        lower percentage of SG&A to net sales and sales growth. This decrease in
        SG&A as a percentage of sales was offset by reserves of approximately $16.0
        million related to estimated losses as a result of the unlikelihood that
        certain
        suppliers to our kitchen range hood subsidiaries based in Italy and Poland
        will
        be able to repay advances and amounts due under other arrangements (see
“Liquidity and Capital Resources” included elsewhere herein), as well as,
        acquisitions and increased SG&A of existing businesses in the HTP segment
        which have a higher percentage of SG&A to net sales than the Company’s other
        segments.
 
 SG&A
        for the
        year ended December 31, 2006 also includes (1) approximately $50.2 million
        from
        acquisitions in the all three of the Company’s segments, (2) a charge of
        approximately $2.5 million related to expenses incurred related to the Company’s
        initial public offering not yet completed (although the Company has not
        withdrawn its registration statement on Form S-1, there can be no assurance
        that
        the Company will complete the Offering in the foreseeable future), (3) a
        decrease of approximately $1.7 million of displays expense in the RVP segment,
        (4) an increase of approximately $2.2 million (of which approximately $1.5
        million is included in the RVP segment and approximately $0.7 million is
        included in the HVAC segment) related to the effect of changes in foreign
        currency exchange rates, (5) approximately $1.7 million of severance, equipment
        write-offs and other charges recorded in the second quarter of 2006 related
        to
        the closure of the Company’s NuTone facility within the RVP segment, (6) an
        approximate $1.6 million gain related to the favorable settlement of litigation
        within the HVAC segment, (7) a non-cash foreign exchange gain of approximately
        $1.3 million, of which approximately $0.1 million is included in the HVAC
        segment, related to intercompany debt not indefinitely invested in the Company’s
        subsidiaries, (8) a charge of approximately $1.2 million, net of minority
        interest of approximately $0.8 million, related to a reserve for amounts
        due
        from a customer in China related to a Chinese construction project within
        the
        HVAC segment and (9) approximately $0.3 million of stock-based compensation
        expense, which is recorded in Unallocated.
 
 SG&A
        for the
        year ended December 31, 2005 includes (1) approximately $0.3 million of
        stock-based compensation expense, which is recorded in Unallocated, (2) a
        non-cash foreign exchange loss of approximately $2.1 million (of which
        approximately $1.2 million is included in the RVP segment) related to
        intercompany debt not indefinitely invested in the Company’s subsidiaries, (3) a
        gain of approximately $1.6 million related to the sale of a corporate office
        building of one of the Company’s subsidiaries in the HTP segment and (4) a gain
        of approximately $1.4 million, which is recorded in Unallocated, from the
        settlement of certain obligations of former subsidiaries.
  *Amortization
        of
        Intangible Assets.* Amortization
        of
        intangible assets, as a percentage of net sales, increased from approximately
        0.9% for the year ended December 31, 2005 to approximately 1.1% for the year
        ended December 31, 2006. The increase is principally due to the impact of
        acquisitions, which contributed approximately $8.1 million to the increase,
        partially offset by higher amortization expense in prior years as a result
        of
        accelerated amortization methods.
  *Depreciation
        Expense.* Depreciation
        expense increased approximately $6.3 million from approximately $26.7 million
        for the year ended December 31, 2005 to approximately $33.0 million for the
        year
        ended December 31, 2006. This increase is primarily attributable to the impact
        of capital expenditures, as well as acquisitions (which represented
        approximately $2.6 million of the increase).
 
 *Operating
        Earnings.* Consolidated
        operating earnings increased by approximately $27.6 million from approximately
        $236.9 million for the year ended December 31, 2005 to approximately $264.5
        million for the year ended December 31, 2006. The increase in consolidated
        operating earnings is primarily due to the factors discussed above and that
        follow. Operating earnings, as a percentage of net sales, decreased from
        approximately 12.1% for the year ended December 31, 2005 to approximately
        11.9%
        for the year ended December 31, 2006.
 
 Operating
        earnings
        of the RVP segment for the year ended December 31, 2006 were approximately
        $139.5 million as compared to approximately $123.9 million for the year ended
        December 31, 2005. Operating earnings of the RVP segment for the year ended
        December 31, 2006 as compared to the same period of 2005 reflects (1) a
        curtailment gain of post-retirement medical and life insurance benefits of
        approximately $35.9 million recorded in the second quarter of 2006, (2) reserves
        of approximately $16.0 million related to estimated losses as a result of
        the
        unlikelihood that certain suppliers to our kitchen range hood subsidiaries
        based
        in Italy and Poland will be able to repay advances and amounts due under
        other
        arrangements, (3) approximately $3.5 million of severance, equipment write-offs
        and other charges related to the closure of the Company’s NuTone facility, (4) a
        decrease of approximately $1.7 million of displays expense, (5) an increase
        in
        earnings of approximately $1.4 million from the effect of foreign currency
        exchange rates, (6) approximately $1.6 million of increased depreciation
        expense
        of property and equipment and approximately $1.7 million of decreased
        amortization of intangible assets, (7) increased warranty expense in the
        first
        quarter of 2006 of approximately $1.5 million related to a product safety
        upgrade, (8) an increase of approximately $0.2 million attributable to
        acquisitions and (9) a non-cash charge of approximately $0.3 million related
        to
        the amortization of purchase price allocated to inventory. Operating earnings
        of
        the RVP segment for the year ended December 31, 2005 reflects (1) a non-cash
        foreign exchange loss of approximately $1.2 million related to intercompany
        debt
        not indefinitely invested in the Company’s subsidiaries and (2) a non-cash
        charge of approximately $0.4 million related to the amortization of purchase
        price allocated to inventory. Operating earnings in the RVP segment for the
        year
        ended December 31, 2006 also improved over the same period in 2005 as a result
        of the factors noted previously including higher average unit sales prices,
        partially offset by lower sales volume of kitchen range hoods and bath
        fans.
 
 Operating
        earnings
        of the HTP segment for the year ended December 31, 2006 were approximately
        $83.9
        million as compared to approximately $71.0 million for the year ended December
        31, 2005. Operating earnings of the HTP segment for the year ended December
        31,
        2006 reflects (1) approximately $10.6 million of operating earnings contributed
        by acquisitions, (2) approximately $2.0 million of increased depreciation
        expense of property and equipment and approximately $4.2 million of increased
        amortization of intangible assets, primarily attributable to acquisitions,
        which
        is included in the impact of acquisitions noted above, (3) an increase in
        warranty expense of approximately $2.3 million related to a product safety
        upgrade and (4) a non-cash charge of approximately $0.2 million, all of which
        is
        included in the impact of acquisitions noted above, related to the amortization
        of purchase price allocated to inventory. Operating earnings of the HTP segment
        for the year ended December 31, 2005 reflects (1) a non-cash charge of
        approximately $0.5 million related to the amortization of purchase price
        allocated to inventory and (2) a gain of approximately $1.6 million related
        to
        the sale of a corporate office building of one of the Company’s subsidiaries.
        The increase in operating earnings in the HTP segment for the year ended
        December 31, 2006 over the same period in 2005 is primarily a result of
        acquisitions, increased net sales volume of audio and video distribution
        equipment, speakers and access control devices, partially offset by higher
        cost
        of products sold as noted previously and, in part, to increased warranty
        expense
        as noted above.
 
 Operating
        earnings
        of the HVAC segment were approximately $64.9 million for the year ended December
        31, 2006 as compared to approximately $66.3 million for the year ended December
        31, 2005. Operating earnings of the HVAC segment for the year ended December
        31,
        2006 reflect (1) approximately $11.9 million of operating earnings contributed
        by acquisitions, (2) a non-cash charge of approximately $2.8 million, all
        of
        which is included in the impact of acquisitions noted above, related to the
        amortization of purchase price allocated to inventory, (3) an approximate
        $1.6
        million gain related to the favorable settlement of litigation, (4) a charge
        of
        approximately $1.2 million, net of minority interest of approximately $0.8
        million, related to a reserve for amounts due from a customer in China related
        to a Chinese construction project, (5) approximately $2.9 million of increased
        depreciation expense of property and equipment attributable primarily to
        capital
        expenditures and approximately $3.9 million of increased amortization of
        intangible assets primarily related to acquisitions, (6) a non-cash foreign
        exchange gain of approximately $0.1 million related to intercompany debt
        not
        indefinitely invested in the Company’s subsidiaries and (7) an increase of
        approximately $0.2 million from the effect of foreign currency exchange rates.
        Operating earnings in the HVAC segment for the year ended December 31, 2006
        decreased over the year ended December 31, 2005 as a result of decreased
        sales
        volume, offset by acquisitions and higher average sales prices of products
        with
        a rating of 13 SEER or higher sold to residential site-built and manufactured
        housing customers. The effect on earnings of continued strategic sourcing
        initiatives and improvements in manufacturing efficiencies and increased
        average
        sales prices, which were partially driven by the change in the minimum SEER
        rating to 13 SEER on January 23, 2006, was partially offset by higher material
        costs within the entire HVAC segment.
 
 The
        operating
        expense in Unallocated was approximately $23.8 million for the year ended
        December 31, 2006 as compared to approximately $24.3 million for the year
        ended
        December 31, 2005. The change in operating expense for the year ended December
        31, 2006 as compared to the same period of 2005 in Unallocated is primarily
        due
        to the items noted below. Operating expense in Unallocated for the year ended
        December 31, 2006 reflects (1) a charge of approximately $2.5 million related
        to
        expenses incurred related to the Company’s initial public offering not yet
        completed, (2) a non-cash foreign exchange gain of approximately $1.2 million
        related to intercompany debt not indefinitely invested in the Company’s
        subsidiaries, (3) an approximate $3.5 million reduction of a compensation
        accrual originally provided in 2004 that was determined to be no longer required
        related to a compensation reserve adjustment, (4) approximately $0.3 million
        of
        stock-based compensation charges and (5) approximately $0.2 million of decreased
        depreciation expense of property and equipment, as well as $0.2 million of
        increased amortization of intangible assets. Operating expense in Unallocated
        for the year ended December 31, 2005 reflects (1) approximately $0.3 million
        of
        stock-based compensation charges, (2) a non-cash foreign exchange loss of
        approximately $0.9 million related to intercompany debt not indefinitely
        invested in the Company’s subsidiaries and (3) a gain of approximately $1.4
        million from the settlement of certain obligations.
 
 Operating
        earnings
        of foreign operations, consisting primarily of the results of operations
        of the
        Company’s Canadian and European subsidiaries, were approximately 6.9% and 10.2%
        of operating earnings (before unallocated and corporate expenses) for the
        years
        ended December 31, 2006 and 2005, respectively. Sales and earnings derived
        from
        international markets are subject to, among others, the risks of currency
        fluctuations.
 
 *Interest
        Expense.* Interest
        expense
        increased approximately $24.3 million or approximately 17.5% during the year
        ended December 31, 2006 as compared to the year ended December 31, 2005.
        During
        the year ended December 31, 2006, the Company experienced increases in interest
        expense primarily as a result of (1) approximately $10.6 million from increased
        interest rates related primarily to Nortek’s senior secured credit facility, (2)
        approximately $11.0 million of debt accretion relating to the PIK option
        on the
        Company’s senior unsecured loan facility in 2006, (3) approximately $6.1 million
        of interest expense related to the accretion of NTK Holdings’ 10 3/4% Senior
        Discount Notes, due primarily to such notes being outstanding for the full
        year
        in 2006 versus approximately ten months in 2005 and (4) an increase of
        approximately $0.6 million related to the amortization of deferred financing
        costs. These increases were offset by a decrease in interest expense of
        approximately $6.6 million related to the amortization of the 2004 Nortek
        Holdings, Inc. 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 $57.7 million, which resulted in additional interest
        expense of approximately $8.2 million, and on May 10, 2006, made a second
        distribution to the participants in the amount of approximately $54.0 million,
        which resulted in additional interest expense of approximately $3.9 million.
        As
        a result of this second distribution, the participants in the deferred
        compensation plan are not entitled to any further distributions.
 
 *Investment
        Income.* Investment
        income
        was approximately $2.2 million and $1.8 million for the years ended December
        31,
        2006 and 2005, respectively.
 
 *Provision
        for
        Income Taxes.* The
        provision for
        income taxes was approximately $46.1 million for the year ended December
        31,
        2006 as compared to approximately $43.2 million for the year ended December
        31,
        2005. The effective income tax rates of 44.4% and 43.2% for the years ended
        December 31, 2006 and 2005, respectively, differed from the United States
        Federal statutory rate of 35% principally as a result of the effect of
        non-deductible expenses, the impact of foreign tax rates on foreign earnings
        and
        state income tax provisions.
 
 *Net
        Earnings.* Consolidated net
        earnings improved by approximately $0.8 million from approximately $56.9
        million
        for the year ended December 31, 2005 to approximately $57.7 million for the
        year
        ended December 31, 2006. This increase was primarily due to the factors
        discussed above which included an increase of approximately $27.6 million
        in
        consolidated operating earnings and an increase of approximately $0.4 million
        in
        investment income, which was offset by an increase of approximately $2.9
        million
        in the provision for income taxes and an increase of approximately $24.3
        million
        in interest expense.
 
 *EBITDA.* The
        Company uses
        EBITDA as both an operating performance and liquidity measure. Operating
        performance measure disclosures with respect to EBITDA are provided below.
        Refer
        to the Liquidity and Capital Resources section for liquidity measure disclosures
        with respect to EBITDA and a reconciliation from net cash flows from operating
        activities to EBITDA.
 
 EBITDA
        is defined
        as net earnings (loss) before interest, taxes, depreciation and amortization
        expense. EBITDA is not a measure of operating performance under U.S. generally
        accepted accounting principles (“GAAP”) and should not be considered as an
        alternative or substitute for GAAP profitability measures such as operating
        earnings (loss) from continuing operations, discontinued operations,
        extraordinary items and net earnings (loss). EBITDA as an operating performance
        measure has material limitations since it excludes, among other things, the
        statement of operations impact of depreciation and amortization expense,
        interest expense and the provision (benefit) for income taxes and therefore
        does
        not necessarily represent an accurate measure of profitability, particularly
        in
        situations where a company is highly leveraged or has a disadvantageous tax
        structure. The Company uses a significant amount of capital assets and
        depreciation and amortization expense is a necessary element of the Company’s
        costs and ability to generate revenue and therefore its exclusion from EBITDA
        is
        a material limitation. The Company has a significant amount of debt and interest
        expense is a necessary element of the Company’s costs and ability to generate
        revenue and therefore its exclusion from EBITDA is a material limitation.
        The
        Company generally incurs significant U.S. federal, state and foreign income
        taxes each year and the provision (benefit) for income taxes is a necessary
        element of the Company’s costs and therefore its exclusion from EBITDA is a
        material limitation. As a result, EBITDA should be evaluated in conjunction
        with
        net earnings (loss) for a more complete analysis of the Company’s profitability,
        as net earnings (loss) includes the financial statement impact of these items
        and is the most directly comparable GAAP operating performance measure to
        EBITDA. As EBITDA is not defined by GAAP, the Company’s definition of EBITDA may
        differ from and therefore may not be comparable to similarly titled measures
        used by other companies, thereby limiting its usefulness as a comparative
        measure. Because of the limitations that EBITDA has as an analytical tool,
        investors should not consider it in isolation, or as a substitute for analysis
        of the Company’s operating results as reported under GAAP.
 
 Company
        management
        uses EBITDA as a supplementary non-GAAP operating performance measure to
        assist
        with its overall evaluation of Company and subsidiary operating performance
        (including the performance of subsidiary management) relative to outside
        peer
        group companies. In addition, the Company uses EBITDA as an operating
        performance measure in financial presentations to the Company’s Board of
        Directors, shareholders, various banks participating in Nortek’s Credit
        Facility, note holders and Bond Rating agencies, among others, as a supplemental
        non-GAAP operating measure to assist them in their evaluation of the Company’s
        performance. The Company is also active in mergers, acquisitions and
        divestitures and uses EBITDA as an additional operating performance measure
        to
        assess Company, subsidiary and potential acquisition target enterprise value
        and
        to assist in the overall evaluation of Company, subsidiary and potential
        acquisition target performance on an internal basis and relative to peer
        group
        companies. The Company uses EBITDA in conjunction with traditional GAAP
        operating performance measures as part of its overall assessment of potential
        valuation and relative performance and therefore does not place undue reliance
        on EBITDA as its only measure of operating performance.
 
 The
        Company
        believes EBITDA is useful for both the Company and investors as it is a commonly
        used analytical measurement for comparing company profitability, which
        eliminates the effects of financing, differing valuations of fixed and
        intangible assets and tax structure decisions. The Company believes that
        EBITDA
        is specifically relevant to the Company, due to the different degrees of
        leverage among its competitors, the impact of purchase accounting associated
        with acquisitions, which impacts comparability with its competitors who may
        or
        may not have recently revalued their fixed and intangible assets, and the
        differing tax structures and tax jurisdictions of certain of the Company’s
        competitors. The Company has included EBITDA as a supplemental operating
        performance measure, which should be evaluated by investors in conjunction
        with
        the traditional GAAP performance measures discussed earlier in this Results
        of
        Operations section for a complete evaluation of the Company’s operating
        performance.
 
 The
        following table
        presents a reconciliation from net earnings, which is the most directly
        comparable GAAP operating performance measure, to EBITDA for the years ended
        December 31, 2006 and 2005:


**For
                  the year ended December 31,****2006**
              
              **2005***(Amounts
                  in millions)***Net
                  earnings (1), (2)**
              
              $
              57.7
              
              $
              56.9Provision
                  for
                  income taxes
              
              
              46.1
              
              
              43.2Interest
                  expense (3)
              
              
              162.9
              
              
              138.6Investment
                  income
              
              
              (2.2
              )
              
              (1.8
              )Depreciation
                  expense
              
              
              33.0
              
              
              26.7Amortization
                  expense
              
              
              28.2
              
              
              19.2**EBITDA**
              
              $
              325.7
              
              $
              282.8


(1) Net
        earnings
        include an approximate $35.9 million curtailment gain related to post-retirement
        medical and life insurance benefits, reserves of approximately $16.0 million
        related to estimated losses as a result of the unlikelihood that certain
        suppliers to our kitchen range hood subsidiaries based in Italy and Poland
        will
        be able to repay advances and amounts due under other arrangements, an
        approximate $3.5 million charge related to the closure of the Company’s NuTone,
        Inc. Cincinnati, Ohio facility and an increase in warranty expense in the
        first
        quarter of 2006 of approximately $1.5 million related to a product safety
        upgrade in the RVP segment for the year ended December 31, 2006. Net earnings
        include an increase in warranty expense of approximately $2.3 million related
        to
        a product safety upgrade in the HTP segment for the year ended December 31,
        2006. Net earnings include an approximate $1.6 million gain related to the
        favorable settlement of litigation and a charge of approximately $1.2 million,
        net of minority interest of approximately $0.8 million, related to a reserve
        for
        amounts due from a customer in China related to a Chinese construction project
        in the HVAC segment for the year ended December 31, 2006. Net earnings include
        an approximate $3.5 million reduction of a compensation accrual originally
        provided in 2004 that was determined to be no longer required, a charge of
        approximately $2.5 million related to expenses incurred related to the Company's
        initial public offering not yet completed, a non-cash foreign exchange gain
        of
        approximately $1.2 million related to intercompany debt not indefinitely
        invested in the Company’s subsidiaries and approximately $0.3 million of
        stock-based compensation charges, which is included in Unallocated, for the
        year
        ended December 31, 2006 .
 
 (2) Net
        earnings
        include a non-cash foreign exchange loss of approximately $1.2 million related
        to intercompany debt not indefinitely invested in the Company’s subsidiaries in
        the RVP segment for the year ended December 31, 2005. Net earnings include
        a
        gain of approximately $1.6 million related to the sale of a corporate office
        building of one of the Company’s subsidiaries in the HTP segment for the year
        ended December 31, 2005. Net earnings include approximately $0.3 million
        of
        stock-based compensation charges, which is included in Unallocated, for the
        year
        ended December 31, 2005 .
 
 (3) Interest
        expense
        for the year ended December 31, 2006 includes cash interest of approximately
        $115.3 million (including approximately $3.9 million relating to the accelerated
        amortization of the Nortek Holdings deferred compensation plan) and non-cash
        interest of approximately $47.6 million. Interest expense for the year ended
        December 31, 2005 includes cash interest of approximately $108.7 million
        (including approximately $8.2 million relating to the accelerated amortization
        of the Nortek Holdings deferred compensation plan) and non-cash interest
        of
        approximately $29.9 million.


**Year
      ended December 31, 2005 as compared to the period from January 1, 2004 to August
      27, 2004 and the period from August 28, 2004 to December 31,
      2004**





*Net
      Sales.* Consolidated
      net
      sales from continuing operations increased approximately $280.3 million 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 RVP segment,
        net sales increased approximately $29.3 million or 3.8% for the year ended
        December 31, 2005 as compared to the combined year ended December 31, 2004.
        Net
        sales in the RVP segment for the year ended December 31, 2005 include an
        increase of approximately $6.8 million attributable to the effect of changes
        in
        foreign currency exchange rates.
 
 The
        increase in net
        sales in the RVP 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 the RVP 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 HTP segment,
        net sales increased approximately $147.3 million 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 the HTP segment for the year ended December 31,
        2005
        includes approximately $80.7 million attributable to acquisitions and the
        balance of the increase is predominately due to increased sales
        volume.
 
 In
        the HVAC
        segment, net sales increased approximately $103.7 million or 14.7% for the
        year
        ended December 31, 2005 as compared to the combined year ended December 31,
        2004. Net sales in the HVAC segment for the year ended December 31, 2005
        include
        (1) an increase of approximately $2.4 million attributable to the effect
        of
        changes in foreign currency exchange rates and (2) approximately $5.7 million
        attributable to acquisitions. Net sales in the HVAC segment for HVAC products
        sold to residential site-built customers constituted the largest category
        of
        product sold to a particular group of customers within the HVAC segment.
        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 the
        HVAC 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
        for residential central air conditioners to 13 SEER 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 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.
 
 Foreign
        net sales,
        which are attributed based on the location of the Company’s subsidiary
        responsible for the sale, were approximately 18.5% and 20.4% of consolidated
        net
        sales for the years ended December 31, 2005 and 2004, respectively. Net sales
        from the Company’s Canadian subsidiaries were approximately 8.1% and 8.6% of
        consolidated net sales for the years ended December 31, 2005 and 2004,
        respectively, and include net sales from the RVP and HVAC segments. Net sales
        from the Company’s European subsidiaries were approximately 9.9% and 11.8% of
        consolidated net sales for the years ended December 31, 2005 and 2004,
        respectively, and include net sales primarily from the RVP and HVAC segments
        and
        to a lesser extent the HTP segment in 2005.
 
 *Cost
        of
        Products Sold.* Consolidated
        cost
        of products sold was approximately $1,361.4 million for the year ended December
        31, 2005 as compared to approximately $1,201.9 million 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 RVP segment,
        cost of products sold for the year ended December 31, 2005 was approximately
        $544.9 million, or 68.6% as a percentage of the RVP segment's net sales,
        as
        compared to approximately $518.8 million, or 67.8% as a percentage of the
        RVP
        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 RVP 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.
        Cost of products sold in the RVP segment for the year ended December 31,
        2005
        includes (1) an increase of approximately $4.2 million related to the effect
        of
        changes in foreign currency exchange rates, (2) approximately $1.1 million
        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 $0.4 million related to the amortization of purchase price
        allocated to inventory. Cost of products sold in the RVP segment for the
        combined year ended December 31, 2004 includes a non-cash charge of
        approximately $1.1 million related to the amortization of purchase price
        allocated to inventory as a result of the Acquisition.
 
 In
        the HTP segment,
        cost of products sold for the year ended December 31, 2005 was approximately
        $184.2 million, or 51.9% as a percentage of the HTP segment's net sales,
        as
        compared to approximately $105.3 million, or 50.7% as a percentage of the
        HTP
        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
        the HTP segment prior to the acquisitions. Cost of products sold in the HTP
        segment for the year ended December 31, 2005 includes (1) approximately $47.5
        million of cost of products sold contributed from acquisitions, (2)
        approximately $0.1 million 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 the HTP segment and (3) a non-cash charge
        of
        approximately $0.5 million, of which approximately $0.2 million is included
        in
        the impact of acquisitions noted above, related to the amortization of purchase
        price allocated to inventory. Cost of products sold in the HTP segment for
        the
        combined year ended December 31, 2004 includes (1) a non-cash charge of
        approximately $3.7 million related to the amortization of purchase price
        allocated to inventory as a result of the Acquisition and (2) a non-cash
        charge
        of approximately $0.2 million related to the amortization of purchase price
        allocated to inventory as a result of an acquisition.
 
 In
        the HVAC segment
        cost of products sold for year ended December 31, 2005 was approximately
        $632.3
        million, or 78.1% as a percentage of the HVAC segment's net sales, as compared
        to approximately $577.8 million, or 81.8% as a percentage of the HVAC 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 the HVAC segment in the
        year
        ended December 31, 2005 includes (1) an increase of approximately $2.0 million
        related to the effect of changes in foreign currency exchange rates, (2)
        approximately $4.2 million attributable to acquisitions in the HVAC segment
        and
        (3) approximately $0.3 million 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 $2.6 million of costs associated with the closure
        of
        certain manufacturing facilities, (2) approximately $7.6 million 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 $0.9 million
        related to the amortization of purchase price allocated to inventory as a
        result
        of the Acquisition.
 
 *Selling,
        General and Administrative Expense.* Consolidated
        SG&A for the year ended December 31, 2005 and the periods from January 1,
        2004 to August 27, 2004 and from August 28, 2004 to December 31, 2004 was
        approximately $342.6 million, $199.9 million and $101.4 million, respectively.
        Consolidated SG&A, as a percentage of net sales, for the year ended December
        31, 2005 and the periods from January 1, 2004 to August 27, 2004 and from
        August
        28, 2004 to December 31, 2004 was approximately 17.5%, 17.9%, and 18.1%,
        respectively. The decrease in SG&A as a percentage of net sales for the year
        ended December 31, 2005 was primarily due to lower compensation and employee
        benefit expense in Unallocated, as well as the factors noted below.
 
 SG&A
        for the
        year ended December 31, 2005 includes (1) approximately $24.7 million from
        acquisitions in the HTP and HVAC segments, (2) an increase over 2004 of
        approximately $2.7 million of displays expense in the RVP segment related
        in
        part to the introduction of new products, (3) an increase over 2004 of
        approximately $1.8 million (of which approximately $1.4 million is included
        in
        the RVP segment and approximately $0.4 million is included in the HVAC segment)
        related to the effect of changes in foreign currency exchange rates, (4)
        a
        non-cash foreign exchange loss of approximately $2.1 million (of which
        approximately $1.2 million is included in the RVP segment) related to
        intercompany debt not indefinitely invested in the Company’s subsidiaries, (5) a
        gain of approximately $1.6 million related to the sale of a corporate office
        building of one of the Company’s subsidiaries in the HTP segment, (6)
        approximately $0.3 million of stock-based compensation expense (which is
        recorded in Unallocated) and (7) a gain of approximately $1.4 million from
        the
        settlement of certain obligations.
 
 SG&A
        for the
        period from January 1, 2004 to August 27, 2004 includes (1) approximately
        $3.3
        million of stock-based compensation expense, of which approximately $2.3
        million
        is included in Unallocated and (2) a non-cash foreign exchange loss of
        approximately $0.8 million, of which approximately $0.6 million is recorded
        in
        the RVP segment, related to intercompany debt not indefinitely invested in
        the
        Company’s subsidiaries.
 
 SG&A
        for the
        period from August 28, 2004 to December 31, 2004 includes (1) approximately
        $0.1
        million of stock-based compensation charges, which is included in Unallocated,
        and (2) a non-cash foreign exchange gain of approximately $0.4 million, of
        which
        approximately $0.3 million is recorded in the RVP segment, related to
        intercompany debt not indefinitely invested in the Company’s
        subsidiaries.
 
 *Amortization
        of
        Intangible Assets.* Amortization
        of
        intangible assets for the year ended December 31, 2005 and the periods from
        January 1, 2004 to August 27, 2004 and from August 28, 2004 to December 31,
        2004
        was approximately $18.3 million, $8.9 million and $8.4 million, respectively.
        Amortization of intangible assets as a percentage of net sales, for the year
        ended December 31, 2005 and the periods from January 1, 2004 to August 27,
        2004
        and from August 28, 2004 to December 31, 2004 was approximately 0.9%, 0.8%
        and
        1.5%, respectively. The change in the amortization of intangible assets as
        a
        percentage of net sales for the year ended December 31, 2005 is principally
        as a
        result of utilizing accelerated amortization methods, partially offset by
        increased amortization of intangible assets in the HTP segment 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.
 
 *Expenses
        and
        Charges Arising from the Acquisition.* The
        period from
        January 1, 2004 to August 27, 2004 includes approximately $83.7 million,
        or 7.5%
        as a percentage of net sales, of expenses and charges arising from the
        Acquisition. Included within the $83.7 million of expenses and charges is
        approximately $45.2 million (of which approximately $34.1 million is included
        in
        Unallocated, approximately $3.5 million is included in the RVP segment,
        approximately $1.8 million is included in the HTP segment and approximately
        $5.8
        million is included in the HVAC segment) of stock-based compensation expense
        related to the Acquisition.
 
 *Operating
        Earnings.* Consolidated
        operating earnings for the year ended December 31, 2005 and the periods from
        January 1, 2004 to August 27, 2004 and from August 28, 2004 to December 31,
        2004
        were approximately $236.9 million, $32.6 million and $42.1 million,
        respectively. Consolidated operating earnings, as a percentage of net sales,
        for
        the year ended December 31, 2005 and the periods from January 1, 2004 to
        August
        27, 2004 and from August 28, 2004 to December 31, 2004 were approximately
        12.1%,
        2.9% and 7.5%, respectively. The increase in consolidated operating earnings
        as
        a percentage of net sales for the year ended December 31, 2005 is primarily
        due
        to the factors discussed above and that follow.
 
 Operating
        earnings
        of the RVP segment for the year ended December 31, 2005 and the periods from
        January 1, 2004 to August 27, 2004 and from August 28, 2004 to December 31,
        2004
        were approximately $123.9 million, $79.9 million and $39.7 million,
        respectively. Operating earnings of this segment for the year ended December
        31,
        2005 include (1) an increase over 2004 in earnings of approximately $1.3
        million
        from the effect of foreign currency exchange rates, (2) approximately $0.5
        million of increased depreciation expense of property and equipment over
        2004
        and approximately $0.1 million of increased amortization of intangible assets
        over 2004, (3) a non-cash charge of approximately $0.4 million related to
        the
        amortization of purchase price allocated to inventory and (4) a non-cash
        foreign
        exchange loss of approximately $1.2 million related to intercompany debt
        not
        indefinitely invested in the Company’s subsidiaries.
 
 Operating
        earnings
        of the RVP segment for the period from January 1, 2004 to August 27, 2004
        include (1) approximately $3.8 million of stock-based compensation charges
        (of
        which approximately $3.5 million is included in the $83.7 million of expenses
        and charges arising from the Acquisition as noted above) and (2) a non-cash
        foreign exchange loss of approximately $0.6 million related to intercompany
        debt
        not indefinitely invested in the Company’s subsidiaries.
 
 Operating
        earnings
        of the RVP segment for the period from August 28, 2004 to December 31, 2004
        include (1) a non-cash charge of approximately $1.1 million related to the
        amortization of purchase price allocated to inventory as a result of the
        Acquisition and (2) a non-cash foreign exchange gain of approximately $0.3
        million 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 RVP segment improved
        in 2005 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 HTP segment for the year ended December 31, 2005 and the periods from
        January 1, 2004 to August 27, 2004 and from August 28, 2004 to December 31,
        2004
        were approximately $71.0 million, $22.9 million and $12.9 million, respectively.
        Operating earnings of the HTP segment for the year ended December 31, 2005
        include (1) approximately $9.5 million of operating earnings contributed
        by
        acquisitions, (2) approximately $0.5 million of increased depreciation expense
        of property and equipment over 2004 primarily attributable to acquisitions,
        which is included in the impact of acquisitions noted above, (3) approximately
        $1.6 million of increased amortization of intangible assets over 2004, (4)
        a
        non-cash charge of approximately $0.5 million, of which approximately $0.3
        million relates to the Acquisition and approximately $0.2 million relates
        to the
        acquisitions as noted above, related to the amortization of purchase price
        allocated to inventory and (5) a gain of approximately $1.6 million related
        to
        the sale of a corporate office building of one of the Company’s
        subsidiaries.
 
 Operating
        earnings
        of the HTP segment for the period from January 1, 2004 to August 27, 2004
        include (1) approximately $2.1 million of stock-based compensation charges
        (of
        which approximately $1.8 million is included in the $83.7 million of expenses
        and charges arising from the Acquisition as noted above) and (2) a non-cash
        charge of approximately $0.2 million of amortization of purchase price allocated
        to inventory as a result of acquisitions.
 
 Operating
        earnings
        of the HTP segment for the period from August 28, 2004 to December 31, 2004
        reflect a non-cash charge of approximately $3.7 million related to the
        amortization of purchase price allocated to inventory as a result of the
        Acquisition.
 
 In
        addition to the
        effect of the items noted above, operating earnings in the HTP segment improved
        in 2005 primarily as a result of increased net sales volume of audio and
        video
        distribution equipment, speakers and access control devices.
 
 Operating
        earnings
        (loss) of the HVAC segment for the year ended December 31, 2005 and the periods
        from January 1, 2004 to August 27, 2004 and from August 28, 2004 to December
        31,
        2004 were operating earnings of approximately $66.3 million, operating earnings
        of approximately $25.5 million and an operating loss of approximately $2.6
        million, respectively. Operating earnings of this segment for the year ended
        December 31, 2005 include (1) a decrease in earnings from 2004 of approximately
        $0.1 million from the effect of foreign currency exchange rates, (2)
        approximately $0.2 million of increased depreciation expense of property
        and
        equipment over 2004 and an approximately $0.8 million decrease in intangible
        amortization from 2004 and (3) approximately $0.4 million of operating expense
        contributed by acquisitions.
 
 Operating
        earnings
        of the HVAC segment for the period from January 1, 2004 to August 27, 2004
        include (1) approximately $2.2 million of costs associated with the closure
        of
        certain manufacturing facilities, (2) approximately $6.5 million of estimated
        inefficient production costs and expenses associated with the start-up of
        a new
        manufacturing facility and (3) approximately $6.2 million of stock-based
        compensation charges (of which approximately $5.8 million is included in
        the
        $83.7 million of expenses and charges arising from the Acquisition as noted
        above).
 
 Operating
        earnings
        of the HVAC segment for the period from August 28, 2004 to December 31, 2004
        include (1) approximately $0.4 million of costs associated with the closure
        of
        certain manufacturing facilities, (2) approximately $1.1 million 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 $0.9 million
        related to the amortization of purchase price allocated to inventory as a
        result
        of the Acquisition.
 
 In
        addition to the
        items noted above, operating earnings in the HVAC segment improved in 2005
        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.
 
 Operating
        expense
        in Unallocated for the year ended December 31, 2005 and the periods from
        January
        1, 2004 to August 27, 2004 and from August 28, 2004 to December 31, 2004
        was
        approximately $24.3 million, $95.7 million and $7.9 million, respectively.
        The
        change in operating expense for the year ended December 31, 2005 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 includes (1) approximately $0.3 million of stock-based
        compensation charges, (2) a non-cash foreign exchange loss of approximately
        $0.9
        million related to intercompany debt not indefinitely invested in the Company’s
        subsidiaries, (3) a gain of approximately $1.4 million from the settlement
        of
        certain obligations and (4) approximately $0.1 million of increased amortization
        of intangible assets over 2004.
 
 Operating
        expense
        in Unallocated for the period from January 1, 2004 to August 27, 2004 includes
        (1) approximately $36.4 million of stock-based compensation charges (including
        approximately $34.1 million of charges arising from the Acquisition), (2)
        approximately $38.5 million of fees and expenses associated with the
        Acquisition, other than stock-based compensation and (3) a non-cash foreign
        exchange loss of approximately $0.2 million related to intercompany debt
        not
        indefinitely invested in the Company’s subsidiaries.
 
 Operating
        expense
        in Unallocated for the period from August 28, 2004 to December 31, 2004 reflects
        (1) approximately $0.1 million of stock-based compensation charges and (2)
        a
        non-cash foreign exchange gain of approximately $0.1 million related to
        intercompany debt not indefinitely invested in the Company’s
        subsidiaries.
 
 Operating
        earnings
        of foreign operations, consisting primarily of the results of operations
        of the
        Company’s Canadian and European subsidiaries, were approximately 10.2%, 11.1%
        and 12.4% of operating earnings (before unallocated and corporate expenses)
        for
        the year ended December 31, 2005 and the periods from January 1, 2004 to
        August
        27, 2004 and from August 28, 2004 to December 31, 2004, respectively. Sales
        and
        earnings derived from international markets are subject to, among others,
        the
        risks of currency fluctuations.
 
 *Interest
        Expense.* Interest
        expense
        for the year ended December 31, 2005 and the periods from January 1, 2004
        to
        August 27, 2004 and from August 28, 2004 to December 31, 2004 was approximately
        $138.6 million, $56.1 million and $42.5 million, respectively. Interest expense,
        as a percentage of net sales, for the year ended December 31, 2005 and the
        periods from January 1, 2004 to August 27, 2004 and from August 28, 2004
        to
        December 31, 2004 was approximately 7.1%, 5.0% and 7.6%, respectively. The
        change in interest expense, as a percentage of net sales, is primarily due
        to
        the factors discussed below. During the year ended December 31, 2005, the
        Company experienced increases in interest expense related to (1) approximately
        $63.2 million from additional borrowings primarily in connection with the
        Acquisition, (2) approximately $9.4 million of additional interest expense
        over
        2004 related to the amortization of the 2004 Nortek Holdings, Inc. Deferred
        Compensation Plan and (3) approximately $24.2 million of interest expense
        related to the accretion of NTK Holdings' 10 3/4% senior discount notes.
        These
        increases from 2004 were offset by a reduction in interest expense of
        approximately $53.5 million relating to the redemption and open market purchases
        of certain debt during the period from January 1, 2004 to August 27, 2004
        as
        discussed in the paragraph below, as well as, a reduction in the amortization
        of
        deferred financing costs of approximately $3.3 million, relating primarily
        to
        the amortization of commitment fees and related expenses recorded in the
        third
        quarter of 2004 of approximately $6.3 million in connection with the
        bridge-facility to fund the consummation of the Acquisition should it have
        been
        necessary.
 
 *Loss
        from Debt
        Retirement.* On
        August 27, 2004,
        the Company purchased for cash all of the former Nortek Holdings' 10% senior
        discount notes due 2011, Nortek's $200.0 million floating rate notes due
        2010,
        and most of Nortek's 9 7/8% senior subordinated notes due 2011, and recorded
        a
        pretax loss from debt retirement of approximately $118.8 million in the period
        from January 1, 2004 to August 27, 2004. In addition, during the first quarter
        of 2004, the Company called for redemption all of Nortek's outstanding 9
        1/4%
        senior notes due 2007, all of Nortek's outstanding 9
        1/8% senior notes
        due 2007 and all of Nortek's outstanding 8 7/8% senior notes due 2008. The
        redemption of the 9 1/4% senior notes, 9 1/8% senior notes and 8 7/8% senior
        notes resulted in a pre-tax loss of approximately $11.9 million 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%
        senior notes, 9 1/8% senior notes and 8 7/8% senior 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 period from January
        1,
        2004 to August 27, 2004 of approximately $130.7 million.
 
 *Investment
        Income.* Investment
        income
        for the year ended December 31, 2005 and the periods from January 1, 2004
        to
        August 27, 2004 and from August 28, 2004 to December 31, 2004 was approximately
        $1.8 million, $1.5 million and $0.3 million, respectively. Investment income,
        as
        a percentage of net sales, for the year ended December 31, 2005 and the periods
        from January 1, 2004 to August 27, 2004 and from August 28, 2004 to December
        31,
        2004 was approximately 0.1%, 0.1% and 0.1%, respectively.
 
 *Provision
        (Benefit) for Income Taxes.* The
        provision
        (benefit) for income taxes from continuing operations for the year ended
        December 31, 2005 and the periods from January 1, 2004 to August 27, 2004
        and
        from August 28, 2004 to December 31, 2004 was a provision for income taxes
        of
        approximately $43.2 million, a benefit for income taxes of approximately
        $41.4
        million and a provision for income taxes of approximately $3.5 million,
        respectively. The income tax rates for all periods 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.
 
 *Discontinued
        Operations.* Discontinued
        operations for the period from January 1, 2004 to August 27, 2004 include
        earnings of approximately $67.4 million (net of a tax provision of approximately
        $45.5 million) and include a loss of approximately $0.5 million for the period
        from August 28, 2004 to December 31, 2004 related to an additional tax
        provision.
 
 *Net
        Earnings
        (Loss).* Net
        earnings (loss)
        for the year ended December 31, 2005 and the periods from January 1, 2004
        to
        August 27, 2004 and from August 28, 2004 to December 31, 2004 were net earnings
        of approximately $56.9 million, a net loss of approximately $43.9 million
        and a
        net loss of approximately $4.1 million, respectively. The changes in net
        earnings (loss) for the periods principally reflect the factors discussed
        above.
 
 *EBITDA.* The
        Company uses
        EBITDA as both an operating performance and liquidity measure. Operating
        performance measure disclosures with respect to EBITDA are provided below.
        See
“Liquidity and Capital Resources” 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 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.
 
 The
        Company’s
        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 its Board of
        Directors, shareholders, various banks participating in Nortek’s senior secured
        credit facility, note holders and bond rating agencies, among others, as
        a
        supplemental non-GAAP operating measure to assist them in their evaluation
        of
        the Company’s performance. The Company is also active in mergers, acquisitions
        and divestitures and uses EBITDA as an additional operating performance measure
        to assess company, subsidiary and potential acquisition target enterprise
        value
        and to assist in the overall evaluation of company, subsidiary and potential
        acquisition target performance on an internal basis and relative to peer
        group
        companies. The Company uses EBITDA in conjunction with traditional GAAP
        operating performance measures as part of its overall assessment of potential
        valuation and relative performance and therefore does not place undue reliance
        on EBITDA as its only measure of operating performance. The Company believes
        EBITDA is useful for both the Company and investors as it is a commonly used
        analytical measurement for comparing company profitability, which eliminates
        the
        effects of financing, differing valuations of fixed and intangible assets
        and
        tax structure decisions. The Company believes that EBITDA is specifically
        relevant to the Company, due to the different degrees of leverage among its
        competitors, the impact of purchase accounting associated with the Acquisition,
        which impacts comparability with its competitors who may or may not have
        recently revalued their fixed and intangible assets, and the differing tax
        structures and tax jurisdictions of certain of its 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 millions)***Net
                    earnings (loss) (1)**
                
                $
                56.9
                
                $
                (4.1
                )
                $
                (43.9
                )Provision
                    (benefit) for income taxes from continuing operations
                
                
                43.2
                
                
                3.5
                
                
                (41.4
                )Provision
                    for
                    income taxes from discontinued operations
                
                
                ---
                
                
                0.5
                
                
                45.5Interest
                    expense from continuing operations (2)
                
                
                138.6
                
                
                42.5
                
                
                56.1Interest
                    expense from discontinued operations
                
                
                ---
                
                
                ---
                
                
                4.6Investment
                    income from continuing operations
                
                
                (1.8
                )
                
                (0.3
                )
                
                (1.5
                )Depreciation
                    expense from continuing operations
                
                
                26.7
                
                
                8.4
                
                
                16.7Depreciation
                    expense from discontinued operations
                
                
                ---
                
                
                ---
                
                
                1.2Amortization
                    expense from continuing operations
                
                
                19.2
                
                
                14.1
                
                
                9.1Amortization
                    expense from discontinued operations
                
                
                ---
                
                
                ---
                
                
                0.2**EBITDA**
                
                $
                282.8
                
                $
                64.6
                
                $
                46.6


(1) Net
        earnings (loss)
        includes approximately $0.3 million, $0.1 million and $48.5 million 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.
 
 Net
        earnings (loss)
        includes a loss from discontinued operations of approximately $0.5 million
        for
        the period from August 28, 2004 to December 31, 2004 and includes earnings
        from
        discontinued operations of approximately $67.4 million for the period from
        January 1, 2004 to August 27, 2004.
 
 Net
        earnings
        (loss) for the period from January 1, 2004 to August 27, 2004 includes approximately
        $83.7 million (which includes approximately $45.2 million of the $48.5 million
        of stock-based compensation expense noted above) of expenses and charges
        arising
        from the Acquisition and approximately $130.7 million of loss on debt
        retirement, which are recorded in earnings (loss) from continuing operations.
        Net earnings (loss) for the period from January 1, 2004 to August 27, 2004
        also
        includes approximately $6.4 million 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.
 
 (2) Interest
        expense
        from continuing operations for the year ended December 31, 2005 includes
        cash
        interest of approximately $108.7 million and non-cash interest of approximately
        $29.9 million, interest expense from continuing operations for the period
        from
        August 28, 2004 to December 31, 2004 includes cash interest of approximately
        $38.4 million and non-cash interest of approximately $4.1 million and interest
        expense from continuing operations for the period from January 1, 2004 to
        August
        27, 2004 includes cash interest of approximately $31.4 million and non-cash
        interest of approximately $24.7 million.


**Liquidity
      and Capital Resources**




Certain
        sole source
        suppliers of various fabricated material components and sub-assemblies
        (“material components”) to the Company’s kitchen range hood subsidiaries based
        in Italy and Poland experienced financial difficulties in January 2007. The
        Company is working and will continue to work closely with these suppliers
        to
        help them in meeting the supply needs of these subsidiaries for the foreseeable
        future. The Company has not experienced any significant difficulties in its
        production or shipments to its customers as a result of these suppliers’
difficulties in maintaining its production as of March 30, 2007. However,
        there
        can be no assurance that the Company will be able to continue to prevent
        a
        disruption in the supply of such material components or be able to find
        alternative suppliers. Should these suppliers be unable to continue in operation
        and the Company is unable to find alternative suppliers for a lengthy period
        of
        time, the Company could experience a material adverse effect on its operations.
        These subsidiaries based in Italy and Poland accounted for approximately
        7% of
        the Company’s consolidated net sales and 5%, before the loss described below, of
        consolidated operating earnings for the year ended December 31, 2006 and
        accounted for approximately 7% of the Company’s consolidated net sales and 4% of
        consolidated operating earnings for the year ended December 31, 2005 and
        approximately 6.5% and 6.2% of consolidated assets at December 31, 2006 and
        2005, respectively. The Company recorded approximately $16.0 million of
        estimated losses in the RVP segment in the fourth quarter of 2006 in selling,
        general and administrative expense, net resulting from the unlikelihood that
        these suppliers will be able to repay advances from our subsidiaries based
        in
        Italy and Poland and amounts due under other arrangements. While the Company
        has
        recorded its best estimate of the losses related to these suppliers, the
        actual
        losses may be different than the amounts recorded at December 31,
        2006.
 
 On
        May 5, 2006, the
        Company filed a registration statement on Form S-1 (most recently amended
        on
        September 15, 2006) with the SEC for an initial public offering of shares
        of its
        common stock (the “Offering”). Although the Company has not withdrawn its
        registration statement on Form S-1, there can be no assurance that the Company
        will complete the Offering in the foreseeable future. Accordingly, the Company
        expensed approximately $2.5 million of costs incurred in connection with
        the
        Offering, which are included in selling, general and administrative expense,
        net
        in the consolidated statement of operations for the year ended December 31,
        2006.
 
 The
        Company
        regularly acquires companies, typically utilizing cash and proceeds from
        additional indebtedness to finance these acquisitions. Companies acquired
        during
        the year ended December 31, 2006 and the impact on cash flows were as follows:
 
 ·
            On
                December
                12, 2006, the Company, through its wholly-owned subsidiary, Linear
                LLC
                (“Linear”), acquired the stock of Gefen, Inc. (“Gefen”) for approximately
                $22.5 million (utilizing approximately $20.0 million of cash and
                issuing
                unsecured 6% subordinated notes totaling $2.5 million due December
                2008)
                plus contingent consideration, which may be payable in future years. ·
            On
                November
                11, 2006, the Company, through its wholly-owned subsidiary, Broan-NuTone
                LLC (“Broan”), acquired the stock of Zephyr Corporation (“Zephyr”) and
                Pacific Zephyr Range Hood, Inc. (“Pacific”) for approximately $26.4
                million (utilizing approximately $22.4 million of cash and issuing
                unsecured 6% subordinated notes totaling $4.0 million due November
                2009). ·
            On
                July 18,
                2006, the Company, through Linear, acquired the stock of Magenta
                for
                approximately $14.4 million (utilizing approximately $11.9 million
                of
                cash, of which approximately $10.0 million was borrowed under Nortek’s
                revolving credit facility and is still outstanding at December 31,
                2006,
                and issuing unsecured 6% subordinated notes totaling $2.5 million
                due July
                2008), plus contingent consideration, which may be payable in future
                years. ·
            On
                June 26,
                2006, the Company, through Linear, acquired the stock of Secure Wireless
                and ABT through two mergers for an initial purchase price of approximately
                $10.5 million, plus contingent consideration of approximately $18.1
                million that was earned in 2006 and will be paid in 2007. Additional
                contingent consideration may be payable in future years. ·
            On
                April 14,
                2006, the Company, through two newly formed subsidiaries of its HVAC
                segment, acquired the assets and certain liabilities of Huntair and
                Cleanpak, for an initial purchase price of approximately $48.4 million
                (utilizing approximately $38.4 million of cash and issuing unsecured
                6%
                subordinated notes totaling $10.0 million due April 2008) plus contingent
                consideration of approximately $30.0 million which was earned in
                2006 and
                will be paid in 2007. ·
            On
                February
                22, 2006, the Company, through Linear, acquired the assets and certain
                liabilities of Furman for approximately $3.3
                million. ·
            On
                January
                25, 2006, the Company, through Mammoth China, increased its ownership
                interests in MEG and MSH to sixty-percent for approximately $2.4
                million. ·
            Contingent
                consideration related to the acquisitions of Panamax and GTO was
                also paid
                during the first quarter of 2006 in the amount of $4.5 million and
                $0.2
                million, respectively. In addition, contingent consideration of
                approximately $7.5 million relating to the acquisition of OmniMount
                was
                earned in 2006 and will be paid in 2007. 
 On
        March 2, 2007,
        the Company, through Linear acquired the stock of LiteTouch, Inc. for
        approximately $10.6 million (utilizing approximately $8.1 million of cash
        and
        issuing unsecured 6% subordinated notes totaling $2.5 million due March 2009).
        LiteTouch is located in Salt Lake City, UT and designs, manufactures and
        sells
        automated lighting control for a variety of applications including residential,
        commercial, new construction and retro-fit.
 
 The
        estimated total
        maximum potential amount of contingent consideration that may be paid in
        the
        future for all completed acquisitions is approximately $131.8 million (of
        which
        approximately $55.6 million will be paid in 2007), however, currently the
        Company has estimated that approximately $106.2 million (including the $55.6
        million noted above) of additional contingent consideration will be paid
        in the
        future related to completed acquisitions (see Note 3 of the Notes to the
        Consolidated Financial Statements included elsewhere herein).
 
 On
        May 10, 2006,
        NTK Holdings borrowed an aggregate principal amount of $205.0 million under
        a
        senior unsecured loan facility. The proceeds of this borrowing were utilized
        to
        (1) pay a cash dividend of approximately $174.9 million to Investors LLC
        which,
        in turn, made a distribution to the holders of its Class A and Class B
        membership interests, including affiliates of Thomas H. Lee Partners, L.P.
        and
        certain members of the Company’s management, (2) contribute capital of
        approximately $25.9 million to Nortek Holdings, which was used by Nortek
        Holdings, together with a dividend of approximately $28.1 million from Nortek
        to
        make a distribution of approximately $54.0 million to participants under
        the
        2004 Nortek Holdings, Inc. Deferred Compensation Plan (including certain
        of the
        Company’s executive officers) and (3) pay related fees and expenses. As a result
        of these distributions, the holders of the Class A membership interests in
        Investors LLC and the participants in the 2004 Nortek Holdings, Inc. Deferred
        Compensation Plan are not entitled to any further distributions.
 
 The
        senior
        unsecured loan facility has a term of one year, although any loans not repaid on
        or prior to May 10, 2007 will be extended until March 1, 2014. The
        Company expects
        that it will extend the term of this facility on May 10, 2007 to March 1,
        2014.
        The senior unsecured loan facility bears interest at LIBOR plus a spread,
        which
        spread increases over time, subject to a cap on the overall interest rate
        of 11%
        per annum. NTK Holdings has the option to pay interest in cash (“Cash Option”)
        or by adding interest to the principal amount of the loans under the senior
        unsecured loan facility (“PIK Option”). If the Company exercises the PIK Option
        with respect to any interest period, an amount equal to the unpaid interest
        accrued will be added to the principal amount of the senior unsecured loan
        facility and such accrued interest will be deemed to have been paid. Following
        an increase in the principal amount of the senior unsecured loan facility
        as a
        result of the payment through the PIK Option, the senior unsecured loan facility
        will bear interest on such increased principal amount. The Company must elect
        the form of interest payment for each interest period. During the year ended
        December 31, 2006, the Company elected the PIK option to increase the principal
        amount of the senior unsecured loan facility for the interest accrued during
        the
        period from May 10, 2006 to December 31, 2006. As a result of exercising
        this
        PIK Option, the Company recorded approximately $11.0 million of accrued interest
        for the period from May 10, 2006 to December 31, 2006, as additional
        indebtedness relating to the senior unsecured loan facility. At December
        31,
        2006, the outstanding principal balance on the senior unsecured loan facility
        was approximately $216.0 million. The senior unsecured loan facility is not
        guaranteed by any of the NTK Holdings’ subsidiaries and is not secured by any
        assets of NTK Holdings or any of its subsidiaries.
 
 The
        Company had
        consolidated debt as of December 31, 2006, of approximately $1,926.5 million
        consisting of (i) $43.3 million of short-term borrowings and current maturities
        of long-term debt, (ii) $50.0 million of long-term notes, mortgage notes
        and
        other indebtedness, (iii) $10.0 million of Nortek’s 9 7/8% Senior Subordinated
        Notes due 2011, (iv) $625.0 million of Nortek’s 8 1/2% Senior Subordinated Notes
        due 2014, (v) $677.3 million of long-term debt outstanding under Nortek’s senior
        secured credit facility, (vi) $304.9 million of the Company’s 10 3/4% Senior
        Discount Notes and (vii) $216.0 million under the Company’s unsecured term loan
        facility.
 
 During
        the year
        ended December 31, 2006, the Company had a net increase in its consolidated
        debt
        of approximately $278.1 million resulting from:


*(Amounts in millions)*Borrowings
                under the senior unsecured loan facility
            $
            205.0Debt
                accretion relating to the PIK option on the senior unsecured loan
                facility
            
            11.0Net
                borrowings under the revolving portion of Nortek’s senior secured credit
                facility
            
            10.0Additional
                borrowings related primarily to the Company’s foreign
                subsidiaries
            
            24.6Issuance
                of unsecured notes related to the acquisitions noted above
            
            19.0Debt
                accretion related to the 10 3/4% Senior Discount Notes
            
            30.3Foreign
                currency translation
            
            2.1Principal
                payments
            
            (23.9
            )Net
                change in consolidated debt
            $
            278.1




The
          Company’s debt
          to equity ratio was approximately 26.5:1 as of December 31, 2006 as compared
          to
          approximately 8.7:1 as of December 31, 2005. The increase in the ratio
          was
          primarily due to an increase in indebtedness as noted above and a decrease
          in
          stockholder’s investment, primarily as a result of dividends paid during the
          second quarter of 2006 (see Notes 1 and 6 of the Notes to the Consolidated
          Financial Statements included elsewhere herein), partially offset by the
          effect
          of net earnings of approximately $57.7 million for the year ended December
          31,
          2006. Stockholder’s
          Investment includes a $4.9 million non-cash “Adjustment of carryover basis of
          continuing management investors in the THL Transaction” for the year ended
          December 31, 2006. See Note 1 of the Notes to the Consolidated Financial
          Statements included elsewhere herein.
 
 On
          April 3, 2006,
          Nortek amended and restated the credit agreement for its senior secured
          credit
          facility, expanding its $100.0 million revolving credit facility to $200.0
          million and modifying certain covenants. The amendment provides Nortek
          with
          additional liquidity and covenant flexibility. The revolving credit facility
          matures in August 2010 and includes both a letter of credit sub-facility
          and
          swing line loan sub-facility. As of March 30, 2007, Nortek had approximately
          $34.0 million outstanding and approximately $133.2 million of additional
          borrowing capacity under the U.S. revolving portion of its senior secured
          credit
          facility, with approximately $22.8 million in outstanding letters of credit,
          and
          under the Canadian revolving portion of its senior secured credit facility
          the
          Company had no outstanding borrowings and approximately $10.0 million of
          additional borrowing capacity. The letters of credit have been issued under
          Nortek’s revolving credit facility as additional security for (1) approximately
          $17.2 million relating to certain of the Company’s insurance programs, (2)
          approximately $3.9 million relating to leases outstanding for certain of
          the
          Company’s manufacturing facilities and (3) approximately $1.7 million relating
          to certain of the subsidiaries’ purchases and other requirements. Letters of
          credit reduce borrowing availability under Nortek’s revolving credit facility on
          a dollar for dollar basis.
 
 The
          indentures and
          other agreements governing the Company and its subsidiaries’ indebtedness
          (including the credit agreement for Nortek’s senior secured credit facility)
          contain certain restrictive financial and operating covenants including
          covenants that restrict the ability of the Company and its subsidiaries
          to
          complete acquisitions, pay dividends, incur indebtedness, make investments,
          sell
          assets and take certain other corporate actions.
 
 As
          of December 31,
          2006, the Company had approximately $42.0 million available for the payment
          of
          cash dividends, stock purchases or other restricted payments (“Restricted
          Payments”) under the terms of the indenture governing the Company’s 10 3/4%
          Senior Discount Notes’ and the agreement governing the Company’s senior
          unsecured loan facility. 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
          $152.0 million at December 31, 2006.
 
 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), 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, 2006 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 millions)*Debt
                obligations
            
            $
            41.7
            
            $
            39.3
            
            $
            677.2
            
            $
            1,148.4
            *
            $
            1,906.6
            *Interest
                payments
            
            
            111.1
            
            
            219.5
            
            
            540.5
            
            
            350.2
            
            
            1,221.3Capital
                lease obligations
            
            
            1.6
            
            
            3.5
            
            
            3.9
            
            
            10.9
            
            
            19.9Operating
                lease obligations
            
            
            18.6
            
            
            25.5
            
            
            16.1
            
            
            23.8
            
            
            84.0Future
                contingent consideration
            
            
            55.6
            
            
            50.6
            
            
            ---
            
            
            ---
            
            
            106.2Other
                liabilities (1)
            
            
            0.3
            
            
            21.1
            
            
            23.2
            
            
            84.5
            
            
            129.1Total
            
            $
            228.9
            
            $
            359.5
            
            $
            1,260.9
            
            $
            1,617.8
            
            $
            3,467.1





* Subsidiary
      debt used for working capital purposes such as lines of credit are estimated
      to
      continue through December 31, 2016 in the above table.





(1)
            Includes
                pension, profit sharing and other post-retirement benefits (see Note
                8 of
                the Notes to the Consolidated Financial Statements included elsewhere
                herein).




As
        of December 31,
        2006, the Company’s former subsidiary, Ply Gem, has guaranteed approximately
        $21.5 million of third party obligations relating to rental payments through
        June 30, 2016 under a facility leased by a former subsidiary, which was sold
        on
        September 21, 2001. The Company has indemnified these guarantees in connection
        with the sale of Ply Gem on February 12, 2004 (see Note 10 of the Notes to
        the
        Consolidated Financial Statements included elsewhere herein) and has recorded
        an
        estimated liability related to this indemnified guarantee of approximately
        $0.9
        million at December 31, 2006 in accordance with Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
        Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The buyer of the
        former subsidiary has provided certain indemnifications and other rights
        to
        Nortek for any payments that it might be required to make pursuant to this
        guarantee. Should the buyer of the former subsidiary cease making payments
        then
        the Company may be required to make payments on its
        indemnification.
 
 The
        Company has
        indemnified third parties for certain matters in a number of transactions
        involving dispositions of former subsidiaries. The Company has recorded
        liabilities in relation to these indemnifications, including the indemnified
        guarantee noted above, of approximately $12.0 million and $12.5 million at
        December 31, 2006 and 2005, respectively. Approximately $5.4 million of
        short-term liabilities and approximately $6.6 million of long-term liabilities
        are recorded in accrued expenses and other long-term liabilities, respectively,
        in the accompanying consolidated balance sheet at December 31, 2006 related
        to
        these indemnifications. In February 2005, the Company settled a portion of
        these
        obligations with a lump sum cash payment resulting in a reduction of
        approximately $1.4 million in such liabilities, which was recorded as income
        in
        the Company’s consolidated statement of operations for the year ended December
        31, 2005 (see Note 14 of the Notes to the Consolidated Financial Statements
        included elsewhere herein).
 
 The
        Company’s
        combined short-term and long-term warranty liabilities increased from
        approximately $34.8 million as of December 31, 2005 to approximately $41.2
        million as of December 31, 2006, and warranty expense increased from
        approximately $21.3 million for the year ended December 31, 2005 to
        approximately $27.4 million for the year ended December 31, 2006. The increase
        in warranty expense for the year ended December 31, 2006 as compared to the
        same
        period of 2005 is primarily as a result of increased expense in the RVP and
        HTP
        segments as noted previously and as a result of increased sales activity,
        particularly in the Company’s HVAC segment. The Company provides for estimated
        warranty liabilities at the time of sale and periodically assesses the adequacy
        of its recorded warranty liabilities and adjusts the amounts as
        necessary.
 
 The
        Company has
        evaluated and expects to continue to evaluate possible acquisition transactions
        and possible dispositions of certain of its businesses on an ongoing basis
        and
        at any given time may be engaged in discussions or negotiations with respect
        to
        possible acquisitions or dispositions.
 
 At
        December 31,
        2006, the Company had approximately $57.4 million of unrestricted cash and
        cash
        equivalents to fund its cash flow needs for 2007. During 2007, the Company
        expects that it is reasonably likely that the following major cash requirements
        will occur as compared to 2006:
   **For
                  the year ended December 31,****2007**
              
              **2006***(Amounts
                  in millions)*Interest
                  payments, net
              
              $
              111.1
              
              $
              111.2Principal
                  payments, net
              
              
              41.7
              
              
              77.4Capital
                  lease
                  obligations
              
              
              1.6
              
              
              1.4Completed
                  acquisitions and contingentearn
                  out
                  payments
              
              
              65.2
              
              
              106.2Capital
                  expenditures
              
              
              40.0
              
              
              42.3Operating
                  lease and other rental payments
              
              
              24.7
              
              
              26.5Defined
                  benefit pension plan contributions
              
              
              9.6
              
              
              11.6Income
                  tax
                  payments, net
              
              
              46.0
              
              
              23.7$
              339.9
              
              $
              400.3




The
        Company expects
        to meet its cash flow requirements for fiscal 2007, including debt repayments
        and acquisitions, from cash from operations, existing cash and cash equivalents
        and the use of Nortek’s senior secured credit facility.
 
 Unrestricted
        cash
        and cash equivalents decreased from approximately $77.2 million at December
        31,
        2005 to approximately $57.4 million at December 31, 2006. The Company has
        classified as restricted, in the accompanying consolidated balance sheet,
        certain cash and cash equivalents that are not fully available for use in
        its
        operations. At December 31, 2006, approximately $4.5 million (of which
        approximately $3.3 million is included in long-term assets) of cash and cash
        equivalents are held primarily as collateral to fund future capital expenditures
        within the Company’s segments, as well as to fund certain benefit obligations
        relating to supplemental executive retirement plans.
 
 Capital
        expenditures were approximately $42.3 million (none of which were financed
        under
        a capital lease) for the year ended December 31, 2006 as compared to
        approximately $33.7 million (of which approximately $4.8 million was financed
        under a capital lease) for the year ended December 31, 2005. Capital
        expenditures are expected to be between approximately $35.0 million and $40.0
        million in 2007. Under Nortek’s amended senior secured credit facility, capital
        expenditures are limited to approximately $67.0 million in 2007.
 
 The
        Company’s
        working capital decreased from approximately $283.6 million at December 31,
        2005
        to approximately $210.2 million at December 31, 2006, while the current ratio
        decreased from approximately 1.8:1 at December 31, 2005 to approximately
        1.4:1
        at December 31, 2006. This decrease in working capital for the year ended
        December 31, 2006 was primarily a result of increases in short-term borrowings
        at the Company’s foreign subsidiaries and borrowings under the revolving portion
        of Nortek’s senior secured credit facility (see Note 6 of the Notes to the
        Consolidated Financial Statements included elsewhere herein), accounts payable
        and accrued expenses, partially offset by increases in accounts receivable
        and
        inventory. The change in working capital also reflects the reduction in cash
        to
        fund a portion of the Nortek Holdings deferred compensation plan payment
        in the
        second quarter of 2006, as noted previously.
 
 Accounts
        receivable
        increased approximately $56.7 million, or approximately 20.8%, between December
        31, 2005 and December 31, 2006, while net sales increased approximately $37.7
        million, or approximately 7.5%, in the fourth quarter of 2006 as compared
        to the
        fourth quarter of 2005. This increase in accounts receivable is primarily
        a
        result of acquisitions and a decrease in collections, offset by decreased
        sales
        levels. Acquisitions contributed approximately $61.7 million to the increase
        in
        net sales in the fourth quarter of 2006 as compared to the fourth quarter
        of
        2005 and approximately $33.6 million to the increase in accounts receivable
        at
        December 31, 2006. The rate of change in accounts receivable in certain periods
        may be different than the rate of change in sales in such periods principally
        due to the timing of net sales. Increases or decreases in net sales near
        the end
        of any period generally result in significant changes in the amount of accounts
        receivable on the date of the balance sheet at the end of such period, as
        was
        the situation on December 31, 2006 as compared to December 31, 2005. Accounts
        receivable from customers related to foreign operations increased approximately
        34.4% to $95.1 million at December 31, 2006 from December 31, 2005. The Company
        did not experience any significant overall changes in credit terms, collection
        efforts, credit utilization or delinquency in accounts receivable in 2006.
 
 Inventories
        increased approximately $36.3 million, or approximately 15.0%, between December
        31, 2005 and December 31, 2006 primarily as a result of acquisitions, and
        to a
        lesser extent, to support future sales levels, as well as increased material
        costs principally for copper and aluminum, primarily in the HVAC segment.
        These
        increases were offset by a decline in inventory levels for residential air
        conditioners related to 13 SEER products in the HVAC segment, as well as
        improved inventory management, primarily in the HTP segment. Acquisitions
        contributed approximately $23.5 million to the increase at December 31, 2006.
 
 Accounts
        payable
        increased approximately $29.2 million, or 18.4%, between December 31, 2005
        and
        December 31, 2006 due primarily to increased inventory levels and timing
        of
        payments. Acquisitions contributed approximately $25.7 million to the increase
        in accounts payable at December 31, 2006.
 
 Accrued
        expenses
        and taxes increased approximately $96.5 million, or approximately 51.5%,
        between
        December 31, 2005 and December 31, 2006 primarily as a result of approximately
        $55.6 million of future contingent consideration recorded in the fourth quarter
        of 2006 related to acquisitions that will be paid in 2007 (see Note 3 of
        the
        Notes to the Consolidated Financial Statements included elsewhere herein)
        and
        approximately $7.8 million of estimated reserves as a result of the unlikelihood
        that certain suppliers to our kitchen range hood subsidiaries based in Italy
        and
        Poland will be able to repay advances and amounts due under other
        arrangements. Acquisitions contributed approximately $76.3 million, including
        the $55.6 million of contingent consideration payable in 2007 as noted above,
        to
        the increase at December 31, 2006.
 
 Other
        long-term
        liabilities decreased approximately $86.6 million, or approximately 40.2%,
        between December 31, 2005 and December 31, 2006, primarily as a result of
        the
        distribution of approximately $54.0 million to participants under the 2004
        Nortek Holding, Inc. Deferred Compensation Plan (approximately $49.0 million
        accrued at December 31, 2005) and the non-cash curtailment gain of approximately
        $35.9 million related to post-retirement medical and life insurance benefits
        from the final implementation of a union contract that no longer provides
        such
        benefits (see Notes 2, 7 and 8 of the Notes to the Consolidated Financial
        Statements included elsewhere herein). Acquisitions contributed approximately
        $3.6 million to other long-term liabilities at December 31, 2006.
 
 Changes
        in certain
        working capital accounts, as noted above, between December 31, 2005 and December
        31, 2006, 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.
 
 Net
        cash flows from
        operating activities for the year ended December 31, 2006 increased by
        approximately $23.3 million to approximately $94.0 million of net cash provided
        by operating activities from approximately $70.7 million of net cash provided
        by
        operating activities for the year ended December 31, 2005, primarily due
        to
        increases in depreciation and amortization expense, non-cash interest expense
        and in the deferred tax provision between the periods, offset by the $35.9
        million non-cash gain from the curtailment of post-retirement medical and
        life
        insurance benefits recorded during the second quarter of 2006 and an approximate
        $3.5 million reduction of a compensation accrual originally provided in 2004
        that was determined to be no longer required. The increase in net cash provided
        by operating activities also reflects a reduction in the change in accounts
        receivable and inventory, offset by an increase in the change in accrued
        expenses and taxes. Net cash flows used in investing activities for the year
        ended December 31, 2006 increased by approximately $8.6 million to net cash
        used
        in investing activities of approximately $146.3 million from approximately
        $137.7 million for the year ended December 31, 2005, primarily due to increased
        capital expenditures of approximately $13.4 million and a reduction in the
        proceeds from the sale of property and equipment of approximately $5.7 million,
        offset by a reduction in payments for acquisitions of approximately $11.0
        million. Cash flows from financing activities for the year ended December
        31,
        2006 decreased by approximately $16.7 million to net cash provided by financing
        activities of approximately $32.5 million from approximately $49.2 million
        for
        the year ended December 31, 2005, primarily due to a decrease in net borrowing
        proceeds of approximately $27.4 million, offset by a reduction in cash dividends
        paid in 2006 of approximately $12.1 million. As discussed earlier, the Company
        generally uses cash flows from operations, and where necessary debt financing,
        to finance its capital expenditures and strategic acquisitions and to meet
        the
        service requirements of its existing indebtedness.
 
 Unrestricted
        cash
        and cash equivalents decreased approximately $19.8 million and approximately
        $17.8 million for the years ended December 31, 2006 and 2005, respectively,
        principally as a result of the following:




**Condensed
                  Consolidated Cash Flows (1)****For
                  the years ended December 31,****2006**
              
              **2005****Operating
                  Activities:**
              
              *(Amounts
                  in millions)*Cash flow from operations, net
              
              $
              155.5
              
              $
              156.7Change in accounts receivable, net
              
              
              (19.6
              )
              
              (37.3
              )Change in inventories
              
              
              (14.0
              )
              
              (24.3
              )Change in prepaids and other current assets
              
              
              13.1
              
              
              (5.2
              )Change in accounts payable
              
              
              (0.7
              )
              
              20.7Change in accrued expenses and taxes
              
              
              18.5
              
              
              11.7Change in long-term deferred compensation
              
              
              (54.0
              )
              
              (57.7
              )**Investing
                  Activities:**Capital
                  expenditures
              
              
              (42.3
              )
              
              (28.9
              )Net cash paid for businesses acquired
              
              
              (106.2
              )
              
              (117.2
              )Proceeds from the sale of property and equipment
              
              
              5.1
              
              
              10.8Change in restricted cash and investments
              
              
              0.4
              
              
              (0.2
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              8.2
              
              
              (8.3
              )Borrowings under the senior unsecured loan facility
              
              
              200.8
              
              
              ---Sale of the 10 3/4% Senior Discount Notes
              
              
              ---
              
              
              244.7Dividends
              
              
              (174.9
              )
              
              (187.0
              )Other,
                  net
              
              
              (9.7
              )
              
              3.7$
              (19.8
              )
              $
              (17.8
              )


(1)
            Summarized
                from the Company’s Consolidated Statement of Cash Flows for the years
                ended December 31, 2006 and 2005 (see the 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 $23.7 million in 2006. At December
        31, 2006, the Company had approximately $42.0 million of foreign net operating
        loss carry-forwards that if utilized would offset future foreign tax payments.
        In addition, the Company has no remaining federal net operating loss
        carryforwards, and has an alternative minimum tax credit carryforward of
        approximately $2.4 million at December 31, 2006. 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 an operating performance measure. Liquidity
        measure disclosures with respect to EBITDA are provided below. Refer to the
        Results of Operations section for operating performance measure disclosures
        with
        respect to EBITDA and a reconciliation from net earnings (loss) to EBITDA.
 
 EBITDA
        is defined
        as net earnings (loss) before interest, taxes, depreciation and amortization
        expense. EBITDA is not a measure of cash flow under U.S. generally accepted
        accounting principles (“GAAP”) and should not be considered as an alternative or
        substitute for GAAP cash flow measures such as cash flows from operating,
        investing and financing activities. EBITDA does not necessarily represent
        an
        accurate measure of cash flow performance because it excludes, among other
        things, capital expenditures, working capital requirements, significant debt
        service for principal and interest payments, income tax payments and other
        contractual obligations, which may have a significant adverse impact on a
        company’s cash flow performance thereby limiting its usefulness when evaluating
        the Company’s cash flow performance. The Company uses a significant amount of
        capital assets and capital expenditures are a significant component of the
        Company’s annual cash expenditures and therefore their exclusion from EBITDA is
        a material limitation. The Company has significant working capital requirements
        during the year due to the seasonality of its business, which require
        significant cash expenditures and therefore its exclusion from EBITDA is
        a
        material limitation. The Company has a significant amount of debt and the
        Company has significant cash expenditures during the year related to principal
        and interest payments and therefore their exclusion from EBITDA is a material
        limitation. The Company generally pays significant U.S. federal, state and
        foreign income taxes each year and therefore its exclusion from EBITDA is
        a
        material limitation. As a result, EBITDA should be evaluated in conjunction
        with
        net cash from operating, investing and financing activities for a more complete
        analysis of the Company’s cash flow performance, as they include the financial
        statement impact of these items. Although depreciation and amortization are
        non-cash charges, the assets being depreciated and amortized will often have
        to
        be replaced in the future and EBITDA does not reflect any cash requirements
        for
        replacements. As EBITDA is not defined by GAAP, the Company’s definition of
        EBITDA may differ from and therefore may not be comparable to similarly titled
        measures used by other companies thereby limiting its usefulness as a
        comparative measure. Because of the limitations that EBITDA has as an analytical
        tool, investors should not consider it in isolation, or as a substitute for
        analysis of the Company’s cash flows as reported under GAAP.
 
 Company
        management
        uses EBITDA as a supplementary non-GAAP liquidity measure to allow the Company
        to evaluate its operating units’ cash-generating ability to fund income tax
        payments, corporate overhead, capital expenditures and increases in working
        capital. EBITDA is also used by management to allocate resources for growth
        among its businesses, to identify possible impairment charges, to evaluate
        the
        Company’s ability to service its debt and to raise capital for growth
        opportunities, including acquisitions. In addition, the Company uses EBITDA
        as a
        liquidity measure in financial presentations to the Company’s Board of
        Directors, shareholders, various banks participating in Nortek’s Credit
        Facility, note holders and Bond Rating agencies, among others, as a supplemental
        non-GAAP liquidity measure to assist them in their evaluation of the Company’s
        cash flow performance. The Company uses EBITDA in conjunction with traditional
        GAAP liquidity measures as part of its overall assessment of cash flow ability
        and therefore does not place undue reliance on EBITDA as its only measure
        of
        cash flow performance.
 
 The
        Company
        believes EBITDA is useful for both the Company and investors as it is a commonly
        used analytical measurement for assessing a company’s cash flow ability to
        service and/or incur additional indebtedness, which eliminates the impact
        of
        certain non-cash items such as depreciation and amortization. The Company
        believes that EBITDA is specifically relevant to the Company due to the
        Company’s leveraged position as well as the common use of EBITDA as a liquidity
        measure within the Company’s industries by lenders, investors, others in the
        financial community and peer group companies. The Company has included EBITDA
        as
        a supplemental liquidity measure, which should be evaluated by investors
        in
        conjunction with the traditional GAAP liquidity measures discussed earlier
        in
        this Liquidity and Capital Resources section for a complete evaluation of
        the
        Company’s cash flow performance.
 
 The
        following table
        presents a reconciliation from net cash used in operating activities, which
        is
        the most directly comparable GAAP liquidity measure, to EBITDA for the years
        ended December 31, 2006 and 2005 and the periods from January 1, 2004 to
        August
        27, 2004 and from August 28, 2004 to December 31, 2004:




**For
                  the Periods****Post-Acquisition**
              
              **Pre-**Acquisition**Jan.
                  1, 2006 -**
              
              **Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2006**
              
              **Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)***Net
                  cash provided by operating activities (1)**
              
              $
              94.0
              
              $
              70.7
              
              $
              56.2
              
              $
              35.0Cash used by working capital andother long-term asset and liability changes
              
              
              61.5
              
              
              86.0
              
              
              (32.6
              )
              
              (0.9
              )Non-cash interest expense, net
              
              
              (47.6
              )
              
              (29.9
              )
              
              (4.1
              )
              
              (24.7
              )Effect of the Acquisition, net
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (38.4
              )Non-cash stock-based compensation
              
              
              (0.3
              )
              
              (0.3
              )
              
              (0.1
              )
              
              (48.5
              )Gain from curtailment of post-retirement medical benefits
              
              
              35.9
              
              
              ---
              
              
              ---
              
              
              ---Compensation
                  reserve adjustment
              
              
              3.5
              
              
              ---
              
              
              ---
              
              
              ---(Loss) / gain on sale of property and equipment
              
              
              (1.3
              )
              
              1.6
              
              
              ---
              
              
              ---Loss from debt retirement
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (130.7
              )Gain on sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              125.2Deferred federal income tax (provision) benefitfrom continuing operations
              
              
              (26.8
              )
              
              (25.3
              )
              
              (1.0
              )
              
              46.9Operating cash flows fromdiscontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (0.5
              )Deferred federal income tax benefitfrom discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              18.5Provision (benefit) for income taxesfrom continuing operations
              
              
              46.1
              
              
              43.2
              
              
              3.5
              
              
              (41.4
              )Provision (benefit) for income taxesfrom discontinued operations
              
              
              ---
              
              
              ---
              
              
              0.5
              
              
              45.5Interest expense from continuing operations (2)
              
              
              162.9
              
              
              138.6
              
              
              42.5
              
              
              56.1Interest expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              4.6Investment income from continuing operations
              
              
              (2.2
              )
              
              (1.8
              )
              
              (0.3
              )
              
              (1.5
              )Depreciation expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              1.2Amortization expense from discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              0.2**EBITDA
                  (3)**
              
              $
              325.7
              
              $
              282.8
              
              $
              64.6
              
              $
              46.6


(1) Net cash
        used
        in operating activities includes
        a loss
        from discontinued operations of approximately $0.5 million for the period
        from
        August 28, 2004 to December 31, 2004 and includes earnings from discontinued
        operations of approximately $67.4 million 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).
 
 (2) Interest
        expense
        from continuing operations for the year ended December 31, 2006 includes
        cash
        interest of approximately $115.3 million (including approximately $3.9 million
        relating to the accelerated amortization of the Nortek Holdings deferred
        compensation plan) and non-cash interest of approximately $47.6 million.
        Interest expense from continuing operations for the year ended December 31,
        2005 includes cash interest of approximately $108.7 million (including
        approximately $8.2 million relating to the accelerated amortization of the
        Nortek Holdings deferred compensation plan) and non-cash interest of
        approximately $29.9 million. Interest expense from continuing operations
        for the
        period from August 28, 2004 to December 31, 2004 includes cash interest of
        approximately $38.4 million and non-cash interest of approximately $4.1 million
        and interest expense from continuing operations for the period from January
        1,
        2004 to August 27, 2004 includes cash interest of approximately $31.4 million
        and non-cash interest of approximately $24.7 million.
 
 (3) EBITDA
        includes an
        approximate $35.9 million curtailment gain related to post-retirement medical
        and life insurance benefits, reserves of approximately $16.0 million related
        to
        estimated losses as a result of the unlikelihood that certain suppliers to
        our
        kitchen range hood subsidiaries based in Italy and Poland will be able to
        repay
        advances and amounts due under other arrangements, an approximate $3.5 million
        charge related to the closure of the Company’s NuTone, Inc. Cincinnati, Ohio
        facility and an increase in warranty expense in the first quarter of 2006
        of
        approximately $1.5 million related to a product safety upgrade in the RVP
        segment for the year ended December 31, 2006. EBITDA includes an increase
        in
        warranty expense of approximately $2.3 million related to a product safety
        upgrade in the HTP segment for the year ended December 31, 2006. EBITDA includes
        an approximate $1.6 million gain related to the favorable settlement of
        litigation and a charge of approximately $1.2 million, net of minority interest
        of approximately $0.8 million, related to a reserve for amounts due from
        a
        customer in China related to a Chinese construction project in the HVAC segment
        for the year ended December 31, 2006. EBITDA includes an approximate $3.5
        million reduction of a compensation accrual originally provided in 2004 that
        was
        determined to be no longer required, a charge of approximately $2.5 million
        related to expenses incurred related to the Company's initial public offering
        not yet completed and a non-cash foreign exchange gain of approximately
        $1.2 million related to intercompany debt not indefinitely invested in the
        Company’s subsidiaries, which is included in Unallocated, for the year ended
        December 31, 2006.
 
 EBITDA
        includes a
        non-cash foreign exchange loss of approximately $1.2 million related to
        intercompany debt not indefinitely invested in the Company’s subsidiaries in the
        RVP segment for the year ended December 31, 2005. EBITDA includes a gain
        of
        approximately $1.6 million related to the sale of a corporate office building
        of
        one of the Company’s subsidiaries in the HTP segment for the year ended December
        31, 2005.
 
 EBITDA
        for the
        period from January 1, 2004 to August 27, 2004 includes approximately $83.7
        million of expenses and charges arising from the Acquisition and approximately
        $130.7 million 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 $6.4 million
        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
        includes
        approximately $0.3 million, $0.3 million, $0.1 million and $48.5 million
        of
        stock-based compensation charges recorded in the years ended December 31,
        2006
        and 2005 and the periods from August 28, 2004 to December 31, 2004 and from
        January 1, 2004 to August 27, 2004, respectively.


**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.





Although
      the
      Company is subject to the effects of changing prices, the impact of inflation
      has not been a significant factor in results of operations for the periods
      presented. In some circumstances, market conditions or customer expectations
      may
      prevent the Company from increasing the prices of its products to offset the
      inflationary pressures that may increase costs in the future. During 2006, the
      Company continued to experience higher material costs related primarily to
      purchases of copper, aluminum and related purchased components, as well as
      increased transportation and energy costs, these cost increases were partially
      offset by continued strategic sourcing initiatives and improvements in
      manufacturing efficiency, as well as sales price increases.





As
      of December 31,
      2006, approximately 6.7% of the Company’s workforce was subject to various
      collective bargaining agreements.





On
      June 8, 2005,
      the Company's collective bargaining agreement with the United Automobile
      Aerospace & Agricultural Implement Workers of America and its Local No. 2029
      expired. That bargaining unit covered approximately 4.4% of the Company's
      employees (414 employees), which were located at the Cincinnati, OH location
      of
      the Company's subsidiary NuTone. On or about June 8, 2005, the Company presented
      its final proposal to the union bargaining committee but such proposal was
      not
      accepted by the union members. On July 16, 2005, the Company locked out the
      union employees at the NuTone Cincinnati, OH facility. On September 6, 2005,
      the
      Company notified the union bargaining committee that negotiations had reached
      an
      impasse and that it was unilaterally implementing the terms of its final offer.
      Among other things, this implemented final offer does not provide the NuTone
      union members with post retirement medical and life insurance benefits. In
      late
      June 2006, the Company informed the union that the Company would close the
      manufacturing operations at the Cincinnati, OH facility on or about August
      30,
      2006. NuTone’s operating results are included in the RVP segment.





On
      July 27, 2006
      the union members ratified a Closedown Agreement providing for the closedown
      and
      permanent layoff of all bargaining unit employees employed at the NuTone plant
      effective August 30, 2006, and the release by the union of any claims it may
      have against the Company. In 2007, the Company expects to record additional
      restructuring expenses of approximately $2.1 million as it completes the
      closedown of this facility.





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
      or losses or the recognition of an asset impairment. As agreements expire and
      until negotiations are completed, the Company does not know whether it 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, 2006, the fair value of the Company’s unrestricted and
      restricted investments and marketable securities was not materially different
      from their cost basis.





The
      Company manages
      its borrowing exposure to changes in interest rates by optimizing the use of
      fixed rate debt with extended maturities. At December 31, 2006, approximately
      52.0% 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
      2006, 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 increase in stockholder’s
      investment of approximately $5.1 million for the year ended December 31, 2006.
      The Company manages its exposure to foreign currency exchange risk principally
      by trying to minimize the Company’s net investment in foreign assets, including,
      the use of strategic short and long-term borrowings at the foreign subsidiary
      level. Consistent with this strategy, notes payable and other short- term
      obligations at December 31, 2006 consist primarily of short-term borrowings
      by
      certain of the Company’s foreign subsidiaries. At December 31, 2006, the
      Company’s net investment in foreign assets was approximately $144.1 million. An
      overall unfavorable change in foreign exchange rates of 10% would result in
      an
      approximate $13.1 million 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, 2006, the Company did not have any significant outstanding foreign
      currency hedging contracts.





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





The
      Company is
      subject to significant market risk with respect to the pricing of its principal
      raw materials, which include, among others, steel, copper, packaging material,
      plastics, 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, 2006, 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, 2006, 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%
      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, 2006 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
                31,2007
            
            $
            10.0
            
            $
            10.0
            
            $
            20.0
            
            
            6.2
            %
            
            6.6
            %
            
            6.4
            %2008
            
            
            18.8
            
            
            10.0
            
            
            28.8
            
            
            6.1
            
            
            6.6
            
            
            6.32009
            
            
            3.9
            
            
            10.1
            
            
            14.0
            
            
            6.5
            
            
            6.5
            
            
            6.52010
            
            
            1.9
            
            
            172.7
            
            
            174.6
            
            
            7.0
            
            
            7.3
            
            
            7.32011
            
            
            12.0
            
            
            494.5
            
            
            506.5
            
            
            9.4
            
            
            7.4
            
            
            7.4Thereafter
            
            
            940.9
            
            
            218.4
            
            
            1,159.3
            
            
            9.2
            
            
            8.8
            
            
            9.1Total
                Long-term Debt at December 31, 2006 (1)
            
            $
            987.5
            
            $
            915.7
            
            $
            1,903.2
            
            
            9.1
            %
            
            7.7
            %
            
            8.4
            %Fair
                Market Value of Long-term Debt
                at         December 31,
                2006
            
            $
            953.1
            
            $
            915.7
            
            $
            1,868.8





(1)
            Includes
                the Company’s senior unsecured loan facility with an initial principal
                amount of approximately $205.0 million. During the year ended December
                31,
                2006, the Company elected the PIK option under the senior unsecured
                loan
                facility for the interest accrued during the period from May 10,
                2006 to
                December 31, 2006, resulting in additional principal of approximately
                $11.0 million related to this accrued interest. At December 31, 2006,
                the
                outstanding principal balance on the senior unsecured loan facility
                was
                approximately $216.0 million. The senior unsecured loan facility
                matures
                in 2014 and has a weighted average interest rate at December 31,
                2006 of
                approximately 8.2%.





Includes
      the Company’s 10 3/4% Senior Discount Notes due 2014 with an aggregate principal
      amount at maturity of approximately $403.0 million. The carrying value of the
      10
      3/4% Senior Discount Notes was approximately $304.9 million at December 31,
      2006, which is being accreted to the principal amount through September
      2009.





Includes
      Nortek’s 9 7/8% Senior Subordinated Notes due 2011 and Nortek’s 8 1/2% Senior
      Subordinated Notes due 2014 with a total aggregate principal amount of
      approximately $635.0 million





Includes
      Nortek’s Senior Secured
      Term Loan with a total principal amount of approximately $684.3 million and
      a
      weighted average variable interest rate of approximately 7.2%. 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.





**NTK
        HOLDINGS, INC. AND SUBSIDIARIES**
 **December
        31, 2006**


**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, Executive Officers and Corporate Governance.**





**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
            62
            2004
            1976Jeffrey
                C. Bloomberg
            Director
            59
            2005
            2005Joseph
                M. Cianciolo
            Director
            67
            2005
            2003Anthony
                J. DiNovi
            Director
            44
            2005
            2004David
                V. Harkins
            Director
            66
            2005
            2004David
                B. Hiley
            Director
            68
            2005
            2003Kent
                R. Weldon
            Director
            39
            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. Mr. Bready is a director of Gamco Investors,
      Inc. 
 *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.
 
 *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., Vertis, Inc. and
        West Corp.
 
 *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 is currently a director of National Dentex
        Corporation and Dunkin Brands, Inc. Mr. Harkins served as interim Chairman
        of
        the Board and Chief Executive Officer of Conseco, Inc. from April 28, 2000
        until
        June 28, 2000 without compensation for such service. On December 17, 2002,
        Conseco, Inc. voluntarily commenced a case under Chapter 11 of the United
        States
        Code in the United States Bankruptcy Court, Northern District of Illinois,
        Eastern Division.
 
 *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 Thomas H. Lee Partners, L.P. since 1995,
        when he rejoined the firm. Prior to joining Thomas H. Lee Partners, L.P.,
        Mr.
        Weldon worked in the corporate finance department of Morgan Stanley & Co.
        Incorporated. Mr. Weldon currently serves as a director of Cumulus Media
        Partners, 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
            62
            Chairman,
                President and Chief Executive OfficerAlmon
                C. Hall
            60
            Vice
                President and Chief Financial OfficerKevin
                W. Donnelly
            52
            Vice
                President, General Counsel and SecretaryEdward
                J. Cooney
            59
            Vice
                President and TreasurerBryan
                L. Kelln
            41
            Senior
                Vice President and Chief Operating
                Officer




Messrs.
        Bready,
        Hall, Cooney 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.
 
 On
        June 13, 2005,
        the Company appointed Bryan L. Kelln to the newly created position of Vice
        President-Operations and subsequently on December 22, 2006, Mr. Kelln was
        promoted to the newly created position of Senior Vice President and Chief
        Operating Officer. Prior to joining the Company, Mr. Kelln served as President
        of Jacuzzi, Inc. from July 2004 to May 2005; as Operating Executive of The
        Jordan Company from 2002 to 2004; as President and CEO of RockShox, Inc.
        from
        2000 to 2002; 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 the Company overall. Certain of
        these
        individuals could, depending on earnings of such unit, be more highly
        compensated than some executive officers of the Company.
 
 There
        are no family
        relationships between any director, executive officer or other significant
        employee and any other director, executive officer or other significant
        employee.
 
 **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 is filing a copy of its code of ethics as Exhibit 14 to this Form
        10-K.
 
 **Audit
        Committee**
 
 The
        Company’s audit
        committee currently is comprised of Messrs. Cianciolo, Bloomberg and 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 and Mr. Bloomberg are considered “independent” directors 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
        407(d)(5)(ii) ****** of
        Regulation S-K
        adopted by the Securities and Exchange Commission. The audit committee met
        5
        times in 2006.
 
 The
        duties and
        responsibilities of the audit committee include, among other
        things:
 
 ·
            overseeing
                management's maintenance of the reliability and integrity of the
                Company’s
                accounting policies and financial reporting and the Company’s disclosure
                practices; ·
            overseeing
                management's establishment and maintenance of processes to assure
                that an
                adequate system of internal control is
                functioning; ·
            overseeing
                management's establishment and maintenance of processes to assure
                the
                Company’s compliance with all applicable laws, regulations and corporate
                policy; ·
            reviewing
                the
                Company’s annual and quarterly financial statements prior to their filing
                or prior to the release of earnings; and ·
            appointing,
                compensating, terminating, retaining and overseeing the work of the
                independent registered public accounting firm and considering and
                approving any non-audit services proposed to be performed by the
                independent registered public accounting
                firm. 
 The
        audit committee
        will have the power to investigate any matter brought to its attention within
        the scope of its duties and to retain counsel for this purpose where
        appropriate.
 
 **Compensation
        Committee**
 
 The
        Company’s
        compensation committee is comprised of Messrs. Bready and DiNovi. The duties
        and
        responsibilities of the compensation committee include, among other
        things:
 
 ·
            reviewing
                key
                employee compensation policies, plans and programs, including those
                for
                the executive officers, other than Mr.
                Bready; ·
            monitoring
                performance and compensation of the Company’s employee-directors, officers
                and other key employees; ·
            preparing
                recommendations and periodic reports to the board of directors concerning
                these matters; and ·
            administering
                the incentive programs referred to in “Executive Compensation”
                below. 
 **Compensation
        Committee Interlocks and Insider Participation**
 
 Mr.
        Bready and Mr.
        DiNovi are currently the members of the Company’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
        11.
        Executive Compensation.**
 
 **Compensation
        Discussion and Analysis**
 
 **Introduction**
 
 The
        Compensation
        Committee of the Company’s Board of Directors has responsibility for developing,
        overseeing and implementing the overall compensation philosophy for the
        Company’s named executive officers, except for the Chief Executive Officer whose
        compensation is determined by the full board of directors. Generally, (i)
        the
        Chief Executive Officer recommends for the approval of the Compensation
        Committee, the specific elements of compensation, the incentive compensation
        awards and salary adjustments that apply to the named executive officers
        (other
        than the Chief Executive Officer), and (ii) the full board of directors approves
        the specific elements of compensation, incentive compensation awards and
        salary
        adjustments for the Chief Executive Officer. However, in connection with
        the THL
        Transaction, certain of the named executive officers, including the Chief
        Executive Officer and Chief Financial Officer, negotiated and executed
        employment contracts which govern certain elements of their compensation.
        In
        this analysis, the term “named executive officer” refers to the Company’s Chief
        Executive Officer, Chief Financial Officer and the other executive officers
        included in the Summary Compensation Table further below.
 
 **Compensation
        Philosophy and Objectives**
 
 In
        general, the
        Company's executive compensation program is designed to attract, motivate,
        reward and retain high caliber executives to assist the Company in achieving
        its
        strategic and operating objectives, and to compensate them at a level that
        is
        commensurate with both corporate and individual performance achievements
        with
        the ultimate goal of increasing equityholder value. The Compensation Committee
        attempts to design a compensation package that is fair to both the executives
        and equityholders in relation to corporate performance and contributions
        to
        equityholder value, that is competitive in relation to companies of similar
        size
        and operations, and that is balanced appropriately between cash and equity-based
        compensation. As part of this compensation package, the Committee includes
        incentive-based compensation designed to reward the executive for both short
        and
        long-term company success. Short term performance is measured each fiscal
        year,
        and is typically rewarded through discretionary cash bonuses. Long-term
        performance is targeted through equity awards which have been granted to
        the
        named executive officers in the form of Class C units in Investors LLC, which
        are discussed in detail below, to ensure that the named executive officer’s
        interests are aligned with the interests of the equityholders of the
        Company.
 
 **Overview
        of
        Compensation and Process**
 
 The
        Compensation
        Committee oversees the executive compensation program and makes the final
        approval of compensation elements and amounts based upon the recommendations
        of
        the Chief Executive Officer. The Chief Executive Officer makes recommendations
        relating to compensation levels of the named executive officers (excluding
        the
        Chief Executive Officer) and also decisions relating to the elements of
        compensation, generally of Company’s management, in each case subject to the
        final approval of the Compensation Committee. In making these recommendations,
        which are based in part on third party data as described below, the Chief
        Executive Officer consults with the Company’s Treasurer working together with
        the Human Resources Department. The Compensation Committee can exercise its
        discretion to increase or decrease any recommended payments, adjustments
        or
        awards to the named executive officers not otherwise earned under the terms
        of
        contractual arrangements described below.
 
 The
        Company has not
        in the past directly engaged a compensation consultant in connection with
        the
        structuring of compensation programs or the setting of individual compensation
        or performance targets. However, the Company has participated in surveys;
        periodically sought the advice of consultants; received industry data generally
        available from companies of comparable size and industry; and with respect
        to
        long-term equity performance programs, the Company sought the advice of legal
        and accounting specialists in order to establish the Class C unit vesting
        program entered into in connection with the THL Transaction. If requested,
        such
        third party information is available to the Compensation Committee.
 
 The
        Company does
        not have a formal policy relating to the allocation of compensation between
        cash
        and non-cash elements, such as equity awards. In the recent past, the Company
        has utilized both cash and non-cash awards for variable compensation programs.
        When making incentive compensation awards, the Company will determine the
        appropriate form of award depending on the circumstances. The Company maintains
        a long-term equity compensation plan pursuant to which the named executive
        officers received grants of Class C units in Investors LLC in connection
        with
        the THL Transaction (except for Mr. Kelln who was granted his Class C units
        upon
        his date of hire which was subsequent to the THL Transaction). The vesting
        criteria for the Class C units are described in detail below.
 
 While
        the Company
        similarly has no written policy relating to the allocation of compensation
        between short term and long-term performance standards, it attempts to achieve
        a
        mix between the two. Short term exceptional performance is rewarded in cash
        through the annual discretionary cash bonuses. Long-term incentive objectives
        are met through the equity grants made in the form of Class C units in Investors
        LLC to the named executive officers in connection with the THL Transaction
        (except for Mr. Kelln who was granted his Class C-units upon his date of
        hire
        which was subsequent to the THL Transaction). Such equity grants in the recent
        past have not been made as part of a regular or annual program. Rather, the
        Compensation Committee takes a longer term approach to its equity grants
        and
        accordingly made equity based awards in the form of Class C units of Investors
        LLC one time in connection with the THL Transaction (or at the date of hire
        for
        named executive officers who are hired subsequent to the THL Transaction).
        In
        connection with the THL Transaction certain of the named executive officers,
        including the Chief Executive Officer and Chief Financial Officer, negotiated
        and executed employment contracts which govern the number of Class C units
        that
        they were entitled to receive.
 
 **Elements
        of
        Compensation**
 
 There
        were four
        primary components of the compensation package of the named executive officers
        for 2006. Those components are base salary; discretionary cash bonuses; equity
        based awards; and retirement benefits. In addition, each named executive
        officer
        receives health and life insurance benefits. Also, the Company provides
        perquisites, some of which are discretionary and others are provided pursuant
        to
        the terms of employment agreements between the Company and certain named
        executive officers entered into in connection with the THL Transaction. The
        purpose of such perquisites is to motivate employees; to create goodwill;
        and to
        reward employees for achievements that may not be measurable financial
        objectives.
 
 *Base
        Salary*
 The
        Company
        provides named executive officers, like its other employees, a base salary
        in
        order to compensate them for the services which they provide to the Company
        over
        the course of the year. The Company attempts to meet competitive salary norms
        for a company of its size and to reward performance and increased levels
        of
        responsibility through annual salary increases. Salaries of executives upon
        the
        executive's hiring or promotion are determined by reference to the market
        data
        provided by the compensation surveys, search consultants and industry data
        generally available from companies of comparable size and industry discussed
        above. Salaries are typically evaluated annually and adjusted from their
        base
        level from year to year based upon the executive's performance, level of
        responsibilities and other factors relating to individual performance.
        Additionally, competitive benchmark data is consulted periodically. Like
        the
        other elements of compensation, these adjustments are recommended to the
        Compensation Committee by the Chief Executive Officer after consultation
        with
        the Company’s Treasurer. Adjustments to the salary of the Chief Executive
        Officer, if any, are determined by the Company’s full board of
        directors.
 
 Mr.
        Bready
 Pursuant
        to the
        terms of his employment agreement entered into with the Company in connection
        with the THL Transaction, Mr. Bready’s base salary shall not be less than
        $3,500,000 or such greater amount as determined from time to time at the
        discretion of the Company’s full board of directors. Mr. Bready’s base salary
        for 2006 was $3,500,000.
 
 Mr.
        Hall and Mr.
        Donnelly
 Pursuant
        to the
        terms of their respective employment agreements entered into with the Company
        in
        connection with the THL Transaction, Mr. Hall’s and Mr. Donnelly’s base salary
        shall not be less that $430,000 and $280,000, respectively, subject to
        adjustments as determined by the Chief Executive Officer each year. In 2006
        the
        base salaries for Mr. Hall and Mr. Donnelly were: $450,000 and $300,000,
        respectively. For 2007, Mr. Hall’s and Mr. Donnelly’s annual base salaries have
        been increased to $472,500 and $315,000, respectively.
 
 Mr.
        Cooney
 Mr.
        Cooney’s base
        salary for 2006 was $270,000. For 2007, Mr. Cooney’s base salary has been
        increased to $283,500.
 
 Mr.
        Kelln
 Pursuant
        to the
        terms of Mr. Kelln’s letter agreement entered into with the Company on May 23,
        2005, Mr. Kelln’s base salary is $400,000 per year subject to annual reviews for
        increases. For 2006, Mr. Kelln’s base salary was $400,000. For 2007, Mr. Kelln’s
        base salary has been increased to $420,000.
 
 *Discretionary
        Cash Bonuses*
 At
        year end, the
        Chief Executive Officer assesses the individual performance of each named
        executive officer together with the Company’s operating and financial
        performance achievements as compared to an established financial plan for
        the
        Company. Then, if the Chief Executive Officer so determines, he makes a
        recommendation to the Compensation Committee for a discretionary cash bonus
        award for each named executive officer other than himself. The Chief Executive
        Officer’s recommendation and the Compensation Committee’s ultimate awards of
        discretionary cash bonuses are designed to reward corporate success and
        individual achievement with the emphasis on overall Company performance.
        The
        Chief Executive Officer and the Compensation Committee consider EBITDA as
        a
        principal measure of the Company’s achievements, among others, and therefore, it
        is utilized as an important performance metric in establishing the discretionary
        cash bonuses.
 
 Mr.
        Bready
 Pursuant
        to the
        terms of his employment agreement entered into with the Company in connection
        with the THL Transaction, Mr. Bready is not entitled to earn any incentive
        or
        bonus compensation during the employment term which expires on December 31,
        2009. The board of directors of the Company, however, may elect to award
        incentive compensation or cash bonuses to Mr. Bready, from time to time.
        Mr.
        Bready did not receive any incentive compensation or discretionary cash bonuses
        in 2005 or 2006.
 
 Messrs.
        Hall,
        Donnelly, Cooney and Kelln
 Messrs.
        Hall,
        Donnelly, Cooney and Kelln’s discretionary cash bonus for 2006, as recommended
        by the Chief Executive Officer and approved by the Compensation Committee,
        was
        $725,000 for Mr. Hall; $400,000 for Mr. Donnelly; $300,000 for Mr. Cooney
        and
        $450,000 for Mr. Kelln.
 
 *Equity-based
        Award Plans*
 The
        Compensation
        Committee considers the Class C units, which represent ownership interests
        of
        Investors LLC, to be similar to traditional equity-based awards and,
        consequently an important tool in rewarding and incentivising executive
        performance which will have a long-term impact on equityholder value. The
        majority of the Class C unit grants were made to the named executive officers
        in
        connection with the THL Transaction. However, the Compensation Committee,
        from
        time to time, considers the discretionary award of additional Class C units.
        For
        example, Mr. Kelln, who joined the Company subsequent to the THL Transaction,
        was granted Class C units upon his date of hire. The Company does not make
        equity awards every year. There are 1,937.31 Class C units available for
        future
        grants. Besides the award of Class C units of Investors LLC under the LLC
        Agreement discussed in detail below, the Company has no other long-term or
        equity incentive plans. For more information on the ownership structure of
        Investors LLC and the vesting of the Class C units see “Security Ownership of
        Certain Beneficial Owners and Management” and “Certain Relationships and
        Relation Transactions - Limited Liability Company Agreement of Investors
        LLC”.
 
 The
        named executive
        officers own the following number of Class C units (includes C-1 and C-2
        units):


Mr.
                Bready
            23,586.66Mr.
                Hall
            4,246.02Mr.
                Donnelly
            2,830.68Mr.
                Cooney
            2,123.01Mr.
                Kelln
            4,500.00




The
        value of the
        Class C units is discussed in more detail below.
 
 *Retirement-related
        Benefits*
 
 *401(k)
        plan:* The
        401(k) plan is
        a tax-qualified retirement savings plan pursuant to which all of the Company's
        employees, including the named executive officers, are able to contribute
        the
        lesser of 16% of their annual salary or the limit prescribed by the Internal
        Revenue Service to the plan on a before-tax basis. The Company matches 50%
        of
        the participants’ contributions up to 6% (for a maximum possible match of 3%) In
        addition to the match contribution, all participants are eligible for a
        discretionary profit sharing employer contribution.
 
 For
        2006, Messrs.
        Bready, Hall, Donnelly and Cooney each received an employer matching
        contribution of $6,600 and Mr. Kelln received an employer matching contribution
        of $6,000. In addition, for 2006, Messrs. Bready, Hall, Donnelly, Cooney
        and Kelln each received a profit sharing employer contribution equal to
        $11,000.
 
 *Pension
        plan* :
        Nortek's
        qualified 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 this
        pension plan, as a 50% joint and survivor annuity, are as follows: Mr. Bready
        $160,922, Mr. Hall $52,163, and Mr. Donnelly $15,574.
 
 *Nonqualified
        Deferred Compensation Plan:* In
        connection with
        the THL Transaction, the named executive officers and other members of Nortek’s
        management became participants in a newly adopted deferred compensation plan
        of
        Nortek Holdings. For more information, see “Employment Contracts and Termination
        of Employment and Change-in-Control Arrangements - Deferred Compensation
        Plan of
        Nortek Holdings”.
 
 On
        May 10, 2006,
        the following balances were paid to certain named executive officers as follows:
        Mr. Bready, $37,773,786; Mr. Hall, $2,915,176; Mr. Donnelly, $1,787,140;
        Mr.
        Cooney, $738,477. The named executive officers are not entitled to any further
        distributions under the plan.
 
 The
        Company does
        not have any other deferred compensation plans.
 
 Termination
        Compensation
 In
        order to
        attract, motivate, and retain executives, the Company believes that certain
        severance arrangements for the named executive officers are appropriate and
        necessary. For Messrs. Bready, Hall, Donnelly and Cooney their termination
        compensation has been determined pursuant to the terms of their employment
        agreements, or in the case of Mr. Cooney, the Second Amended and Restated
        Change
        in Control Severance Benefit Plan, entered into with the Company in connection
        with the THL Transaction. The Company believes that termination benefits
        and
        change of control payments are helpful to provide certainty to the named
        executive officers with respect to their positions with the Company and to
        ensure that the Company will have the continued dedication and full attention
        of
        those key employees after a change of control.
 
 The
        termination
        compensation amounts for the Company’s named executive officers are as
        follows:
 
 *Mr.
        Bready*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        payable to Mr. Bready based upon the terms of his employment contract entered
        into in connection with the THL Transaction, would be, for a period of three
        (3)
        years, as follows: annual base salary of $1,750,000; approximately $3,062
        (based
        upon actual 2006 costs) equal to the annual cost of continued coverage under
        the
        same disability, accident and life insurance plans of the Company, approximately
        $100,000 annually for the cost of office space and administrative support
        similar to what is currently provided by the Company, approximately $12,875
        (based upon actual 2006 costs) equal to the annual cost for continued medical
        coverage, and approximately $440,633 (based upon actual 2006 costs) equal
        to the
        annual cost to continue other specified benefits and perquisites, including
        personal use of an aircraft and automobiles. Anytime after the hypothetical
        termination on December 31, 2006, Mr. Bready may request, and the Company
        shall
        pay to Mr. Bready, a lump sum cash payment in lieu of lifetime medical coverage
        in an amount established by the Company’s board of directors, which amount shall
        be grossed-up for Section 4999 taxes and federal and state income
        taxes.
 
 *Messrs.
        Hall
        and Donnelly*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        for
        Messrs. Hall and Donnelly pursuant to their respective employment contracts
        entered into in connection with the THL transaction would be, for a period
        of
        two (2) years, as follows: annual base salary of $450,000 for Mr. Hall and
        $300,000 for Mr. Donnelly; annual incentive bonus of $725,000 for Mr. Hall
        and
        $400,000 for Mr. Donnelly; approximately $3,062 (based upon actual 2006 costs)
        for Mr. Hall and $2,776 (based upon actual 2006 costs) for Mr. Donnelly equal
        to
        the annual cost of continued coverage under the same or equivalent disability,
        accident and life insurance plans of the Company. In addition, Mr. Hall and
        Mr.
        Donnelly are entitled to lifetime medical coverage for themselves and their
        respective spouses and dependants, and reimbursement for their medical related
        expenses. Based upon the actual 2006 costs, the medical coverage and related
        reimbursement have an approximate annual cost of $12,875, each plus
        approximately $12,058 for Mr. Hall and $13,779 for Mr. Donnelly for
        reimbursement of health related expenses. At anytime after the hypothetical
        termination on December 31, 2006, or in the event of a hypothetical change
        of
        control on December 31, 2006 (regardless of a subsequent termination), Messrs.
        Hall and Donnelly may request, and the Company shall pay to Messrs. Hall
        and
        Donnelly, a lump sum cash payment in lieu of lifetime medical coverage in
        an
        amount established by the Company’s board of directors, but in any event not
        less than $650,000 each, which amount shall be grossed-up for Section 4999
        taxes
        and federal and state income taxes.
 
 *Mr.
        Cooney*
 Based
        upon a
        hypothetical change of control occurring on December 31, 2006 and a subsequent
        termination within twenty-four (24) months of the change of control, the
        severance benefits for Mr. Cooney pursuant to the Second Amended and Restated
        Change in Control Severance Benefit Plan would be, for a period of two (2)
        years: annual base salary of $270,000; annual incentive bonus of $300,000;
        and
        approximately $15,436 (based upon the actual 2006 costs) equal to the annual
        cost of continued medical, disability, accident and life insurance plans
        of the
        Company.
 
 *Mr.
        Kelln*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        for
        Mr. Kelln pursuant to the terms of his employment letter agreement entered
        into
        with the Company on May 23, 2005 would be $200,000; equal to his base annual
        salary of $400,000 payable for a period of six (6) months; and approximately
        $6,566 (based upon actual 2006 cost plus a 2% administrative fee) for COBRA
        continuation coverage during the six (6) month severance period.
  **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 2006 of those persons who
        were,
        at December 31, 2006, the Chief Executive Officer, the Chief Financial Officer
        and the other three most highly compensated executive officers of the Company
        (who together constitute all of the Company’s executive officers at December 31,
        2006), which the Company refers elsewhere in this Form 10-K as its named
        executive officers.





**Name
                and**
              **Principal
                Position**
              **(a)**
            
            **Year**
              **(b)**
            
            **Salary**
              **(c)**
            
            **Bonus**
              **(d)**
            
            **Stock**
              **Awards**
              **(e)**
            
            **Option**
              **Awards**
              **(f)**
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **(g)**
            
            **Change
                in Pension**
              **Value
                and Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings
                (5)**
              **(h)**
            
            **(1)
                (2)**
              **All
                Other**
              **Compensation****(i)**
            
            **Total**
              **Compensation**
              **(j)**Richard
                L. Bready (3)
              Chairman,
                President and
              Chief
                Executive Officer
            
            
            2006
            
            $
            3,500,000
            
            $
            ---
            
            $
            115,994
            
            $
            ---
            
            $
            ---
            
            $
            18,000
            
            $
            458,233
            
            $
            4,092,227Almon
                C. Hall (3)
              Vice
                President and
              Chief
                Financial Officer
            
            
            2006
            
            
            450,000
            
            
            725,000
            
            
            20,881
            
            
            ---
            
            
            ---
            
            
            (1,000
            )
            
            67,487
            
            
            1,262,368Kevin
                W. Donnelly (3)
              Vice
                President, General
              Counsel
                and Secretary
            
            
            2006
            
            
            300,000
            
            
            400,000
            
            
            13,921
            
            
            ---
            
            
            ---
            
            
            (3,000
            )
            
            50,612
            
            
            761,533Edward
                J. Cooney
              Vice
                President and
              Treasurer
            
            
            2006
            
            
            270,000
            
            
            300,000
            
            
            10,440
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            39,560
            
            
            620,000Bryan
                L. Kelln (4)
              Senior
                Vice President and Chief Operating Officer
            
            
            2006
            
            
            400,000
            
            
            450,000
            
            
            22,130
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            63,409
            
            
            935,539





(1)
            The
                amount for Mr. Bready in 2006 includes $249,531 related to personal
                use of
                the Company’s fractional ownership of aircrafts; $133,501 related to an
                executive service award (which includes a gross-up for federal and
                state
                income tax purposes) based upon years of service with the Company.
                For
                Messrs. Bready, Hall, Donnelly, Cooney and Kelln includes amounts
                related
                to excess group term life insurance and personal use of automobiles
                provided by the Company. For Messrs. Bready, Hall, Cooney and Kelln
                includes amounts related to fees for personal income tax preparation
                services. For Messrs. Bready, Hall, and Donnelly includes reimbursement
                by
                the Company for health related costs paid by the executive. For Messrs.
                Bready and Hall includes amounts related to country club dues for
                personal
                use. For Mr. Kelln includes amounts related to reimbursement for
                certain
                relocation expenses.





(2) Includes
      $6,600 in matching contributions and $11,000 in profit sharing contributions
      by
      the Company for 2006 for Messrs. Bready, Hall, Donnelly and Cooney under
      the Company’s 401(k) Savings Plan, which is a defined contribution retirement
      plan. Includes $6,000 in matching contributions and $11,000 in profit sharing
      contributions by the Company for 2006 for Mr. Kelln under the Company’s
      401(k) Savings Plan, which is a defined contribution retirement
      plan.





(3)
            On
                August 27, 2004, each of Messrs. Bready, Hall and Donnelly entered
                into
                amended and restated employment agreements with Nortek 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
      December 22, 2006, the Company appointed Mr. Kelln to the newly created position
      of Senior Vice President and Chief Operating Officer. Mr. Kelln was previously
      Vice President - Operations for the Company.





(5) The
      gross change in Mr. Bready's benefit of $18,000 is the net result of an increase
      of $99,000 due to passage of time and a decrease of $81,000 due to change in
      discount rate. The gross change in Mr. Hall's benefit of ($1,000) is the net
      result of an increase of $27,000 due to passage of time and a decrease of
      $28,000 due to change in discount rate. The gross change in Mr. Donnelly's
      benefit of ($3,000) is the net result of an increase of $4,000 due to passage
      of
      time and a decrease of $7,000 due to change in discount rate.





**Grants
      of Plan-Based Awards Table**




There
        were no
        grants of plan-based awards in 2006.
 
 
 **Outstanding
        Equity Awards at December 31, 2006 Table**
 
 Nortek
        is a
        wholly-owned direct subsidiary of Nortek Holdings and Nortek Holdings is
        a
        wholly-owned direct subsidiary of NTK Holdings. NTK Holdings is a wholly-owned
        direct subsidiary of Investors LLC. The outstanding membership interests
        of
        Investors LLC which are entitled to further distributions under the Limited
        Liability Company Agreement of Investors LLC consist of 473,595.10 voting
        Class
        B units and 68,829.76 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 B units and Class
        C
        units are described in “Certain Relationships and Related Transactions - Limited
        Liability Company Agreement of Investors LLC”.
 
 The
        following table
        provides further information regarding the Company’s named executive officers’
unvested Class C units as of December 31, 2006. The estimated value of the
        Class
        C-1 and C-2 units below is equal to $779.23/unit and $498.43/unit,
        respectively.


**Stock
                Awards****Name**
            
            **Number
                of C-1 Units (time-vesting) that**
              **Have
                Not Vested (#)**
            
            **Market
                Value of C-1 Units (time-vesting) that****Have
                Not Vested ($) (1)**
            
            **Equity
                Incentive Plan Awards: Number of C-2 Units (performance-vesting)
                that**
              **Have
                Not Vested (#)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of C-2 Units
                (performance-vesting) that**
              **Have
                Not Vested ($) (1)**Richard
                L. Bready
            
            
            1,965.55
            
            
            $
                1,531,616
            
            
            15,724.44
            
            
            $
                7,837,533Almon
                C. Hall
            
            
            353.83
            
            
            275,715
            
            
            2,830.68
            
            
            1,410,896Kevin
                W. Donnelly
            
            
            235.89
            
            
            183,813
            
            
            1,887.12
            
            
            940,597Edward
                J. Cooney
            
            
            176.92
            
            
            137,861
            
            
            1,415.34
            
            
            705,448Bryan
                L. Kelln
            
            
            750.00
            
            
            584,423
            
            
            3,000.00
            
            
            1,495,290




(1) Since
        the
        Class C-1 and C-2 units are not publicly traded, their closing market price
        as
        of December 31, 2006 is not available. As a result, the Company engaged a
        third
        party advisor to assist it in determining the value of the Class C-1 and
        C-2
        units as of December 31, 2006. This advisor prepared the estimated valuation
        using the probability weighted expected return method included in certain
        guidelines published by the American Institute of Certified Public Accountants
        as the AICPA Audit and Accounting Practice Aid Series, Valuation of
        Privately-Held-Company Equity Incentive Units Issued as Compensation, which
        was
        then adjusted to reflect the discount period, the minority interest factor
        and
        the lack of marketability factor to arrive at the final estimated
        valuations.


**Units
      Vested in the Year Ended December 31, 2006**




The
        following table
        provides further information regarding Class C units held by the Company’s named
        executive officers that vested during 2006:


**Class
                C Unit Awards****Name**
            
            **Number
                of Vested C-1**
              **Units
                (#)**
            
            **Estimated
                Value Realized on****Vesting ($) (2)**Richard
                L. Bready
            
            
            5,896.67
            
            $
            4,594,862Almon
                C. Hall
            
            
            1,061.51
            
            
            827,160Kevin
                W. Donnelly
            
            
            707.67
            
            
            551,438Edward
                J. Cooney
            
            
            530.75
            
            
            413,576Bryan
                L. Kelln
            
            
            750.00
            
            
            584,423





(2)  See
      sub-note (1) above for a description of the valuation surrounding the Class
      C-1
      unit awards.





**Pension
      Benefits for the Year Ended December 31, 2006**





The
      following table illustrates the benefit information for the Company’s only
      pension plan, the Nortek, Inc. Retirement Plan:





**Years
                of**
            
            **Annual**
            
            **Estimated**
            
            **Payments****Credited**
            
            **Accrued**
            
            **Present
                Value of**
            
            **During
                Last****Name**
            
            **Service**
            
            **Benefit**
            
            **Accrued
                Benefit**
            
            **Fiscal
                Year**Richard
                L. Bready
            
            
            21
            
            $
            182,141.28
            
            $
            1,541,000.00
            
            
            ---Almon
                C. Hall
            
            
            19
            
            
            60,303.96
            
            
            437,000.00
            
            
            ---Kevin
                W. Donnelly
            
            
            8
            
            
            17,342.99
            
            
            77,000.00
            
            
            ---




Annual
        benefit
        accruals under the Nortek, Inc. Retirement Plan ceased effective December
        31,
        1995. All plan participants, including those identified above, became 100%
        vested on that date. Retirement benefits were calculated using final average
        earnings and credited service according to the plan’s benefit formula as of the
        benefit freeze date.
 
 The
        estimated
        present value of each participant’s accrued benefit was determined as of
        December 31, 2006 based on a discount rate of 5.75% and mortality according
        to
        the 1983 Group Annuity Mortality Table (sex distinct). These assumptions
        are
        consistent with those used for fiscal 2006 disclosure results. The Nortek,
        Inc.
        Retirement Plan does not offer a lump sum payment option for any of the
        participants identified above.
 
 Reduced
        early
        retirement benefits are available to the aforementioned named executive officers
        upon the attainment of age 55. Accrued benefits are reduced by 1/180 th for the first
        sixty (60) months early retirement age precedes age 65 and 1/360 th for each month
        thereafter in excess of sixty (60) months.
 
 The
        normal form of
        payment for single participants is a life annuity. The normal form of payment
        for married payments is an actuarially reduced 50% joint & survivor annuity.
        Optional forms of payment include actuarially adjusted joint & survivor
        benefits (50%, 66 2/3%, and 100%) and a ten-year certain and continuous
        annuity.
 
 The
        estimated
        annual 50% joint & survivor annuity payable to each participant identified
        above at age 65 is detailed below:


**Annual
                Accrued Benefit****Payable
                at Age 65****Name**
            
            **50%
                Joint & Survivor**Richard
                L. Bready
            
            
            $
                160,922Almon
                C. Hall
            
            
            52,163Kevin
                W. Donnelly
            
            
            15,574





These
      estimated benefits are based on spouse dates of birth.





**Nonqualified
      Deferred Compensation for the Year Ended December 31, 2006**





The
      following table provides additional information regarding contributions by
      the
      Company and each of the Company’s named executive officers under the Company’s
      only nonqualified deferred compensation plan, the Deferred Compensation Plan
      of
      Nortek Holdings during the year ended December 31, 2006. The table also presents
      each named executive officer’s withdrawals, earnings and year-end balances in
      such plans. For more information, see “Employment Contracts and Termination of
      Employment and Change-in-Control Arrangements - Deferred Compensation Plan
      of
      Nortek Holdings”.





**Name**
            
            **Executive
                Contributions in Last Fiscal****Year
                ($)**
            
            **Registrant
                Contributions in Last Fiscal****Year
                ($)**
            
            **Aggregate
                Earnings in Last Fiscal****Year
                ($)**
            
            **(1)**
              **Aggregate
                Withdrawals/**
              **Distributions
                ($)**
            
            **Aggregate**
              **Balance
                at**
              **Last
                Fiscal**
              **Year
                End ($)**Richard
                L. Bready
            
            
            ---
            
            
            ---
            
            
            ---
            
            $
            37,773,786
            
            
            ---Almon
                C. Hall
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            2,915,176
            
            
            ---Kevin
                W. Donnelly
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            1,787,140
            
            
            ---Edward
                J. Cooney
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            738,477
            
            
            ---Bryan
                L. Kelln
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---





(1) On
      May
      10, 2006, the balances for each named executive officer (as well as the other
      participants under the plan) were paid with cash on hand at Nortek and a portion
      of the proceeds of the borrowing made under NTK Holdings' senior unsecured
      loan
      facility to certain named executive officers and directors. For more information
      see “Employment Contracts and Terminations of Employment and Change-in-Control
      Arrangements - Deferred Compensation Plan of Nortek Holdings”. The participants
      are not entitled to any further distributions under the Deferred Compensation
      Plan of Nortek Holdings.





On
      May
      10, 2006, distributions from the Nortek Holdings Deferred Compensation Plan
      were
      made to Jeffrey Bloomberg, $260,317; Joseph Cianciolo, $173,546; and David
      Hiley, $477,556.





**Potential
      Payments upon Termination or Change-in-Control**




The
        information
        below sets forth the potential termination or change in control payments
        required to be paid to certain of our named executive officers pursuant to
        existing contracts.
 
 *Mr.
        Bready*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        payable to Mr. Bready based upon the terms of his employment contract entered
        into in connection with the THL Transaction, would be, for a period of three
        (3)
        years, as follows: annual base salary of $1,750,000; approximately $3,062
        (based
        upon actual 2006 costs) equal to the annual cost of continued coverage under
        the
        same disability, accident and life insurance plans of the Company, approximately
        $100,000 annually for the cost of office space and administrative support
        similar to what is currently provided by the Company, approximately $12,875
        (based upon actual 2006 costs) equal to the annual cost for continued medical
        coverage, and approximately $440,633 (based upon actual 2006 costs) equal
        to the
        annual cost to continue other specified benefits and perquisites, including
        personal use of an aircraft and automobiles. Anytime after the hypothetical
        termination on December 31, 2006, Mr. Bready may request, and the Company
        shall
        pay to Mr. Bready, a lump sum cash payment in lieu of lifetime medical coverage
        in an amount established by the Company’s board of directors, which amount shall
        be grossed-up for Section 4999 taxes and federal and state income
        taxes.
 
 *Messrs.
        Hall
        and Donnelly*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        for
        Messrs. Hall and Donnelly pursuant to their respective employment contracts
        entered into in connection with the THL transaction would be, for a period
        of
        two (2) years, as follows: annual base salary of $450,000 for Mr. Hall and
        $300,000 for Mr. Donnelly; annual incentive bonus of $725,000 for Mr. Hall
        and
        $400,000 for Mr. Donnelly; approximately $3,062 (based upon actual 2006 costs)
        for Mr. Hall and $2,776 (based upon actual 2006 costs) for Mr. Donnelly equal
        to
        the annual cost of continued coverage under the same or equivalent disability,
        accident and life insurance plans of the Company. In addition, Mr. Hall and
        Mr.
        Donnelly are entitled to lifetime medical coverage for themselves and their
        respective spouses and dependants, and reimbursement for their medical related
        expenses. Based upon the actual 2006 costs, the medical coverage and related
        reimbursement have an approximate annual cost of $12,875, each plus
        approximately $12,058 for Mr. Hall and $13,779 for Mr. Donnelly for
        reimbursement of health related expenses. At anytime after the hypothetical
        termination on December 31, 2006, or in the event of a hypothetical change
        of
        control on December 31, 2006 (regardless of a subsequent termination), Messrs.
        Hall and Donnelly may request, and the Company shall pay to Messrs. Hall
        and
        Donnelly, a lump sum cash payment in lieu of lifetime medical coverage in
        an
        amount established by the Company’s board of directors, but in any event not
        less than $650,000 each, which amount shall be grossed-up for Section 4999
        taxes
        and federal and state income taxes.
 
 *Mr.
        Cooney*
 Based
        upon a
        hypothetical change in control occurring on December 31, 2006 and a subsequent
        termination within twenty-four (24) months of the change of control, the
        severance benefits for Mr. Cooney pursuant to the Second Amended and Restated
        Change in Control Severance Benefit Plan would be, for a period of two (2)
        years: annual base salary of $270,000; annual incentive bonus of $300,000;
        and
        approximately $15,436 (based upon the actual 2006 costs) equal to the annual
        cost of continued medical, disability, accident and life insurance plans
        of the
        Company.
 
 *Mr.
        Kelln*
 Based
        upon a
        hypothetical termination date of December 31, 2006, the severance benefits
        for
        Mr. Kelln pursuant to the terms of his employment letter agreement entered
        into
        with the Company on May 23, 2005 would be $200,000; equal to his base annual
        salary of $400,000 payable for a period of six (6) months; and approximately
        $6,566 (based upon actual 2006 cost plus a 2% administrative fee) for COBRA
        continuation coverage during the six (6) month severance period.
 
 **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 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 remaining period of the initial employment
        term of
        the employment contract, which ends December 31, 2009.
 
 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.
 
 *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 two years from the date of termination.
 
 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.
 
 *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 served as Vice President-Operations of
        Nortek
        prior to his promotion to Senior Vice President and Chief Operating Officer.
        The
        agreement provides that the initial basic annual salary for Mr. Kelln would
        be
        $400,000 per year, which is currently $420,000 per year and 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. 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. For more information on the allocation of units
        by
        Investors LLC, please see “Relationships and Transactions with Related
        Parties-Limited Liability Company Agreement of Investors LLC”. 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 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). Edward J. Cooney, Nortek’s Vice President and
        Treasurer is currently the only named executive officer 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 nonqualified,
        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 “Relationships and Transactions with Related
        Parties - Dividends - 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 $54,000,000 for all participants.
        On May 10, 2006, the following balances were paid with cash on hand at Nortek
        and a portion of the proceeds of the borrowing made under NTK Holdings' senior
        unsecured loan facility to certain named executive officers and directors
        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. See “Relationships and Transactions with
        Related Parties - Dividends - 2006 Dividend”. The participants are not entitled
        to any further distributions under the plan.
  **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.
 
 The
        following table
        provides a summary of compensation paid for the year ended December 31, 2006
        to
        the Company’s Board of Directors. The table shows amounts earned by such persons
        for services rendered to the Company in all capacities in which they
        served:


**Non-Employee
      Director Compensation Table**





**Name**
            
            **Fees
                Earned or****Paid in Cash ($)**
            
            **Stock****Awards
                ($)**
            
            **Option****Awards
                ($)**
            
            **Non-Equity
                Incentive Plan****Compensation ($)**
            
            **Change
                in Pension Value and Nonqualified Deferred****Compensation Earnings ($)**
            
            **(2)**
              **All
                Other****Compensation ($)**
            
            **Total
                ($)**Jeffrey
                C. Bloomberg
            
            $
            62,500
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            $
            260,317
            
            $
            322,817Joseph
                M. Cianciolo
            
            
            64,500
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            173,546
            
            
            238,046Anthony
                J. DiNovi
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---David
                V. Harkins
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---David
                B. Hiley (1)
            
            
            64,000
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            490,838
            
            
            554,838Kent
                R. Weldon
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---





(1)
            In
                2006 for Mr. Hiley, includes amounts related to personal use of company
                car.





(2)
            On
                May 10, 2006, distributions were made from the Deferred Compensation
                Plan
                of Nortek Holdings in the following amounts to Jeffery C. Bloomberg,
                $260,317; Joseph M. Cianciolo $173,546; and David B. Hiley,
                $477,556.





**Report
      of the Compensation Committee for Fiscal Year 2006**





*The
      information contained in this report shall not be deemed to be “soliciting
      material” or “filed” or incorporated by reference in future filings with the
      SEC, or subject to the liabilities of Section 18 of the Securities and Exchange
      Act of 1934, except to the extent that the Company specifically incorporates
      it
      by reference into a document filed under the Securities Exchange Act of 1933
      or
      the Securities and Exchange Act of 1934.*





The
      Compensation Committee of the Board of Directors of the Company oversees the
      Company’s compensation program on behalf of the Board. In fulfilling its
      oversight responsibilities, the Compensation Committee reviewed and discussed
      with management the Compensation Discussion & Analysis set forth in this
      annual report on Form 10-K.





In
      reliance on the review and discussions referred to above, the Compensation
      Committee recommended to the Board that the Compensation Discussion &
Analysis be included in the Company’s annual report on Form 10-K for the fiscal
      year ended December 31, 2006, which will be filed with the Securities and
      Exchange Commission.








Compensation
      Committee


Richard
      L. Bready


Anthony
      DiNovi








**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 15, 2007, 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 which are entitled to further distribution
      under the Limited Liability Company Agreement of Investors LLC consist of
      473,595.10 voting Class B units and 68,829.76 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**
            
            **Class
                C**
            
            **of
                Class C****Name
                and Address**
            
            **Class
                B Units**
            
            **Class
                B Units**
            
            **Units
                (1)**
            
            **Units
                (2)****Principal
                Security Holders:**Thomas
                H. Lee Partners L.P. and affiliates (3)
            
            
            360,800.02
            
            
            76.18
            %
            
            ---
            
            
            ---**Management
                Committee Members and Named Executive Officers**Jeffrey
                C. Bloomberg ^
            
            
            538.58
            
            
            *
            
            
            ---
            
            
            ---Richard
                L. Bready ^ +
            
            
            78,150.21
            
            
            16.50
            %
            
            23,586.66
            
            
            34.27
            %Joseph
                M. Cianciolo ^
            
            
            359.05
            
            
            *
            
            
            530.75
            
            
            *Edward
                J. Cooney +
            
            
            1,527.84
            
            
            *
            
            
            2,123.01
            
            
            3.08
            %Anthony
                J. DiNovi (3) ^
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---Kevin
                W. Donnelly +
            
            
            3,697.42
            
            
            *
            
            
            2,830.68
            
            
            4.11
            %Almon
                C. Hall +
            
            
            6,031.21
            
            
            1.27
            %
            
            4,246.02
            
            
            6.17
            %David
                V. Harkins (3) ^
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---David
                B. Hiley ^
            
            
            988.01
            
            
            *
            
            
            1,061.51
            
            
            1.54
            %Bryan
                L. Kelln +
            
            
            ---
            
            
            ---
            
            
            4,500.00
            
            
            6.54
            %Kent
                R. Weldon (3) ^
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---All
                management committee members and executive officers as a group (11
                persons)
            
            
            91,292.32
            
            
            19.28
            %
            
            38,878.63
            
            
            56.49
            %





* Less
      than 1%





^ Director





+ Named
      executive officer





(1)
            Includes
                the total amount of Class C-1 units that will be vested within sixty
                (60)
                days after March 15, 2007 for each of the named individuals for the
                following amounts: Mr. Bready, 6,551.85; Mr. Cianciolo, 147.43; Mr.
                Cooney, 589.73; Mr. Donnelly, 786.30; Mr. Hall, 1,179.45; Mr. Hiley,
                294.87; and Mr. Kelln 875.00. Includes Class C-1 units that have
                not
                vested and will not vest within sixty (60) days after March 15, 2007
                for
                each of the named individuals for the following amounts: Mr. Bready,
                1,310.37; Mr. Cianciolo, 29.49; Mr. Cooney, 117.95; Mr. Donnelly,
                157.26;
                Mr. Hall, 235.89; Mr. Hiley, 58.97; and Mr. Kelln 625.00. 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 and 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.





**Equity
      Compensation Plan Information**




The
        Company
        currently does not have any equity compensation plans other than the Class
        C
        units which have been or may be granted under the LLC Agreement described
        below.
        There are 1,937.31 Class C units available for future grants.
 
 **Item
        13.
        Certain Relationships and Related Transactions.**
 
 **2006
        Dividend**
 
 The
        net proceeds
        from the borrowing on May 10, 2006 under NTK Holdings' senior unsecured loan
        facility were utilized to (1) pay a cash dividend of approximately $174,900,000
        to Investors LLC, which, in turn, made a distribution to the holders of its
        Class A and Class B membership interests, including affiliates of Thomas
        H. Lee
        Partners, L.P. and certain members of the Company’s management and (2)
        contribute capital of approximately $25,900,000 to Nortek Holdings, which
        was
        used by Nortek Holdings, together with a dividend of approximately $28,100,000
        from Nortek, to make a distribution of approximately $54,000,000 to the
        participants in the 2004 Nortek Holdings, Inc. Deferred Compensation Plan
        in
        accordance with the terms of that plan. Certain of the Company’s directors,
        executive officers and beneficial owners of more than 5% of the Company’s shares
        received payments in connection with the dividend and the distribution under
        the
        plan as follows: $37,777,563 to Mr. Bready; $2,915,467 to Mr. Hall; $1,787,319
        to Mr. Donnelly; $738,551 to Mr. Cooney; $260,343 to Mr. Bloomberg; $173,564
        to
        Mr. Cianciolo; $477,603 to Mr. Hiley and $174,373,513 to affiliates of Thomas
        H.
        Lee Partners, L.P. As a result of these distributions, holders of the Class
        A
        units in Investors LLC and the participants in the 2004 Nortek Holdings,
        Inc.
        Deferred Compensation Plan are not entitled to any further
        distributions.
 
 *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
        remaining
        distributions of property by Investors LLC are made first 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 a 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 investment in Investors LLC 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.
 
 **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 the Company became a party to the securityholders agreement.
  ·
            *Governance.*Under
                the
                securityholders agreement, the management committee of Investors
                LLC
                consists 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 consists of six managers.
                Under the terms of the securityholders agreement, for so long as
                Richard
                L. Bready is the holder of 5% 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 is entitled to designate two managers
                to
                serve on the management committee. 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. 
 ·
            *Transfers.*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
                and
                drag-along rights. 
 ·
            *Preemptive
                Rights.*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. 
 ·
            *Affiliate
                Transactions.*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, require the approval of Mr. Bready
                or a
                majority of the independent managers of the management committee,
                if any,
                of Investors LLC. 
 ·
            *Registration
                Rights.*Registration
                rights apply to shares of capital stock of NTK Holdings that are
                distributed to the holders of Investors LLC membership units. 
 **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 has provided certain financial
        and
        strategic advisory and consultancy services. In February 2005, the management
        agreement was amended to reflect the formation of NTK Holdings. Nortek paid
        to
        THL Managers V, LLC a transaction fee of $25,000,000 upon the closing of
        the THL
        Transaction and paid approximately $6,000,000 of transaction costs and expenses
        for third party advisors incurred by THL Managers V, LLC and its affiliates
        in
        connection the THL Transaction. In addition, the agreement provides for the
        payment by us 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 Company’s consolidated earnings before interest,
                taxes, depreciation and amortization, before deduction for such
                fee, 
 as
        well as the
        costs and expenses incurred by THL Managers V, LLC and its affiliates in
        connection with the provision of future services under the management agreement.
        The Company expensed approximately $700,000 for the period from August 28,
        2004
        to December 31, 2004, $2,175,000 for the year ended December 31, 2005 and
        approximately $2,298,000 for the year ended December 31, 2006 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.
 
 **Director
        Independence**
 
 As
        a result of the
        Recapitalization which was completed on January 9, 2003, neither NTK Holdings',
        Nortek Holdings', nor Nortek's securities are listed with a national exchange,
        and thus the Company is not required to have any independent directors on
        its
        board. While the Company is not subject to the New York Stock Exchange listing
        standards, the Company's board of directors has determined that Mr. Cianciolo
        and Mr. Bloomberg are considered "independent" directors within the meaning
        of
        the rules of the New York Stock Exchange for listed companies.
  **Item
        14.
        Principal Accountant Fees and Services.**
 
 **Audit
        Fees**
 
 The
        Company was
        billed by its principal accountant $3,564,000 and $2,426,746 for audit services
        for the years ended December 31, 2006 and 2005, respectively. Audit fees
        for the
        year ended December 31, 2006 and 2005 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
        2006 and 2005, 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 and, in 2006, the Company’s most recent
        registration statement on Form S-1.
 
 **Audit-Related
        Fees**
 
 The
        Company was
        billed $284,000 and $189,660 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, 2006
        and 2005, respectively. Audit-related fees billed during 2006 and 2005 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 $259,000 and $305,600 for professional services rendered by the Company’s
        principal accountant for tax compliance, tax advice and tax planning during
        the
        years ended December 31, 2006 and 2005, respectively.
 
 **All
        Other
        Fees**
 
 There
        were no other
        fees billed by the Company’s principal accountant in 2006 or 2005.
 
 **Audit
        Committee Pre-Approval Policy**
 
 Before
        the
        Company's principal accountant is engaged to perform any audit services or
        permitted non-audit services, such engagement is approved by the Audit
        Committee. The Company does not currently have any other pre-approval policy
        or
        procedure.




**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 years ended December 31, 2006 and 2005 and
      the
      periods from August 28, 2004 to December 31, 2004 and from January 1, 2004
      to
      August 27, 2004





Consolidated
      Balance Sheet as of December 31, 2006 and 2005





Consolidated
      Statement of Cash Flows for the years ended December 31, 2006 and 2005 and
      the
      periods from August 28, 2004 to December 31, 2004 and from January 1, 2004
      to
      August 27, 2004





Consolidated
      Statement of Stockholder’s Investment for the years ended December 31, 2006 and
      2005 and the periods from August 28, 2004 to December 31, 2004 and from January
      1, 2004 to August 27, 2004





Notes
      to Consolidated Financial Statements





Report
      of Independent Registered Public Accounting Firm





2.
            Financial
                Statement Schedules





Schedule
      I  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 April 2, 2007.








NTK
      HOLDINGS,
      INC.








/s/
      Richard L.
      Bready





Richard
      L.
      Bready


Chairman
      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 April 2, 2007





/s/
              Richard L. Bready
            /s/
              Joseph M. CiancioloRichard
              L. Bready, Chairman,
            Joseph
              M. CiancioloPresident
              and Chief Executive Officer
            Director/s/
              Almon C. Hall
            /s/
              Anthony J. DiNoviAlmon
              C. Hall, Vice President
            Anthony
              J. DiNoviand
              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****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2006 -**
              
              **Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2006**
              
              **Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)***Net
                  Sales**
              
              $
              2,218.4
              
              $
              1,959.2
              
              $
              561.0
              
              $
              1,117.9**Costs
                  and Expenses:**Cost of products sold
              
              
              1,547.3
              
              
              1,361.4
              
              
              409.1
              
              
              792.8Selling, general and administrative expense, net (see Note
                  14)
              
              
              381.7
              
              
              342.6
              
              
              101.4
              
              
              199.9Amortization of intangible assets
              
              
              24.9
              
              
              18.3
              
              
              8.4
              
              
              8.9Expenses and charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              83.71,953.9
              
              
              1,722.3
              
              
              518.9
              
              
              1,085.3Operating
                  earnings
              
              
              264.5
              
              
              236.9
              
              
              42.1
              
              
              32.6Interest
                  expense
              
              
              (162.9
              )
              
              (138.6
              )
              
              (42.5
              )
              
              (56.1
              )Loss
                  from
                  debt retirement
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (130.7
              )Investment
                  income
              
              
              2.2
              
              
              1.8
              
              
              0.3
              
              
              1.5Earnings
                  (loss) from continuing operationsbefore provision (benefit) for income taxes
              
              
              103.8
              
              
              100.1
              
              
              (0.1
              )
              
              (152.7
              )Provision
                  (benefit) for income taxes
              
              
              46.1
              
              
              43.2
              
              
              3.5
              
              
              (41.4
              )**Earnings
                  (loss) from continuing operations**
              
              
              57.7
              
              
              56.9
              
              
              (3.6
              )
              
              (111.3
              )**(Loss)
                  earnings from discontinued operations**
              
              
              ---
              
              
              ---
              
              
              (0.5
              )
              
              67.4**Net
                  earnings (loss)**
              
              $
              57.7
              
              $
              56.9
              
              $
              (4.1
              )
              $
              (43.9
              )


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






**Consolidated
      Balance Sheet**


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




**December
                  31,****2006**
              
              **2005****Assets****Current
                  Assets:**Unrestricted
                  cash and cash equivalents
              
              $
              57.4
              
              $
              77.2Restricted
                  cash
              
              
              1.2
              
              
              ---Accounts
                      receivable, less allowances of $9.4 and $6.6
              
              
              328.9
              
              
              272.2Inventories:Raw materials
              
              
              83.1
              
              
              75.2Work in process
              
              
              28.7
              
              
              21.4Finished goods
              
              
              166.8
              
              
              145.7278.6
              
              
              242.3Prepaid
                  expenses
              
              
              13.7
              
              
              10.5Other
                  current
                  assets
              
              
              24.4
              
              
              26.3Prepaid
                  income taxes
              
              
              21.2
              
              
              21.0Total current assets
              
              
              725.4
              
              
              649.5**Property
                  and Equipment, at Cost:**Land
              
              
              9.5
              
              
              8.8Buildings
                  and
                  improvements
              
              
              101.9
              
              
              84.3Machinery
                  and
                  equipment
              
              
              177.2
              
              
              141.1288.6
              
              
              234.2Less
                  accumulated depreciation
              
              
              66.1
              
              
              28.7Total property and equipment, net
              
              
              222.5
              
              
              205.5**Other
                  Assets:**Goodwill
              
              
              1,481.4
              
              
              1,381.3Intangible
                    assets, less accumulated amortization of $52.4 and
                    $27.3
              
              
              150.4
              
              
              114.5Deferred
                  debt
                  expense
              
              
              41.7
              
              
              42.1Restricted
                  investments and marketable securities
              
              
              3.3
              
              
              4.0Other
                  assets
              
              
              11.2
              
              
              7.71,688.0
              
              
              1,549.6**Total
                  Assets**
              
              $
              2,635.9
              
              $
              2,404.6**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable
                  and other short-term obligations
              
              $
              23.3
              
              $
              4.9Current
                  maturities of long-term debt
              
              
              20.0
              
              
              14.8Accounts
                  payable
              
              
              188.2
              
              
              159.0Accrued
                  expenses and taxes, net
              
              
              283.7
              
              
              187.2Total current liabilities
              
              
              515.2
              
              
              365.9**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              35.9
              
              
              4.1Other
              
              
              128.8
              
              
              215.4164.7
              
              
              219.5**Notes,
                      Mortgage Notes and Obligations**Payable, Less Current
                      Maturities
              
              
              1,883.2
              
              
              1,628.7**Stockholder’s
                  Investment:**Common
                    stock,
                    $0.01 par value, authorized 3,000 shares;3,000
issued
                    and
                    outstanding at December 31,2006
                    and
                    2005
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              21.3
              
              
              130.2Retained
                  earnings
              
              
              39.9
              
              
              52.8Accumulated
                  other comprehensive income
              
              
              11.6
              
              
              7.5Total stockholder's investment
              
              
              72.8
              
              
              190.5**Total
                  Liabilities and Stockholder's Investment**
              
              $
              2,635.9
              
              $
              2,404.6




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






**Consolidated
      Statement of Cash Flows**


**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2006 -**
              
              **Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2006**
              
              **Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)***Cash
                  Flows from operating activities:**Earnings
                  (loss) from continuing operations
              
              $
              57.7
              
              $
              56.9
              
              $
              (3.6
              )
              $
              (111.3
              )(Loss)
                  earnings from discontinued operations
              
              
              ---
              
              
              ---
              
              
              (0.5
              )
              
              67.4Net
                  earnings
                  (loss)
              
              
              57.7
              
              
              56.9
              
              
              (4.1
              )
              
              (43.9
              )**Adjustments
                  to reconcile net earnings (loss)****to net cash provided by operating activities:**Depreciation
                  and amortization expense, includingamortization of purchase price allocated to inventory
              
              
              61.2
              
              
              45.9
              
              
              22.5
              
              
              25.8Non-cash
                  interest expense, net
              
              
              47.6
              
              
              29.9
              
              
              4.1
              
              
              24.7Effect
                  of the
                  Acquisition, net
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              38.4Non-cash
                  stock-based compensation
              
              
              0.3
              
              
              0.3
              
              
              0.1
              
              
              48.5Gain
                  from
                  curtailment of post-retirement medical benefits
              
              
              (35.9
              )
              
              ---
              
              
              ---
              
              
              ---Compensation
                  reserve adjustment
              
              
              (3.5
              )
              
              ---
              
              
              ---
              
              
              ---Loss
                  (gain) on
                  sale of property and equipment
              
              
              1.3
              
              
              (1.6
              )
              
              ---
              
              
              ---Loss
                  from debt
                  retirement
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              130.7Gain
                  on the
                  sale of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (125.2
              )Deferred
                      federal income tax provision (benefit) from continuing
                      operations
              
              
              26.8
              
              
              25.3
              
              
              1.0
              
              
              (46.9
              )Operating
                  cash
                  flows from discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              0.5Deferred
                      federal income tax benefit from discontinued
                      operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (18.5
              )**Changes
                  in certain assets and liabilities, net of****effects from acquisitions and dispositions:**Accounts
                  receivable, net
              
              
              (19.6
              )
              
              (37.3
              )
              
              26.9
              
              
              (26.9
              )Inventories
              
              
              (14.0
              )
              
              (24.3
              )
              
              1.6
              
              
              (34.3
              )Prepaids
                  and
                  other current assets
              
              
              13.1
              
              
              (5.2
              )
              
              6.2
              
              
              (14.4
              )Accounts
                  payable
              
              
              (0.7
              )
              
              20.7
              
              
              (34.1
              )
              
              52.7Accrued
                  expenses and taxes
              
              
              18.5
              
              
              11.7
              
              
              42.1
              
              
              22.8Long-term
                  deferred compensation
              
              
              (54.0
              )
              
              (57.7
              )
              
              ---
              
              
              ---Long-term
                  assets, liabilities and other, net
              
              
              (4.8
              )
              
              6.1
              
              
              (10.1
              )
              
              0.9Changes
                  in
                  assets and liabilities of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              0.1Total
                  adjustments to net earnings (loss)
              
              
              36.3
              
              
              13.8
              
              
              60.3
              
              
              78.9Net cash provided by operating activities
              
              $
              94.0
              
              $
              70.7
              
              $
              56.2
              
              $
              35.0**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              $
              (42.3
              )
              $
              (28.9
              )
              $
              (13.5
              )
              $
              (11.8
              )Net
                  cash paid
                  for businesses acquired
              
              
              (106.2
              )
              
              (117.2
              )
              
              (15.5
              )
              
              (16.5
              )Purchase
                  of
                  outstanding equity shares of the former NortekHoldings by Thomas H. Lee Partners, L.P. and affiliates
              
              
              ---
              
              
              ---
              
              
              (706.2
              )
              
              ---Payment
                  of
                  Acquisition fees and expenses
              
              
              ---
              
              
              ---
              
              
              (47.5
              )
              
              ---Purchase
                  of
                  investments and marketable securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (5.0
              )Proceeds
                      from
                      the sale of investments and marketable
                      securities
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              5.0Investing
                  cash
                  flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              1.8Proceeds
                  from
                  the sale of discontinued businesses
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              526.0Proceeds
                  from
                  the sale of property and equipment
              
              
              5.1
              
              
              10.8
              
              
              7.8
              
              
              0.3Change
                  in
                  restricted cash and marketable securities
              
              
              0.4
              
              
              (0.2
              )
              
              (0.2
              )
              
              (0.1
              )Other,
                  net
              
              
              (3.3
              )
              
              (2.2
              )
              
              (0.3
              )
              
              (0.6
              )Net cash (used in) provided by investing activities
              
              $
              (146.3
              )
              $
              (137.7
              )
              $
              (775.4
              )
              $
              499.1**Cash
                  Flows from financing activities:**Increase
                  in
                  borrowings
              
              $
              87.0
              
              $
              35.1
              
              $
              4.9
              
              $
              1.1Payment
                  of
                  borrowings
              
              
              (78.8
              )
              
              (43.4
              )
              
              (4.0
              )
              
              (6.5
              )Borrowings
                  under the senior unsecured loan facility
              
              
              200.8
              
              
              ---
              
              
              ---
              
              
              ---Sale
                  of the 10
                  3/4% Senior Discount Notes
              
              
              ---
              
              
              244.7
              
              
              ---
              
              
              ---Dividends
              
              
              (174.9
              )
              
              (187.0
              )
              
              ---
              
              
              ---Sale
                  of
                  Floating Rate Notes
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              196.0Redemption
                  of
                  notes
              
              
              ---
              
              
              ---
              
              
              (919.3
              )
              
              (716.7
              )Net
                  proceeds
                  from the sale of 8 1/2% Notes
              
              
              ---
              
              
              ---
              
              
              600.9
              
              
              ---Net
                  proceeds
                  from borrowings under the Senior Secured Credit Facility
              
              
              ---
              
              
              ---
              
              
              680.8
              
              
              ---Equity
                      investment by Thomas H. Lee Partners L.P. and
                      affiliates
              
              
              ---
              
              
              ---
              
              
              361.8
              
              
              ---Settlement
                  of
                  stock options
              
              
              ---
              
              
              ---
              
              
              (113.0
              )
              
              ---Financing
                  cash
                  flows of discontinued operations
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (0.1
              )Other,
                  net
              
              
              (1.6
              )
              
              (0.2
              )
              
              0.1
              
              
              ---Net
                  cash
                  provided by (used in) financing activities
              
              
              32.5
              
              
              49.2
              
              
              612.2
              
              
              (526.2
              )Net change
                      in unrestricted cash and cash equivalents
              
              
              (19.8
              )
              
              (17.8
              )
              
              (107.0
              )
              
              7.9Unrestricted
                      cash and cash equivalents at the beginning of the
                      period
              
              
              77.2
              
              
              95.0
              
              
              202.0
              
              
              194.1Unrestricted
                      cash and cash equivalents at the end of the
                      period
              
              $
              57.4
              
              $
              77.2
              
              $
              95.0
              
              $
              202.0


*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 millions)*




**Accumulated****Series
                  B**
              
              **Class
                  A**
              
              **Additional**
              
              
              
              **Other****Preference**
              
              **Common**
              
              **Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Stock**
              
              **Stock**
              
              **Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Loss****Balance,
                  December 31, 2003**
              
              $
              8.1
              
              $
              0.4
              
              $
              172.2
              
              $
              ---
              
              $
              19.4
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (43.9
              )
              
              ---
              
              
              (43.9
              )Other
                  comprehensive loss:Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (3.9
              )
              
              (3.9
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (47.8
              )Stock-based
                  compensation
              
              
              ---
              
              
              ---
              
              
              5.3
              
              
              ---
              
              
              ---Settlement
                  and cancellation of stock options,net of taxes of $19.1
              
              
              ---
              
              
              ---
              
              
              (43.0
              )
              
              ---
              
              
              ---Subtotal
              
              
              8.1
              
              
              0.4
              
              
              134.5
              
              
              (43.9
              )
              
              15.5Effect
                  of the
                  Acquisition
              
              
              (8.1
              )
              
              (0.4
              )
              
              180.0
              
              
              43.9
              
              
              (15.5
              )**Balance,
                  August 27, 2004**
              
              $
              ---
              
              $
              ---
              
              $
              314.5
              
              $
              ---
              
              $
              ---




*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 millions)*




**Accumulated****Additional**
              
              
              
              **Other****Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  August 28, 2004**
              
              $
              314.5
              
              $
              ---
              
              $
              ---
              
              $
              ---Net
                  loss
              
              
              ---
              
              
              (4.1
              )
              
              ---
              
              
              (4.1
              )Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              9.5
              
              
              9.5Minimum pension liability, net of tax of $0.2
              
              
              
              
              
              
              
              
              (0.4
              )
              
              (0.4
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              5.0Stock-based
                  compensation
              
              
              0.1
              
              
              ---
              
              
              ---Effect
                  of the
                  Acquisition
              
              
              2.3
              
              
              ---
              
              
              ---**Balance,
                  December 31, 2004**
              
              $
              316.9
              
              $
              (4.1
              )
              $
              9.1




*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 millions)*


**Retained**
              
              **Accumulated****Additional**
              
              **Earnings**
              
              **Other****Paid-in**
              
              **(Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit)**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2004**
              
              $
              316.9
              
              $
              (4.1
              )
              $
              9.1
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              56.9
              
              
              ---
              
              
              56.9Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (1.7
              )
              
              (1.7
              )Minimum
                      pension liability, net of tax of $0.1
              
              
              ---
              
              
              ---
              
              
              0.1
              
              
              0.1Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              55.3Dividends
              
              
              (187.0
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.3
              
              
              ---
              
              
              ---**Balance,
                  December 31, 2005**
              
              $
              130.2
              
              $
              52.8
              
              $
              7.5




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







**Consolidated
      Statement of Stockholder’s Investment**


**For
      the Period from January 1, 2006 to December 31, 2006**


*(Dollar
      amounts in millions)*




**Retained**
              
              **Accumulated****Additional**
              
              **Earnings**
              
              **Other****Paid-in**
              
              **(Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Deficit)**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2005**
              
              $
              130.2
              
              $
              52.8
              
              $
              7.5
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              57.7
              
              
              ---
              
              
              57.7Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              5.1
              
              
              5.1Reversal of SFAS No. 87 minimum pension liability,net of tax provision of $0.1 million
              
              
              ---
              
              
              ---
              
              
              0.3
              
              
              0.3Effect
                      of SFAS No. 158 adoption, net of tax provision of $1.8
                      million
              
              
              ---
              
              
              ---
              
              
              (1.3
              )
              
              (1.3
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              61.8Dividends
              
              
              (104.3
              )
              
              (70.6
              )
              
              ---Adjustment
                  of
                  carryover basis of continuingmanagement investors in the THL Transaction
              
              
              (4.9
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.3
              
              
              ---
              
              
              ---**Balance,
                  December 31, 2006**
              
              $
              21.3
              
              $
              39.9
              
              $
              11.6




*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, 2006


**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
        period from January 1, 2004 to August 28, 2004 (“Pre-Acquisition”) reflects 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 as described more fully in Note 2 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.
 
 On
        May 5, 2006, the
        Company filed a registration statement on Form S-1 (most recently amended
        on
        September 15, 2006) with the SEC for an initial public offering of shares
        of its
        common stock (the “Offering”). Although the Company has not withdrawn its
        registration statement on Form S-1, there can be no assurance that the Company
        will complete the Offering in the foreseeable future. Accordingly, the Company
        expensed approximately $2.5 million of costs incurred in connection with
        the
        Offering, which are included in selling, general and administrative expense,
        net
        in the consolidated statement of operations for the year ended December 31,
        2006.
  **Principles
        of Consolidation**
 
 The
        Consolidated
        Financial Statements include the accounts of the Company and all of its
        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.
 
 **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, net. 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, 2006 approximately $4.5 million of cash and cash
        equivalents (of which approximately $3.3 million 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, 2005 approximately $4.0 million 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.
 
 **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.
 
 ***Restricted
        Investments and Marketable Securities --***
 The
        fair value of
        investments is based on quoted market prices. The fair value of investments
        was
        not materially different from their cost basis at December 31, 2006 or 2005.
 
 ***Long-Term
        Debt --***
 At
        December 31,
        2006 and December 31, 2005, the fair value of long-term indebtedness was
        approximately $34.4 million lower and $41.4 million lower, 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, 2006 and 2005, approximately $110.3 million and $121.0
        million 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 $8.5 million higher
        and $2.9 million lower at December 31, 2006 and 2005, 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 the Company’s analysis, the Company believes that no impairment of SFAS
      No. 144 Long-Lived Assets occurred in the years ended December 31, 2006 and
      2005
      and the periods from August 24, 2004 to December 31, 2004 and from January
      1,
      2004 to August 27, 2004.





The
      following table
      presents a summary of the activity in goodwill for continuing operations and
      discontinued operations for the years ended December 31, 2006 and 2005, the
      period from August 28, 2004 to December 31, 2004 and the period from January
      1,
      2004 to August 27, 2004.





**Continuing**
            
            **Discontinued****Operations**
            
            **Operations**
            
            **Total***(Amounts
                in millions)***Balance
                as of December 31, 2003**
            
            **$**
            **675.8**
            
            **$**
            **222.2**
            
            **$**
            **898.0**Acquisitions
                during the period from January 1, 2004 to August 27, 2004
            
            
            6.8
            
            
            ---
            
            
            6.8Dispositions
            
            
            ---
            
            
            (222.2
            )
            
            (222.2
            )Purchase
                accounting adjustments
            
            
            (3.2
            )
            
            ---
            
            
            (3.2
            )**Balance
                as of August 27, 2004**
            
            
            **679.4**
            
            
            **---**
            
            
            **679.4**Effect
                of the Acquisition
            
            
            607.1
            
            
            ---
            
            
            607.1Acquisitions
                during the period from August 28, 2004 to December 31,
                2004
            
            
            8.8
            
            
            ---
            
            
            8.8Purchase
                accounting adjustments
            
            
            (2.0
            )
            
            ---
            
            
            (2.0
            )Impact
                of foreign currency translation
            
            
            1.8
            
            
            ---
            
            
            1.8**Balance
                as of December 31, 2004**
            
            
            **1,295.1**
            
            
            **---**
            
            
            **1,295.1**Acquisitions
                during the year ended December 31, 2005
            
            
            91.9
            
            
            ---
            
            
            91.9Purchase
                accounting adjustments
            
            
            (4.8
            )
            
            ---
            
            
            (4.8
            )Impact
                of foreign currency translation
            
            
            (0.9
            )
            
            ---
            
            
            (0.9
            )**Balance
                as of December 31, 2005**
            
            
            **1,381.3**
            
            
            **---**
            
            
            **1,381.3**Acquisitions
                during the year ended December 31, 2006
            
            
            104.8
            
            
            ---
            
            
            104.8Purchase
                accounting adjustments
            
            
            (1.7
            )
            
            ---
            
            
            (1.7
            )Adjustment
                of carryover basis of continuing management investors in the THL
                Transaction
            
            
            (4.9
            )
            
            ---
            
            
            (4.9
            )Impact
                of foreign currency translation
            
            
            1.9
            
            
            ---
            
            
            1.9**Balance
                as of December 31, 2006**
            
            **$**
            **1,481.4**
            
            **$**
            **---**
            
            **$**
            **1,481.4**




Goodwill
      associated
      with the Acquisition (see Note 2) will not be deductible for income tax
      purposes.





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 3). Approximately $62.3
      million,
      $56.1 million and $6.8 million of goodwill associated with certain companies
      acquired during the years ended December 31, 2006 and 2005 and the period from
      August 28, 2004 to December 31, 2004 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. See
      Note 11 for a
      rollforward of the activity in goodwill by reporting segment for the years
      ended
      December 31, 2006 and 2005.





The
      $4.9 million
      non-cash “Adjustment of carryover basis of continuing management investors in
      the THL Transaction” for the year ended December 31, 2006 as noted in the table
      above, represents a correction to the original 2004 purchase accounting for
      the
      Acquisition resulting in a reduction of goodwill with a corresponding reduction
      in stockholder’s investment. The $4.9 million adjustment has not been reflected
      in the consolidated financial statements for prior periods as the Company has
      determined that the adjustment is not material to the prior period consolidated
      financial statements.





Intangible
      assets
      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 $24.9 million, $18.3 million, $8.4
      million and $8.9 million for the years ended December 31, 2006 and 2005, the
      period from August 28, 2004 to December 31, 2004 and the period from January
      1,
      2004 to August 27, 2004, respectively. The table that follows presents the
      major
      components of intangible assets as of December 31, 2006 and 2005:





**Weighted****Gross**
            
            
            
            **Net**
            
            **Average****Carrying**
            
            **Accumulated**
            
            **Intangible**
            
            **Remaining****Amount**
            
            **Amortization**
            
            **Assets**
            
            **Useful
                Lives***(Amounts
                in millions except for useful lives)***December
                31, 2006:**Trademarks
            
            $
            85.4
            
            $
            (12.0
            )
            $
            73.4
            
            
            13.6Patents
            
            
            31.5
            
            
            (4.0
            )
            
            27.5
            
            
            13.5Customer
                relationships
            
            
            58.0
            
            
            (28.6
            )
            
            29.4
            
            
            2.8Others
            
            
            27.9
            
            
            (7.8
            )
            
            20.1
            
            
            3.2$
            202.8
            
            $
            (52.4
            )
            $
            150.4
            
            
            5.8**December
                31, 2005:**Trademarks
            
            $
            72.5
            
            $
            (6.3
            )
            $
            66.2
            
            
            14.9Patents
            
            
            22.6
            
            
            (1.9
            )
            
            20.7
            
            
            14.8Customer
                relationships
            
            
            34.2
            
            
            (15.8
            )
            
            18.4
            
            
            2.7Others
            
            
            12.5
            
            
            (3.3
            )
            
            9.2
            
            
            3.7$
            141.8
            
            $
            (27.3
            )
            $
            114.5
            
            
            6.6





As
      of
      December 31, 2006, the estimated annual intangible asset amortization expense
      for each of the years presented aggregates approximately $150.4 million as
      follows:





**Year
                Ended**
            **Annual
                Amortization****December
                31,**
            **Expense***(Amounts
                in millions)**(Unaudited)*2007
            $
                24.22008
            20.42009
            16.92010
            14.12011
            11.42012
                and thereafter
            63.4




Intangible
        assets
        increased approximately $35.9 million from approximately $114.5 million at
        December 31, 2005 to approximately $150.4 million at December 31, 2006. This
        increase is primarily as a result of intangible assets acquired as a result
        of
        business acquisitions made during the year ended December 31, 2006 (see Note
        3),
        partially offset by intangible asset amortization of approximately $24.9
        million
        for the year ended December 31, 2006.
 
 **Pensions
        and Post Retirement Health Benefits**
 
 On
        December 31,
        2006, the Company adopted SFAS
        No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
        Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No.
        158”). SFAS No. 158 requires the Company to: (a) recognize the over-funded or
        under-funded status of its defined benefit post-retirement plans as an asset
        or
        liability in its statement of financial position; (b) recognize changes in
        the
        funded status in the year in which the changes occur through comprehensive
        income and (c) measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end. The Company is required to initially recognize the
        funded status of its defined benefit plans and to provide the required
        disclosures for the fiscal year ended December 31, 2006. The requirement
        to
        measure benefit obligations as of the date of the employer’s fiscal year-end
        statement of financial position is effective for the Company for the fiscal
        year
        ended December 31, 2008.
 
 Prior
        to December
        31, 2006, the Company accounted 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”), respectively.
 
 The
        accounting for
        pensions 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. 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 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).
 
 In
        June 2006, the
        Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement
        No. 109)”, (“FIN 48”). FIN 48 clarifies the criteria that an individual tax
        position must satisfy for some or all of the benefits of that position to
        be
        recognized in a company’s financial statements. FIN 48 prescribes a recognition
        threshold of “more-likely-than-not” and a measurement attribute for all tax
        positions taken or expected to be taken on a tax return in order for those
        tax
        positions to be recognized in the financial statements. FIN 48 is effective
        for
        fiscal years beginning after December 31, 2006. Accordingly, the Company
        will
        adopt FIN 48 on January 1, 2007. The cumulative effect of applying the
        provisions of FIN 48 will be reported as an adjustment of the Company’s opening
        balance of retained earnings (or other appropriate components of equity or
        net
        assets in the statement of financial position). The
        Company has
        assessed the impact of this interpretation on its domestic subsidiaries and
        currently estimates that the application of this standard on such subsidiaries
        will result in a reduction of retained earnings of between $3.0 million
        (unaudited) and $4.0 million (unaudited), and an increase of goodwill
        related to pre-acquisition tax uncertainties of between $6.0 (unaudited)
        and
        $7.0 million (unaudited). The Company is currently in the process of assessing
        the impact of this interpretation on its foreign subsidiaries.
 
 **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**
 
 Prior
        to January 1,
        2006, the Company used the fair value method of accounting for stock-based
        employee compensation in accordance with Statement of Financial Standards
        (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). On
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
        Payment” (“SFAS No. 123R”).
 
 The
        Company adopted
        SFAS No. 123R and followed the modified-prospective transition method of
        accounting for stock-based compensation. Under the modified-prospective
        transition method, the Company is required to recognize compensation cost
        for
        share-based payments to employees based on their grant-date fair value beginning
        January 1, 2006. Measurement and attribution of compensation cost for awards
        that were granted prior to, but not vested as of the date SFAS No. 123R was
        adopted are based on the same estimate of the grant-date fair value and the
        same
        attribution method used previously under SFAS No. 123.
 
 The
        adoption of
        SFAS No. 123R did not have a material impact on the Company’s financial position
        or results of operations.
 
 The
        Company
        recorded stock-based compensation charges in selling, general and administrative
        expense, net of approximately $0.3 million for each of the years ended December
        31, 2006 and 2005, respectively, in accordance with SFAS No. 123R and 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 $0.1 million
        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 $48.5 million
        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 $6.4 million 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 acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners,
        L.P.
        (the “THL Transaction”) on August 27, 2004, certain employees and consultants
        received approximately 21,184 C-1 units and approximately 42,368 C-2 units,
        which represent equity interests in THL-Nortek Investors, LLC (“Investors LLC”)
        that function similar to stock awards. Since the initial distribution of
        the C-1
        and C-2 units on August 27, 2004, approximately 1,895 and 3,383 additional
        C-1
        units and C-2 units, respectively, have been granted to certain of the Company’s
        officers and employees, net of forfeitures. The C-1 units vest pro rata on
        a
        quarterly basis over a three-year period and approximately 16,720 and 9,065
        were
        vested at December 31, 2006 and 2005, respectively. The total amortizable
        fair
        value of the C-1 units is approximately $1.1 million. Approximately $0.4
        million
        remains to be amortized at December 31, 2006. The C-2 units only vest in
        the
        event that certain performance-based criteria, as defined, are met. As of
        December 31, 2006 and 2005, there was approximately $1.6 million of unamortized
        stock-based employee compensation with respect to the C-2 units, which will
        be
        amortized in the event that it becomes probable that the C-2 units or any
        portion thereof will vest. The C-1 and C-2 units were valued using the
        Black-Scholes option pricing model to determine the freely-traded call option
        value based upon information from comparable public companies, which was
        then
        adjusted to reflect the discount period, the minority interest factor and
        the
        lack of marketability factor to arrive at the final valuations.
 
 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, 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).
 
 **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 2.0%, 1.9% and 1.7% of the Company’s consolidated net
        sales in 2006, 2005 and 2004, 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:





**SFAS
                No. 87**
            
            
            
            **Total****Minimum**
            
            **SFAS
                No. 158**
            
            **Accumulated****Foreign**
            
            **Pension**
            
            **Pension**
            
            **Other****Currency**
            
            **Liability**
            
            **Liability**
            
            **Comprehensive****Translation**
            
            **Adjustment**
            
            **Adjustment**
            
            **Income
                (Loss)***(Amounts
                in millions)***Balance
                December 31, 2003**
            
            **$**
            **19.5**
            
            **$**
            **(0.1**
            **)**
            **$**
            **---**
            
            **$**
            **19.4**Change
                during the period
            
            
            (3.9
            )
            
            ---
            
            
            ---
            
            
            (3.9
            )**Balance
                August 27, 2004**
            
            
            **15.6**
            
            
            **(0.1**
            **)**
            
            **---**
            
            
            **15.5**Effect
                of the Acquisition
            
            
            (15.6
            )
            
            0.1
            
            
            ---
            
            
            (15.5
            )Change
                during the period
            
            
            9.5
            
            
            (0.4
            )
            
            ---
            
            
            9.1**Balance
                December 31, 2004**
            
            
            **9.5**
            
            
            **(0.4**
            **)**
            
            **---**
            
            
            **9.1**Change
                during the period
            
            
            (1.7
            )
            
            0.1
            
            
            ---
            
            
            (1.6
            )**Balance
                December 31, 2005**
            
            
            7.8
            
            
            (0.3
            )
            
            ---
            
            
            7.5Change
                during the period
            
            
            5.1
            
            
            ---
            
            
            ---
            
            
            5.1Adoption
                of SFAS No. 158
            
            
            ---
            
            
            0.3
            
            
            (1.3
            )
            
            (1.0
            )**Balance
                December 31, 2006**
            
            **$**
            **12.9**
            
            **$**
            **---**
            
            **$**
            **(1.3**
            **)**
            **$**
            **11.6**





**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, net and have not
        been
        material during any of the periods presented.
 
 **New
        Accounting Pronouncements**
 
 In
        September 2006,
        the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157,
“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
        establishes a framework for measuring fair value in accordance with U.S.
        generally accepted accounting principles, and expands disclosures about fair
        value measurements. The provisions of SFAS No. 157 are effective for the
        Company
        beginning January 1, 2008, including interim periods within the year ending
        December 31, 2008. Earlier adoption is encouraged. The Company is currently
        evaluating the impact of adopting SFAS No. 157 on its consolidated financial
        statements.
 
 In
        February 2007,
        the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
        Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS
        No. 159”). SFAS No. 159 permits entities to choose to measure many financial
        instruments and certain other items at fair value and is effective for fiscal
        years beginning after November 15, 2007, or January 1, 2008 for the Company.
        Early adoption is permitted as of the beginning of the previous fiscal year
        provided that the entity makes that choice in the first 120 days of that
        fiscal
        year and also elects to apply the provisions of SFAS No. 157. The Company
        is
        currently evaluating the impact of adopting SFAS No. 159 on its consolidated
        financial statements.
  **2.
          THE
          ACQUISITION 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”), 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 for a purchase price of
        approximately $743.2 million. 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
        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 $113.0 million
        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, certain members of Nortek’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 equaled 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 was a non-qualified, unfunded obligation of Nortek
        Holdings.
 
 On
        February 18,
        2005, Nortek Holdings made a distribution to the participants of its deferred
        compensation plan in the amount of approximately $57.7 million, which resulted
        in additional interest expense of approximately $8.2 million, and on May
        10,
        2006, made a second distribution to the participants in the amount of
        approximately $54.0 million, which resulted in additional interest expense
        of
        approximately $3.9 million (see Note 6). As a result of this second
        distribution, the participants in the deferred compensation plan are not
        entitled to any further distributions.
 
 At
        December 31,
        2005, other long-term liabilities in the accompanying consolidated balance
        sheet
        included approximately $49.0 million related to this deferred compensation
        plan,
        net of unamortized discount of approximately $5.0 million. The balance sheet
        at
        December 31, 2006 does not include any liabilities related to this deferred
        compensation plan as a result of the second distribution noted
        above.
 
 In
        connection with
        accounting for the purchase price for the Acquisition, the Company recorded
        a
        deferred tax benefit of approximately $32.6 million representing the tax
        benefit
        related to the deferred compensation plan of Nortek Holdings. At December
        31,
        2005, the remaining deferred tax benefit was approximately $17.5 million,
        which
        is included in deferred income taxes in the accompanying consolidated balance
        sheet. At December 31, 2006, there was no remaining deferred tax benefit
        as the
        second distribution noted above is deductible for income tax purposes upon
        payment.
 
 Upon
        consummation
        of the Acquisition the outstanding principal balance, and accrued interest
        thereon, totaling approximately $0.9 million 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 $9.3 million were transferred to two
        of
        the Company’s officers and approximately $0.9 million was paid to such officers
        in settlement of a deferred compensation plan. As a result, Nortek recorded
        an
        approximate $10.2 million 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 $56.5 million, including approximately
        $25.0 million of advisory and financing fees and expenses paid to Thomas
        H. Lee
        Partners L.P. Approximately $26.0 million 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 $21.5
        million was recorded as purchase price for the Acquisition and the balance
        of $9.0 million was recorded as deferred financing costs (see Note
        14).
 
 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) $2.0 million 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 $0.7 million 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 $2.3 million and $2.2 million for the
        years ended December 31, 2006 and 2005, respectively, 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 $361.8 million of cash and certain
        members
        of the Company’s senior management made a rollover investment of approximately
        $111.8 million. These funds, together with approximately $155.3 million of
        cash
        of the former Nortek Holdings, the $700.0 million proceeds from the term
        loan
        under the senior secured credit facility and the $625.0 million 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 $743.2 million was allocated to the
        assets
        and liabilities based on their relative fair values and approximately $316.7
        million was recorded in Stockholder’s Investment representing the ownership
        interest of Nortek’s equity holders upon completion of the Acquisition,
        including the carryover basis of continuing management investors of
        approximately negative $45.1 million.
 
 Immediately
        prior
        to the Acquisition, Stockholder’s Investment was approximately $114.6 million.
        The purchase price for the Acquisition of approximately $743.2 million consists
        of the following:


*(Amounts in millions)*Purchase
                price for Series B Preference stock and Class A Common Stock of the
                former
                Nortek Holdings
            $
            706.2Payment
                for the settlement and termination of the former Nortek Holdings
                Stock
                Options
            
            113.0Carryover
                basis of continuing management investors
            
            (45.1
            )Liability
                related to Nortek Holdings deferred compensation plan
            
            93.0Cash
                of the former Nortek Holdings
            
            (112.8
            )Tax
                benefit related to the Nortek Holdings deferred compensation plan
            
            (32.6
            )Fees
                and expenses
            
            21.5$
            743.2





The
      purchase price of the Acquisition was allocated based on estimates of the fair
      value of assets and liabilities as follows:








*(Amounts in millions)*Historical
                net assets
            $
            114.6Purchase
                price allocated to:Inventories
            
            10.9Property
                and equipment
            
            9.6Intangible
                assets
            
            24.3Pension
                and post retirement health care benefits
            
            (9.2
            )Prepaid
                and deferred income taxes
            
            (13.5
            )Goodwill
            
            607.1Other
            
            (0.6
            )$
            743.2







**3.** **ACQUISITIONS**




On
        December 12,
        2006, the Company, through its wholly-owned subsidiary, Linear LLC (“Linear”),
        acquired the stock of Gefen, Inc. (“Gefen”) for approximately $22.5 million
        (utilizing approximately $20.0 million of cash and issuing unsecured 6%
        subordinated notes totaling $2.5 million due December 2008) plus contingent
        consideration, which may be payable in future years. Gefen is located in
        Woodland Hills, CA and designs and sells audio and video products which extend,
        switch, distribute and convert signals in a variety of formats, including
        high
        definition, for both the residential and commercial markets.
 
 On
        November 11,
        2006, the Company, through its wholly-owned subsidiary, Broan-NuTone LLC
        (“Broan”), acquired the stock of Zephyr Corporation (“Zephyr”) and Pacific
        Zephyr Range Hood, Inc. (“Pacific”) for approximately $26.4 million (utilizing
        approximately $22.4 million of cash and issuing unsecured 6% subordinated
        notes
        totaling $4.0 million due November 2009). Zephyr and Pacific are both located
        in
        San Francisco, CA. Zephyr designs and sells upscale range hoods, while Pacific
        designs, sells and installs range hoods and other kitchen products for Asian
        cooking markets in the United States.
 
 On
        July 18, 2006,
        the Company, through Linear, acquired the stock of Magenta Research, Ltd.
        (“Magenta”) for approximately $14.4 million (utilizing approximately $11.9
        million of cash, of which approximately $10.0 million was borrowed under
        Nortek’s revolving credit facility and is still outstanding at December 31,
        2006, and issuing unsecured 6% subordinated notes totaling $2.5 million due
        July
        2008) plus contingent consideration, which may be payable in future years.
        Magenta is located in New Milford, CT and designs and sells products that
        distribute audio and video signals over Category 5 and fiber optic cable
        to
        multiple display screens.
 
 On
        June 26, 2006,
        the Company, through Linear, acquired the stock of Secure Wireless, Inc.
        (“Secure Wireless”) and Advanced Bridging Technologies, Inc. (“ABT”) through two
        mergers for an initial purchase price of approximately $10.5 million, plus
        contingent consideration of approximately $18.1 million that was earned in
        2006
        and will be paid in 2007. Additional contingent consideration may be payable
        in
        future years. Secure Wireless designs and sells wireless security products
        for
        the residential and commercial markets while ABT designs and sells innovative
        radio frequency control products and accessories. Both Secure Wireless and
        ABT
        are located in Carlsbad, CA.
 
 On
        April 14, 2006,
        the Company, through two newly formed subsidiaries of its HVAC segment, acquired
        the assets and certain liabilities of Huntair, Inc. (“Huntair”) and Cleanpak
        International, LLC (“Cleanpak”), for an initial purchase price of approximately
        $48.4 million (utilizing approximately $38.4 million of cash and issuing
        unsecured 6% subordinated notes totaling $10.0 million due April 2008) plus
        contingent consideration of approximately $30.0 million which was earned
        in 2006
        and will be paid in 2007. Both Huntair and Cleanpak are located near Portland,
        OR and manufacture, market and distribute custom air handlers and related
        products for commercial and cleanroom applications.
 
 On
        February 22,
        2006, the Company, through Linear, acquired the assets and certain liabilities
        of Furman Sound, Inc. (“Furman”) for approximately $3.3 million. Furman is
        located in Petaluma, CA and designs and sells audio and video signal processors
        and innovative power conditioning and surge protection products.
 
 On
        January 25,
        2006, the Company, through its wholly-owned subsidiary, Mammoth China Ltd.
        (“Mammoth China”), increased its ownership interests in Mammoth (Zhejiang) EG
        Air Conditioning Ltd. (“MEG”) and Shanghai Mammoth Air Conditioning Co., Ltd.
        (“MSH”) to sixty-percent for approximately $2.4 million. The majority ownership
        transaction relating to MSH was finalized with the Chinese authorities in
        May
        2006. Prior to January 25, 2006, Mammoth China had a forty-percent minority
        interest in MEG and a fifty-percent interest in MSH.
 
 On
        December 9,
        2005, the Company, through Linear, acquired the stock of GTO, Inc. (“GTO”)
        through a merger for approximately $28.2 million in cash, plus contingent
        consideration of approximately $0.2 million which was paid in the first quarter
        of 2006. GTO is located in Tallahassee, FL and designs, manufactures and
        sells
        automatic electric gate openers and access control devices to enhance the
        security and convenience of both residential and commercial property
        fences.
 
 On
        August 26, 2005,
        the Company, through its wholly-owned subsidiary, Elan Home Systems, LLC
        (“Elan”), acquired the assets and certain liabilities of Sunfire Corporation
        (“Sunfire”) for approximately $4.0 million (utilizing approximately $3.5 million
        of cash and issuing an unsecured subordinated promissory note in the amount
        of
        approximately $0.5 million) plus contingent consideration, which may be payable
        in future years. Sunfire is located in Snohomish, WA and manufactures, sells
        and
        designs home audio and home cinema amplifiers, receivers and
        subwoofers.
 
 On
        August 8, 2005,
        the Company, through its wholly-owned subsidiary, Nortek (UK) Limited, acquired
        the stock of Imerge Limited (“Imerge”) for approximately $6.1 million in cash
        plus contingent consideration, which may be payable in future years. Imerge
        is
        located in Cambridge, United Kingdom and designs and sells hard disk media
        players and multi-room audio servers.
 
 On
        July 15, 2005,
        the Company, through Linear, acquired the assets and certain liabilities
        of
        Niles Audio Corporation (“Niles”) for approximately $77.7 million. In connection
        with the acquisition of Niles, the Company utilized approximately $67.7 million
        of cash and issued an unsecured promissory note in the amount of approximately
        $10.0 million. Niles is located in Miami, FL and manufactures, sells and
        designs
        products that provide customers with innovative solutions for whole-house
        distribution and integration of audio and video systems, including speakers,
        receivers, amplifiers, automation devices, controls and accessories.
 
 On
        June 13, 2005,
        the Company, through its wholly-owned subsidiary Nordyne Inc. (“Nordyne”),
        acquired the assets and certain liabilities of International Marketing Supply,
        Inc. (“IMS”) for approximately $4.6 million, utilizing approximately $4.1
        million of cash and issuing an unsecured promissory note in the amount of
        approximately $0.5 million. IMS is located in Miami, FL and sells heating,
        ventilation and air conditioning equipment to customers in Latin America
        and the
        Caribbean.
 
 On
        April 26, 2005,
        the Company, through Linear, acquired the stock of Panamax, Inc. (“Panamax”) for
        approximately $11.8 million (utilizing approximately $9.5 million of cash
        and
        issuing an unsecured promissory note in the amount of approximately $2.3
        million) plus contingent consideration of approximately $4.5 million which
        was
        paid in the first quarter of 2006. Panamax is located in Petaluma, CA and
        sells
        and designs innovative power conditioning and surge protection products that
        prevent loss or damage of home and small business equipment due to power
        disturbances.
 
 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 $16.5
        million 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 $16.5 million in cash plus contingent
        consideration of approximately $7.5 million which was earned in 2006 and
        will be
        paid in 2007. OmniMount is a seller and designer of speaker and video mountings
        and other products to maximize the home theater experience.
 
 Acquisitions
        contributed approximately $212.5 million, $22.7 million and $13.7 million
        to net
        sales, operating earnings and depreciation and amortization expense,
        respectively, for the year ended December 31, 2006. With the exception of
        Zephyr
        and Pacific, which are included in the Residential Ventilation Products segment,
        and Huntair, Cleanpak, MEG, MSH and IMS, which are 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
        estimated total
        maximum potential amount of contingent consideration that may be paid in
        the
        future for all completed acquisitions is approximately $131.8 million (of
        which
        approximately $55.6 million will be paid in 2007), however, currently the
        Company has estimated that approximately $106.2 million (including the $55.6
        million noted above) of additional contingent consideration will be paid
        in the
        future related to completed acquisitions.
  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 plans for certain of the acquired companies, which
        are expected to be completed by the first half of 2007.
 
 On
        March 2, 2007,
        the Company, through Linear, acquired the stock of LiteTouch, Inc. for
        approximately $10.6 million (utilizing approximately $8.1 million of cash
        and
        issuing unsecured 6% subordinated notes totaling $2.5 million due March 2009).
        LiteTouch is located in Salt Lake City, UT and designs, manufactures and
        sells
        automated lighting control for a variety of applications including residential,
        commercial, new construction and retro-fit.
 
 **4.** **CASH
        FLOWS**
 
 Interest
        paid was
        approximately $111.2 million, $105.8 million, $26.2 million and $71.6 million
        for the years ended December 31, 2006 and 2005 and the periods from August
        28,
        2004 to December 31, 2004 and from January 1, 2004 to August 27, 2004,
        respectively.
 
 The
        fair value of
        the assets of the businesses acquired was approximately $234.7 million, $148.3
        million, $20.1 million and $20.8 million for the years ended December 31,
        2006
        and 2005 and for the periods from August 28, 2004 to December 31, 2004 and
        from
        January 1, 2004 to August 27, 2004, respectively. Liabilities assumed or
        created
        from businesses acquired were approximately $128.5 million, $31.1 million,
        $4.6
        million and $4.3 million for the years ended December 31, 2006 and 2005 and
        for
        the periods from August 28, 2004 to December 31, 2004 and from January 1,
        2004
        to August 27, 2004, respectively. Net cash paid for acquisitions was
        approximately $106.2 million, $117.2 million, $15.5 million and $16.5 million
        for the years ended December 31, 2006 and 2005 and for the periods from August
        28, 2004 to December 31, 2004 and from January 1, 2004 to August 27,
        2004.
 
 Significant
        non-cash financing and investing activities excluded from the accompanying
        consolidated statement of cash flows include capitalized lease additions
        of
        approximately $4.8 million, $1.6 million and $0.9 million for the year ended
        December 31, 2005 and for the periods from August 28, 2004 to December 31,
        2004
        and from January 1, 2004 to August 27, 2004, respectively. There were no
        capital
        leases in 2006.
 ****
 **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****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in millions)*Domestic
            
            $
            80.0
            
            $
            73.2
            
            $
            (9.5
            )
            $
            (169.2
            )Foreign
            
            
            23.8
            
            
            26.9
            
            
            9.4
            
            
            16.5$
            103.8
            
            $
            100.1
            
            $
            (0.1
            )
            $
            (152.7
            )





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****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in millions)*Federal
                income taxesCurrent
            
            $
            0.3
            
            $
            0.4
            
            $
            (3.4
            )
            $
            (3.5
            )Deferred
            
            
            26.8
            
            
            25.3
            
            
            1.0
            
            
            (46.9
            )27.1
            
            
            25.7
            
            
            (2.4
            )
            
            (50.4
            )Foreign
            
            
            14.5
            
            
            14.3
            
            
            5.2
            
            
            7.6State
            
            
            4.5
            
            
            3.2
            
            
            0.7
            
            
            1.4$
            46.1
            
            $
            43.2
            
            $
            3.5
            
            $
            (41.4
            )




Income
      tax
      payments, net of refunds, in the years ended December 31, 2006 and 2005 and
      the
      period from January 1, 2004 to August 27, 2004 were approximately $23.7 million,
      $15.9 million and $43.6 million, respectively. For the period from August 28,
      2004 to December 31, 2004, the Company received income tax refunds, net of
      payments, of approximately $36.5 million.





An
      income tax
      benefit of approximately $19.1 million related to the settlement of certain
      stock options was reflected as an equity adjustment to additional
      paid-in-capital in the period from January 1, 2004 to August 27,
      2004.





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 44.4%, 43.2%, 3,500.0% and 27.1% for the years ended December
      31, 2006 and 2005 and for the periods from August 28, 2004 to December 31,
      2004
      and from January 1, 2004 to August 27, 2004, respectively.







**For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in millions)*Income
                tax provision (benefit) from continuing operations at the federal
                statutory rate
            
            $
            36.3
            
            $
            35.0
            
            $
            ---
            
            $
            (53.5
            )**Net
                change from statutory rate:**State
                income tax provision, net of federal income tax effect
            
            
            2.9
            
            
            2.1
            
            
            0.4
            
            
            0.9Tax
                effect of the Acquisition
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            9.1Non-deductible
                expenses, net
            
            
            3.3
            
            
            1.0
            
            
            0.1
            
            
            0.2Tax
                effect resulting from foreign activities and foreign
                dividends
            
            
            2.9
            
            
            4.9
            
            
            3.0
            
            
            1.9Other,
                net
            
            
            0.7
            
            
            0.2
            
            
            ---
            
            
            ---$
            46.1
            
            $
            43.2
            
            $
            3.5
            
            $
            (41.4
            )








**Effective
                tax rate%:**
            
            **For
                the Periods****Post-Acquisition**
            
            **Pre-Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004**Income
                tax provision (benefit) from continuing operations at the federal
                statutory rate
            
            
            35.0
            %
            
            35.0
            %
            
            (35.0
            )%
            
            (35.0
            )%**Net
                change from statutory rate:**State
                income tax provision, net of federal income tax effect
            
            
            2.8
            
            
            2.1
            
            
            455.0
            
            
            0.6Tax
                effect of the Acquisition
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            6.0Non-deductible
                expenses, net
            
            
            3.2
            
            
            1.0
            
            
            128.0
            
            
            0.1Tax
                effect resulting from foreign activities and foreign
                dividends
            
            
            2.8
            
            
            4.9
            
            
            2,995.0
            
            
            1.2Other,
                net
            
            
            0.6
            
            
            0.2
            
            
            (43.0
            )
            
            ---44.4
            %
            
            43.2
            %
            
            3,500.0
            %
            
            (27.1
            )%





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, 2006 and December 31, 2005 are as follows:






**December
                31,****2006**
            
            **2005***(Amounts
                in millions)***Prepaid
                Income Tax Assets (classified current)****Arising
                From:**Accounts
                receivable
            
            $
            2.9
            
            $
            2.8Inventories
            
            
            (4.3
            )
            
            (5.0
            )Insurance
                reserves
            
            
            8.3
            
            
            6.0Warranty
                accruals
            
            
            6.2
            
            
            5.6Net
                operating loss and tax credits
            
            
            2.4
            
            
            6.2Other
                reserves and assets, net
            
            
            5.7
            
            
            5.4$
            21.2
            
            $
            21.0**Deferred
                Income Tax Assets (Liabilities)****(classified non-current)****Arising
                From:**Property
                and equipment, net
            
            $
            (20.6
            )
            $
            (23.2
            )Intangible
                assets, net
            
            
            (32.7
            )
            
            (31.6
            )Pension
                and other benefit accruals
            
            
            14.0
            
            
            33.8Insurance
                reserves
            
            
            7.5
            
            
            7.8Warranty
                accruals
            
            
            6.0
            
            
            5.5Capital
                loss carry forward/net loss carry forward
            
            
            13.2
            
            
            11.8Valuation
                allowances
            
            
            (20.5
            )
            
            (18.0
            )Other
                reserves and assets, net
            
            
            (2.8
            )
            
            9.8$
            (35.9
            )
            $
            (4.1
            )




The
        Company has
        established valuation allowances related to certain reserves that will result
        in
        capital losses and foreign net operating loss carry-forwards. Included in
        the
        deferred tax asset valuation allowance of $20.5 at December 31, 2006 are
        valuation allowances of approximately $15.2 million, 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 unremitted foreign earnings of approximately $90.0 million (other than
        current year earnings of its Hong Kong subsidiary) as those amounts are
        considered indefinitely invested. In addition, the Company has approximately
        $42.0 million of foreign net operating loss carry-forwards that if utilized
        would offset future foreign tax payments. The Company has established a
        valuation allowance related to these losses.
 
 The
        valuation
        allowance increased during the year ended December 31, 2006 primarily as
        a
        result of an increase in current year foreign losses not benefited, as well
        as
        an increase through other comprehensive income for foreign pension adjustments.
 
 During
        the year
        ended December 31, 2005, the Company realized a tax benefit of approximately
        $1.2 million related to the realization of capital loss carry-forwards 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.
 
 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.
 
 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 no
        remaining federal net operating loss carryforwards, and has an alternative
        minimum tax credit carryforward of approximately $2.4 million at December
        31,
        2006.
 
 **6.** **NOTES,
        MORTGAGE NOTES AND OBLIGATIONS PAYABLE**
 
 Short-term
        bank
        obligations at December 31, 2006 and 2005 consist of the following:


**December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Secured
                lines of credit and bank advances of the Company’s:Foreign
                subsidiaries
            
            $
            13.3
            
            $
            4.9Revolving
                credit facility
            
            
            10.0
            
            
            ---$
            23.3
            
            $
            4.9




Short-term
      bank
      obligations of the Company’s foreign subsidiaries are secured by accounts
      receivable and buildings of the Company’s foreign subsidiaries with an aggregate
      net book value of approximately $13.3 million and have a weighted average
      interest rate of approximately 4.1% at December 31, 2006.





On
      April 3, 2006,
      Nortek amended and restated the credit agreement for its senior secured credit
      facility, expanding its $100.0 million revolving credit facility to $200.0
      million and modifying certain covenants. The amendment provides Nortek with
      additional liquidity and covenant flexibility. The revolving credit facility
      matures in August 2010 and includes both a letter of credit sub-facility and
      swing line loan sub-facility. At December 31, 2006, there was approximately
      $10.0 million of outstanding borrowings under the U.S. revolving portion of
      Nortek’s senior secured credit facility with an interest rate of 7.1%.





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.





Notes,
      mortgage
      notes and obligations payable for continuing operations, included in the
      accompanying consolidated balance sheet at December 31, 2006 and 2005, consist
      of the following:





**December
                31,****2006**
            
            **2005***(Amounts
                in millions)*10
                3/4% Senior Discount Notes due 2014 (the “10 3/4% Senior Discount Notes”),
                net of unamortized discount of approximately $98.1 million and$128.4
                million at December 31, 2006 and 2005, respectively
            
            $
            304.9
            
            $
            274.6Senior
                unsecured loan facility, including approximately $11.0 million
                of debt accretion related to the PIK option
            
            
            216.0
            
            
            ---9
                7/8% Senior Subordinated Notes due 2011 (“9 7/8% Notes”), including
                unamortized premium
            
            
            10.0
            
            
            10.08
                1/2% Senior Subordinated Notes due 2014 (“8 1/2% Notes”)
            
            
            625.0
            
            
            625.0Senior
                Secured Credit Facility
            
            
            684.3
            
            
            691.3Mortgage
                notes payable
            
            
            3.9
            
            
            4.5Other
            
            
            59.1
            
            
            38.11,903.2
            
            
            1,643.5Less
                amounts included in current liabilities
            
            
            20.0
            
            
            14.8$
            1,883.2
            
            $
            1,628.7




On
        May 10, 2006,
        NTK Holdings borrowed an aggregate principal amount of $205.0 million under
        a
        senior unsecured loan facility. The proceeds of this borrowing were utilized
        to
        (1) pay a cash dividend of approximately $174.9 million to Investors LLC
        which,
        in turn, made a distribution to the holders of its Class A and Class B
        membership interests, including affiliates of Thomas H. Lee Partners, L.P.
        and
        certain members of the Company’s management, (2) contribute capital of
        approximately $25.9 million to Nortek Holdings, which was used by Nortek
        Holdings, together with a dividend of approximately $28.1 million from Nortek
        to
        make a distribution of approximately $54.0 million to participants under
        the
        2004 Nortek Holdings, Inc. Deferred Compensation Plan (including certain
        of the
        Company’s executive officers) and (3) pay related fees and expenses. As a result
        of these distributions, the holders of the Class A membership interests in
        Investors LLC and the participants in the 2004 Nortek Holdings, Inc. Deferred
        Compensation Plan are not entitled to any further distributions (see Note
        2).
 
 The
        senior
        unsecured loan facility has a term of one year, although any loans not repaid
        on
        or prior to May 10, 2007 will be extended until March 1, 2014. The senior
        unsecured loan facility bears interest at LIBOR plus a spread, which spread
        increases over time, subject to a cap on the overall interest rate of 11%
        per
        annum. NTK Holdings has the option to pay interest in cash (“Cash Option”) or by
        adding interest to the principal amount of the loans under the senior unsecured
        loan facility (“PIK Option”). If the Company exercises the PIK Option with
        respect to any interest period, an amount equal to the unpaid interest accrued
        will be added to the principal amount of the senior unsecured loan facility
        and
        such accrued interest will be deemed to have been paid. Following an increase
        in
        the principal amount of the senior unsecured loan facility as a result of
        the
        payment through the PIK Option, the senior unsecured loan facility will bear
        interest on such increased principal amount. The Company must elect the form
        of
        interest payment for each interest period. During the year ended December
        31,
        2006, the Company elected the PIK option to increase the principal amount
        of the
        senior unsecured loan facility for the interest accrued during the period
        from
        May 10, 2006 to December 31, 2006. As a result of exercising this PIK Option,
        the Company recorded approximately $11.0 million of accrued interest for
        the
        period from May 10, 2006 to December 31, 2006, as additional indebtedness
        relating to the senior unsecured loan facility. At December 31, 2006, the
        outstanding principal balance on the senior unsecured loan facility was
        approximately $216.0 million and had a weighted average interest rate of
        approximately 8.2%. The senior unsecured loan facility is not guaranteed
        by any
        of the NTK Holdings’ subsidiaries and is not secured by any assets of NTK
        Holdings or any of its subsidiaries.
 
 On
        February 15,
        2005, the Company completed the sale of $403.0 million aggregate principal
        amount at maturity ($250.4 million 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 are structurally subordinate to all debt and
        liabilities of the Company’s subsidiaries, including Nortek Holdings and Nortek.
 
 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
        $403.0 million in September 2009. The carrying value of the 10 3/4% Senior
        Discount Notes was approximately $304.9 million and $274.6 million at December
        31, 2006 and December 31, 2005, respectively.
 
 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
        sale of the 10
        3/4% Senior Discount Notes was used to pay a dividend of approximately $187.0
        million to its sole stockholder, Investors LLC. In turn, Investors LLC
        authorized a distribution of approximately $187.0 million to the holders
        of its
        Class A and Class B membership interests, including affiliates of Thomas
        H. Lee
        Partners, L.P. and certain members of the Company’s management. In addition, on
        February 18, 2005, NTK Holdings contributed approximately $57.7 million to
        Nortek Holdings for the purpose of making payments under the Nortek Holdings,
        Inc. Deferred Compensation Plan, which resulted in additional expense of
        approximately $8.2 million, which the Company has included in interest expense
        in the accompanying consolidated statement of operations for the year ended
        December 31, 2005. All payments related to this contribution were made by
        Nortek
        Holdings, Inc.
 
 Mortgage
        notes
        payable of approximately $3.9 million outstanding at December 31, 2006 includes
        a mortgage note related to one of the Company’s manufacturing facilities and is
        payable in installments through 2019. This note bears interest at a variable
        rate based upon LIBOR (approximately 5.3% at December 31, 2006) and is
        collateralized by property and equipment with an aggregate net book value
        of
        approximately $4.4 million at December 31, 2006.
 
 Other
        obligations
        of approximately $59.1 million outstanding at December 31, 2006 include
        borrowings relating to equipment purchases, notes payable issued for
        acquisitions and other borrowings bearing interest at rates ranging from
        approximately 1.9% to 14.0% and maturing at various dates through 2018.
        Approximately $20.2 million of such indebtedness is collateralized by property
        and equipment with an aggregate net book value of approximately $21.7 million
        at
        December 31, 2006.
 
 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.
 
 As
        of December 31,
        2006, the Company had approximately $42.0 million available for the payment
        of
        cash dividends, stock purchases or other restricted payments (“Restricted
        Payments”) under the terms of the indenture governing the Company’s 10 3/4%
        Senior Discount Notes’ and the agreement governing the Company’s senior
        unsecured loan facility. 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
        $152.0 million at December 31, 2006.
 
 At
        December 31,
        2006, the maturities of all of the Company’s debt obligations, excluding
        unamortized debt premium, were:


**Year
                Ended**
            **Debt
                Obligation****December
                31,**
            **Maturities***(Amounts
                in millions)*2007
            $       
                 43.32008
            28.82009
            14.02010
            174.62011
            506.5Thereafter
            1,159.3




As
      of December 31,
      2006, Nortek had approximately $22.0 million in outstanding letters of credit.
      The letters of credit have been issued under Nortek’s revolving credit facility
      as additional security for (1) approximately $17.2 million relating to certain
      of the Company’s insurance programs, (2) approximately $3.9 million relating to
      leases outstanding for certain of the Company’s manufacturing facilities and (3)
      approximately $0.9 million relating to certain of the subsidiaries’ purchases
      and other requirements. Letters of credit reduce borrowing availability under
      Nortek’s revolving credit facility on a dollar for dollar basis.





**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, 2006 and 2005, these
      3,000 shares remain authorized and outstanding.





As
      noted above Note
      2, in connection with the THL Transaction on August 27, 2004, certain members
      of
      Nortek’s management, including certain of the Company’s executive officers,
      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 option cancellations 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 equaled 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 was
      a
      non-qualified, unfunded obligation of Nortek Holdings.





On
      May 10, 2006,
      NTK Holdings borrowed an aggregate principal amount of $205.0 million under
      a
      senior unsecured loan facility. The net proceeds from such borrowing were
      utilized to (1) pay a cash dividend of approximately $174.9 million to Investors
      LLC, which, in turn, made a distribution to the holders of its Class A and
      Class
      B membership interests, including affiliates of Thomas H. Lee Partners, L.P.
      and
      certain members of the Company’s management, (2) contribute capital of
      approximately $25.9 million to Nortek Holdings, which was used by Nortek
      Holdings, together with a dividend of approximately $28.1 million from Nortek,
      to make a distribution of approximately $54.0 million to the participants in
      the
      2004 Nortek Holdings, Inc. Deferred Compensation Plan (including certain of
      the
      Company’s executive officers) in accordance with the terms of that plan and (3)
      pay related fees and expenses. As a result of these distributions, holders
      of
      the Class A membership interests in Investors LLC and the participants in the
      2004 Nortek Holdings, Inc. Deferred Compensation Plan are not entitled to any
      further distributions.





On
      February 18,
      2005, using the net proceeds of the sale of NTK Holdings’ 10 3/4% senior
      discount notes, the Company paid a cash dividend of approximately $187.0 million
      to Investors LLC and made a cash contribution of approximately $57.7 million
      to
      Nortek Holdings. The net proceeds distributed to Investors LLC were distributed
      by Investors LLC to the holders of its Class A and Class B membership interests,
      including affiliates of Thomas H. Lee Partners, L.P. and certain members of
      the
      Company’s management. The net proceeds contributed to Nortek Holdings were
      distributed by Nortek Holdings to participants in the 2004 Nortek Holdings,
      Inc.
      Deferred Compensation Plan (including certain of the Company’s executive
      officers of Nortek Holdings) in accordance with the terms of that
      plan.





**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.





As
      noted previously
      in Note 1, the Company adopted SFAS No. 158 on December 31, 2006. The
      impact of
      implementing SFAS No. 158 resulted in a decrease in pension liabilities of
      approximately $0.5 million, an increase in deferred tax liabilities of
      approximately $1.8 million and reduced shareholder’s equity (increase to
      accumulated other comprehensive loss) by $1.3 million. In addition, the Company
      classified $1.0 million of pension and postretirement benefit liabilities as
      current. The adoption did not affect our consolidated balance sheet at December
      31, 2005 or our consolidated statement of operation for each of the two years
      in
      the period ended December 31, 2006 and the periods from August 28, 2004 to
      December 31, 2004 and from January 1, 2004 to August 27, 2004.





The
      adjustment to
      other comprehensive loss upon the adoption of SFAS No. 158 represents the net
      unrecognized actuarial losses and unrecognized prior service costs as of the
      date of adoption. These amounts were previously netted against the plan’s funded
      status in our consolidated balance sheet. We will recognize these amounts in
      future periods as components of net periodic pension cost. The estimated net
      gain for the defined benefit pension plans that will be amortized from other
      comprehensive income into net periodic benefit cost over the next fiscal year
      is
      less than $0.1 million.





Pension,
      profit
      sharing and other post retirement health benefit expense charged to operations
      aggregated approximately $8.5 million (excluding a curtailment gain of $35.9
      million on the termination of benefits to certain employees of NuTone under
      a
      post retirement medical and life insurance plan) for the year ended December
      31,
      2006, $12.0 million for the year ended December 31, 2005, $3.3 million for
      the
      period from August 28, 2004 to December 31, 2004 and approximately $10.4 million
      for the period from January 1, 2004 to August 27, 2004. The decrease in pension,
      profit sharing and other post retirement health benefit expense at December
      31,
      2006 as compared to December 31, 2005 is primarily due to a reduction in the
      service cost component of net periodic benefit costs and the termination of
      benefits under a post-retirement medical and life insurance plan due to a plant
      shut down.





The
      Company’s
      policy is to generally fund currently at least the minimum required annual
      contribution of its various qualified defined benefit plans. In 2007, the
      Company expects to contribute approximately $9.6 million (unaudited) to its
      defined benefit pension plans.





For
      the year ended
      December 31, 2006 and 2005, the Company used 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, 2006 and 2005:





**Pension
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in millions)***Change
                in benefit obligation:**Benefit
                obligation at October 1,
            
            $
            175.2
            
            $
            172.8Service
                cost
            
            
            1.0
            
            
            1.4Interest
                cost
            
            
            9.0
            
            
            8.9Loss
                (gain) due to foreign exchange
            
            
            4.8
            
            
            (3.2
            )Actuarial
                loss excluding assumption changes
            
            
            2.6
            
            
            1.0Actuarial
                (gain) loss due to assumption changes
            
            
            (4.3
            )
            
            5.2Benefits
                and expenses paid
            
            
            (11.0
            )
            
            (10.9
            )**Benefit
                obligation at September 30,**
            
            $
            177.3
            
            $
            175.2**Change
                in plan assets:**Fair
                value of plan assets at October 1,
            
            $
            119.7
            
            $
            115.1Actual
                return on plan assets
            
            
            8.5
            
            
            13.6Gain
                (loss) due to foreign exchange
            
            
            3.3
            
            
            (2.4
            )Employer
                contribution
            
            
            11.8
            
            
            4.3Benefits
                and expenses paid
            
            
            (11.0
            )
            
            (10.9
            )**Fair
                value of plan assets at September 30,**
            
            $
            132.3
            
            $
            119.7**Funded
                status and statement of financial position:**Fair
                value of plan assets at September 30,
            
            $
            132.3
            
            $
            119.7Benefit
                obligation at September 30,
            
            
            177.3
            
            
            175.2Funded
                status at September 30,
            
            
            (45.0
            )
            
            (55.5
            )Unrecognized
                actuarial loss
            
            
            ---
            
            
            1.2Amount
                contributed during fourth quarter
            
            
            1.2
            
            
            0.8**Funded
                status at December 31,**
            
            $
            (43.8
            )
            $
            (53.5
            )





The
      following amounts were recognized in the accompanying consolidated balance
      sheet
      for the Company’s defined benefit plans at December 31, 2006 and
      2005:





**Pension
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Current
                liabilities
            
            $
            (0.6
            )
            $
            (1.2
            )Non-current
                liabilities
            
            
            (43.2
            )
            
            (52.7
            )




The
      following amounts were recognized in accumulated other comprehensive income
      (loss) in the accompanying consolidated balance sheet at December 31, 2006
      and
      2005:





**Pension
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Minimum
                pension liability adjustment, net of tax provision of $0.1
            $
            0.3
            
            $
            (0.3
            )Net
                actuarial loss, net of tax provision of $1.5
            
            
            (1.8
            )
            
            ---$
            (1.5
            )
            $
            (0.3
            )




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 $177.3 million, $170.2 million and $132.3 million,
        respectively, as of December 31, 2006 and $175.2 million, $167.5 million
        and
        $119.7 million, respectively, as of December 31, 2005.




At
      December 31, 2006, the expected benefit payments for the Company’s defined
      benefit plans were as follows:





**Year
                Ended**
            **Defined
                Benefit****December
                31,**
            **Plan
                Payments***(Amounts
                in millions)*2007
            $
                11.02008
            11.12009
            11.12010
            11.22011
            11.12012-2016
            59.9




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, 2006 and 2005, the Company
        has
        recorded as long-term restricted investments and marketable securities held
        by
        pension trusts, in the accompanying consolidated balance sheet, approximately
        $1.9 million and $1.5 million, respectively, which have been contributed
        to
        trusts. These assets are not included in the amount of fair value of plan
        assets
        at December 31, 2006 and 2005 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**
            **Acquisition****Jan.
                1, 2006 -**
            **Jan.
                1, 2005 -**
            **Aug.
                28, 2004 -**
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            **Dec.
                31, 2005**
            **Dec.
                31, 2004**
            **Aug.
                27, 2004**Discount
                rate for projected benefit obligation
            5.00%
                - 5.75%
            5.00%
                - 5.25%
            5.25%
                - 5.75%
            5.25%
                - 5.75%Discount
                rate for pension costs
            5.00%
                - 5.25%
            5.25%
                - 5.75%
            5.25%
                - 5.75%
            5.50%
                - 6.00%Expected
                long-term average return on plan assets
            7.00%
                - 7.75%
            7.00%
                - 7.75%
            7.00%
                - 7.75%
            7.00%
                - 7.75%Rate
                of compensation increase
            5.00%
            5.00%
            3.75%
                - 5.00%
            3.75%
                - 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**
            
            **Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in millions)*Service
                cost
            
            $
            1.0
            
            $
            1.4
            
            $
            0.4
            
            $
            0.8Interest
                cost
            
            
            9.0
            
            
            8.9
            
            
            3.0
            
            
            6.1Expected
                return on plan assets
            
            
            (9.1
            )
            
            (8.5
            )
            
            (2.8
            )
            
            (5.3
            )Amortization
                of prior service cost
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            0.1Curtailment
                loss
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            0.8Net
                periodic benefit cost
            
            $
            0.9
            
            $
            1.8
            
            $
            0.6
            
            $
            2.5





The
      Company used a September 30 measurement date for its plans. The Company’s
      pension plan weighted-average asset allocations at December 31, 2006 and 2005,
      by asset category are as follows:





**Plan
                Assets at December 31,****Asset
                Category**
            
            **2006**
            
            **2005**Cash
                and cash equivalents
            
            
            6.4
            %
            
            3.2
            %Equity
                securities
            
            
            56.1
            
            
            59.6Fixed
                income securities
            
            
            37.3
            
            
            34.7Other
            
            
            0.2
            
            
            2.5100.0
            %
            
            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 2007, the target allocation is
        57%
        for equity securities, 42% for fixed income securities and 1% 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, 2006 and
        2005:


**Non-Pension****Post
                Retirement****Health
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in million)***Change
                in benefit obligation:**Benefit
                obligation at October 1,
            
            $
            26.0
            
            $
            44.6Service
                cost
            
            
            0.1
            
            
            0.4Interest
                cost
            
            
            0.7
            
            
            2.1Plan
                participant contributions
            
            
            ---
            
            
            0.1Amendments
            
            
            (20.3
            )
            
            (22.2
            )Actuarial
                gain excluding assumption changes
            
            
            (0.1
            )
            
            (0.1
            )Actuarial
                loss due to assumption changes
            
            
            ---
            
            
            2.6Benefits
                and expenses paid
            
            
            (0.2
            )
            
            (1.5
            )**Benefit
                obligation at September 30,**
            
            $
            6.2
            
            $
            26.0**Change
                in plan assets:**Fair
                value of plan assets at October 1,
            
            $
            ---
            
            $
            ---Employer
                contribution
            
            
            0.2
            
            
            1.4Plan
                participant contributions
            
            
            ---
            
            
            0.1Benefits
                and expenses paid
            
            
            (0.2
            )
            
            (1.5
            )**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,
            
            
            6.2
            
            
            26.0Funded
                status
            
            
            (6.2
            )
            
            (26.0
            )Unrecognized
                actuarial loss
            
            
            ---
            
            
            3.1Unrecognized
                prior service cost
            
            
            ---
            
            
            (20.8
            )Amount
                contributed during fourth quarter
            
            
            ---
            
            
            0.1**Accrued
                post-retirement benefit cost at December 31,**
            
            $
            (6.2
            )
            $
            (43.6
            )





The
      following amounts were recognized in the accompanying consolidated balance
      sheet
      for the Company’s post retirement health benefit plans at December 31, 2006 and
      2005:





**Non-Pension****Post
                Retirement****Health
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Current
                liabilities
            
            $
            (0.4
            )
            $
            (1.4
            )Non-current
                liabilities
            
            
            (5.8
            )
            
            (42.2
            )




The
      following amounts were recognized in accumulated other comprehensive income
      (loss) in the accompanying consolidated balance sheet at December 31, 2006
      and
      2005:





**Non-Pension****Post
                Retirement****Health
                Benefits****December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Net
                actuarial loss, net of tax benefit of $0.2
            
            $
            (0.2
            )
            $
            ---Prior
                service cost, net of tax provision of $0.5
            
            
            0.7
            
            
            ---$
            0.5
            
            $
            ---




During
        2005, the
        Company notified certain retirees that post retirement medical benefits would
        no
        longer be continued by the Company effective July 31, 2005. Such retirees
        were
        offered medical benefits through other means at their expense. This resulted
        in
        a negative plan amendment in 2005 to the NuTone, Inc. (“NuTone”) post retirement
        medical plan and the plan reflected a deferred actuarial gain of approximately
        $22.2 million which was being amortized (until July 2006 - see below) into
        income by the Company over a six year period.
 
 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
        (“NuTone Union”) expired. That bargaining unit covered approximately 4.4% of the
        Company's employees (414 employees), which were located at the Cincinnati,
        OH
        location of the Company's subsidiary NuTone. On or about June 8, 2005, the
        Company presented its final proposal to the union bargaining committee but
        such
        proposal was not accepted by the union members. On July 16, 2005, the Company
        locked out the union employees at the NuTone Cincinnati, OH facility. On
        September 6, 2005, the Company notified the union bargaining committee that
        negotiations had reached an impasse and that it was unilaterally implementing
        the terms of its final offer. Among other things, this implemented final
        offer
        does not provide the NuTone union members with post retirement medical and
        life
        insurance benefits. Accordingly, this implemented final offer resulted in
        the
        Company recording a curtailment gain of approximately $35.6 million ($22.1
        million, net of tax) in the second quarter of 2006 which includes approximately
        $18.1 million ($11.3 million, net of tax) of unamortized deferred actuarial
        gain
        related to the negative plan amendment discussed in the previous paragraph.
        In
        addition, as a result of this implemented final offer, the Company recorded
        a
        curtailment gain on life insurance of approximately $0.3 million. These
        curtailment gains are included in selling, general and administrative expense,
        net on the accompanying consolidated statement of operations.
 
 At
        December 31,
        2006, the expected post retirement health benefit payments for the Company
        were
        as follows:


**Post
                Retirement****Year
                Ended**
            **Health
                Benefit****December
                31,**
            **Payments***(Amounts
                in millions)*2007
            $
                0.32008
            2.82009
            0.32010
            1.72011
            0.32012-2016
            2.3





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**
            
            **Acquisition****Jan.
                1, 2006 -**
            
            **Jan.
                1, 2005 -**
            
            **Aug.
                28, 2004 -**
            
            **Jan.
                1, 2004 -****Dec.
                31, 2006**
            
            **Dec.
                31, 2005**
            
            **Dec.
                31, 2004**
            
            **Aug.
                27, 2004***(Amounts
                in millions)*Service
                cost
            
            $
            0.1
            
            $
            0.4
            
            $
            0.2
            
            $
            0.6Interest
                cost
            
            
            0.7
            
            
            2.1
            
            
            0.8
            
            
            1.6Amortization
                of prior service cost
            
            
            (1.5
            )
            
            (1.4
            )
            
            ---
            
            
            ---Recognized
                actuarial loss (gain)
            
            
            ---
            
            
            0.1
            
            
            ---
            
            
            ---Curtailment
                gain
            
            
            (35.9
            )
            
            ---
            
            
            ---
            
            
            ---Net
                periodic post-retirement health benefit (income) cost
            
            $
            (36.6
            )
            $
            1.2
            
            $
            1.0
            
            $
            2.2





For
      purposes of calculating the post retirement health benefit cost, a medical
      inflation rate of 11% was assumed for 2006 and 2005. For both 2006 and 2005,
      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 millions)*Effect
                on the total service and interest cost components
            
            $
            ---
            
            $
            ---Effect
                on the post retirement health benefit obligation
            
            $
            (0.1
            )
            $
            0.2





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, 2006.





**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,
        2006, 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. At December 31, 2006, future minimum rental obligations aggregated
        approximately $84.0 million and are payable as follows:


**Year
                Ended**
            **Future
                Minimum****December
                31,**
            **Rental
                Obligations***(Amounts
                in millions)*2007
            $
                18.62008
            13.92009
            11.62010
            8.82011
            7.3Thereafter
            23.8




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 $26.5 million, $21.6
        million, $6.7 million and $12.7 million for the years ended December 31,
        2006
        and 2005 and for the periods from August 28, 2004 to December 31, 2004 and
        from
        January 1, 2004 to August 27, 2004, respectively. Under certain of these
        lease
        agreements, the Company or its subsidiaries are also obligated to pay insurance
        and taxes.
 
 As
        of December 31,
        2006, the Company’s former subsidiary, Ply Gem, has guaranteed approximately
        $21.5 million of third party obligations relating to rental payments through
        June 30, 2016 under a facility leased by a former subsidiary, which was sold
        on
        September 21, 2001. The Company has indemnified these guarantees in connection
        with the sale of Ply Gem on February 12, 2004 (see Note 10) and has recorded
        an
        estimated liability related to this indemnified guarantee of approximately
        $0.9
        million at December 31, 2006 in accordance with Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
        Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The buyer of the
        former subsidiary has provided certain indemnifications and other rights
        to
        Nortek for any payments that it might be required to make pursuant to this
        guarantee. Should the buyer of the former subsidiary cease making payments
        then
        the Company may be required to make payments on its
        indemnification.
 
 The
        Company has
        indemnified third parties for certain matters in a number of transactions
        involving dispositions of former subsidiaries. The Company has recorded
        liabilities in relation to these indemnifications, including the indemnified
        guarantee noted above, of approximately $12.0 million and $12.5 million at
        December 31, 2006 and 2005, respectively. Approximately $5.4 million of
        short-term liabilities and approximately $6.6 million of long-term liabilities
        are recorded in accrued expenses and other long-term liabilities, respectively,
        in the accompanying consolidated balance sheet at December 31, 2006 related
        to
        these indemnifications. In February 2005, the Company settled a portion of
        these
        obligations with a lump sum cash payment resulting in a reduction of
        approximately $1.4 million in such liabilities, which was recorded as income
        in
        the Company’s consolidated statement of operations for the year ended December
        31, 2005 (see Note 14).
 
 The
        Company sells a
        number of products and offers a number of warranties including in some
        instances, extended warranties for which the Company receives proceeds. The
        specific terms and conditions of these warranties vary depending on the product
        sold and the country in which the product is sold. The Company estimates
        the
        costs that may be incurred under its warranties, with the exception of extended
        warranties, and records a liability for such costs at the time of sale. 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 years ended December 31, 2006 and 2005 are as
        follows:


**For
                the year ended December 31,****2006**
            
            **2005***(Amounts
                in millions)*Balance,
                beginning of period
            
            $
            34.8
            
            $
            30.3Warranties
                provided during period
            
            
            27.4
            
            
            21.3Settlements
                made during period
            
            
            (22.6
            )
            
            (18.8
            )Changes
                in liability estimate, including expirations and
                acquisitions
            
            
            1.6
            
            
            2.0Balance,
                end of period
            
            $
            41.2
            
            $
            34.8




The
        Company is
        subject to other contingencies, including legal proceedings and claims arising
        out of its businesses that cover a wide range of matters, including, among
        others, environmental matters, contract and employment claims, product
        liability, warranty and modification and adjustment or replacement of component
        parts of units sold, which include product recalls. Product liability,
        environmental and other legal proceedings also include matters with respect
        to
        businesses previously owned. The Company has used various substances in its
        products and manufacturing operations which have been or may be deemed to
        be
        hazardous or dangerous, and the extent of its potential liability, if any,
        under
        environmental, product liability and workers’ compensation statutes, rules,
        regulations and case law is unclear. Further, due to the lack of adequate
        information and the potential impact of present regulations and any future
        regulations, there are certain circumstances in which no range of potential
        exposure may be reasonably estimated.
 
 Certain
        sole source
        suppliers of various fabricated material components and sub-assemblies
        (“material components”) to the Company’s kitchen range hood subsidiaries based
        in Italy and Poland experienced financial difficulties in January 2007.
        Accordingly, the Company recorded approximately $16.0 million of estimated
        losses in the RVP segment in the fourth quarter of 2006 in selling, general
        and
        administrative expense, net resulting from the unlikelihood that these suppliers
        will be able to repay advances from our subsidiaries based in Italy and Poland
        and amounts due under other arrangements. While the Company has recorded
        its
        best estimate of the losses related to these suppliers, the actual losses
        may be
        different than the amounts recorded at December 31, 2006 (see Note
        14).
 
 While
        it is
        impossible to ascertain the ultimate legal and financial liability with respect
        to contingent liabilities, including lawsuits, the Company believes that
        the
        aggregate amount of such liabilities, if any, in excess of amounts provided
        or
        covered by insurance, will not have a material adverse effect on the
        consolidated financial position, results of operations or liquidity of the
        Company. It is possible, however, that future results of operations for any
        particular future period could be materially affected by changes in the
        Company’s assumptions or strategies related to these contingencies or changes
        that are not within the Company’s control.
 
 **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 $5.8 million and recorded a
        net after tax gain of approximately $0.9 million.
 
 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 $506.7
        million, after excluding approximately $21.4 million 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 $74.1 million.
 
 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 $2.8 million
        (net
        of taxes of approximately $1.6 million) for the period from January 1, 2004
        to
        August 27, 2004. 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****Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)*Net
                  sales
              
              $
              ---
              
              $
              48.9Operating
                  loss of discontinued operations
              
              $
              ---
              
              $
              (7.7
              )Interest
                  expense, net
              
              
              ---
              
              
              (4.6
              )Loss
                  before
                  benefit for income taxes
              
              
              ---
              
              
              (12.3
              )Income
                  tax
                  benefit
              
              
              ---
              
              
              (4.7
              )Loss
                  from
                  discontinued operations
              
              
              ---
              
              
              (7.6
              )Gain
                  on sale
                  of discontinued operations
              
              
              ---
              
              
              125.2Income
                  tax
                  provision on sale of discontinued operations
              
              
              0.5
              
              
              50.2(0.5
              )
              
              75.0(Loss)
                  earnings from discontinued operations
              
              $
              (0.5
              )
              $
              67.4Depreciation
                  and amortization expense
              
              $
              ---
              
              $
              1.4




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
      $6.4 million 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 (“RVP”) segment, the Home Technology Products (“HTP”) segment and the
        Air Conditioning and Heating Products (“HVAC”) segment. The HVAC segment
        combines the results of the Company’s residential and commercial heating,
        ventilating and air conditioning (“HVAC”) businesses. In the tables below,
        Unallocated includes corporate related items, intersegment eliminations and
        certain income and expense items not allocated to reportable
        segments.
 
 The
        RVP segment
        manufactures and distributes built-in products primarily for the residential
        new
        construction, DIY and professional remodeling and replacement 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 HTP 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 HVAC 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.
 
 Net
        sales,
        operating earnings and pre-tax earnings for the Company’s segments are presented
        in the table that follows for each of the periods presented:




**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2006 -**
              
              **Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2006**
              
              **Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              821.0
              
              $
              794.7
              
              $
              268.5
              
              $
              496.9Home
                  technology products
              
              
              484.5
              
              
              354.8
              
              
              80.5
              
              
              127.0Air
                  conditioning and heating products
              
              
              912.9
              
              
              809.7
              
              
              212.0
              
              
              494.0Consolidated net sales
              
              $
              2,218.4
              
              $
              1,959.2
              
              $
              561.0
              
              $
              1,117.9**Operating
                  earnings (loss):**Residential
                  ventilation products (1)
              
              $
              139.5
              
              $
              123.9
              
              $
              39.7
              
              $
              79.9Home
                  technology products (2)
              
              
              83.9
              
              
              71.0
              
              
              12.9
              
              
              22.9Air
                  conditioning and heating products (3)
              
              
              64.9
              
              
              66.3
              
              
              (2.6
              )
              
              25.5Subtotal
              
              
              288.3
              
              
              261.2
              
              
              50.0
              
              
              128.3**Unallocated:**Expenses
                      and
                      charges arising from the Acquisition
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (38.5
              )Stock-based
                  compensation charges
              
              
              (0.3
              )
              
              (0.3
              )
              
              (0.1
              )
              
              (36.4
              )Foreign
                      exchange gain (loss) on intercompany debt
              
              
              1.2
              
              
              (0.9
              )
              
              0.1
              
              
              (0.2
              )Expenses
                  of
                  an IPO not yet completed
              
              
              (2.5
              )
              
              ---
              
              
              ---
              
              
              ---Compensation
                  reserve adjustment
              
              
              3.5
              
              
              ---
              
              
              ---
              
              
              ---Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4
              
              
              ---
              
              
              ---Unallocated,
                  net
              
              
              (25.7
              )
              
              (24.5
              )
              
              (7.9
              )
              
              (20.6
              )Consolidated operating earnings
              
              
              264.5
              
              
              236.9
              
              
              42.1
              
              
              32.6Interest
                  expense
              
              
              (162.9
              )
              
              (138.6
              )
              
              (42.5
              )
              
              (56.1
              )Loss
                  from
                  debt retirement
              
              
              ---
              
              
              ---
              
              
              ---
              
              
              (130.7
              )Investment
                  income
              
              
              2.2
              
              
              1.8
              
              
              0.3
              
              
              1.5Earnings (loss) before provision (benefit) for income
                      taxes
              
              $
              103.8
              
              $
              100.1
              
              $
              (0.1
              )
              $
              (152.7
              )
 (1)
              The
                  operating
                  results of the RVP segment for year ended December 31, 2006 include
                  an
                  approximate $35.9 million curtailment gain related to post-retirement
                  medical and life insurance benefits, reserves of approximately
                  $16.0
                  million related to estimated losses as a result of the unlikelihood
                  that
                  certain suppliers to our kitchen range hood subsidiaries based
                  in Italy
                  and Poland will be able to repay advances and amounts due under
                  other
                  arrangements, an approximate $3.5 million charge related to the
                  closure of
                  the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note 13 of the
                  Notes to the Consolidated Financial Statements included elsewhere
                  herein)
                  and an increase in warranty expense in the first quarter of 2006
                  of
                  approximately $1.5 million related to a product safety upgrade.
                  The
                  operating results of the RVP segment for the year ended December
                  31, 2005
                  include a non-cash foreign exchange loss of approximately $1.2
                  million
                  related to intercompany debt not indefinitely invested in the Company’s
                  subsidiaries. (2)
              The
                  operating
                  results of the HTP segment for the year ended December 31, 2006
                  include an
                  increase in warranty expense of approximately $2.3 million related
                  to a
                  product safety upgrade. The operating results of the HTP segment
                  for the
                  year ended December 31, 2005 include a gain of approximately $1.6
                  million
                  related to the sale of a corporate office building of one of the
                  Company’s
                  subsidiaries. (3)
              The
                  operating
                  results of the HVAC segment for the year ended December 31, 2006
                  include
                  an approximate $1.6 million gain related to the favorable settlement
                  of
                  litigation and a charge of approximately $1.2 million, net of minority
                  interest of approximately $0.8 million, related to a reserve for
                  amounts
                  due from a customer in China related to a Chinese construction
                  project.


See
        Notes 1, 2, 8,
        13 and 14 with respect to restructuring charges and certain other income
        (expense) items affecting segment earnings (loss).
  Segment
          assets,
          depreciation expense, amortization expense and capital expenditures for
          the
          Company’s segments are presented in the table that follows for each of the
          periods presented:


**For
                  the Periods****Post-Acquisition**
              
              **Pre-Acquisition****Jan.
                  1, 2006 -**
              
              **Jan.
                  1, 2005 -**
              
              **Aug.
                  28, 2004 -**
              
              **Jan.
                  1, 2004 -****Dec.
                  31, 2006**
              
              **Dec.
                  31, 2005**
              
              **Dec.
                  31, 2004**
              
              **Aug.
                  27, 2004***(Amounts
                  in millions)***Segment
                  Assets:**Residential
                  ventilation products
              
              $
              1,168.2
              
              $
              1,139.3
              
              $
              1,143.1
              
              $
              698.9Home
                  technology products
              
              
              628.4
              
              
              525.6
              
              
              359.7
              
              
              190.8Air
                  conditioning and heating products
              
              
              693.6
              
              
              584.4
              
              
              566.0
              
              
              522.22,490.2
              
              
              2,249.3
              
              
              2,068.8
              
              
              1,411.9**Unallocated:**Cash
                  and cash
                  equivalents, including current restricted cash
              
              
              58.6
              
              
              77.2
              
              
              95.0
              
              
              209.5Prepaid
                  income taxes
              
              
              21.2
              
              
              21.0
              
              
              35.2
              
              
              45.9Other
                  assets,
                  including long-term restricted investments and
                marketable securities
              
              
              65.9
              
              
              57.1
              
              
              65.6
              
              
              63.0Consolidated assets
              
              $
              2,635.9
              
              $
              2,404.6
              
              $
              2,264.6
              
              $
              1,730.3**Depreciation
                  Expense:**Residential
                  ventilation products
              
              $
              12.9
              
              $
              11.3
              
              $
              3.6
              
              $
              7.1Home
                  technology products
              
              
              4.4
              
              
              2.4
              
              
              0.6
              
              
              1.4Air
                  conditioning and heating products
              
              
              15.0
              
              
              12.1
              
              
              4.0
              
              
              7.8Unallocated
              
              
              0.7
              
              
              0.9
              
              
              0.2
              
              
              0.4Consolidated depreciation expense
              
              $
              33.0
              
              $
              26.7
              
              $
              8.4
              
              $
              16.7**Amortization
                  expense:**Residential
                  ventilation products (1)
              
              $
              6.4
              
              $
              8.2
              
              $
              4.7
              
              $
              4.1Home
                  technology products (2)
              
              
              11.4
              
              
              7.5
              
              
              6.5
              
              
              2.8Air
                  conditioning and heating products (3)
              
              
              9.9
              
              
              3.2
              
              
              2.7
              
              
              2.2Unallocated
              
              
              0.5
              
              
              0.3
              
              
              0.2
              
              
              ---Consolidated amortization expense
              
              $
              28.2
              
              $
              19.2
              
              $
              14.1
              
              $
              9.1**Capital
                  Expenditures (4):**Residential
                  ventilation products
              
              $
              20.2
              
              $
              13.3
              
              $
              6.3
              
              $
              5.6Home
                  technology products
              
              
              6.2
              
              
              2.6
              
              
              0.9
              
              
              1.3Air
                  conditioning and heating products
              
              
              15.7
              
              
              17.3
              
              
              7.7
              
              
              5.5Unallocated
              
              
              0.2
              
              
              0.5
              
              
              0.2
              
              
              0.3Consolidated capital expenditures
              
              $
              42.3
              
              $
              33.7
              
              $
              15.1
              
              $
              12.7




(1)
            Includes
                amortization of approximately $0.3 million, $0.4 million and $1.1
                million
                for the years ended December 31, 2006 and 2005 and the period from
                August
                28, 2004 to December 31, 2004, respectively, of excess purchase price
                allocated to inventory recorded as a non-cash charge to cost of products
                sold.


(2)
            Includes
                amortization of approximately $0.2 million, $0.5 million, $3.7 million
                and
                $0.2 million for the years ended December 31, 2006 and 2005 and the
                periods from August 28, 2004 to December 31, 2004 and from January
                1, 2004
                to August 27, 2004, respectively, of excess purchase price allocated
                to
                inventory recorded as a non-cash charge to cost of products sold.


(3)
            Includes
                amortization of approximately $2.8 million and $0.9 million for the
                year
                ended December 31, 2006 and the period from August 28, 2004 to December
                31, 2004, respectively, of excess purchase price allocated to inventory
                recorded as a non-cash charge to cost of products sold.


(4)
            Includes
                capital expenditures financed under capital leases of approximately
                $4.8
                million, $1.6 million and $0.9 million 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, respectively. There were no capital
                leases in 2006.





The
      following table presents a summary of the activity in goodwill for continuing
      operations by reporting segment for the years ended December 31, 2006 and 2005
      and the periods from August 28, 2004 to December 31, 2004 and from January
      1,
      2004 to August 27, 2004:





**Air****Residential**
            
            **Home**
            
            **Conditioning****Ventilation**
            
            **Technology**
            
            **and
                Heating**
            
            **Consolidated****Products**
            
            **Products**
            
            **Products**
            
            **Nortek***(Amounts
                in millions)***Balance
                as of December 31, 2003**
            
            **$**
            **367.6**
            
            **$**
            **86.0**
            
            **$**
            **222.2**
            
            **$**
            **675.8**Acquisitions
                during the period from January 1, 2004 to August 27, 2004 (see Note
                3)
            
            
            ---
            
            
            6.8
            
            
            ---
            
            
            6.8Purchase
                accounting adjustments
            
            
            (1.9
            )
            
            (0.2
            )
            
            (1.1
            )
            
            (3.2
            )**Balance
                as of August 27, 2004**
            
            
            **365.7**
            
            
            **92.6**
            
            
            **221.1**
            
            
            **679.4**Effect
                of the Acquisition
            
            
            413.3
            
            
            139.4
            
            
            54.4
            
            
            607.1Acquisitions
                during the period from August 28, 2004 to December 31,
                2004
            
            
            ---
            
            
            8.8
            
            
            ---
            
            
            8.8Purchase
                accounting adjustments
            
            
            (1.1
            )
            
            (0.5
            )
            
            (0.4
            )
            
            (2.0
            )Impact
                of foreign currency translation
            
            
            0.5
            
            
            ---
            
            
            1.3
            
            
            1.8**Balance
                as of December 31, 2004**
            
            
            **778.4**
            
            
            **240.3**
            
            
            **276.4**
            
            
            **1,295.1**Acquisitions
                during the year ended December 31, 2005
            
            
            ---
            
            
            89.1
            
            
            2.8
            
            
            91.9Purchase
                accounting adjustments
            
            
            (1.2
            )
            
            (2.7
            )
            
            (0.9
            )
            
            (4.8
            )Impact
                of foreign currency translation
            
            
            1.5
            
            
            (0.3
            )
            
            (2.1
            )
            
            (0.9
            )**Balance
                as of December 31, 2005**
            
            
            **778.7**
            
            
            **326.4**
            
            
            **276.2**
            
            
            **1,381.3**Acquisitions
                during the year ended December 31, 2006
            
            
            23.6
            
            
            42.8
            
            
            38.4
            
            
            104.8Purchase
                accounting adjustments
            
            
            (0.6
            )
            
            (0.4
            )
            
            (0.7
            )
            
            (1.7
            )Adjustment
                of carryover basis of continuing management investors in the THL
                Transaction
            
            
            (2.8
            )
            
            (0.9
            )
            
            (1.2
            )
            
            (4.9
            )Impact
                of foreign currency translation
            
            
            (0.9
            )
            
            0.4
            
            
            2.4
            
            
            1.9**Balance
                as of December 31, 2006**
            
            **$**
            **798.0**
            
            **$**
            **368.3**
            
            **$**
            **315.1**
            
            **$**
            **1,481.4**




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 19.5%, 18.5%, 22.0% and 19.5% of consolidated net sales
        for
        the years ended December 31, 2006 and 2005 and for the periods from August
        28,
        2004 to December 31, 2004 and from January 1, 2004 to August 27, 2004,
        respectively. Foreign Long-Lived Assets were approximately 6.7% and 6.2%
        of
        consolidated Long-Lived Assets for the years ended December 31, 2006 and
        December 31, 2005, 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. Accounts receivable from customers related
        to
        foreign operations increased approximately 34.4% to $95.1 million at December
        31, 2006 from December 31, 2005. At December 31, 2006, 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, 2006 and
        2005:


**December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Payroll,
                pension and employee benefits
            
            $
            51.4
            
            $
            48.9Contingent
                consideration
            
            
            55.6
            
            
            4.7Insurance
                and employee health benefit accruals
            
            
            18.6
            
            
            15.8Interest
            
            
            22.5
            
            
            18.4Product
                warranty
            
            
            23.2
            
            
            18.4Sales
                and marketing
            
            
            33.8
            
            
            32.4Other,
                net
            
            
            78.6
            
            
            48.6$
            283.7
            
            $
            187.2




Accrued
      expenses, included in other long-term liabilities in the accompanying
      consolidated balance sheet, consist of the following at December 31, 2006 and
      2005:





**December
                31,****2006**
            
            **2005***(Amounts
                in millions)*Employee
                pension retirement benefit obligation
            
            $
            43.2
            
            $
            52.7Deferred
                Compensation
            
            
            ---
            
            
            49.0Product
                warranty
            
            
            18.0
            
            
            16.4Post
                retirement health benefit obligations
            
            
            5.8
            
            
            42.2Insurance
            
            
            33.0
            
            
            27.8Other,
                net
            
            
            28.8
            
            
            27.3$
            128.8
            
            $
            215.4





**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 were terminated. During the periods from August 28, 2004 to
      December 31, 2004 and from January 1, 2004 to August 27, 2004, the Company
      provided approximately $0.4 million and $2.2 million, 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 $0.2 million.





During
      August of 2004, the Company accrued approximately $3.4 million related to
      severance benefits for certain of the Company’s employees at its corporate
      office. Approximately $1.4 million 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. These
      severance benefits were 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 expense, net in the accompanying consolidated
      statement of operations of the Company.





**Employee**
              
              
              
              **Total****Separation**
              
              
              
              **Restructuring****Expenses**
              
              **Other**
              **Costs***(Amounts
                  in millions)***Balance
                  at December 31, 2003**
              
              **$**
              **1.6**
              
              **$       0.2**
              **$**
              **1.8**Provision
              
              
              3.5
              
              2.0
              
              5.5Payment
                  and asset write downs
              
              
              (1.3
              )
              (2.1)
              
              (3.4
              )**Balance
                  at August 27, 2004**
              
              
              **3.8**
              
              **0.1**
              
              **3.9**Provision
              
              
              0.1
              
              0.4
              
              0.5Payments
                  and asset write downs
              
              
              (0.7
              )
              (0.5)
              
              (1.2
              )**Balance
                  at December 31, 2004**
              
              
              **3.2**
              
              **---**
              
              **3.2**Provision
              
              
              (0.1
              )
              0.3
              
              0.2Payments
                  and asset write downs
              
              
              (2.1
              )
              ---
              
              (2.1
              )**Balance
                  at December 31, 2005**
              
              
              **1.0**
              
              **0.3**
              
              **1.3**Provision
              
              
              ---
              
              0.5
              
              0.5Payments
                  and asset write downs
              
              
              (1.0
              )
              (0.7)
              
              (1.7
              )**Balance
                  at December 31, 2006**
              
              **$**
              **---**
              
              **$
                  0.1**
              **$**
              **0.1**


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





In
      late June 2006,
      the Company informed the NuTone Union that the Company would close the
      manufacturing operations at the Cincinnati, OH facility on or about August
      30,
      2006. As a result of this closure, the Company, through its RVP segment,
      recorded an approximate $3.5 million charge to operations (of which
      approximately $1.8 million is recorded in cost of goods sold and approximately
      $1.7 million is recorded in selling, general and administrative expense, net)
      consisting of severance of approximately $2.2 million and write-offs related
      to
      equipment sales and disposals of approximately $1.3 million.





On
      July 27, 2006
      the union members ratified a Closedown Agreement providing for the closedown
      and
      permanent layoff of all bargaining unit employees employed at the NuTone plant
      effective August 30, 2006, and the release by the union of any claims it may
      have against the Company. That agreement provides for, among other matters,
      the
      payment of severance, which was recorded in the second quarter ended July 1,
      2006, as provided under the terms of the implemented final offer and the payment
      of enhanced severance, which resulted in additional expense of approximately
      $0.3 million in the third quarter of 2006 (which is included in the severance
      portion of the $3.5 million charge noted in the previous paragraph) relating
      to
      those employees that executed a release of the Company from any claims, with
      the
      exception of claims related to vested pension, worker's compensation and
      unemployment benefits. In 2007, the Company expects to record additional
      restructuring expenses of approximately $2.1 million as it completes the
      closedown of this facility.





**14.**  **INCOME
      AND
      EXPENSE ITEMS**





For
      the year ending
      December 31, 2006, the Company’s results of operations include the following
      (income) and expense items recorded in cost of products sold and selling,
      general and administrative expense, net in the accompanying consolidated
      statement of operations:




**For
                  the year ended****December
                  31, 2006 ****(Amounts
                  in millions)*Gain
                  from
                  curtailment of post-retirement medical and life insurancebenefits(see
                  Note
                  8)
              
              $
              (35.9
              )NuTone
                  restructuring costs (1)
              
              
              3.5Losses
                  related to certain suppliers based inItaly
                  and
                  Poland
              
              
              16.0Compensation
                  reserve adjustment
              
              
              (3.5
              )Write-off
                  of
                  expenses of the Offering (see Note 1)
              
              
              2.5Product
                  safety upgrade reserves in the RVP and HTP    
                  segments (2)
              
              
              3.8Gain
                  on
                  settlement of litigation in the HVAC segment
              
              
              (1.6
              )Reserve
                  for
                  amounts due from a customer in China related to a
                Chinese construction project, net of minority interest
              
              
              1.2$
              (14.0
              )




* Unless
        otherwise
        indicated, all items noted in the above table have been recorded in selling,
        general and administrative expense, net in the accompanying consolidated
        statement of operations.
 
 (1) Approximately,
        $1.8
        million of the NuTone restructuring costs was recorded in cost of products
        sold
        and approximately $1.7 million was recorded in selling, general and
        administrative expense, net (see Note 13).
 
 (2) The RVP
        and
        HTP segments recorded these product safety upgrade reserves in cost of
        products sold (see Note 9).
 
 Certain
        sole source
        suppliers of various material components to the Company’s kitchen range hood
        subsidiaries based in Italy and Poland experienced financial difficulties
        in
        January 2007. The Company is working and will continue to work closely with
        these suppliers to help them in meeting the supply needs of these subsidiaries
        for the foreseeable future. The Company has not experienced any significant
        difficulties in its production or shipments to its customers as a result
        of
        these suppliers’ difficulties in maintaining its production as of March 30,
        2007. However, there can be no assurance that the Company will be able to
        continue to prevent a disruption in the supply of such material components
        or be
        able to find alternative suppliers. Should these suppliers be unable to continue
        in operation and the Company is unable to find alternative suppliers for
        a
        lengthy period of time, the Company could experience a material adverse effect
        on its operations. These subsidiaries based in Italy and Poland accounted
        for
        approximately 7% of the Company’s consolidated net sales and 5%, before the loss
        described below, of consolidated operating earnings for the year ended December
        31, 2006 and accounted for approximately 7% of the Company’s consolidated net
        sales and 4% of consolidated operating earnings for the year ended December
        31,
        2005 and approximately 6.5% and 6.2% of consolidated assets at December 31,
        2006
        and 2005, respectively. The Company recorded approximately $16.0 million
        of
        estimated losses in the RVP segment in the fourth quarter of 2006 in selling,
        general and administrative expense, net resulting from the unlikelihood that
        these suppliers will be able to repay advances from our subsidiaries based
        in
        Italy and Poland and amounts due under other arrangements. While the Company
        has
        recorded its best estimate of the losses related to these suppliers, the
        actual
        losses may be different than the amounts recorded at December 31,
        2006.
 
 Operating
        results
        for the year ended December 31, 2006 also include non-cash foreign exchange
        gains of approximately $1.3 million related to intercompany debt not
        indefinitely invested in the Company’s subsidiaries. Operating results for the
        year ended December 31, 2005 include non-cash foreign exchange losses of
        approximately $2.1 million 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 $0.4 million and for the period from January 1, 2004 to August
        27,
        2004 operating results include non-cash foreign exchange losses of approximately
        $0.8 million 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).
 
 Operating
        results
        for the year ended December 31, 2005 include a gain of approximately $1.4
        million, which has been recorded in Unallocated, from the settlement of certain
        obligations (see Note 9) and a gain of approximately $1.6 million in the
        Home
        Technology Products Segment from the sale of a corporate office building
        of one
        of the Company’s subsidiaries.
 
 The
        Company
        recorded stock-based compensation charges in selling, general and administrative
        expense, net of approximately $0.3 million for each of the years ended December
        31, 2006 and 2005, respectively, in accordance with SFAS No. 123 and SFAS
        No.
        123R (see Note 1). During the periods from August 28, 2004 to December 31,
        2004
        and from January 1, 2004 to August 27, 2004, the Company recorded a pre-tax
        charge to continuing operations of approximately $0.1 million and $48.5 million,
        respectively, for compensation expense related to stock options issued to
        employees, officers and directors in accordance with SFAS No. 123 (see Note
        1).
        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 27, 2004 has been recorded
        in
“expenses and charges arising from the Acquisition” as shown in the table
        below.
 
 The
        Company has a
        management agreement with an affiliate of Thomas H. Lee Partners, L.P. providing
        for certain financial and strategic advisory and consultancy services. Nortek
        expensed approximately $2.3 million and $2.2 million for the years ended
        December 31, 2006 and 2005, respectively, related to this management agreement
        in the accompanying Consolidated Statement of Operations (see Note
        2).
 
 The
        operating
        results of the Air Conditioning and Heating Products Segment for the periods
        from August 28, 2004 to December 31, 2004 and from January 1, 2004 to August
        27,
        2004 include approximately $0.4 million and $2.2 million, respectively, of
        costs
        associated with the closure of certain manufacturing facilities (see Note
        13).
 
 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 millions)*Expense
                related to the cancellation of stock options, net
            $
            45.2Sellers
                fees and expenses
            
            26.0Expense
                related to settlement and termination of certain benefits with two
                of the
                Company’s officers
            
            10.2Other
            
            2.3$
            83.7





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





The
      tables that follow summarize unaudited quarterly financial data for the years
      ended December 31, 2006 and December 31, 2005:





**For
                the Quarter Ended****April
                1**
            
            **July
                1**
            
            **September
                30**
            
            **December
                31***(Amounts
                in millions)***2006**Net
                sales
            
            $
            534.5
            
            $
            563.8
            
            $
            579.0
            
            $
            541.1Gross
                profit
            
            
            164.0
            
            
            170.1
            
            
            174.8
            
            
            162.2Selling,
                general and administrative expense, net
            
            
            95.3
            
            
            67.3
            
            
            101.1
            
            
            118.0Depreciation
                expense
            
            
            7.9
            
            
            8.2
            
            
            8.7
            
            
            8.2Amortization
                expense
            
            
            4.3
            
            
            7.9
            
            
            7.2
            
            
            8.8Operating
                earnings
            
            
            64.5
            
            
            97.0
            
            
            67.5
            
            
            35.5Net
                earnings (loss)
            
            
            17.8
            
            
            33.9
            
            
            15.2
            
            
            (9.2
            )




During
        the second
        quarter ended April 1, 2006, the Company recorded an approximate $35.9 million
        curtailment gain related to post-retirement medical and life insurance benefits
        (see Note 8) and in the fourth quarter ended December 31, 2006, the Company
        recorded reserves of approximately $16.0 million related to estimated losses
        as
        a result of the unlikelihood that certain suppliers to our kitchen range
        hood
        subsidiaries based in Italy and Poland will be able to repay advances and
        amounts due under other arrangements (see Note 14).


**For
                the Quarter Ended****April
                2**
            
            **July
                2**
            
            **October
                1**
            
            **December
                31***(Amounts
                in millions)***2005**Net
                sales
            
            $
            434.1
            
            $
            498.9
            
            $
            522.8
            
            $
            503.4Gross
                profit
            
            
            124.6
            
            
            148.5
            
            
            161.6
            
            
            163.1Selling,
                general and administrative expense, net
            
            
            79.6
            
            
            85.1
            
            
            89.8
            
            
            88.1Depreciation
                expense
            
            
            6.8
            
            
            6.8
            
            
            6.8
            
            
            6.3Amortization
                expense
            
            
            4.7
            
            
            4.4
            
            
            4.8
            
            
            5.3Operating
                earnings
            
            
            40.7
            
            
            59.0
            
            
            67.4
            
            
            69.8Net
                earnings
            
            
            2.3
            
            
            16.5
            
            
            19.7
            
            
            18.4




See
        Notes 1, 2, 3,
        5, 6, 10, 13 and 14 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 other items.
 
 
  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, 2006 and 2005, and the related
        consolidated statements of operations, stockholder’s investment, and cash flows
        for the years ended December 31, 2006 and 2005, the period from August 28,
        2004
        to December 31, 2004 and the period from January 1, 2004 to August 27, 2004.
        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, 2006 and 2005, and the consolidated results
        of
        their operations and their cash flows for the years ended December 31, 2006
        and
        2005, the period from August 28, 2004 to December 31, 2004 and the period
        from
        January 1, 2004 to August 27, 2004, 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.
 
 As
        discussed in
        Notes 1 and 8 to the consolidated
        financial statements, in 2006 NTK Holdings, Inc. adopted Statement of Financial
        Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
        No. 87, 88, 106, and 132(R)”.
 
 ERNST
&
YOUNG,
        LLP
 
 Boston,
        Massachusetts
 March
        30,
        2007





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


**SCHEDULE
      I**


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






**CONDENSED
      BALANCE SHEET**


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




**For
                  the year ended December 31,****2006**
              
              **2005****ASSETS:****Investments
                  and Other Assets:**Net
                  intercompany balance and investment in subsidiaries
              
              $
              585.9
              
              $
              460.0Deferred
                  debt
                  expense
              
              
              8.6
              
              
              5.2Total other long-term assets
              
              
              594.5
              
              
              465.2Total assets
              
              $
              594.5
              
              $
              465.2**LIABILITIES
                  AND STOCKHOLDER'S INVESTMENT:****Current
                  Liabilities:**Accrued
                  expenses and taxes, net
              
              $
              0.8
              
              $
              0.1**Long-term
                  debt**
              
              
              520.9
              
              
              274.6**Commitments
                  and Contingencies (Note 3)**Common
                      stock,
                      $0.01 par value, authorized 3,000 shares; 3,000 issued and
                      outstanding at
                      December 31, 2006 and 2005
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              21.3
              
              
              130.2Retained
                  earnings
              
              
              39.9
              
              
              52.8Accumulated
                  other comprehensive income
              
              
              11.6
              
              
              7.5Total stockholder's investment
              
              
              72.8
              
              
              190.5Total liabilities and stockholder's investment
              
              $
              594.5
              
              $
              465.2


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






**CONDENSED
      STATEMENT OF OPERATIONS**




**For
                  the Period****January
                  1, 2006 -**
              
              **February
                  10, 2005 -****December
                  31, 2006**
              
              **December
                  31, 2005***(Amounts
                  in millions)***Expenses:**Selling,
                  general and administrative expense
              
              $
              2.6
              
              $
              0.2Interest
                  expense
              
              
              42.2
              
              
              24.644.8
              
              
              24.8Loss
                  from
                  continuing operations before equity in subsidiaries'
                  earnings
              
              
              (44.8
              )
              
              (24.8
              )Equity
                  in
                  subsidiaries' earnings before provision for income taxes
              
              
              148.6
              
              
              120.4Earnings
                  from
                  continuing operations before provision for income taxes
              
              
              103.8
              
              
              95.6Provision
                  for
                  income taxes
              
              
              46.1
              
              
              41.8**Net
                  earnings**
              
              $
              57.7
              
              $
              53.8


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






**CONDENSED
      STATEMENT OF CASH FLOWS**


**For
                  the Period****January
                  1, 2006 -**
              
              **February
                  10, 2005 -****December
                  31, 2006**
              
              **December
                  31, 2005***(Amounts
                  in millions)***Cash
                  flows from operating activities:**Net
                  earnings
              
              $
              57.7
              
              $
              53.8**Adjustments
                  to reconcile net earnings to cash:**Non-cash
                  interest expense
              
              
              42.2
              
              
              24.6Equity
                  in
                  subsidiaries' earnings before provision for income taxes
              
              
              (148.6
              )
              
              (120.4
              )Current
                  income tax provision
              
              
              19.3
              
              
              17.3Deferred
                  federal income tax provision
              
              
              26.8
              
              
              24.5**Changes
                      in certain assets and liabilities, net of effects from**acquisitions and dispositions:Accrued
                  expenses and taxes
              
              
              2.6
              
              
              0.2Total adjustments to net earnings
              
              
              (57.7
              )
              
              (53.8
              )Net cash provided by operating activities
              
              
              ---
              
              
              ---**Cash
                  flows from investing activities:**Capital
                  contribution to Nortek Holdings, Inc.
              
              
              (25.9
              )
              
              (57.7
              )Net cash used in investing activities
              
              
              (25.9
              )
              
              (57.7
              )**Cash
                  flows from financing activities:**Borrowings
                  under the senior unsecured loan facility
              
              
              200.8
              
              
              ---Sale
                  of the
                  10 3/4% Senior Discount Notes
              
              
              ---
              
              
              244.7Dividends
              
              
              (174.9
              )
              
              (187.0
              )Net cash provided by financing activities
              
              
              25.9
              
              
              57.7Net
                  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 year ended December 31, 2006 and 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 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 for a purchase price of
        approximately $743.2 million (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” 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 15, 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.
 
 On
        August 28, 2004,
        Nortek 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 THL
        Transaction.
  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, 2006 and 2005, NTK Holdings’ subsidiaries, principally Nortek, had
        unrestricted cash and investments of approximately $57.4 million and $77.2
        million, respectively.
 
 5. As
        of
        December 31, 2006, the Company had approximately $42.0 million available
        for the
        payment of cash dividends, stock purchases or other restricted payments
        (“Restricted Payments”) under the terms of the indenture governing the Company’s
        10 3/4% Senior Discount Notes’ and the agreement governing the Company’s senior
        unsecured loan facility. 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
        $151.8 million at December 31, 2006.
 
 6. The
        combined liabilities, excluding deferred income taxes and intercompany payables
        to the Company, of NTK Holdings’ subsidiaries as of December 31, 2006 were
        approximately $2,005.5 million consisting of $1,405.6 million of short and
        long-term debt, $188.2 million of accounts payable and $411.7 million of
        short
        and long-term accruals, taxes and other obligations (of which approximately
        $283.0 million are classified as short-term).
 
 7. On May
        10,
        2006, NTK Holdings borrowed an aggregate principal amount of $205.0 million
        under a senior unsecured loan facility. The proceeds of this borrowing were
        utilized to (1) pay a cash dividend of approximately $174.9 million to Investors
        LLC which, in turn, made a distribution to the holders of its Class A and
        Class
        B membership interests, including affiliates of Thomas H. Lee Partners, L.P.
        and
        certain members of the Company’s management, (2) contribute capital of
        approximately $25.9 million to Nortek Holdings, which was used by Nortek
        Holdings, together with a dividend of approximately $28.1 million from Nortek
        to
        make a distribution of approximately $54.0 million to participants under
        the
        2004 Nortek Holdings, Inc. Deferred Compensation Plan (including certain
        of the
        Company’s executive officers) and (3) pay related fees and expenses. As a result
        of these distributions, the holders of the Class A membership interests in
        Investors LLC and the participants in the 2004 Nortek Holdings, Inc. Deferred
        Compensation Plan are not entitled to any further distributions.
 
 The
        senior
        unsecured loan facility has a term of one year, although any loans not repaid
        on
        or prior to May 10, 2007 will be extended until March 1, 2014. The senior
        unsecured loan facility bears interest at LIBOR plus a spread, which spread
        increases over time, subject to a cap on the overall interest rate of 11%
        per
        annum. NTK Holdings has the option to pay interest in cash (“Cash Option”) or by
        adding interest to the principal amount of the loans under the senior unsecured
        loan facility (“PIK Option”). If the Company exercises the PIK Option with
        respect to any interest period, an amount equal to the unpaid interest accrued
        will be added to the principal amount of the senior unsecured loan facility
        and
        such accrued interest will be deemed to have been paid. Following an increase
        in
        the principal amount of the senior unsecured loan facility as a result of
        the
        payment through the PIK Option, the senior unsecured loan facility will bear
        interest on such increased principal amount. The Company must elect the form
        of
        interest payment for each interest period. During the year ended December
        31,
        2006, the Company elected the PIK option to increase the principal amount
        of the
        senior unsecured loan facility for the interest accrued during the period
        from
        May 10, 2006 to December 31, 2006. As a result of exercising this PIK Option,
        the Company recorded approximately $11.0 million of accrued interest for
        the
        period from May 10, 2006 to December 31, 2006, as additional indebtedness
        relating to the senior unsecured loan facility. At December 31, 2006, the
        outstanding principal balance on the senior unsecured loan facility was
        approximately $216.0 million and had a weighted average interest rate of
        approximately 8.2%. The senior unsecured loan facility is not guaranteed
        by any
        of the NTK Holdings’ subsidiaries or by any assets of NTK Holdings or any of its
        subsidiaries.
 
 On
        February 15,
        2005, the Company completed the sale of $403.0 million aggregate principal
        amount at maturity ($250.4 million 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 are structurally subordinate to all debt and
        liabilities of the Company’s subsidiaries, including Nortek Holdings and Nortek.
 
 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 $403.0 million in September
        2009. The carrying value of the 10 3/4% Senior Discount Notes was approximately
        $304.9 million and $274.6 million at December 31, 2006 and December 31, 2005,
        respectively.
 
 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
        sale of the 10
        3/4% Senior Discount Notes was used to pay a dividend of approximately $187.0
        million to its sole stockholder, Investors LLC. In turn, Investors LLC
        authorized a distribution of approximately $187.0 million to the holders
        of its
        Class A and Class B membership interests, including affiliates of Thomas
        H. Lee
        Partners, L.P. and certain members of the Company’s management. In addition, on
        February 18, 2005, NTK Holdings contributed approximately $57.7 million to
        Nortek Holdings for the purpose of making payments under the Nortek Holdings,
        Inc. Deferred Compensation Plan, which resulted in additional expense of
        approximately $8.2 million, which the Company has included in interest expense
        in the accompanying consolidated statement of operations for the year ended
        December 31, 2005. All payments related to this contribution were made by
        Nortek
        Holdings, Inc.





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


**CONDENSED
      STATEMENT OF OPERATIONS**




**For
                  the Periods From****January
                  1, 2005 -**
              
              **August
                  28, 2004 -****February
                  9, 2005**
              
              **December
                  31, 2004***(Amounts
                  in millions)***Expenses:**Interest
                  expense
              
              $
              0.7
              
              $
              2.20.7
              
              
              2.2Loss
                      from
                      continuing operations before equity in subsidiaries'
                      earnings
              
              
              (0.7
              )
              
              (2.2
              )Equity
                  in
                  subsidiaries' earnings before provision for income taxes
              
              
              5.2
              
              
              2.1Earnings
                  (loss) from continuing operations before provision for income
                  taxes
              
              
              4.5
              
              
              (0.1
              )Provision
                  for
                  income taxes
              
              
              1.4
              
              
              3.5**Earnings
                  (loss) from continuing operations**
              
              
              3.1
              
              
              (3.6
              )**Loss
                  from discontinued operations**
              
              
              ---
              
              
              (0.5
              )**Net
                  earnings (loss)**
              
              $
              3.1
              
              $
              (4.1
              )


*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 millions)***Cash
                  flows from operating activities:**Earnings
                  (loss) from continuing operations
              
              $
              3.1
              
              $
              (3.6
              )Loss
                  from
                  discontinued operations
              
              
              ---
              
              
              (0.5
              )Net
                  earnings
                  (loss)
              
              
              3.1
              
              
              (4.1
              )**Adjustments
                  to reconcile net earnings to cash:**Non-cash
                  interest expense
              
              
              0.7
              
              
              2.2Equity
                  in
                  subsidiaries' earnings before provision for income taxes
              
              
              (5.2
              )
              
              (2.1
              )Current
                  income tax provision from continuing operations
              
              
              0.6
              
              
              2.5Deferred
                  federal income tax provision from continuing operations
              
              
              0.8
              
              
              1.0Current
                  income tax provision for discontinued operations
              
              
              ---
              
              
              0.5Total adjustments to net loss
              
              
              (3.1
              )
              
              4.1Net 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.*








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


**SCHEDULE
      I**


**CONDENSED
      FINANCIAL INFORMATION OF NORTEK 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
      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 for a
      purchase price of approximately $743.2 million (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” 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 15, 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.




On
      August 28, 2004, Nortek 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.








**THE
        FORMER
        NORTEK HOLDINGS, INC. (PARENT COMPANY)**
 **SCHEDULE
        I**
 **CONDENSED
        FINANCIAL INFORMATION OF THE FORMER NORTEK HOLDINGS,
        INC.**





**CONDENSED
      STATEMENT OF OPERATIONS**


**For
                  the Period From****January
                  1, 2004 -****August
                  27, 2004***(Amounts
                  in millions)***Expenses:**Interest
                  expense
              
              $
              24.2Loss
                  on debt
                  redemption
              
              
              67.091.2Loss
                      from
                      continuing operations before equity in subsidiaries'
                      loss
              
              
              (91.2
              )Equity
                  in
                  subsidiaries' loss before benefit from income taxes
              
              
              (61.5
              )Loss
                    from
                    continuing operations before benefit from income
                    taxes
              
              
              (152.7
              )Benefit
                  from
                  income taxes
              
              
              (41.4
              )**Loss
                  from continuing operations**
              
              
              (111.3
              )**Earnings
                  from discontinued operations**
              
              
              67.4**Net
                  loss**
              
              $
              (43.9
              )


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






**CONDENSED
      STATEMENT OF CASH FLOWS**




**For
                  the Period****Jan.
                  1, 2004 -****Aug.
                  27, 2004***(Amounts
                  in millions)***Cash
                  Flows from operating activities:**Loss
                  from
                  continuing operations
              
              $
              (111.3
              )Earnings
                  from
                  discontinued operations
              
              
              67.4Net
                  loss
              
              
              (43.9
              )**Adjustments
                      to reconcile net loss to net cash provided by (used in) operating
                      activities:**Non-cash
                  interest expense, net
              
              
              24.2Loss
                  from
                  debt retirement
              
              
              67.0Equity
                  in
                  subsidiaries' loss before benefit from income taxes
              
              
              61.5Earnings
                  from
                  discontinued operations before benefit from income taxes
              
              
              (112.9
              )Current
                  income tax provision from continuing operations
              
              
              5.5Deferred
                  federal income tax credit from continuing operations
              
              
              (46.9
              )Current
                  income tax provision from discontinued operations
              
              
              64.0Deferred
                  federal income tax credit from discontinued operations
              
              
              (18.5
              )**Changes
                  in certain assets and liabilities, net of****effects from acquisitions and dispositions:**Accrued
                  expenses and taxes
              
              
              (11.8
              )Total adjustments to net loss
              
              
              32.1Net cash used in operating activities
              
              
              (11.8
              )Net
                  decrease
                  in unrestricted cash and cash equivalents
              
              
              (11.8
              )Cash
                  and cash
                  equivalents at the beginning of the period
              
              
              11.8Cash
                  and cash
                  equivalents at the end of the period
              
              $
              ---




*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**





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
      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 for a
      purchase price of approximately $743.2 million (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 15,
      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 $376.5
      million of accreted principal as of August 27, 2004) and recorded a pre-tax
      loss
      from debt retirement of approximately $67.0 million in the period from January
      1, 2004 to August 27, 2004.





4.
            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**
              
              **Charged**
              
              **Charge
                  to**
              
              **Deduction**
              
              **Balance
                  at****Beginning**
              
              **to
                  Cost**
              
              **Other**
              
              **from**
              
              **End
                  of****of
                  Year**
              
              **and
                  Expense**
              
              **Accounts**
              
              **Reserves**
              
              **Year***(Amounts
                  in millions)***Classification****For
                  the year-ended December 31, 2004**Allowance
                  for
                  doubtful accounts and sales allowances
              
              $
              5.8
              
              $
              1.6
              
              $
              0.5
                  (b
              )
              $
              (2.4)
                  (a
              )
              $
              5.5**For
                  the year-ended December 31, 2005**Allowance
                  for
                  doubtful accounts and sales allowances
              
              $
              5.5
              
              $
              2.9
              
              $
              1.1
                  (b
              )
              $
              (2.9)
                  (a
              )
              $
              6.6**For
                  the year-ended December 31, 2006**Allowance
                  for
                  doubtful accounts and sales allowances
              
              $
              6.6
              
              $
              6.1
              
              $
              0.6
                  (b
              )
              $
              (3.9)
                  (a
              )
              $
              9.4





(a)
            Amounts
                written off, net of recoveries


(b)
            Other,
                including acquisitions







NTK
      HOLDINGS, INC. AND SUBSIDIARIES


December
      31, 2006




**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
              Bryan
                  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).10.17
              Amended
                  and
                  Restated Credit Agreement dated April 3, 2006 among Nortek, Inc.
                  (as
                  successor to THL Buildco, Inc.), Nortek 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
                  10.1 to
                  Nortek Form 8-K filed April 3, 2006).10.18
              Bridge
                  Loan
                  Agreement dated May 10, 2006 among NTK Holdings, Inc., The Lenders
                  Party
                  hereto, and Goldman Sachs Credit Partners L.P., as Administrative
                  Agent,
                  Goldman Sachs Credit Partners L.P. and Credit Suisse Securities
                  (USA) LLC,
                  as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Securities
                  (USA) LLC, as Syndication Agent and Banc of America Bridge LLC
                  and UBS
                  Securities LLC, as Documentation Agents (Exhibit 10.1 to NTK Holdings
                  Form
                  8-K filed May 10, 2006).**
              10.19
              Third
                  Amendment to the Nortek, Inc. Supplemental Executive Retirement
                  Plan B
                  (Exhibit 10.19 to Nortek Form 10-K filed April 2,
                  2007).*
              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 Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.*
              32.2
              Section
                  1350
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002.