**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C.
      20549




**Form
      10-Q**


(Mark
      One)


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


SECURITIES
      EXCHANGE
      ACT OF 1934







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





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





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 August 4, 2006 was 3,000.








**PART
      I.  FINANCIAL INFORMATION**





**Item
      1.   Financial Statements**





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEET**


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




**July
                  1,**
              
              **December
                  31,****2006**
              
              **2005****Assets****Current
                  Assets:**Cash
                  and cash
                  equivalents
              
              $
              54.9
              
              $
              77.2Accounts
                      receivable, less allowances of $6.8 and $6.6
              
              
              330.2
              
              
              272.2Inventories:Raw materials
              
              
              87.1
              
              
              75.2Work in process
              
              
              32.2
              
              
              21.4Finished goods
              
              
              178.2
              
              
              145.7297.5
              
              
              242.3Prepaid
                  expenses
              
              
              12.9
              
              
              10.5Other
                  current
                  assets
              
              
              21.9
              
              
              26.3Prepaid
                  income taxes
              
              
              23.3
              
              
              21.0Total current assets
              
              
              740.7
              
              
              649.5**Property
                  and Equipment, at Cost:**Land
              
              
              11.1
              
              
              8.8Buildings
                  and
                  improvements
              
              
              94.4
              
              
              84.3Machinery
                  and
                  equipment
              
              
              159.2
              
              
              141.1264.7
              
              
              234.2Less
                  accumulated depreciation
              
              
              43.3
              
              
              28.7Total property and equipment, net
              
              
              221.4
              
              
              205.5**Other
                  Assets:**Goodwill
              
              
              1,387.0
              
              
              1,381.3Intangible
                      assets, less accumulated amortization of $37.5 and
                      $27.3
              
              
              144.9
              
              
              114.5Deferred
                  debt
                  expense
              
              
              45.0
              
              
              42.1Restricted
                  investments and marketable securities
              
              
              4.0
              
              
              4.0Other
                  assets
              
              
              8.6
              
              
              7.71,589.5
              
              
              1,549.6$
              2,551.6
              
              $
              2,404.6**Liabilities
                  and Stockholder’s Investment****Current
                  Liabilities:**Notes
                  payable
                  and other short-term obligations
              
              $
              33.5
              
              $
              4.9Current
                  maturities of long-term debt
              
              
              18.7
              
              
              14.8Accounts
                  payable
              
              
              205.5
              
              
              159.0Accrued
                  expenses and taxes, net
              
              
              198.7
              
              
              187.2Total current liabilities
              
              
              456.4
              
              
              365.9**Other
                  Liabilities:**Deferred
                  income taxes
              
              
              31.3
              
              
              4.1Other
              
              
              135.6
              
              
              215.4166.9
              
              
              219.5**Notes,
                      Mortgage Notes and Obligations**Payable, Less Current
                      Maturities
              
              
              1,858.8
              
              
              1,628.7**Stockholder’s
                  Investment:**Common
                      stock,
                      $0.01 par value, authorized 3,000 shares; 3,000 issued andoutstanding
                  at July 1, 2006 and December 31, 2005
              
              
              ---
              
              
              ---Additional
                  paid-in capital
              
              
              21.2
              
              
              130.2Retained
                  earnings
              
              
              33.9
              
              
              52.8Accumulated
                  other comprehensive income
              
              
              14.4
              
              
              7.5Total stockholder's investment
              
              
              69.5
              
              
              190.5**Total
                  Liabilities and Stockholder's Investment:**
              
              $
              2,551.6
              
              $
              2,404.6




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


**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**




**For
                  the three months ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              563.8
              
              $
              498.9**Costs
                  and Expenses:**Cost of products sold
              
              
              393.7
              
              
              350.4Selling, general and administrative expense, net
              
              
              102.9
              
              
              85.1Amortization of intangible assets
              
              
              5.8
              
              
              4.4Gain from curtailment of post-retirement medical benefits
              
              
              (35.6
              )
              
              ---466.8
              
              
              439.9Operating
                  earnings
              
              
              97.0
              
              
              59.0Interest
                  expense
              
              
              (42.3
              )
              
              (32.7
              )Investment
                  income
              
              
              0.5
              
              
              0.3Earnings
                  before provision for income taxes
              
              
              55.2
              
              
              26.6Provision
                  for
                  income taxes
              
              
              21.3
              
              
              10.1**Net
                  earnings**
              
              $
              33.9
              
              $
              16.5




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


**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**




**For
                  the first six months ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Net
                  Sales**
              
              $
              1,098.3
              
              $
              933.0**Costs
                  and Expenses:**Cost of products sold
              
              
              764.2
              
              
              659.9Selling, general and administrative expense, net
              
              
              198.2
              
              
              164.7Amortization of intangible assets
              
              
              10.0
              
              
              8.7Gain from curtailment of post-retirement medical benefits
              
              
              (35.6
              )
              
              ---936.8
              
              
              833.3Operating
                  earnings
              
              
              161.5
              
              
              99.7Interest
                  expense
              
              
              (78.4
              )
              
              (69.9
              )Investment
                  income
              
              
              1.2
              
              
              0.8Earnings
                  before provision for income taxes
              
              
              84.3
              
              
              30.6Provision
                  for
                  income taxes
              
              
              32.6
              
              
              11.8**Net
                  earnings**
              
              $
              51.7
              
              $
              18.8




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


**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


**UNAUDITED
      CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS**




**For
                  the first six months ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Cash
                  Flows from operating activities:**Net
                  earnings
              
              $
              51.7
              
              $
              18.8**Adjustments
                      to reconcile net earnings**to net cash provided by (used in)
                      operating activities:Depreciation
                      and amortization expense, including amortization of purchase
                      price
                      allocated to inventory
              
              
              28.3
              
              
              22.7Non-cash
                  interest expense, net
              
              
              19.9
              
              
              13.1Non-cash
                  stock-based compensation expense
              
              
              0.2
              
              
              0.2Gain
                  from
                  curtailment of post-retirement medical benefits
              
              
              (35.6
              )
              
              ---Loss
                  (gain)
                  on sale of fixed assets
              
              
              1.8
              
              
              (0.5
              )Deferred
                  federal income tax provision
              
              
              16.9
              
              
              5.5**Changes
                    in certain assets and liabilities, net of**effects from
                    acquisitions and dispositions:Accounts
                  receivable, net
              
              
              (28.5
              )
              
              (60.6
              )Inventories
              
              
              (37.9
              )
              
              (24.0
              )Prepaids
                  and
                  other current assets
              
              
              5.3
              
              
              (7.8
              )Accounts
                  payable
              
              
              27.4
              
              
              31.8Accrued
                  expenses and taxes
              
              
              1.0
              
              
              (0.9
              )Long-term
                  deferred compensation
              
              
              (54.0
              )
              
              (57.7
              )Long-term
                  assets, liabilities and other, net
              
              
              7.5
              
              
              5.3Total adjustments to net earnings
              
              
              (47.7
              )
              
              (72.9
              )Net cash provided by (used in) operating activities
              
              
              4.0
              
              
              (54.1
              )**Cash
                  Flows from investing activities:**Capital
                  expenditures
              
              
              (22.7
              )
              
              (9.2
              )Net
                  cash paid
                  for businesses acquired
              
              
              (56.9
              )
              
              (13.4
              )Proceeds
                  from
                  the sale of property and equipment
              
              
              2.6
              
              
              6.1Change
                  in
                  restricted cash and marketable securities
              
              
              ---
              
              
              (0.3
              )Other,
                  net
              
              
              (2.6
              )
              
              (0.9
              )Net cash used in investing activities
              
              
              (79.6
              )
              
              (17.7
              )**Cash
                  Flows from financing activities:**Increase
                  in
                  borrowings
              
              
              68.9
              
              
              4.9Payment
                  of
                  borrowings
              
              
              (40.0
              )
              
              (10.9
              )Borrowing
                  under the senior unsecured loan facility
              
              
              200.8
              
              
              ---Sale
                  of 10
                  3/4% Senior Discount Notes
              
              
              ---
              
              
              244.7Dividends
              
              
              (174.9
              )
              
              (187.0
              )Other,
                  net
              
              
              (1.5
              )
              
              (0.2
              )Net cash provided by financing activities
              
              
              53.3
              
              
              51.5Net
                  decrease
                  in unrestricted cash and cash equivalents
              
              
              (22.3
              )
              
              (20.3
              )Unrestricted
                  cash and cash equivalents at the beginning of the period
              
              
              77.2
              
              
              95.0Unrestricted
                  cash and cash equivalents at the end of the period
              
              $
              54.9
              
              $
              74.7**Supplemental
                  disclosure of cash flow information:**Interest
                  paid
              
              $
              57.7
              
              $
              55.6Income
                  taxes
                  paid, net
              
              $
              14.4
              
              $
              5.5




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


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


**FOR
      THE
      THREE MONTHS ENDED JULY 2, 2005**


*(Dollar
      amounts
      in millions)*




**(Accumulated**
              
              **Accumulated****Additional**
              
              **Deficit)**
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  April 2, 2005**
              
              $
              129.9
              
              $
              (1.8
              )
              $
              6.8
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              16.5
              
              
              ---
              
              
              16.5Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (4.4
              )
              
              (4.4
              )Unrealized
                      appreciation in the fair value of marketable
                      securities
              
              
              ---
              
              
              ---
              
              
              0.1
              
              
              0.1Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              12.2Stock-based
                  compensation
              
              
              0.1
              
              
              ---
              
              
              ---**Balance,
                  July 2, 2005**
              
              $
              130.0
              
              $
              14.7
              
              $
              2.5




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


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


**FOR
      THE
      FIRST SIX MONTHS ENDED JULY 2, 2005**


*(Dollar
      amounts
      in millions)*




**(Accumulated**
              
              **Accumulated****Additional**
              
              **Deficit)**
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Income
                  (Loss)****Balance,
                  December 31, 2004**
              
              $
              316.8
              
              $
              (4.1
              )
              $
              9.1
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              18.8
              
              
              ---
              
              
              18.8Other
                  comprehensive income (loss):Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              (6.6
              )
              
              (6.6
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              12.2Dividends
              
              
              (187.0
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.2
              
              
              ---
              
              
              ---**Balance,
                  July 2, 2005**
              
              $
              130.0
              
              $
              14.7
              
              $
              2.5




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







**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


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


**FOR
      THE
      THREE MONTHS ENDED JULY 1, 2006**


*(Dollar
      amounts
      in millions)*




**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income**
              
              **Income****Balance,
                  April 1, 2006**
              
              $
              130.3
              
              $
              70.6
              
              $
              8.1
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              33.9
              
              
              ---
              
              
              33.9Other
                  comprehensive income:Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              6.3
              
              
              6.3Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              40.2Dividends
              
              
              (104.3
              )
              
              (70.6
              )
              
              ---Adjustment
                  of
                  carryover basis of continuingmanagement investors in the THL Transaction
              
              
              (4.9
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.1
              
              
              ---
              
              
              ---**Balance,
                  July 1, 2006**
              
              $
              21.2
              
              $
              33.9
              
              $
              14.4




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





**NTK
      HOLDINGS, INC. AND SUBSIDIARIES**


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


**FOR
      THE
      FIRST SIX MONTHS ENDED JULY 1, 2006**


*(Dollar
      amounts
      in millions)*




**Accumulated****Additional**
              
              
              
              **Other****Paid
                  in**
              
              **Retained**
              
              **Comprehensive**
              
              **Comprehensive****Capital**
              
              **Earnings**
              
              **Income**
              
              **Income****Balance,
                  December 31, 2005**
              
              $
              130.2
              
              $
              52.8
              
              $
              7.5
              
              $
              ---Net
                  earnings
              
              
              ---
              
              
              51.7
              
              
              ---
              
              
              51.7Other
                  comprehensive income:Currency translation adjustment
              
              
              ---
              
              
              ---
              
              
              6.9
              
              
              6.9Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              $
              58.6Dividends
              
              
              (104.3
              )
              
              (70.6
              )
              
              ---Adjustment
                  of
                  carryover basis of continuingmanagement investors in the THL Transaction
              
              
              (4.9
              )
              
              ---
              
              
              ---Stock-based
                  compensation
              
              
              0.2
              
              
              ---
              
              
              ---**Balance,
                  July 1, 2006**
              
              $
              21.2
              
              $
              33.9
              
              $
              14.4




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







**NTK
        HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO
        UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JULY
        1,
        2006 AND JULY 2, 2005**
   (A)       
        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. The unaudited condensed consolidated financial statements
        presented herein (the “Unaudited Financial Statements”), for periods prior to
        February 10, 2005, reflect the financial position, results of operations
        and
        cash flows of Nortek Holdings and all of its wholly-owned subsidiaries and
        from
        February 10, 2005, reflect the financial position, results of operations
        and
        cash flows of NTK Holdings.





The
      Unaudited
      Financial Statements include the accounts of Nortek Holdings and NTK Holdings,
      as appropriate, and all of their wholly-owned subsidiaries, after elimination
      of
      intercompany accounts and transactions, without audit and, in the opinion of
      management, reflect all adjustments of a normal recurring nature necessary
      for a
      fair statement of the interim periods presented. Although certain information
      and footnote disclosures normally included in financial statements prepared
      in
      accordance with U.S. generally accepted accounting principles have been omitted,
      the Company believes that the disclosures included are adequate to make the
      information presented not misleading. Certain amounts in the prior year’s
      Unaudited Financial Statements have been reclassified to conform to the current
      year presentation. It is suggested that these Unaudited Financial Statements
      be
      read in conjunction with the consolidated financial statements and the notes
      included in the Company’s latest annual report on Form 10-K and its latest
      Current Reports on Form 8-K as filed with the Securities and Exchange Commission
      (“SEC”).





On
      May 5, 2006, the
      Company filed a registration statement on Form S-1 with the SEC for an initial
      public offering of shares of its common stock (the “Offering”).





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





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 1,935 and 3,666 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 12,889 and 9,065
      were
      vested at July 1, 2006 and December 31, 2005, respectively. The total fair
      value
      of the C-1 units is approximately $1.1 million. Approximately $0.5 million
      remains to be amortized at July 1, 2006. The C-2 units only vest in the event
      that certain performance-based criteria, as defined, are met. As of July 1,
      2006
      and December 31, 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.





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 of approximately $0.1 million for each of the second quarters ended
      July
      1, 2006 and July 2, 2005, respectively and approximately $0.2 million for each
      of the first six months ended July 1, 2006 and July 2, 2005, respectively,
      in
      accordance with SFAS No. 123 and SFAS No. 123R.





**Deferred
      Compensation**





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 is a non-qualified,
      unfunded obligation of Nortek Holdings. Distributions to participants under
      the
      plan will track proportionate distributions to those made to the Class A units
      of Investors LLC. The maximum aggregate amount of distributions that are payable
      to any participant under the plan equals the total value of the stock options
      surrendered by the participant for cancellation without payment, or an aggregate
      amount of approximately $111.8 million for all participants.





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 B). 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 unaudited condensed
      consolidated balance sheet include approximately $49.0 million related to this
      deferred compensation plan and is net of unamortized discount of approximately
      $5.0 million. The balance sheet at July 1, 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 unaudited condensed
      consolidated balance sheet. At July 1, 2006, there were no remaining deferred
      tax benefits as the second distribution noted above is deductible for income
      tax
      purposes upon payment.




**Goodwill**





The
      following table
      presents a summary of the activity in goodwill for the six months ended July
      1,
      2006 and for the year ended December 31, 2005:





*(Dollar
                amounts in millions)***Balance
                as of December 31, 2004**
            **$**
            **1,295.1**Acquisitions
                during the year ended December 31, 2005
            
            91.9Purchase
                accounting adjustments
            
            (4.8
            )Impact
                of
                foreign currency translation
            
            (0.9
            )**Balance
                as of December 31, 2005**
            
            **1,381.3**Acquisitions
                during the first six months ended July 1, 2006
            
            18.3Purchase
                accounting adjustments
            
            (9.1
            )Adjustment
                of
                carryover basis of continuing management investors in the THL
                Transaction
            
            (4.9
            )Impact
                of
                foreign currency translation
            
            1.4**Balance
                as of July 1, 2006**
            **$**
            **1,387.0**





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 C). Approximately $18.2 million and $56.1 million of goodwill associated
      with certain companies acquired during the first six months ended July 1, 2006
      and the year ended December 31, 2005, respectively, will be deductible for
      income tax purposes. Purchase accounting adjustments relate principally to
      final
      revisions resulting from the completion of fair value adjustments and
      adjustments to deferred income taxes that impact goodwill.





The
      $4.9 million
      non-cash “Adjustment of carryover basis of continuing management investors in
      the THL Transaction” for the six months ended July 1, 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**





Intangible
      assets
      increased approximately $30.4 million from approximately $114.5 million at
      December 31, 2005 to approximately $144.9 million at July 1, 2006. This increase
      is primarily as a result of intangible assets acquired as a result of business
      acquisitions made during the second quarter of 2006 (see Note C).





**New
      Accounting Pronouncements**





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”) which is effective for fiscal years beginning after
      December 15, 2006 with earlier adoption encouraged. FIN 48 was issued to clarify
      the accounting for uncertainty in income taxes recognized in an entity's
      financial statements in accordance with FASB Statement No. 109. FIN 48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on financial reporting
      and
      classification of differences between tax positions taken in a tax return and
      amounts recognized in the financial statements. The Company is currently
      evaluating the impact of adopting FIN 48 on its consolidated financial
      statements.





(B)       
        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) make 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) make a
        capital contribution of approximately $25.9 million to Nortek Holdings, which
        was used by Nortek Holdings, together with existing cash of approximately
        $28.1
        million 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 A).





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. On August 3, 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
      August 10, 2006. As a result of exercising this PIK Option, the Company recorded
      approximately $2.2 million of accrued interest as additional indebtedness
      relating to the senior unsecured loan facility and at July 1, 2006, the
      outstanding principal balance on the senior unsecured loan facility was
      approximately $207.2 million. 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
      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.





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
      $289.4 million and $274.6 million at July 1, 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 unaudited condensed consolidated statement of operations
      for
      the first six months ended July 2, 2005. All payments related to this
      contribution were made by Nortek Holdings, Inc.




As
          of July 1, 2006,
          there was approximately $25.8 million available for the payment of cash
          dividends, stock purchases or other restricted payments (“Restricted Payments”)
          by the Company as defined under the terms of both the Company’s 10 3/4% Senior
          Discount Notes’ and senior unsecured loan facility's indentures. 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 $136.7 million at July 1,
          2006.


(C)       
      On June 26, 2006, the Company, through its wholly-owned subsidiary, Linear
      LLC
      (“Linear”), acquired the stock of Secure Wireless, Inc. (“Secure Wireless”) and
      Advanced Bridging Technologies, Inc. (“ABT”) through two mergers, for a combined
      initial purchase price of approximately $10.1 million, of which approximately
      $10.0 million was borrowed under Nortek’s revolving credit facility, plus
      contingent consideration. 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 Air Conditioning
      and
      Heating Products Segment, acquired the assets and certain liabilities of
      Huntair, Inc. (“Huntair”) and Cleanpak International, LLC (“Cleanpak”), for
      approximately $49.4 million (utilizing approximately $40.0 million of cash
      which
      was borrowed under Nortek’s revolving credit facility, including approximately
      $0.6 million to fund a portion of Huntair and Cleanpak’s initial working capital
      needs, and issuing unsecured 6% subordinated notes totaling $10.0 million due
      April 2008) plus contingent consideration. 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 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.





Acquisitions
      contributed approximately $51.1 million, $2.5 million and $2.6 million to net
      sales, operating earnings and depreciation and amortization expense,
      respectively, for the second quarter ended July 1, 2006 and contributed
      approximately $82.6 million, $3.2 million and $3.8 million to net sales,
      operating earnings and depreciation and amortization expense, respectively,
      for
      the first six months ended July 1, 2006. Huntair, Cleanpak, MEG, MSH and IMS
      are
      included in the Air Conditioning and Heating Products Segment in the Company’s
      segment reporting, while all remaining acquisitions are included in the Home
      Technology Products Segment in the Company’s segment reporting (see Note E).





During
      the second
      quarter and first six months ended July 1, 2006, the Company recorded
      approximately $2.1 million and $2.2 million, respectively, of amortization
      of
      excess purchase price allocated to inventory related to the acquisitions noted
      above as a non-cash charge to cost of goods sold. During first six months ended
      July 2, 2005, the Company recorded approximately $0.1 million of amortization
      of
      excess purchase price allocated to inventory related to the acquisitions noted
      above as a non-cash charge to cost of goods sold.





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





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





On
      July 18, 2006,
      the Company, through Linear, acquired the stock of Magenta Research, Ltd.
      (“Magenta”) for an initial purchase price of approximately $13.1 million
      (utilizing approximately $10.6 million of cash, of which approximately $10.0
      million was borrowed under Nortek’s revolving credit facility, and issuing
      unsecured 6% subordinated notes totaling $2.5 million due July 2008) plus
      contingent consideration. 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 displays for dynamic signage applications.





The
      estimated total
      potential amount of contingent consideration that may be paid in the future
      for
      these acquisitions is approximately $116.8 million.





(D)       
        Operating results for the second quarter and first six months ended July
        1, 2006
        include a non-cash foreign exchange gain of approximately $0.2 million and
        $0.3
        million, respectively, and the operating results for the second quarter and
        first six months ended July 2, 2005 include a non-cash foreign exchange loss
        of
        approximately $0.9 million and $1.4 million, respectively, related to
        intercompany debt not indefinitely invested in the Company’s subsidiaries. A
        portion of this expense has been allocated to the Company’s reporting segments
        for the second quarter and first six months ended July 2, 2005 (see Note
        E).





Operating
      results
      for the first six months ended July 2, 2005 includes a gain of approximately
      $1.4 million from the settlement of certain obligations of former subsidiaries
      (see Note G).





The
      Company
      recorded stock-based compensation charges in selling, general and administrative
      expense of approximately $0.1 million for each of the second quarters ended
      July
      1, 2006 and July 2, 2005, respectively and approximately $0.2 million for each
      of the first six months ended July 1, 2006 and July 2, 2005, respectively,
      in
      accordance with SFAS No. 123 and SFAS No. 123R.





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 $0.6 million and $1.2 million for the second quarter
      and
      first six months ended July 1, 2006, respectively, and expensed approximately
      $0.5 million and $1.0 million for the second quarter and first six months ended
      July 2, 2005, respectively, related to this management agreement in the
      accompanying Unaudited Condensed Consolidated Statement of
      Operations.





(E)         
      The Company is a leading diversified manufacturer of innovative, branded
      residential and commercial products, which is organized within three reporting
      segments: the Residential Ventilation Products Segment, the Home Technology
      Products Segment and the Air Conditioning and Heating Products Segment. The
      Air
      Conditioning and Heating Products Segment combines the results of the Company’s
      residential and commercial heating, ventilating and air conditioning (“HVAC”)
      businesses. In the tables below, Unallocated includes corporate related items,
      intersegment eliminations and certain income and expense items not allocated
      to
      reportable segments.





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





During
      2005, the
      Company changed the composition of its reporting segments to reflect the Home
      Technology Products Segment separately. In accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information”, the
      Company has restated prior period segment disclosures to conform to the new
      composition.




Unaudited
      net
      sales, operating earnings and pre-tax earnings for the Company’s segments for
      the second quarter ended July 1, 2006 and July 2, 2005 were as follows:




**For
                  the second quarter ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              207.3
              
              $
              202.6Home
                  technology products
              
              
              115.1
              
              
              76.4Air
                  conditioning and heating products
              
              
              241.4
              
              
              219.9Consolidated net sales
              
              $
              563.8
              
              $
              498.9**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              69.8
              
              $
              30.9Home
                  technology products (2)
              
              
              14.4
              
              
              15.0Air
                  conditioning and heating products (3)
              
              
              19.3
              
              
              20.5Subtotal
              
              
              103.5
              
              
              66.4**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.1
              )
              
              (0.1
              )Foreign
                  exchange gain (loss) on intercompany debt
              
              
              0.2
              
              
              (0.2
              )Unallocated,
                  net
              
              
              (6.6
              )
              
              (7.1
              )Consolidated operating earnings
              
              
              97.0
              
              
              59.0Interest
                  expense
              
              
              (42.3
              )
              
              (32.7
              )Investment
                  income
              
              
              0.5
              
              
              0.3Earnings before provision for income taxes
              
              $
              55.2
              
              $
              26.6




(1)
            The
                operating
                results of the Residential Ventilation Products Segment for the second
                quarter ended July 1, 2006 include an approximate pre-tax $35.6 million
                curtailment gain related to post-retirement medical benefits and
                an
                approximate pre-tax $3.5 million charge related to the planned closure
                of
                the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note I). The
                operating results of the Residential Ventilation Products Segment
                for the
                second quarter ended July 2, 2005 include a non-cash foreign exchange
                loss
                of approximately $0.6 million related to intercompany debt not
                indefinitely invested in the Company’s subsidiaries.





(2) 
The
      operating results of the Home Technology Products Segment for the second quarter
      ended July 1, 2006 include an increase in warranty expense of approximately
      $4.0
      million related to a product safety upgrade.





(3)
            The
                operating
                results of the Air Conditioning and Heating Products Segment for
                the
                second quarter ended July 2, 2005 include a non-cash foreign exchange
                loss
                of approximately $0.1 million related to intercompany debt not
                indefinitely invested in the Company’s
                subsidiaries.


Unaudited
      net
      sales, operating earnings and pre-tax earnings for the Company’s segments for
      the first six months ended July 1, 2006 and July 2, 2005 were as follows:




**For
                  the first six months ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              418.9
              
              $
              399.7Home
                  technology products
              
              
              222.6
              
              
              140.3Air
                  conditioning and heating products
              
              
              456.8
              
              
              393.0Consolidated net sales
              
              $
              1,098.3
              
              $
              933.0**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              105.9
              
              $
              57.8Home
                  technology products (2)
              
              
              31.7
              
              
              25.8Air
                  conditioning and heating products (3)
              
              
              37.2
              
              
              27.8Subtotal
              
              
              174.8
              
              
              111.4**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.2
              )
              
              (0.2
              )Foreign
                  exchange gain (loss) on intercompany debt
              
              
              0.3
              
              
              (0.3
              )Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4Unallocated,
                  net
              
              
              (13.4
              )
              
              (12.6
              )Consolidated
                  operating earnings
              
              
              161.5
              
              
              99.7Interest
                  expense
              
              
              (78.4
              )
              
              (69.9
              )Investment
                  income
              
              
              1.2
              
              
              0.8Earnings before provision for income taxes
              
              $
              84.3
              
              $
              30.6




(1)
            The
                operating
                results of the Residential Ventilation Products Segment for the first
                six
                months ended July 1, 2006 include an approximate pre-tax $35.6 million
                curtailment gain related to post-retirement medical benefits and
                an
                approximate pre-tax $3.5 million charge related to the planned closure
                of
                the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note I). The
                operating results of the Residential Ventilation Products Segment
                for the
                first six months ended July 2, 2005 include a non-cash foreign exchange
                loss of approximately $1.0 million related to intercompany debt not
                indefinitely invested in the Company’s subsidiaries.




(2)
            The
                operating
                results of the Home Technology Products Segment for the first six
                months
                ended July 1, 2006 include an increase in warranty expense of
                approximately $4.0 million related to a product safety
                upgrade. (3)
            The
                operating
                results of the Air Conditioning and Heating Products Segment for
                the first
                six months ended July 2, 2005 include a non-cash foreign exchange
                loss of
                approximately $0.1 million related to intercompany debt not indefinitely
                invested in the Company’s subsidiaries.





Unaudited
      depreciation expense, amortization of intangible assets and purchase price
      allocated to inventory and capital expenditures for the Company’s segments for
      the second quarter ended July 1, 2006 and July 2, 2005 were as
      follows:




**For
                  the second quarter ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Depreciation
                  Expense:**Residential
                  ventilation products
              
              $
              3.3
              
              $
              2.9Home
                  technology products
              
              
              0.9
              
              
              0.5Air
                  conditioning and heating products
              
              
              3.8
              
              
              3.2Other
              
              
              0.2
              
              
              0.2Consolidated depreciation expense
              
              $
              8.2
              
              $
              6.8**Amortization
                  expense:**Residential
                  ventilation products
              
              $
              1.5
              
              $
              2.0Home
                  technology products
              
              
              2.3
              
              
              1.5Air
                  conditioning and heating products (1)
              
              
              3.9
              
              
              0.8Other
              
              
              0.2
              
              
              0.1Consolidated amortization expense
              
              $
              7.9
              
              $
              4.4**Capital
                  Expenditures:**Residential
                  ventilation products
              
              $
              4.8
              
              $
              1.9Home
                  technology products
              
              
              1.5
              
              
              0.5Air
                  conditioning and heating products
              
              
              4.3
              
              
              4.8Other
              
              
              ---
              
              
              ---Consolidated capital expenditures
              
              $
              10.6
              
              $
              7.2




(1)       
      Includes amortization of approximately $2.1 million for the second quarter
      ended
      July 1, 2006 of excess purchase price allocated to inventory recorded as a
      non-cash charge to cost of products sold.




Unaudited
      depreciation expense, amortization of intangible assets and purchase price
      allocated to inventory and capital expenditures for the Company’s segments for
      the first six months ended July 1, 2006 and July 2, 2005 were as
      follows:




**For
                the first six months ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)***Depreciation
                Expense:**Residential
                ventilation products
            
            $
            6.5
            
            $
            5.8Home
                technology products
            
            
            1.8
            
            
            1.0Air
                conditioning and heating products
            
            
            7.5
            
            
            6.4Other
            
            
            0.3
            
            
            0.4Consolidated depreciation expense
            
            $
            16.1
            
            $
            13.6**Amortization
                expense:**Residential
                ventilation products
            
            $
            3.0
            
            $
            3.9Home
                technology products (1)
            
            
            4.4
            
            
            3.4Air
                conditioning and heating products (2)
            
            
            4.5
            
            
            1.6Other
            
            
            0.3
            
            
            0.2Consolidated amortization expense
            
            $
            12.2
            
            $
            9.1**Capital
                Expenditures:**Residential
                ventilation products
            
            $
            9.4
            
            $
            3.8Home
                technology products
            
            
            3.4
            
            
            1.0Air
                conditioning and heating products
            
            
            9.8
            
            
            7.7Other
            
            
            0.1
            
            
            0.2Consolidated capital expenditures
            
            $
            22.7
            
            $
            12.7




(1)
            Includes
                amortization of approximately $0.1 million and $0.4 million for the
                first
                six months ended July 1, 2006 and July 2, 2005, respectively, of
                excess
                purchase price allocated to inventory recorded as a non-cash charge
                to
                cost of products sold.





(2)
            Includes
                amortization of approximately $2.1 million for the first six months
                ended
                July 1, 2006 of excess purchase price allocated to inventory recorded
                as a
                non-cash charge to cost of products sold.





(F)
            The
                Company
                provides income taxes on an interim basis based upon the estimated
                annual
                effective income tax rate. The following reconciles the federal statutory
                income tax rate to the estimated effective tax rate of approximately
                38.7%
                and 38.6% for the first six months ended July 1, 2006 and July 2,
                2005:





**For
                the first six months ended****July
                1, 2006**
            
            **July
                2, 2005**Income
                tax
                provision at the federal statutory rate
            
            35.0
            %
            
            35.0
            %Net
                change
                from federal statutory rate:State
                income
                tax provision, net of federal income tax effect
            
            1.9
            
            
            2.9Tax
                effect
                resulting from foreign activities
            
            0.9
            
            
            0.2Non-deductible
                expenses
            
            0.6
            
            
            0.5Other,
                net
            
            0.3
            
            
            ---Income
                tax
                provision at estimated effective rate
            
            38.7
            %
            
            38.6
            %





(G)      
      As of July 1, 2006, the Company’s former subsidiary, Ply Gem Industries, Inc.
      (“Ply Gem”), has guaranteed approximately $22.6 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 and has recorded an estimated liability related to this
      indemnified guarantee of approximately $0.9 million at July 1, 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 $11.9 million and $12.5 million at
      July
      1, 2006 and December 31, 2005, respectively. Approximately $5.4 million of
      short-term liabilities and approximately $6.5 million of long-term liabilities
      are recorded in accrued expenses and other long-term liabilities, respectively,
      in the accompanying unaudited condensed consolidated balance sheet at July
      1,
      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 unaudited condensed consolidated statement of
      operations for the first six months ended July 2, 2005 (see Note
      D).





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




Changes
      in the
      Company’s unaudited combined short-term and long-term warranty liabilities
      during the second quarter ended July 1, 2006 and July 2, 2005 were as
      follows:





**For
                the second quarter ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Balance,
                beginning of period
            
            $
            38.2
            
            $
            30.8Warranties
                provided during period
            
            
            10.2
            
            
            6.0Settlements
                made during period
            
            
            (5.8
            )
            
            (4.9
            )Changes
                in
                liability estimate, including acquisitions
            
            
            0.8
            
            
            0.1Balance,
                end
                of period
            
            $
            43.4
            
            $
            32.0





Changes
      in the
      Company’s unaudited combined short-term and long-term warranty liabilities
      during the first six months ended July 1, 2006 and July 2, 2005 were as
      follows:





**For
                the first six months ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Balance,
                beginning of period
            
            $
            34.8
            
            $
            30.3Warranties
                provided during period
            
            
            17.5
            
            
            10.4Settlements
                made during period
            
            
            (10.0
            )
            
            (9.1
            )Changes
                in
                liability estimate, including acquisitions
            
            
            1.1
            
            
            0.4Balance,
                end
                of period
            
            $
            43.4
            
            $
            32.0





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





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




(H)
            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.





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. It is
      expected that these severance benefits will be paid through August
      2006.





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





**Employee**
              **Separation**
              **Expenses**
            
            **Other**
            
            **Total**
              **Restructuring**
              **Costs***(Dollar
                amounts in millions)***Balance
                at December 31, 2004**
            
            **$**
            **3.2**
            
            **$**
            **---**
            
            **$**
            **3.2**Payments
                and
                asset write downs
            
            
            (0.5
            )
            
            ---
            
            
            (0.5
            )**Balance
                at April 2, 2005**
            
            
            **2.7**
            
            
            **---**
            
            
            **2.7**Payments
                and
                asset write downs
            
            
            (0.4
            )
            
            ---
            
            
            (0.4
            )**Balance
                at July 2, 2005**
            
            **$**
            **2.3**
            
            **$**
            **---**
            
            **$**
            **2.3****Balance
                at December 31, 2005**
            
            **$**
            **1.0**
            
            **$**
            **0.3**
            
            **$**
            **1.3**Payments
                and
                asset write downs
            
            
            (0.4
            )
            
            (0.2
            )
            
            (0.6
            )Other
            
            
            ---
            
            
            (0.1
            )
            
            (0.1
            )**Balance
                at April 1, 2006**
            
            
            **0.6**
            
            
            **---**
            
            
            **0.6**Provision
            
            
            ---
            
            
            0.5
            
            
            0.5Payments
                and
                asset write downs
            
            
            (0.4
            )
            
            (0.3
            )
            
            (0.7
            )**Balance
                at July 1, 2006**
            
            **$**
            **0.2**
            
            **$**
            **0.2**
            
            **$**
            **0.4**





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.





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





Pension
      and profit
      sharing expense charged to operations aggregated approximately $3.2 million
      for
      each of the second quarters ended July 1, 2006 and July 2, 2005, respectively,
      and aggregated approximately $5.5 million and $6.8 million for the first six
      months ended July 1, 2006 and July 2, 2005, respectively. The Company’s policy
      is to generally fund currently at least the minimum required annual contribution
      of its various qualified defined benefit plans. As previously disclosed in
      the
      Company’s latest annual report on Form 10-K as filed with the SEC, the Company
      expects to contribute approximately $13.3 million to its defined benefit pension
      plans in 2006. As of July 1, 2006, approximately $3.5 million of contributions
      have been made and it is estimated that approximately $7.3 million will be
      paid
      in the third quarter of 2006 and approximately $2.5 million will be paid in
      the
      fourth quarter of 2006.




The
      Company’s
      unaudited net periodic benefit cost for its defined benefit plans for the second
      quarter ended July 1, 2006 and July 2, 2005 consists of the following
      components:





**For
                the second quarter ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.3
            
            $
            0.3Interest
                cost
            
            
            2.2
            
            
            2.2Expected
                return on plan assets
            
            
            (2.2
            )
            
            (2.1
            )Net
                periodic
                benefit cost
            
            $
            0.3
            
            $
            0.4







The
      Company’s
      unaudited net periodic benefit cost for its defined benefit plans for the first
      six months ended July 1, 2006 and July 2, 2005 consists of the following
      components:





**For
                the first six months ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.6
            
            $
            0.7Interest
                cost
            
            
            4.5
            
            
            4.5Expected
                return on plan assets
            
            
            (4.5
            )
            
            (4.3
            )Net
                periodic
                benefit cost
            
            $
            0.6
            
            $
            0.9







The
      Company’s
      unaudited net periodic benefit cost for its post retirement health benefit
      plans
      for the second quarter ended July 1, 2006 and July 2, 2005 consists of the
      following components:





**For
                the second quarter ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            ---
            
            $
            0.1Interest
                cost
            
            
            0.2
            
            
            0.6Amortization
                of prior service cost
            
            
            (0.4
            )
            
            ---Curtailment
                gain
            
            
            (35.6
            )
            
            ---Net
                periodic
                post retirement health benefit (income) cost
            
            $
            (35.8
            )
            $
            0.7







The
      Company’s
      unaudited net periodic benefit cost for its post retirement health benefit
      plans
      for the first six months ended July 1, 2006 and July 2, 2005 consists of the
      following components:





**For
                the first six months ended****July
                1, 2006**
            
            **July
                2, 2005***(Dollar
                amounts in millions)*Service
                cost
            
            $
            0.1
            
            $
            0.2Interest
                cost
            
            
            0.5
            
            
            1.2Amortization
                of prior service cost
            
            
            (1.4
            )
            
            ---Curtailment
                gain
            
            
            (35.6
            )
            
            ---Net
                periodic
                post retirement health benefit (income) cost
            
            $
            (36.4
            )
            $
            1.4





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 to the NuTone post retirement medical plan and the
      plan reflected a deferred actuarial gain of approximately $22.2 million which
      was being amortized into income by the Company through February
      2011.





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, Inc. 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 benefits. Subsequent
      to
      May 11, 2006, the union no longer had the right to appeal the Company's
      implementation of the final offer. 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
      late June 2006,
      the Company informed the union that the Company will close the manufacturing
      operations at the Cincinnati, OH facility on or about August 30, 2006. As a
      result of this planned closure, the Company recorded an approximate $3.5 million
      charge to operations (of which approximately $1.4 million is recorded in cost
      of
      goods sold and approximately $2.1 million is recorded in selling, general and
      administrative expense) consisting of severance of approximately $2.1 million,
      write-offs related to equipment sales and disposals of approximately $1.7
      million offset by a curtailment gain on life insurance of approximately $0.3
      million, within its Residential Ventilation Products 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. 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 totaling up to $0.3 million to be recorded in the third
      quarter of 2006 relating to those employees executing a release of the Company
      for any claims, with the exception of claims related to vested pension, worker’s
      compensation and unemployment benefits.





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 July 1, 2006
      or
      July 2, 2005.







NTK
        HOLDINGS, INC. AND SUBSIDIARIES
 MANAGEMENT’S
        DISCUSSION AND ANALYSIS
 OF
        THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
        STATEMENTS
 FOR
        THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JULY 1,
        2006
 AND
        THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JULY 2,
        2005


**Item
      2.****Management's Discussion and
      Analysis of Financial Condition and Results Of Operations**





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





During
      2005, the
      Company changed the composition of its reporting segments to reflect the Home
      Technology Products segment separately. In accordance with Statement of
      Financial Standards (“SFAS”) No. 131, “Disclosures about Segments of an
      Enterprise and Related Information”, the Company has restated prior period
      segment disclosures to conform to the new composition.





The
      Residential
      Ventilation Products (“RVP”) 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 this 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 (“HTP”) 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 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, and


·
            structured
                wiring.





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





·
            split
                system
                air conditioners and heat pumps,


·
            furnaces
                and
                related equipment,


·
            air
                handlers,
                and


·
            large
                custom
                roof top cooling and heating
                products.





***NTK
      Holdings Formation***





NTK
      Holdings is a
      Delaware corporation that was formed to hold the capital stock of Nortek
      Holdings, Inc. (“Nortek Holdings”) in order to finance a dividend and related
      distribution at a new holding company level. 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, Inc. (“Nortek”) is a
      wholly-owned subsidiary of Nortek Holdings.





***Financial
      Statement Presentation***





The
      unaudited
      condensed consolidated financial statements presented herein (the “Unaudited
      Financial Statements”), for periods prior to February 10, 2005, reflect the
      financial position, results of operations and cash flows of Nortek Holdings
      and
      all of its wholly-owned subsidiaries and for periods subsequent to February
      9,
      2005, reflect the financial position, results of operations and cash flows
      of
      NTK Holdings.





***Acquisitions***





The
      Company has
      made the following acquisitions since January 1, 2005:





**Acquired
                Company**
            **Date
                of******
              **Acquisition**
            **Primary
                Business******
              **of
                Acquired Company**
            **Reporting**
              **Segment**Magenta
                Research, Ltd.
            July
                18,
                2006
            Design
                and
                sale of products that distribute audio and video signals over Category
                5
                and fiber optic cable to multiple displays for dynamic signage
                applications.
            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
            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.
            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 unaudited
      condensed 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 Unaudited Financial Statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States. Certain of the Company’s accounting policies require the
      application of judgment in selecting the appropriate assumptions for calculating
      financial estimates. By their nature, these judgments are subject to an inherent
      degree of uncertainty. The Company periodically evaluates the judgments and
      estimates used for its critical accounting policies to ensure that such
      judgments and estimates are reasonable for its interim and year-end reporting
      requirements. These judgments and estimates are based on the Company’s
      historical experience, current trends and information available from other
      sources, as appropriate. If different conditions result from those assumptions
      used in the Company’s judgments, the results could be materially different from
      the Company’s estimates. The Company’s critical accounting policies
      include:





·
            Revenue
                Recognitionand
                Related
                Expenses


·
            Inventory
                Valuation


·
            Prepaid
                Income Tax Assets and Deferred Tax
                Liabilities


·
            Goodwill,
                Intangible Assets and Other Long-Lived
                Assets


·
            Pensions
                and
                Post Retirement Health Benefits


·
            Insurance
                Liabilities, and


·
            Contingencies





Further
      detail
      regarding the Company’s critical accounting policies can be found in the
      consolidated financial statements and the notes included in the Company’s latest
      annual report on Form 10-K as filed with the Securities and Exchange Commission
      (“SEC”).





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


**Results
      of
      Operations**




The
      tables that
      follow present the unaudited net sales, operating earnings and depreciation
      and
      amortization expense for the Company’s reporting segments for the second quarter
      ended July 1, 2006 and July 2, 2005, the dollar amount and percentage change
      of
      such results as compared to the prior comparable period and the percentage
      to
      net sales of operating earnings and depreciation and amortization expense for
      the second quarter ended July 1, 2006 and July 2, 2005:




**Change
                  in the Second Quarter****2006
                  as Compared to****For
                  the Second Quarter Ended**
              
              **the
                  Second Quarter 2005****July
                  1, 2006**
              
              **July
                  2, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              207.3
              
              $
              202.6
              
              $
              4.7
              
              
              2.3
              %Home
                  technology products
              
              
              115.1
              
              
              76.4
              
              
              38.7
              
              
              50.7Air
                  conditioning and heating products
              
              
              241.4
              
              
              219.9
              
              
              21.5
              
              
              9.8Consolidated net sales
              
              $
              563.8
              
              $
              498.9
              
              $
              64.9
              
              
              13.0
              %**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              69.8
              
              $
              30.9
              
              $
              38.9
              
              
              *
              %Home
                  technology products (2)
              
              
              14.4
              
              
              15.0
              
              
              (0.6
              )
              
              (4.0
              )Air
                  conditioning and heating products
              
              
              19.3
              
              
              20.5
              
              
              (1.2
              )
              
              (5.9
              )Subtotal
              
              
              103.5
              
              
              66.4
              
              
              37.1
              
              
              55.9**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.1
              )
              
              (0.1
              )
              
              ---
              
              
              ---Foreign
                  exchange gain (loss) on intercompany debt
              
              
              0.2
              
              
              (0.2
              )
              
              0.4
              
              
              *Unallocated,
                  net
              
              
              (6.6
              )
              
              (7.1
              )
              
              0.5
              
              
              7.0Consolidated operating earnings
              
              $
              97.0
              
              $
              59.0
              
              $
              38.0
              
              
              64.4
              %**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              4.8
              
              $
              4.9
              
              $
              (0.1
              )
              
              (2.0
              )%Home
                  technology products
              
              
              3.2
              
              
              2.0
              
              
              1.2
              
              
              60.0Air
                  conditioning and heating products (3)
              
              
              7.7
              
              
              4.0
              
              
              3.7
              
              
              92.5Unallocated
              
              
              0.4
              
              
              0.3
              
              
              0.1
              
              
              33.3$
              16.1
              
              $
              11.2
              
              $
              4.9
              
              
              43.8
              %**Operating
                  earnings margin:**Residential
                  ventilation products (1)
              
              
              33.7
              %
              
              15.3
              %Home
                  technology products (2)
              
              
              12.5
              
              
              19.6Air
                  conditioning and heating products
              
              
              8.0
              
              
              9.3Consolidated
              
              
              17.2
              %
              
              11.8
              %**Depreciation
                      and amortization**expense as a % of net
                      sales:Residential
                  ventilation products
              
              
              2.3
              %
              
              2.4
              %Home
                  technology products
              
              
              2.8
              
              
              2.6Air
                  conditioning and heating products (3)
              
              
              3.2
              
              
              1.8Consolidated
              
              
              2.9
              %
              
              2.2
              %


(1)
            The
                operating
                results of the Residential Ventilation Products Segment for the second
                quarter ended July 1, 2006 include an approximate pre-tax $35.6 million
                curtailment gain related to post-retirement medical benefits and
                an
                approximate pre-tax $3.5 million charge related to the planned closure
                of
                the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note I of the
                Notes to the Unaudited Financial Statements included elsewhere
                herein).




(2)  The
      operating results of the Home Technology Products Segment for the second quarter
      ended July 1, 2006 include an increase in warranty expense of approximately
      $4.0
      million related to a product safety upgrade.




(3)
            Includes
                amortization of approximately $2.1 million for the second quarter
                ended
                July 1, 2006 of excess purchase price allocated to inventory recorded
                as a
                non-cash charge to cost of products sold.




* not meaningful


The
      tables that
      follow present the unaudited net sales, operating earnings and depreciation
      and
      amortization expense for the Company’s reporting segments for the first six
      months ended July 1, 2006 and July 2, 2005, the dollar amount and percentage
      change of such results as compared to the prior comparable period and the
      percentage to net sales of operating earnings and depreciation and amortization
      expense for the first six months ended July 1, 2006 and July 2,
      2005:




**Change
                  in the First Six****Months
                  2006 as Compared to****For
                  the First Six Months Ended**
              
              **the
                  First Six Months 2005****July
                  1, 2006**
              
              **July
                  2, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)***Net
                  sales:**Residential
                  ventilation products
              
              $
              418.9
              
              $
              399.7
              
              $
              19.2
              
              
              4.8
              %Home
                  technology products
              
              
              222.6
              
              
              140.3
              
              
              82.3
              
              
              58.7Air
                  conditioning and heating products
              
              
              456.8
              
              
              393.0
              
              
              63.8
              
              
              16.2Consolidated net sales
              
              $
              1,098.3
              
              $
              933.0
              
              $
              165.3
              
              
              17.7
              %**Operating
                  earnings:**Residential
                  ventilation products (1)
              
              $
              105.9
              
              $
              57.8
              
              $
              48.1
              
              
              83.2
              %Home
                  technology products (2)
              
              
              31.7
              
              
              25.8
              
              
              5.9
              
              
              22.9Air
                  conditioning and heating products
              
              
              37.2
              
              
              27.8
              
              
              9.4
              
              
              33.8Subtotal
              
              
              174.8
              
              
              111.4
              
              
              63.4
              
              
              56.9**Unallocated:**Stock-based
                  compensation charges
              
              
              (0.2
              )
              
              (0.2
              )
              
              ---
              
              
              ---Foreign
                  exchange gain (loss) on intercompany debt
              
              
              0.3
              
              
              (0.3
              )
              
              0.6
              
              
              *Gain
                  on legal
                  settlement
              
              
              ---
              
              
              1.4
              
              
              (1.4
              )
              
              (100.0
              )Unallocated,
                  net
              
              
              (13.4
              )
              
              (12.6
              )
              
              (0.8
              )
              
              (6.3
              )Consolidated operating earnings
              
              $
              161.5
              
              $
              99.7
              
              $
              61.8
              
              
              62.0
              %**Depreciation
                  and amortization expense:**Residential
                  ventilation products
              
              $
              9.5
              
              $
              9.7
              
              $
              (0.2
              )
              
              (2.1
              )%Home
                  technology products (3)
              
              
              6.2
              
              
              4.4
              
              
              1.8
              
              
              40.9Air
                  conditioning and heating products (3)
              
              
              12.0
              
              
              8.0
              
              
              4.0
              
              
              50.0Unallocated
              
              
              0.6
              
              
              0.6
              
              
              ---
              
              
              ---$
              28.3
              
              $
              22.7
              
              $
              5.6
              
              
              24.7
              %**Operating
                  earnings margin:**Residential
                  ventilation products (1)
              
              
              25.3
              %
              
              14.5
              %Home
                  technology products (2)
              
              
              14.2
              
              
              18.4Air
                  conditioning and heating products
              
              
              8.1
              
              
              7.1Consolidated
              
              
              14.7
              %
              
              10.7
              %**Depreciation
                      and amortization**expense as a % of net
                      sales:Residential
                  ventilation products
              
              
              2.3
              %
              
              2.4
              %Home
                  technology products (3)
              
              
              2.8
              
              
              3.1Air
                  conditioning and heating products (3)
              
              
              2.6
              
              
              2.0Consolidated
              
              
              2.6
              %
              
              2.4
              %


(1)
            The
                operating
                results of the Residential Ventilation Products Segment for the first
                six
                months ended July 1, 2006 include an approximate pre-tax $35.6 million
                curtailment gain related to post-retirement medical benefits and
                an
                approximate pre-tax $3.5 million charge related to the planned closure
                of
                the Company’s NuTone, Inc. Cincinnati, Ohio facility (see Note I of the
                Notes to the Unaudited Financial Statements included elsewhere
                herein).




(2)
            The
                operating
                results of the Home Technology Products Segment for the first six
                months
                ended July 1, 2006 include an increase in warranty expense of
                approximately $4.0 million related to a product safety
                upgrade.


(3)


(3)  In
      the Home Technology Products Segment, includes amortization of approximately
      $0.1 million and $0.4 million for the first six months ended July 1, 2006 and
      July 2, 2005, respectively, of excess purchase price allocated to inventory
      recorded as a non-cash charge to cost of products sold. In the Air Conditioning
      and Heating Products Segment, includes amortization of approximately $2.1
      million for the first six months ended July 1, 2006 of excess purchase price
      allocated to inventory recorded as a non-cash charge to cost of products sold.




*   not meaningful


The
      tables that
      follow set forth, for the periods presented, (a) certain unaudited consolidated
      operating results, (b) the change in the amount and the percentage change of
      such results as compared to the prior comparable period, (c) the percentage
      which such results bear to net sales, and (d) the change of such percentages
      as
      compared to the prior comparable period as it relates to net earnings. The
      results of operations for the second quarter ended July 1, 2006 are not
      necessarily indicative of the results of operations to be expected for any
      other
      interim period or the full year.





**Change
                in Earnings in****the
                Second Quarter 2006****as
                Compared to the****For
                the Second Quarter Ended**
            
            **Second
                Quarter 2005****July
                1, 2006**
            
            **July
                2, 2005**
            
            $
            
            %*(Dollar
                amounts in millions)*Net
                sales
            
            $
            563.8
            
            $
            498.9
            
            $
            64.9
            
            
            13.0
            %Cost
                of
                products sold
            
            
            393.7
            
            
            350.4
            
            
            (43.3
            )
            
            (12.4
            )Selling,
                general and administrative expenses, net
            
            
            102.9
            
            
            85.1
            
            
            (17.8
            )
            
            (20.9
            )Amortization
                of intangible assets
            
            
            5.8
            
            
            4.4
            
            
            (1.4
            )
            
            (31.8
            )Gain
                from
                curtailment of post-retirement medical benefits
            
            
            (35.6
            )
            
            ---
            
            
            35.6
            
            
            *Operating
                earnings
            
            
            97.0
            
            
            59.0
            
            
            38.0
            
            
            64.4Interest
                expense
            
            
            (42.3
            )
            
            (32.7
            )
            
            (9.6
            )
            
            (29.4
            )Investment
                income
            
            
            0.5
            
            
            0.3
            
            
            0.2
            
            
            66.7Earnings
                before provision for income taxes
            
            
            55.2
            
            
            26.6
            
            
            28.6
            
            
            *Provision
                for
                income taxes
            
            
            21.3
            
            
            10.1
            
            
            (11.2
            )
            
            *Net
                earnings
            
            $
            33.9
            
            $
            16.5
            
            $
            17.4
            
            
            *
            %





**Change
                in Percentage for****Percentage
                of Net Sales**
            
            **the
                Second Quarter 2006****Second
                Quarter Ended**
            
            **as
                Compared to the****July
                1, 2006**
            
            **July
                2, 2005**
            
            **Second
                Quarter 2005**Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            ---
            %Cost
                of
                products sold
            
            
            69.8
            
            
            70.2
            
            
            0.4Selling,
                general and administrative expenses, net
            
            
            18.3
            
            
            17.1
            
            
            (1.2
            )Amortization
                of intangible assets
            
            
            1.0
            
            
            0.9
            
            
            (0.1
            )Gain
                from
                curtailment of post-retirement medical benefits
            
            
            (6.3
            )
            
            ---
            
            
            6.3Operating
                earnings
            
            
            17.2
            
            
            11.8
            
            
            5.4Interest
                expense
            
            
            (7.5
            )
            
            (6.6
            )
            
            (0.9
            )Investment
                income
            
            
            0.1
            
            
            0.1
            
            
            ---Earnings
                before provision for income taxes
            
            
            9.8
            
            
            5.3
            
            
            4.5Provision
                for
                income taxes
            
            
            3.8
            
            
            2.0
            
            
            (1.8
            )Net
                earnings
            
            
            6.0
            %
            
            3.3
            %
            
            2.7
            %




* not
      meaningful


The
      tables that
      follow set forth, for the periods presented, (a) certain unaudited consolidated
      operating results, (b) the change in the amount and the percentage change of
      such results as compared to the prior comparable period, (c) the percentage
      which such results bear to net sales, and (d) the change of such percentages
      as
      compared to the prior comparable period as it relates to net earnings. The
      results of operations for the first six months ended July 1, 2006 are not
      necessarily indicative of the results of operations to be expected for any
      other
      interim period or the full year.




**Change
                  in Earnings in****the
                  First Six Months 2006****as
                  Compared to the****For
                  the First Six Months Ended**
              
              **First
                  Six Months 2005****July
                  1, 2006**
              
              **July
                  2, 2005**
              
              $
              
              %*(Dollar
                  amounts in millions)*Net
                  sales
              
              $
              1,098.3
              
              $
              933.0
              
              $
              165.3
              
              
              17.7
              %Cost
                  of
                  products sold
              
              
              764.2
              
              
              659.9
              
              
              (104.3
              )
              
              (15.8
              )Selling,
                  general and administrative expenses, net
              
              
              198.2
              
              
              164.7
              
              
              (33.5
              )
              
              (20.3
              )Amortization
                  of intangible assets
              
              
              10.0
              
              
              8.7
              
              
              (1.3
              )
              
              (14.9
              )Gain
                  from
                  curtailment of post-retirement medical benefits
              
              
              (35.6
              )
              
              ---
              
              
              35.6
              
              
              *Operating
                  earnings
              
              
              161.5
              
              
              99.7
              
              
              61.8
              
              
              62.0Interest
                  expense
              
              
              (78.4
              )
              
              (69.9
              )
              
              (8.5
              )
              
              (12.2
              )Investment
                  income
              
              
              1.2
              
              
              0.8
              
              
              0.4
              
              
              50.0Earnings
                  before provision for income taxes
              
              
              84.3
              
              
              30.6
              
              
              53.7
              
              
              *Provision
                  for
                  income taxes
              
              
              32.6
              
              
              11.8
              
              
              (20.8
              )
              
              *Net
                  earnings
              
              $
              51.7
              
              $
              18.8
              
              $
              32.9
              
              
              *
              %






**Change
                in Percentage for****Percentage
                of Net Sales**
            
            **the
                First Six Months 2006****First
                Six Months Ended**
            
            **as
                Compared to the****July
                1, 2006**
            
            **July
                2, 2005**
            
            **First
                Six Months 2005**Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            ---
            %Cost
                of
                products sold
            
            
            69.6
            
            
            70.7
            
            
            1.1Selling,
                general and administrative expenses, net
            
            
            18.0
            
            
            17.6
            
            
            (0.4
            )Amortization
                of intangible assets
            
            
            0.9
            
            
            1.0
            
            
            0.1Gain
                from
                curtailment of post-retirement medical benefits
            
            
            (3.2
            )
            
            ---
            
            
            3.2Operating
                earnings
            
            
            14.7
            
            
            10.7
            
            
            4.0Interest
                expense
            
            
            (7.1
            )
            
            (7.5
            )
            
            0.4Investment
                income
            
            
            0.1
            
            
            0.1
            
            
            ---Earnings
                before provision for income taxes
            
            
            7.7
            
            
            3.3
            
            
            4.4Provision
                for
                income taxes
            
            
            3.0
            
            
            1.3
            
            
            (1.7
            )Net
                earnings
            
            
            4.7
            %
            
            2.0
            %
            
            2.7
            %




* not
      meaningful


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 $64.9 million or 13.0%
      for
      the second quarter of 2006 as compared to the second quarter of 2005 and
      increased approximately $165.3 million or 17.7% for the first six months of
      2006
      as compared to the first six months of 2005 as discussed further in the
      following paragraphs.





In
      the RVP segment,
      net sales increased approximately $4.7 million or 2.3% for the second quarter
      of
      2006 as compared to the second quarter of 2005 and increased approximately
      $19.2
      million or 4.8% for the first six months of 2006 as compared to the first six
      months of 2005. Net sales in the RVP segment for the second quarter and first
      six months of 2006 reflect an increase of approximately $3.2 million and $1.7
      million, respectively, attributable to the effect of changes in foreign currency
      exchange rates.





The
      increase in net
      sales in the RVP segment for the second quarter and first six months of 2006
      as
      compared to the second quarter and first six months of 2005 was primarily due
      to
      higher average unit sales prices of range hoods and bath fans and sales volume
      of range hoods, in part, from 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 84.1% and 84.8% of total segment
      net sales in the second quarter and first six months of 2006, respectively.
      Sales of range hoods and bathroom exhaust fans increased approximately 1.4%
      in
      the second quarter of 2006 over the second quarter of 2005 and increased
      approximately 4.7% in the first six months of 2006 over the first six months
      of
      2005.





In
      the HTP segment,
      net sales increased approximately $38.7 million or 50.7% for the second quarter
      of 2006 as compared to the second quarter of 2005 and increased approximately
      $82.3 million or 58.7% for the first six months of 2006 as compared to the
      first
      six months of 2005. The increase in net sales in the HTP segment for the second
      quarter and first six months of 2006 includes approximately $27.7 million and
      $54.0 million, respectively, 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.





In
      the HVAC
      segment, net sales increased approximately $21.5 million or 9.8% for the second
      quarter of 2006 as compared to the second quarter of 2005 and increased
      approximately $63.8 million or 16.2% for the first six months of 2006 as
      compared to the first six months of 2005. Net sales in the HVAC segment for
      the
      second quarter and first six months of 2006 include (1) an increase of
      approximately $23.4 million and $28.6 million, respectively, attributable to
      acquisitions and (2) an increase of approximately $1.1 million and $0.8 million,
      respectively, attributable to the effect of changes in foreign currency exchange
      rates. 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 6.2% over the second
      quarter of 2005 and increased approximately 22.9% over the first six months
      of
      2005. The increase in net sales in the HVAC segment for the second quarter
      and
      first six months of 2006 as compared to the second quarter and first six months
      of 2005 also includes 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, partially offset by lower sales volume particularly in the
      second quarter of 2006. The Company’s net sales to customers serving the
      manufactured housing markets, principally consisting of air conditioners and
      furnaces, constituted approximately 4.7% and 6.3% of the Company’s consolidated
      net sales for the second quarters of 2006 and 2005, respectively, and
      constituted approximately 5.5% and 6.3% of the Company’s consolidated net sales
      for the first six months of 2006 and 2005, respectively. Sales of the Company’s
      commercial HVAC products, before considering the effect of foreign exchange
      and
      acquisitions, were down in the second quarter and first six months of 2006
      as
      compared to the same periods in 2005.





Foreign
      net sales,
      which are attributed based on the location of the Company’s subsidiary
      responsible for the sale, were approximately 19.2% and 17.7% of consolidated
      net
      sales for the second quarters of 2006 and 2005, respectively, and were
      approximately 18.9% and 18.5% of consolidated net sales for the first six months
      of 2006 and 2005, respectively. Net sales from the Company’s Canadian
      subsidiaries were approximately 7.8% and 7.6% of consolidated net sales for
      the
      second quarters of 2006 and 2005, respectively, and were approximately 8.1%
      and
      7.8% of consolidated net sales for the first six months of 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 9.6% and 10.0% of consolidated net
      sales for the second quarters of 2006 and 2005, respectively, and were
      approximately 9.3% and 10.7% of consolidated net sales for the first six months
      of 2006 and 2005, respectively. Net sales from the Company’s European
      subsidiaries include net sales from the Company’s RVP and HVAC segments and to a
      lesser extent the Company’s HTP segment in the second quarter and first six
      months of 2006.





*Cost
      of
      Products Sold.*Consolidated cost of products sold was approximately $393.7
      million for the second quarter of 2006 as compared to approximately $350.4
      million for the second quarter of 2005 and was approximately $764.2 million
      for
      the first six months of 2006 as compared to approximately $659.9 million for
      the
      first six months of 2005. Cost of products sold, as a percentage of net sales,
      decreased from approximately 70.2% in the second quarter of 2005 to
      approximately 69.8% for the second quarter of 2006 and decreased from
      approximately 70.7% in the first six months of 2005 to approximately 69.6%
      for
      the first six months of 2006, primarily as a result of the factors that
      follow.





Overall,
      consolidated material costs were approximately 44.7% and 45.5% of net sales
      for
      the second quarters of 2006 and 2005, respectively, and approximately 44.3%
      and
      45.2% of net sales for the first six months of 2006 and 2005, respectively.
      Although the Company continued to experience higher material costs related
      primarily to purchases of steel, copper and aluminum, as well as increased
      transportation and energy costs, these cost increases were 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 second quarter and first six months of 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 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 second quarter of 2006 was approximately $139.9
      million, or 67.5% as a percentage of the RVP segment’s net sales, as compared to
      approximately $138.3 million, or 68.3% as a percentage of the RVP segment’s net
      sales, in the second quarter of 2005. In the RVP segment, cost of products
      sold
      for the first six months of 2006 was approximately $284.5 million, or 67.9%
      as a
      percentage of the RVP segment’s net sales, as compared to approximately $274.9
      million, or 68.8% as a percentage of the RVP segment’s net sales, in the first
      six months of 2005. The decrease in the percentage of cost of products sold
      to
      net sales for the second quarter and first six months of 2006 over the same
      periods of 2005 reflects the effect of higher average unit sales prices without
      a proportionate increase in costs. Cost of products sold in the RVP segment
      for
      the second quarter and first six months of 2006 includes (1) an increase of
      approximately $1.9 million and $0.5 million, respectively, related to the effect
      of changes in foreign currency exchange rates and (2) approximately $1.4 million
      of severance charges recorded in the second quarter of 2006 related to the
      planned closure of the Company’s NuTone facility (see Note I of the Notes to the
      Unaudited Financial Statements included elsewhere herein).





In
      the HTP segment,
      cost of products sold for the second quarter of 2006 was approximately $65.0
      million, or 56.5% as a percentage of the HTP segment’s net sales, as compared to
      approximately $39.9 million, or 52.2% as a percentage of the HTP segment’s net
      sales, in the second quarter of 2005. In the HTP segment, cost of products
      sold
      for the first six months of 2006 was approximately $121.7 million, or 54.7%
      as a
      percentage of the HTP segment’s net sales, as compared to approximately $73.5
      million, or 52.4% as a percentage of the HTP segment’s net sales, in the first
      six months of 2005. The increase in the percentage of cost of products sold
      to
      net sales for the second quarter and first six months of 2006 over the same
      periods of 2005 reflects increased warranty expense of approximately $4.0
      million related to a product safety upgrade and higher material costs of
      acquired businesses as compared to the businesses in the HTP segment prior
      to
      the acquisitions. Cost of products sold in the HTP segment for the second
      quarter and first six months of 2006 reflects approximately $14.5 million and
      $29.6 million, respectively, of cost of products sold contributed from
      acquisitions, including a non-cash charge of approximately $0.1 million in
      the
      first six months of 2006, related to the amortization of purchase price
      allocated to inventory. Cost of products sold in the HTP segment for the first
      six months of 2005 includes (1) a non-cash charge of approximately $0.3 million
      related to the amortization of purchase price allocated to inventory as a result
      of the acquisition of Nortek, Inc. by affiliates of Thomas H. Lee Partners
      L.P.
      and (2) a non-cash charge of approximately $0.1 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 the second quarter of 2006 was approximately
      $188.8 million, or 78.2% as a percentage of the HVAC segment’s net sales, as
      compared to approximately $172.2 million, or 78.3% as a percentage of the HVAC
      segment’s net sales, for the second quarter of 2005. In the HVAC segment, cost
      of products sold for the first six months of 2006 was approximately $358.0
      million, or 78.4% as a percentage of the HVAC segment’s net sales, as compared
      to approximately $311.5 million, or 79.3% as a percentage of the HVAC segment’s
      net sales, in the first six months of 2005. The decrease in cost of products
      sold as a percentage of net sales for the second quarter and first six months
      of
      2006 over the same periods of 2005 reflects the effect of increased average
      unit
      sales prices, partially offset by increased amortization of excess purchase
      price allocated to inventory and higher material costs related primarily to
      purchases of steel, copper and aluminum. Cost of products sold in the HVAC
      segment in the second quarter and first six months of 2006 includes (1) an
      increase of approximately $19.8 million and $23.9 million, respectively,
      attributable to acquisitions in the HVAC segment, including a non-cash charge
      of
      approximately $2.1 million related to the amortization of purchase price
      allocated to inventory and (2) an increase of approximately $1.0 million and
      $0.7 million, respectively, related to the effect of changes in foreign currency
      exchange rates.




*Selling,
          General and Administrative Expense*. Consolidated selling, general and
          administrative expense (“SG&A”) was approximately $102.9 million for the
          second quarter of 2006 as compared to approximately $85.1 million for the
          second
          quarter of 2005 and was approximately $198.2 million for the first six
          months of
          2006 as compared to approximately $164.7 million for the first six months
          of
          2005. SG&A as a percentage of net sales increased from approximately 17.1%
          for the second quarter of 2005 to approximately 18.3% for the second quarter
          of
          2006 and increased from approximately 17.6% for the first six months of
          2005 to
          approximately 18.0% for the first six months of 2006. These increases in
          SG&A as a percentage of net sales are principally due to acquisitions, as
          well as, sales growth 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, partially offset by an increase in net sales in the
          HVAC segment of products sold to residential customers due to higher average
          sales prices of products with a rating of 13 SEER or higher without a
          proportionate increase in expense.


SG&A
      for the
      second quarter and first six months of 2006 includes (1) approximately $13.1
      million and $24.6 million, respectively, from acquisitions in the HTP segment
      and the HVAC segment, (2) a decrease of approximately $2.0 million and $3.7
      million, respectively, of displays expense in the RVP segment, (3) an increase
      of approximately $0.9 million (of which approximately $0.7 million is included
      in the RVP segment and approximately $0.2 million is included in the HVAC
      segment) and $0.7 million (all of which is included in the RVP segment),
      respectively, related to the effect of changes in foreign currency exchange
      rates, (4) approximately $2.1 million of severance, equipment write-offs and
      other charges recorded in the second quarter of 2006 related to the planned
      closure of the Company’s NuTone facility within the RVP segment (see Note I of
      the Notes to the Unaudited Financial Statements included elsewhere herein),
      (5)
      a non-cash foreign exchange gain of approximately $0.2 million and $0.3 million,
      respectively, all of which is included in Unallocated, related to intercompany
      debt not indefinitely invested in the Company’s subsidiaries and (6)
      approximately $0.1 million and $0.2 million, respectively, of stock-based
      compensation expense, all of which is recorded in Unallocated.





SG&A
      for the
      second quarter and first six months of 2005 includes (1) approximately $0.1
      million and $0.2 million, respectively, of stock-based compensation expense,
      all
      of which is recorded in Unallocated, (2) a non-cash foreign exchange loss of
      approximately $0.9 million and $1.4 million, respectively, related to
      intercompany debt not indefinitely invested in the Company’s subsidiaries, of
      which approximately $0.6 million and $1.0 million, respectively, is recorded
      in
      the RVP segment and approximately $0.1 million is included in the HVAC segment,
      and (3) a gain of approximately $1.4 million, all of which is recorded in
      Unallocated, from the settlement of certain obligations of former subsidiaries
      recorded in the first six months of 2005 (see Notes D and G of the Notes to
      the
      Unaudited Financial Statements included elsewhere herein).





*Amortization
      of
      Intangible Assets.*Amortization of intangible assets, as a percentage of
      net sales, increased from approximately 0.9% in the second quarter of 2005
      to
      approximately 1.0% in the second quarter of 2006 and decreased from
      approximately 1.0% for the first six months of 2005 to approximately 0.9% in
      the
      first six months of 2006. These changes are principally due to higher
      amortization expense in prior years as a result of accelerated amortization
      methods, partially offset by increased amortization of intangible assets,
      particularly in the second quarter of 2006, in the HTP and HVAC
      segments.





*Gain
      from
      Curtailment of Post-retirement Medical Benefits.* During the second quarter
      and first six months of 2006, the Company’s RVP segment recorded a curtailment
      gain of approximately $35.6 million related to post-retirement medical benefits
      (see Note I of the Notes to the Unaudited Financial Statements included
      elsewhere herein).





*Depreciation
      Expense.*Depreciation expense increased approximately $1.4 million from
      approximately $6.8 million for the second quarter of 2005 to approximately
      $8.2
      million for the second quarter of 2006 and increased approximately $2.5 million
      from approximately $13.6 million for the first six months of 2005 to
      approximately $16.1 million for the first six months of 2006. This increase
      is
      primarily attributable to the impact of capital expenditures, as well as
      acquisitions (which represented approximately $0.7 million of the increase
      for
      the second quarter of 2006 and approximately $1.1 million of the increase for
      the first six months of 2006).





*Operating
      Earnings.*Consolidated operating earnings improved by approximately $38.0
      million from approximately $59.0 million, or 11.8% as a percentage of net sales,
      for the second quarter of 2005 to approximately $97.0 million, or 17.2% as
      a
      percentage of net sales, for the second quarter of 2006 and improved by
      approximately $61.8 million from approximately $99.7 million, or 10.7% as a
      percentage of net sales, for the first six months of 2005 to approximately
      $161.5 million, or 14.7% as a percentage of net sales, for the first six months
      of 2006. The increase in consolidated operating earnings for the second quarter
      and first six months of 2006 is primarily due to the factors discussed above
      and
      that follow.





Operating
      earnings
      of the RVP segment for the second quarter of 2006 were approximately $69.8
      million as compared to approximately $30.9 million for the second quarter of
      2005. Operating earnings of the RVP segment for the first six months of 2006
      were approximately $105.9 million as compared to approximately $57.8 million
      for
      the first six months of 2005. Operating earnings in the RVP segment for the
      second quarter and first six months of 2006 improved over the same periods
      in
      2005 primarily as a result of the $35.6 million gain from curtailment of
      post-retirement medical benefits and as a result of higher average unit sales
      prices of range hoods and bath fans and sales volume of range hoods, partially
      offset by higher material costs. Operating earnings of the RVP segment for
      the
      second quarter and first six months of 2006 as compared to the same periods
      of
      2005 reflects (1) a curtailment gain of post-retirement medical benefits of
      approximately $35.6 million recorded in the second quarter of 2006, (2)
      approximately $3.5 million of severance, equipment write-offs and other charges
      recorded in the second quarter of 2006 related to the planned closure of the
      Company’s NuTone facility (see Note I of the Notes to the Unaudited Financial
      Statements included elsewhere herein), (3) a decrease of approximately $2.0
      million and $3.7 million, respectively, of displays expense, (4) an increase
      in
      earnings of approximately $0.6 million and $0.5 million, respectively, from
      the
      effect of foreign currency exchange rates and (5) approximately $0.4 million
      and
      $0.7 million, respectively, of increased depreciation expense of property and
      equipment and approximately $0.5 million and $0.9 million, respectively, of
      decreased amortization of intangible assets. Operating earnings of the RVP
      segment for the second quarter and first six months of 2005 reflects a non-cash
      foreign exchange loss of approximately $0.6 million and $1.0 million,
      respectively, related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries.





Operating
      earnings
      of the HTP segment for the second quarter of 2006 were approximately $14.4
      million as compared to approximately $15.0 million for the second quarter of
      2005. Operating earnings of the HTP segment for the first six months of 2006
      were approximately $31.7 million as compared to approximately $25.8 million
      for
      the first six months of 2005. The increase in operating earnings in the HTP
      segment in the first six months of 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 offset by
      higher cost of products sold in the second quarter due to approximately $4.0
      million of increased warranty expense as noted above. Operating earnings of
      the
      HTP segment for the second quarter and first six months of 2006 also reflects
      (1) approximately $3.5 million and $4.2 million, respectively, of operating
      earnings contributed by acquisitions, (2) approximately $0.4 million and $0.8
      million, respectively, of increased depreciation expense of property and
      equipment and approximately $0.8 million and $1.3 million, respectively, of
      increased amortization of intangible assets, primarily attributable to
      acquisitions, which is included in the impact of acquisitions noted above and
      (3) a non-cash charge of approximately $0.1 million for the first six months
      of
      2006, 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 first six months of 2005 reflects (1) a
      non-cash charge of approximately $0.3 million related to the amortization of
      purchase price allocated to inventory as a result of the acquisition of Nortek,
      Inc. by affiliates of Thomas H. Lee Partners, L.P. and (2) a non-cash charge
      of
      approximately $0.1 million related to the amortization of purchase price
      allocated to inventory as a result of an acquisition.




Operating
        earnings
        of the HVAC segment were approximately $19.3 million for the second quarter
        of
        2006 as compared to approximately $20.5 million for the second quarter of
        2005.
        Operating earnings of the HVAC segment were approximately $37.2 million for
        the
        first six months of 2006 as compared to approximately $27.8 million for the
        first six months of 2005. Operating earnings in the HVAC segment for the
        first
        six months of 2006 improved over the same period in 2005 as a result of higher
        average sales prices of products with a rating of 13 SEER or higher sold
        to
        residential site-built and manufactured housing customers and increased sales
        volume of products with a rating lower than 13 SEER in the first quarter
        of
        2006. The effect on earnings of improved 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. Operating earnings
        of the
        HVAC segment for the second quarter and first six months of 2006 reflect
        (1) a
        decrease in earnings of approximately $0.1 million in the second quarter
        of 2006
        and an increase of approximately $0.1 million in the first six months of
        2006
        from the effect of foreign currency exchange rates, (2) approximately $0.6
        million and $1.1 million, respectively, of increased depreciation expense
        of
        property and equipment attributable primarily to capital expenditures and
        approximately $1.0 million and $0.8 million, respectively, of increased
        amortization of intangible assets, (3) approximately $1.0 million of operating
        losses in both the second quarter and first six months of 2006 contributed
        by
        acquisitions, including a non-cash charge of approximately $2.1 million related
        to the amortization of purchase price allocated to inventory. Operating earnings
        of the HVAC segment for the second quarter and first six months of 2005 include
        a non-cash foreign exchange loss of approximately $0.1 million recorded in
        the
        second quarter of 2005 related to intercompany debt not indefinitely invested
        in
        the Company’s subsidiaries.


The
      operating
      expense in Unallocated was approximately $6.5 million for the second quarter
      of
      2006 as compared to approximately $7.4 million for the second quarter of 2005
      and was approximately $13.3 million for the first six months of 2006 as compared
      to approximately $11.7 million for the first six months of 2005. The change
      in
      operating expense for the second quarter and first six months of 2006 as
      compared to the same periods of 2005 in Unallocated is primarily due to the
      items noted below. Operating expense in Unallocated for the second quarter
      and
      first six months of 2006 reflects (1) approximately $0.1 million and $0.2
      million, respectively, of stock-based compensation charges and (2) a non-cash
      foreign exchange gain of approximately $0.2 million and $0.3 million,
      respectively, related to intercompany debt not indefinitely invested in the
      Company’s subsidiaries. Operating expense in Unallocated for the second quarter
      and first six months of 2005 reflects (1) approximately $0.1 million and $0.2
      million, respectively, of stock-based compensation charges, (2) a non-cash
      foreign exchange loss of approximately $0.2 million and $0.3 million,
      respectively, 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 recorded in the first six months of 2005
      (see
      Notes D and G of the Notes to the Unaudited Financial Statements included
      elsewhere herein).





Operating
      earnings
      of foreign operations, consisting primarily of the results of operations of
      the
      Company’s Canadian and European subsidiaries, were approximately 10.1% and 8.9%
      of operating earnings (before unallocated and corporate expenses) for the second
      quarters of 2006 and 2005, respectively, and were approximately 10.4% and 8.4%
      of operating earnings (before unallocated and corporate expenses) for the first
      six months of 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 $9.6 million or
      approximately 29.4% during the second quarter of 2006 as compared to the second
      quarter of 2005 and increased approximately $8.5 million or approximately 12.2%
      during the first six months of 2006 as compared to the first six months of
      2005.
      During the second quarter and first six months of 2006, the Company experienced
      increases in interest expense of (1) approximately $2.1 million and $5.6
      million, respectively, from increased interest rates related primarily to
      Nortek’s Senior Secured Credit Facility, (2) approximately $3.2 million and $3.5
      million, respectively, from increased borrowings, primarily related to the
      borrowing of a $205.0 million senior unsecured loan facility in the second
      quarter of 2006 (refer to Note B of the Notes to the Unaudited Financial
      Statements included elsewhere herein) and (3) approximately $0.8 million and
      $4.5 million, respectively, 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 six months in 2006 versus approximately four months
      in
      2005. Interest expense in the first six months of 2006 and 2005 included
      approximately $3.9 million and $8.2 million, respectively, of additional expense
      associated with the amortization of the Nortek Holdings deferred compensation
      plan (see Note A of the Notes to the Unaudited Financial Statements included
      elsewhere herein).





*Investment
      Income.*Investment income was approximately $0.5 million and $0.3 million
      for the second quarter of 2006 and 2005, respectively and was approximately
      $1.2
      million and $0.8 million for the first six months of 2006 and 2005,
      respectively.





*Provision
      for
      Income Taxes.*The provision for income taxes was approximately $21.3
      million for the second quarter of 2006 as compared to approximately $10.1
      million for the second quarter of 2005 and was approximately $32.6 million
      for
      the first six months of 2006 as compared to approximately $11.8 million for
      the
      first six months of 2005. The income tax rates in both the second quarters
      and
      first six months of 2006 and 2005 differed from the United States Federal
      statutory rate of 35% principally as a result of the effect of non-deductible
      expenses, foreign income tax on foreign source income and state income tax
      provisions (see Note F of the Notes to the Unaudited Financial Statements
      included elsewhere herein).





*Net
      Earnings.* Consolidated net earnings improved by approximately $17.4 million
      from approximately $16.5 million, or 3.3% as a percentage of net sales, for
      the
      second quarter of 2005 to approximately $33.9 million, or 6.0% as a percentage
      of net sales, for the second quarter of 2006 and improved by approximately
      $32.9
      million from approximately $18.8 million, or 2.0% as a percentage of net sales,
      for the first six months of 2005 to approximately $51.7 million, or 4.7% as
      a
      percentage of net sales, for the first six months of 2006. The increase in
      the
      second quarter and first six months of 2006 was primarily due to the factors
      discussed above which included an increase of approximately $38.0 million and
      $61.8 million, respectively, in consolidated operating earnings and an increase
      of approximately $0.2 million and $0.4 million, respectively, in investment
      income, which was partially offset by an increase of approximately $9.6 million
      and $8.5 million, respectively, in interest expense and an increase in the
      provision for income taxes of approximately $11.2 million and $20.8 million,
      respectively.





*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 second quarters
      of 2006 and 2005:




**For
                  the Second Quarter Ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)*Net
                  earnings
                  (1)
              
              $
              33.9
              
              $
              16.5Provision
                  for
                  income taxes
              
              
              21.3
              
              
              10.1Interest
                  expense (2)
              
              
              42.3
              
              
              32.7Investment
                  income
              
              
              (0.5
              )
              
              (0.3
              )Depreciation
                  expense
              
              
              8.2
              
              
              6.8Amortization
                  expense
              
              
              7.9
              
              
              4.4EBITDA
              
              $
              113.1
              
              $
              70.2




(1)    
      Net earnings include an approximate pre-tax $35.6 million curtailment gain
      related to post-retirement medical benefits and an approximate pre-tax $3.5
      million charge related to the planned closure of the Company’s NuTone, Inc.
      Cincinnati, Ohio facility in the Residential Ventilation Products segment for
      the second quarter ended July 1, 2006 (see Note I of the Notes to the Unaudited
      Financial Statements included elsewhere herein). Net earnings include
      approximately $0.1 million of stock-based compensation charges recorded in
      each
      of the second quarters of 2006 and 2005, respectively (see Notes A and D of
      the
      Notes to the Unaudited Financial Statements included elsewhere
      herein).





(2)    
      Interest expense for the second quarter of 2006 includes cash interest of
      approximately $31.1 million (including approximately $3.9 million relating
      to
      the accelerated amortization of the Nortek Holdings deferred compensation plan)
      and non-cash interest of approximately $11.2 million. Interest expense for
      the
      second quarter of 2005 includes cash interest of approximately $25.7 million
      and
      non-cash interest of approximately $7.0 million.





The
      following table
      presents a reconciliation from net earnings, which is the most directly
      comparable GAAP operating performance measure, to EBITDA for the first six
      months of 2006 and 2005:




**For
                  the First Six Months Ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)*Net
                  earnings
                  (1)
              
              $
              51.7
              
              $
              18.8Provision
                  for
                  income taxes
              
              
              32.6
              
              
              11.8Interest
                  expense (2)
              
              
              78.4
              
              
              69.9Investment
                  income
              
              
              (1.2
              )
              
              (0.8
              )Depreciation
                  expense
              
              
              16.1
              
              
              13.6Amortization
                  expense
              
              
              12.2
              
              
              9.1EBITDA
              
              $
              189.8
              
              $
              122.4




(1)    
      Net earnings include an approximate pre-tax $35.6 million curtailment gain
      related to post-retirement medical benefits and an approximate pre-tax $3.5
      million charge related to the planned closure of the Company’s NuTone, Inc.
      Cincinnati, Ohio facility in the Residential Ventilation Products segment for
      the first six months ended July 1, 2006 (see Note I of the Notes to the
      Unaudited Financial Statements included elsewhere herein). Net earnings include
      approximately $0.2 million of stock-based compensation charges recorded in
      each
      of the first six months of 2006 and 2005, respectively (see Notes A and D of
      the
      Notes to the Unaudited Financial Statements included elsewhere
      herein).





(2)    
      Interest expense for the first six months of 2006 includes cash interest of
      approximately $58.5 million (including approximately $3.9 million relating
      to
      the accelerated amortization of the Nortek Holdings deferred compensation plan)
      and non-cash interest of approximately $19.9 million. Interest expense for
      the
      first six months of 2005 includes cash interest of approximately $56.8 million
      (including approximately $8.2 million relating to the accelerated amortization
      of the Nortek Holdings deferred compensation plan) and non-cash interest of
      approximately $13.1 million.





**Liquidity
      and Capital Resources**





On
      May 5, 2006, NTK
      Holdings filed a registration statement on Form S-1 with the SEC for an initial
      public offering of shares of its common stock. If the offering is consummated
      as
      currently planned, the net proceeds from the offering will be utilized to (1)
      repay all amounts outstanding under NTK Holdings’ unsecured loan facility as
      noted below, (2) redeem all of Nortek’s remaining outstanding 9 7/8% Senior
      Discount Notes, (3) redeem a portion of NTK Holdings’ outstanding 10 3/4% Senior
      Discount Notes, (4) repay a portion of the term loan under Nortek’s Senior
      Secured Credit Facility and (5) pay related redemption premiums and accrued
      interest. There can be no assurance that the offering will be
      consummated.




The
      Company
      regularly acquires companies, typically utilizing cash and proceeds from
      additional indebtedness to finance these acquisitions. Companies acquired during
      the first six months of 2006 and the impact on cash flows were as follows:





·
            On
                June 26,
                2006, the Company, through Linear, acquired the stock of Secure Wireless
                and ABT through two mergers for a combined initial purchase price
                of
                approximately $10.1 million, of which approximately $10.0 million
                was
                borrowed under Nortek’s revolving credit facility, plus contingent
                consideration.


·
            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 approximately $49.4 million (utilizing approximately
                $40.0
                million of cash which was borrowed under Nortek’s revolving credit
                facility, including approximately $0.6 million to fund a portion
                of
                Huntair and Cleanpak’s initial working capital needs, and issuing
                unsecured 6% subordinated notes totaling $10.0 million due April
                2008)
                plus contingent consideration.


·
            On
                February
                22, 2006, the Company, through Linear, acquired the assets and certain
                liabilities of Furman for an initial purchase price of 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.




The
      Company had
      consolidated debt as of July 1, 2006, of approximately $1,911.0 million
      consisting of (i) $52.2 million of short-term borrowings and current maturities
      of long-term debt, (ii) $46.5 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) $680.7 million of long-term debt outstanding under Nortek’s Senior
      Secured Credit Facility, (vi) $289.4 million of the Company’s 10 3/4% Senior
      Discount Notes and (vii) $207.2 million under the Company’s unsecured term loan
      facility.





During
      the first
      six months of 2006, the Company had a net increase in its consolidated debt
      of
      approximately $262.6 million resulting from (1) the $205.0 million senior
      unsecured term loan as noted above, along with accrued interest of approximately
      $2.2 million as described more fully below, (2) a net increase in borrowings
      under the revolving portion of Nortek’s Senior Secured Credit Facility of
      approximately $25.0 million, (3) additional borrowings of approximately $24.3
      million related primarily to the Company’s European subsidiaries, as well as the
      unsecured notes issued for the acquisition of Huntair and Cleanpak as noted
      above, (4) approximately $14.8 million of debt accretion related to the 10
      3/4%
      Senior Discount Notes and (5) an approximate $1.3 million increase related
      to
      the effects of foreign currency translation, offset by (6) approximately $10.0
      million of principal and other payments made during the period.





The
      Company’s debt
      to equity ratio was approximately 27.5:1 as of July 1, 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 equity, primarily as a result of dividends paid during the second
      quarter of 2006 (see Note B of the Notes to the Unaudited Financial Statements
      included elsewhere herein), partially offset by the effect of net earnings
      of
      approximately $51.7 million for the first six months of 2006.





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) make 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) make a capital contribution of
      approximately $25.9 million to Nortek Holdings, which was used by Nortek
      Holdings, together with existing cash of approximately $28.1 million 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. Stockholder’s
      Investment includes a $4.9 million non-cash “Adjustment of carryover basis of
      continuing management investors in the THL Transaction” for the three and six
      months ended July 1, 2006. This adjustment 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.





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. On August 3, 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
      August 10, 2006. As a result of exercising this PIK Option, the Company recorded
      approximately $2.2 million of accrued interest as additional indebtedness
      relating to the senior unsecured loan facility and at July 1, 2006, the
      outstanding principal balance on the senior unsecured loan facility was
      approximately $207.2 million. 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
        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 August 4, 2006, Nortek had approximately
        $35.0 million outstanding and approximately $133.6 million of additional
        borrowing capacity under the U.S. revolving portion of its senior secured
        credit
        facility, with approximately $21.4 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
        $16.6 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.


On
      July 18, 2006,
      the Company, through Linear, acquired the stock of Magenta Research, Ltd.
      (“Magenta”) for an initial purchase price of approximately $13.1 million
      (utilizing approximately $10.6 million of cash, of which approximately $10.0
      million was borrowed under Nortek’s revolving credit facility, and issuing
      unsecured 6% subordinated notes totaling $2.5 million due July 2008) plus
      contingent consideration.





The
      estimated total
      potential amount of contingent consideration that may be paid in the future
      for
      all completed acquisitions is approximately $116.8 million (see Note C of the
      Notes to the Unaudited Financial Statements included elsewhere
      herein).





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 July 1, 2006,
        there was approximately $25.8 million available for the payment of cash
        dividends, stock purchases or other restricted payments (“Restricted Payments”)
        by the Company as defined under the terms of both the Company’s 10 3/4% Senior
        Discount Notes’ and senior unsecured loan facility's indentures. 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 $136.7 million at July 1,
        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
      Company’s
      combined short-term and long-term warranty liabilities increased from
      approximately $34.8 million as of December 31, 2005 to approximately $43.4
      million as of July 1, 2006, and warranty expense increased from approximately
      $6.0 million for the three months ended July 2, 2005 to approximately $10.2
      million for the three months ended July 1, 2006 and increased from approximately
      $10.4 million for the six months ended July 2, 2005 to approximately $17.5
      million for the six months ended July 1, 2006. The increase in warranty expense
      for the second quarter and the first six months of 2006 over 2005 is primarily
      as a result of increased expense in the HTP segment as noted previously and
      as a
      result of increased sales activity, particularly in our 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.





The
      Company expects
      to meet its cash flow requirements for fiscal 2006 from cash from operations,
      existing cash and cash equivalents and the use of Nortek’s Senior Secured Credit
      Facility.





The
      Company and its
      subsidiaries have entered into a number of operating lease obligations, purchase
      obligations and have guaranteed certain obligations of various third parties.
      No
      significant changes in these obligations have occurred since December 31,
      2005.





Unrestricted
      cash
      and cash equivalents decreased from approximately $77.2 million at December
      31,
      2005 to approximately $54.9 million at July 1, 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
      July
      1, 2006, approximately $4.0 million (all of which is included in long-term
      assets) of cash and cash equivalents are held primarily as collateral to fund
      future capital expenditures within the Company’s segments, as well as for
      insurance and letter of credit requirements.





Capital
      expenditures were approximately $10.6 million (none of which were financed
      under
      a capital lease) for the second quarter of 2006 as compared to approximately
      $7.2 million (of which approximately $1.6 million was financed under a capital
      lease) for the second quarter of 2005 and were approximately $22.7 million
      (none
      of which were financed under a capital lease) for the first six months of 2006
      as compared to approximately $12.7 million (of which approximately $3.5 million
      was financed under a capital lease) for the first six months of 2005. Capital
      expenditures were approximately $33.7 million for the year ended December 31,
      2005 and are expected to be approximately $45.0 million in 2006. Under Nortek’s
      Amended Senior Secured Credit Facility, capital expenditures are limited to
      approximately $65.0 million in 2006.





The
      Company’s
      working capital increased from approximately $283.6 million at December 31,
      2005
      to approximately $284.3 million at July 1, 2006, while the current ratio
      decreased from approximately 1.8:1 at December 31, 2005 to approximately 1.6:1
      at July 1, 2006. This increase in working capital for the first six months
      of
      2006 was primarily as a result of seasonal increases in accounts receivable
      and
      inventory, which was partially offset by increases in short-term borrowings,
      primarily due to acquisitions, and accounts payable. 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 $58.0 million, or approximately 21.3%, between December
      31, 2005 and July 1, 2006, while net sales increased approximately $60.4
      million, or approximately 12.0%, in the second quarter of 2006 as compared
      to
      the fourth quarter of 2005. This increase in accounts receivable
      is primarily a result of increased sales levels, timing of cash collections
      and acquisitions. Acquisitions contributed approximately $26.6 million to the
      increase in net sales in the second quarter of 2006 as compared to the fourth
      quarter of 2005 and approximately $25.2 million to the increase in accounts
      receivable at July 1, 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 July 1, 2006 as compared to 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
      the second quarter of 2006.





Inventories
      increased approximately $55.2 million, or approximately 22.8%, between December
      31, 2005 and July 1, 2006 primarily as a result of increased inventory levels,
      in part, due to higher costs of residential air conditioners related to 13
      SEER
      products in the HVAC segment and increased inventory levels in the HTP segment
      to support increased sales levels. Acquisitions contributed approximately $15.2
      million to the increase at July 1, 2006.





Accounts
      payable
      increased approximately $46.5 million, or 29.2%, between December 31, 2005
      and
      July 1, 2006 due primarily to increased inventory levels and timing of payments.
      Acquisitions contributed approximately $15.3 million to the increase in accounts
      payable at July 1, 2006.





Changes
      in certain
      working capital accounts, as noted above, between December 31, 2005 and July
      1,
      2006, differ from the changes reflected in the Company’s Unaudited Condensed
      Consolidated Statement of Cash Flows for such period as a result of the specific
      items mentioned in the three preceding paragraphs and from other non-cash items,
      including among others, the effect of changes in foreign currency exchange
      rates.




Net
        cash flows from
        operating activities for the six months ended July 1, 2006 increased by
        approximately $58.1 million to approximately $4.0 million of net cash provided
        by operating activities from approximately $54.1 million of net cash used
        in
        operating activities for the six months ended July 2, 2005, primarily due
        to the
        increased net earnings between the periods and deferred federal income tax
        provision, partially offset by the $35.6 million non-cash gain from the
        curtailment of post-retirement medical benefits recorded during the second
        quarter of 2006 and reflects a reduction in the change in accounts receivable
        and an increase in the change in inventories. Net cash flows from investing
        activities for the six months ended July 1, 2006 decreased by approximately
        $61.9 million to net cash used in investing activities of approximately $79.6
        million from approximately $17.7 million for the six months ended July 2,
        2005,
        primarily due to increased capital expenditures of approximately $13.5 million,
        increased payments for acquisitions of approximately $43.5 million and a
        reduction in the proceeds from the sale of property and equipment of
        approximately $3.5 million due principally to a building sale in the 2005
        period. Cash flows from financing activities for the six months ended July
        1,
        2006 increased by approximately $1.8 million to net cash provided by financing
        activities of approximately $53.3 million from approximately $51.5 million
        for
        the six months ended July 2, 2005, primarily due to the net decrease in
        borrowing proceeds of approximately $9.0 million, offset by a reduction in
        the
        amount of cash dividends paid 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 $22.3 million and approximately
      $20.3 million from December 31, 2005 to July 1, 2006 and from December 31,
      2004
      to July 2, 2005, respectively, principally as a result of the
      following:




**Condensed
                  Consolidated****Cash
                  Flows (1)****For
                  the First Six Months Ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)***Operating
                  Activities:**Cash flow from operations, net
              
              $
              83.2
              
              $
              59.8Change in accounts receivable, net
              
              
              (28.5
              )
              
              (60.6
              )Change in inventories
              
              
              (37.9
              )
              
              (24.0
              )Change in prepaids and other current assets
              
              
              5.3
              
              
              (7.8
              )Change in accounts payable
              
              
              27.4
              
              
              31.8Change in accrued expenses and taxes
              
              
              1.0
              
              
              (0.9
              )Change in long-term deferred compensation
              
              
              (54.0
              )
              
              (57.7
              )**Investing
                  Activities:**Capital expenditures
              
              
              (22.7
              )
              
              (9.2
              )Net cash paid for businesses acquired
              
              
              (56.9
              )
              
              (13.4
              )Proceeds from the sale of property and equipment
              
              
              2.6
              
              
              6.1Change in restricted cash and marketable securities
              
              
              ---
              
              
              (0.3
              )**Financing
                  Activities:**Change in borrowings, net
              
              
              28.9
              
              
              (6.0
              )Borrowing 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
              
              
              3.4
              
              
              4.2$
              (22.3
              )
              $
              (20.3
              )


(1)
            Summarized
                from the Company’s Unaudited Condensed Consolidated Statement of Cash
                Flows for the first six months ended July 1, 2006 and July 2, 2005
                (see
                the Unaudited Financial Statements included elsewhere
                herein).





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


The
      Company uses
      EBITDA as both a liquidity and operating performance measure. Liquidity measure
      disclosures with respect to EBITDA are provided below. Refer to the Results
      of
      Operations section for operating performance measure disclosures with respect
      to
      EBITDA and a reconciliation from net 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 first
      six
      months of 2006 and 2005:


**For
                  the First Six Months Ended****July
                  1, 2006**
              
              **July
                  2, 2005***(Dollar
                  amounts in millions)*Net
                  cash
                  provided by (used in) operating activities
              
              $
              4.0
              
              $
              (54.1
              )Cash
                  used by
                  working capital and other long-termasset and liability changes
              
              
              79.2
              
              
              113.9Deferred
                  federal income tax provision
              
              
              (16.9
              )
              
              (5.5
              )(Loss)
                  gain
                  on sale of fixed assets
              
              
              (1.8
              )
              
              0.5Non-cash
                  interest expense, net
              
              
              (19.9
              )
              
              (13.1
              )Non-cash
                  stock-based compensation expense
              
              
              (0.2
              )
              
              (0.2
              )Gain
                  from
                  curtailment of post-retirement medical benefits
              
              
              35.6
              
              
              ---Provision
                  for
                  income taxes
              
              
              32.6
              
              
              11.8Interest
                  expense (2)
              
              
              78.4
              
              
              69.9Investment
                  income
              
              
              (1.2
              )
              
              (0.8
              )EBITDA
                  (1)
              
              $
              189.8
              
              $
              122.4




(1)    
      EBITDA includes an approximate pre-tax $35.6 million curtailment gain related
      to
      post-retirement medical benefits and an approximate pre-tax $3.5 million charge
      related to the planned closure of the Company’s NuTone, Inc. Cincinnati, Ohio
      facility in the Residential Ventilation Products segment for the first six
      months ended July 1, 2006 (see Note I of the Notes to the Unaudited Financial
      Statements included elsewhere herein).





(2)    
      Interest expense for the first six months of 2006 includes cash interest of
      approximately $58.5 million (including approximately $3.9 million relating
      to
      the accelerated amortization of the Nortek Holdings deferred compensation plan)
      and non-cash interest of approximately $19.9 million. Interest expense for
      the
      first six months of 2005 includes cash interest of approximately $56.8 million
      (including approximately $8.2 million relating to the accelerated amortization
      of the Nortek Holdings deferred compensation plan) and non-cash interest of
      approximately $13.1 million.





**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 remodeling and replacement 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
      historically have occurred 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.





As
      of July 1, 2006,
      approximately 10.0% 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 is estimated, as of July 1, 2006, to cover
      approximately 4.4% of the Company's employees (414 employees), which are located
      at the Cincinnati, OH location of the Company's subsidiary NuTone, Inc. 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 benefits.
      Subsequent to May 11, 2006, the union no longer had the right to appeal the
      Company's implementation of the final offer. In late June 2006, the Company
      informed the union that the Company will close the manufacturing operations
      at
      the facility in or about late August 2006. The Company’s management has provided
      temporary manufacturing support, which is designed to ensure that operational
      disruptions are minimized and the Company’s customers’ needs are met without
      significant delay. NuTone’s operating results are included in the Company’s
      Residential Ventilation Products segment. (See Note I of the Notes to the
      Unaudited Financial Statements included elsewhere herein.)





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 totaling up to $0.3 million to be recorded in the third
      quarter of 2006 relating to those employees executing a release of the Company
      for any claims, with the exception of claims related to vested pension, worker’s
      compensation and unemployment benefits.





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





**Market
      Risk**





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





There
      have been no
      significant changes in market risk from the December 31, 2005 disclosures
      included in the Company’s annual report on Form 10-K as filed with the
      SEC.





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





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





The
      Company’s
      investing strategy, to manage interest rate exposure, is to invest in
      short-term, highly liquid investments and marketable securities. Short-term
      investments primarily consist of federal agency discount notes, treasury bills
      and bank issued money market instruments with original maturities of 90 days
      or
      less. At July 1, 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 has
      historically managed its borrowing exposure to changes in interest rates by
      optimizing the use of fixed rate debt with extended maturities. At July 1,
      2006,
      approximately 51.0% of the carrying values of the Company’s long-term debt was
      at fixed interest rates.





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





Sales
      and earnings
      derived from international markets and net assets within international markets
      are subject to, among others, the risks of currency fluctuations primarily
      related to changes in the Euro, the Canadian Dollar and the British Pound.
      In
      the second quarter of 2006, the net impact of foreign currency changes was
      not
      material to the Company’s financial condition or results of operations, but this
      may not be indicative of future results. The impact of foreign currency changes
      related to translation resulted in an increase in stockholder’s investment of
      approximately $6.3 million and $6.9 million for the second quarter and first
      six
      months of 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. The Company generally does not enter into derivative
      financial instruments to manage foreign currency exposure. At July 1, 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 and aluminum. If prices of these raw materials were to increase
      dramatically, the Company may not be able to pass such increases on to its
      customers and, as a result, gross margins could decline significantly. The
      Company manages its exposure to commodity pricing risk by continuing to
      diversify its product mix, strategic buying programs and vendor partnering.





The
      Company
      generally does not enter into derivative financial instruments to manage
      commodity-pricing exposure. At July 1, 2006, the Company did not have any
      material outstanding commodity forward contracts.





**Forward-Looking
      Statements**





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




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





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





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





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








**PART
      II.
      OTHER INFORMATION**







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




The
      items marked
      with an asterisk are filed herewith.





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








SIGNATURE





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





NTK
              HOLDINGS, INC.(Registrant)/s/Almon
              C. HallAlmon
              C. Hall,Vice
              President and Chief Financial OfficerAugust
              11, 2006