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 April 4, 2009





OR





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


SECURITIES EXCHANGE
ACT OF 1934


For the transition
period from __________ to __________


Commission file
number:  333-126389





NTK
      Holdings, Inc.(exact name
      of registrant as specified in its charter)Delaware
            20-1934298(State or
      other jurisdiction of incorporation or organization)
            (IRS Employer
      Identification Number)50
      Kennedy Plaza
              Providence,
      Rhode Island
            02903-2360(Address of
      principal executive offices)
            (zip
      code)Registrant’s
      Telephone Number, Including Area Code:
              (401)
      751-1600Securities
      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]





Indicated by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes [_]No [_]





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





Large
      accelerated filer [_]
            Accelerated
      filer [_]
            Non-accelerated
      filer [X]
            Smaller
      reporting company [_]





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





There is no
established public trading market for any of the common stock of the
Company.  The aggregate market value of voting stock held by
non-affiliates is zero.





The number of
shares of Common Stock outstanding as of May 15, 2009 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)




April 4,
                              
                              
                              December
31,2009
                              
                              
                              2008AssetsCurrent
    Assets:Unrestricted cash and cash
      equivalents
                              
                              $
                              128.4
                              
                              
                              $
                              182.2Restricted
    cash
                              
                              
                              0.9
                              
                              
                              
                              0.7Accounts receivable, less
      allowancesof $15.7 and
      $14.5
                              
                              
                              257.4
                              
                              
                              
                              260.3Inventories:Raw
      materials
                              
                              
                              85.9
                              
                              
                              
                              86.0Work in
      process
                              
                              
                              26.4
                              
                              
                              
                              26.9Finished
      goods
                              
                              
                              184.7
                              
                              
                              
                              183.4297.0
                              
                              
                              
                              296.3Prepaid
      expenses
                              
                              
                              13.4
                              
                              
                              
                              12.8Other current
      assets
                              
                              
                              9.4
                              
                              
                              
                              9.5Prepaid income
      taxes
                              
                              
                              10.0
                              
                              
                              
                              11.0Total current
      assets
                              
                              
                              716.5
                              
                              
                              
                              772.8Property and Equipment, at
      Cost:Land
                              
                              
                              11.8
                              
                              
                              
                              12.1Buildings and
      improvements
                              
                              
                              101.8
                              
                              
                              
                              103.6Machinery and
      equipment
                              
                              
                              223.1
                              
                              
                              
                              222.6336.7
                              
                              
                              
                              338.3Less accumulated
      depreciation
                              
                              
                              139.2
                              
                              
                              
                              130.6Total property and
      equipment, net
                              
                              
                              197.5
                              
                              
                              
                              207.7Other
    Assets:Goodwill
                              
                              
                              810.8
                              
                              
                              
                              810.8Intangible assets, less
      accumulated amortizationof $113.1 and
      $107.4
                              
                              
                              128.5
                              
                              
                              
                              135.4Deferred debt
      expense
                              
                              
                              44.7
                              
                              
                              
                              47.1Restricted investments and
      marketable securities
                              
                              
                              2.4
                              
                              
                              
                              2.4Other
assets
                              
                              
                              7.5
                              
                              
                              
                              7.4993.9
                              
                              
                              
                              1,003.1Total
Assets
                              
                              $
                              1,907.9
                              
                              
                              $
                              1,983.6Liabilities and Stockholder’s
      DeficitCurrent
      Liabilities:Notes payable and other short-term
      obligations
                              
                              $
                              24.3
                              
                              
                              $
                              32.7Current maturities of long-term
      debt
                              
                              
                              135.5
                              
                              
                              
                              13.1Long-term debt (see Note
      B)
                              
                              
                              6.6
                              
                              
                              
                              8.1Accounts
      payable
                              
                              
                              139.8
                              
                              
                              
                              152.3Accrued expenses and taxes,
      net
                              
                              
                              198.5
                              
                              
                              
                              218.3Total current
      liabilities
                              
                              
                              504.7
                              
                              
                              
                              424.5Other
      Liabilities:Deferred income
      taxes
                              
                              
                              34.3
                              
                              
                              
                              31.8Other
                              
                              
                              161.8
                              
                              
                              
                              160.7196.1
                              
                              
                              
                              192.5Notes, Mortgage Notes and
      ObligationsPayable,
      Less Current Maturities
                              
                              
                              2,070.3
                              
                              
                              
                              2,179.9Commitments and Contingencies (see
      Note F)Stockholder’s
      Deficit:Common stock, $0.01 par value,
      authorized 3,000 shares;3,000 issued and
      outstanding at April 4, 2009 andDecember 31,
      2008
                              
                              
                              ---
                              
                              
                              
                              ---Additional paid-in
      capital
                              
                              
                              25.9
                              
                              
                              
                              25.9Accumulated
      deficit
                              
                              
                              (863.1
                              )
                              
                              
                              (814.8
                              )Accumulated other comprehensive
      loss
                              
                              
                              (26.0
                              )
                              
                              
                              (24.4
                              )Total stockholder's
      deficit
                              
                              
                              (863.2
                              )
                              
                              
                              (813.3
                              )Total Liabilities and
      Stockholder's Deficit
                              
                              $
                              1,907.9
                              
                              
                              $
                              1,983.6




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 first quarter
      endedApril 4,
    2009
                  
                  
                  March 29,
    2008(Dollar amounts in
      millions)Net
      Sales
                  
                  $
                  439.0
                  
                  
                  $
                  540.2Costs and
      Expenses:Cost of products
      sold
                  
                  
                  317.5
                  
                  
                  
                  391.6Selling, general and
      administrative expense, net (see Note C)
                  
                  
                  101.0
                  
                  
                  
                  118.5Amortization of
      intangible assets
                  
                  
                  5.9
                  
                  
                  
                  6.7424.4
                  
                  
                  
                  516.8Operating
      earnings
                  
                  
                  14.6
                  
                  
                  
                  23.4Interest
      expense
                  
                  
                  (55.0
                  )
                  
                  
                  (43.0
                  )Investment
      income
                  
                  
                  0.1
                  
                  
                  
                  0.2Loss before provision (benefit)
      for income taxes
                  
                  
                  (40.3
                  )
                  
                  
                  (19.4
                  )Provision (benefit) for income
      taxes
                  
                  
                  8.0
                  
                  
                  
                  (5.4
                  )Net loss
                  
                  $
                  (48.3
                  )
                  
                  $
                  (14.0
                  )




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 quarter
      endedApril 4,
    2009
                      
                      
                      March 29,
    2008(Dollar amounts in
      millions)Cash Flows from operating
      activities:Net loss
                      
                      $
                      (48.3
                      )
                      
                      $
                      (14.0
                      )Adjustments to reconcile net loss
      to net cash (used in)provided by
      operating activities:Depreciation and amortization
      expense
                      
                      
                      15.5
                      
                      
                      
                      17.4Non-cash interest expense,
      net
                      
                      
                      19.2
                      
                      
                      
                      17.0Gain on sale of property and
      equipment
                      
                      
                      (0.1
                      )
                      
                      
                      ---Deferred federal income tax
      provision (benefit)
                      
                      
                      3.5
                      
                      
                      
                      (8.9
                      )Changes in certain assets and
      liabilities, net ofeffects
      from acquisitions and dispositions:Accounts receivable,
      net
                      
                      
                      3.0
                      
                      
                      
                      (4.6
                      )Inventories
                      
                      
                      (1.3
                      )
                      
                      
                      (28.8
                      )Prepaids and other current
      assets
                      
                      
                      (0.3
                      )
                      
                      
                      (3.2
                      )Accounts
      payable
                      
                      
                      (11.6
                      )
                      
                      
                      43.4Accrued expenses and
      taxes
                      
                      
                      (6.3
                      )
                      
                      
                      (19.7
                      )Long-term assets, liabilities and
      other, net
                      
                      
                      1.8
                      
                      
                      
                      1.9Total adjustments to
      net loss
                      
                      
                      23.4
                      
                      
                      
                      14.5Net cash (used in)
      provided by operating activities
                      
                      
                      (24.9
                      )
                      
                      
                      0.5Cash Flows from investing
      activities:Capital
      expenditures
                      
                      
                      (2.5
                      )
                      
                      
                      (7.3
                      )Net cash paid for businesses
      acquired
                      
                      
                      (14.1
                      )
                      
                      
                      ---Proceeds from the sale of property
      and equipment
                      
                      
                      0.1
                      
                      
                      
                      0.1Change in restricted cash and
      marketable securities
                      
                      
                      (0.2
                      )
                      
                      
                      ---Other, net
                      
                      
                      ---
                      
                      
                      
                      (1.2
                      )Net cash used in
      investing activities
                      
                      
                      (16.7
                      )
                      
                      
                      (8.4
                      )Cash Flows from financing
      activities:Increase in
      borrowings
                      
                      
                      ---
                      
                      
                      
                      33.2Payment of
      borrowings
                      
                      
                      (12.3
                      )
                      
                      
                      (25.8
                      )Other, net
                      
                      
                      0.1
                      
                      
                      
                      0.1Net cash (used in)
      provided by financing activities
                      
                      
                      (12.2
                      )
                      
                      
                      7.5Net change in unrestricted cash
      and cash equivalents
                      
                      
                      (53.8
                      )
                      
                      
                      (0.4
                      )Unrestricted cash and cash
      equivalents at the beginning of the period
                      
                      
                      182.2
                      
                      
                      
                      53.4Unrestricted cash and cash
      equivalents at the end of the period
                      
                      $
                      128.4
                      
                      
                      $
                      53.0Supplemental disclosure of cash
      flow information:Interest
    paid
                      
                      $
                      32.0
                      
                      
                      $
                      35.7Income taxes paid,
      net
                      
                      $
                      5.7
                      
                      
                      $
                      3.5




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




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 QUARTER ENDED MARCH 29, 2008


(Dollar
amounts in millions)





AccumulatedAdditional
                                    
                                    
                                    
                                    
                                    
                                    OtherPaid-in
                                    
                                    
                                    Retained
                                    
                                    
                                    Comprehensive
                                    
                                    
                                    ComprehensiveCapital
                                    
                                    
                                    Earnings
                                    
                                    
                                    Income
                                    
                                    
                                    (Loss)
    IncomeBalance, December 31,
      2007
                                    
                                    $
                                    21.6
                                    
                                    
                                    $
                                    29.7
                                    
                                    
                                    $
                                    37.7
                                    
                                    
                                    $
                                    ---Net loss
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    (14.0
                                    )
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    (14.0
                                    )Other comprehensive
      income:Currency translation
      adjustment
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    0.4
                                    
                                    
                                    
                                    0.4Comprehensive
      loss
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    (13.6
                                    )Balance, March 29,
      2008
                                    
                                    $
                                    21.6
                                    
                                    
                                    $
                                    15.7
                                    
                                    
                                    $
                                    38.1




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 DEFICIT


FOR
THE FIRST QUARTER ENDED APRIL 4, 2009


(Dollar
amounts in millions)





AccumulatedAdditional
                                  
                                  
                                  
                                  
                                  
                                  OtherPaid-in
                                  
                                  
                                  Accumulated
                                  
                                  
                                  Comprehensive
                                  
                                  
                                  ComprehensiveCapital
                                  
                                  
                                  Deficit
                                  
                                  
                                  (Loss)
    Income
                                  
                                  
                                  (Loss)
    IncomeBalance, December 31,
      2008
                                  
                                  $
                                  25.9
                                  
                                  
                                  $
                                  (814.8
                                  )
                                  
                                  $
                                  (24.4
                                  )
                                  
                                  $
                                  ---Net loss
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  (48.3
                                  )
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  (48.3
                                  )Other comprehensive (loss)
      income:Currency translation
      adjustment
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  (1.7
                                  )
                                  
                                  
                                  (1.7
                                  )Pension liability
      adjustment
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  ---
                                  
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  0.1Comprehensive
      loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  (49.9
                                  )Balance, April 4,
      2009
                                  
                                  $
                                  25.9
                                  
                                  
                                  $
                                  (863.1
                                  )
                                  
                                  $
                                  (26.0
                                  )





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
 APRIL
4, 2009 AND MARCH 29, 2008


(A)
            The unaudited
      condensed consolidated financial statements presented herein (the
      “Unaudited Financial Statements”) reflect the financial position, results
      of operations and cash flows of NTK Holdings, Inc. (“NTK Holdings”) and
      all of its wholly-owned subsidiaries, including Nortek, Inc. (“Nortek”),
      collectively the “Company”, and have been prepared on the basis of a going
      concern.  However, the conditions noted below create uncertainty
      about the Company’s ability to meet its debt obligations as they come due
      on March 1, 2010 and beyond.  The Unaudited Financial Statements
      do not include any adjustments to reflect the possible future effects on
      the recoverability and classification of assets or the amounts and
      classifications of liabilities that may result from the outcome of this
      uncertainty.





The Unaudited
Financial Statements include the accounts of NTK Holdings and all of its
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.As used in this report, the term “Company” refers
to NTK Holdings, Inc., together with its subsidiaries, unless the context
indicates otherwise.  The term “Company” is used for convenience only
and is not intended as a precise description of any of the separate
corporations, each of which manages its own affairs.
 
 Although certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance withU.S.generally accepted accounting
principles have been omitted, the Company believes that the disclosures included are adequate to make the
information presented not misleading.  Operating results for thefirstquarter endedApril 4, 2009are not necessarily indicative of the
results that may be expected for other interim periods or for the year ending
December 31, 2009.  Certain amounts in the
prior year’s Unaudited Financial Statements have been reclassified to conform to
the currentperiodpresentation.  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”).
 
 NTK Holdings
conducts no separate operations and acts only as a holding
company.  NTK Holdings’ primary liquidity needs are to service its
outstanding indebtedness.  No cash payments are due under NTK
Holdings’ indebtedness during 2009; however, NTK Holdings has substantial debt
service obligations beginning in the fiscal year ending December 31,
2010.  During 2010, the total of principal and interest payments on
indebtedness owed by the Company, including payments owed by NTK Holdings is
approximately $308.9 million.  In 2010, NTK Holdings alone has cash
debt service obligations of approximately $162.3 million, including a payment of
approximately $147.4 million due on March 1, 2010 under its 10 3/4% Senior
Discount Notes.  Nortek has significant cash payments due on its
indebtedness and certain other specified obligations in 2009 and
thereafter.  For the year ending December 31, 2009, Nortek owes
principal and interest payments on its indebtedness in the total amount of
approximately $164.5 million.  In the fiscal year ending December 31,
2010, the total of principal and interest payments on Nortek’s indebtedness is
approximately $146.6 million.  Nortek’s principal sources of liquidity
include approximately $88.4 million of unrestricted cash and cash equivalents at
April 4, 2009, cash flow from Nortek’s subsidiaries in 2009, Nortek’s ability to
borrow under the terms of its ABL Facility and Nortek’s subsidiaries’
unrestricted cash and cash equivalent balances of approximately $40.0 million at
April 4, 2009.
 
 The ability of NTK Holdings to service
its outstanding indebtedness depends on the likelihood of obtaining additional
capital, restructuring the terms of such indebtedness or obtaining dividends or
other payments from Nortek.  The ability of NTK Holdings to obtain
additional capital is adversely affected by the substantial amount of the
Company’s outstanding indebtedness, including indebtedness of Nortek, which is
structurally senior in right of payment to any new debt or equity financing for
NTK Holdings.  The ability of NTK Holdings to obtain dividends or
other payments from Nortek is constrained by the financial condition and
operating performance of Nortek and its subsidiaries and by the limitations on
making such distributions and other payments contained in the terms of Nortek’s
outstanding indebtedness.
  Nortek is under no
obligation to make any distribution or other payment to NTK Holdings even if
Nortek has available cash and the making of such a payment is permitted by the
terms of Nortek’s existing indebtedness.  In light of Nortek’s own
substantial indebtedness and liquidity needs, NTK Holdings believes there is a
substantial likelihood that Nortek will choose not to make a distribution or
other payment to NTK Holdings sufficient to enable NTK Holdings to make the
payments due in 2010 on its outstanding indebtedness, including the payment due
on March 1, 2010 under its 10 3/4% Senior Discount Notes.  The failure
by NTK Holdings to make such payments will constitute events of default under
the documentation governing such indebtedness and will permit the holders of
such indebtedness to accelerate the payment of such indebtedness in
full.  Such defaults, including cross defaults under NTK Holdings’
senior unsecured loan facility, and any related acceleration will likely require
additional equity or a restructuring of the indebtedness, whether pursuant to
privately negotiated transactions or under supervision of an appropriate court
proceeding.
 
 A restructuring of
the indebtedness of NTK Holdings could result in a change of control of
Nortek.  A change
of control may constitute an event of default under Nortek’s ABL Facility and
would also require Nortek to offer to purchase its 10% Senior Secured Notes due 2013 and 8
1/2% Senior Subordinated Notes due 2014at 101% of the principal amount
thereof, together with accrued and unpaid interest.  The failure of
Nortek to complete the purchase of any notes tendered pursuant to such offer,
whether due to lack of funds or otherwise, would constitute an event of default
under the indentures governing such notes.  Such defaults, including
cross defaults under substantially all of Nortek’s outstanding indebtedness, and
any related acceleration will likely require additional equity or a
restructuring of the indebtedness, whether pursuant to privately negotiated
transactions or under supervision of an appropriate court
proceeding.


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





·
            the
      Residential Ventilation Products (“RVP”)
  segment,


·
            the Home
      Technology Products (“HTP”)
segment,


·
            the
      Residential Air Conditioning and Heating Products (“R-HVAC“) segment
      and


·
            the
      Commercial Air Conditioning and Heating Products (“C-HVAC“)
      segment.





Through these segments, the Company
manufactures and sells, primarily in theUnited States,CanadaandEurope, 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.
 
 During the fourth quarter of 2008, the
Company changed the composition of its reporting segments toreportthe R-HVAC segment separately.  In
accordance with Statement of FinancialAccountingStandards (“SFAS”) No. 131, “Disclosures
about Segments of anEnterpriseand Related Information”, the Company
has restated prior period segment disclosures toreflectthe new
composition.


Goodwill
and Other Long-Lived Assets





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, net
of any subsequent impairment losses.  At April 4, 2009 and December
31, 2008, the Company had approximately $810.8 million of goodwill recorded on
its unaudited condensed consolidated balance sheet.  Goodwill, by
reporting segment, at April 4, 2009 and December 31, 2008 was as
follows:





RVP
      segment
                    
                    $
                    341.0HTP
      segment
                    
                    
                    351.4R-HVAC
      segment
                    
                    
                    43.0C-HVAC
      segment
                    
                    
                    75.4Consolidated
                    
                    $
                    810.8





The Company
accounts for acquired goodwill and intangible assets in accordance with SFAS No.
141, “Business Combinations” (“SFAS No. 141”), SFAS No. 141(R), “Business Combinations”
(“SFAS No. 141(R)”),SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) and
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
(“SFAS No. 144”) which requires
considerable judgment in the valuation of acquired goodwilland other long-lived assetsand the ongoing evaluation of goodwilland other long-lived assetsimpairment.  Under SFAS No.
142, goodwill and intangible assets determined to have indefinite useful lives
are not amortized.  Instead, these assets are evaluated for impairment
on an annual basis, or more frequently when an event occurs or circumstances
change between annual tests that would more likely than not reduce the fair
value of the reporting unit below its carrying value, including, among others, a
significant adverse change in the business climate.  The Company has
set the annual evaluation date as of the first day of its fiscal fourth
quarter.The
reporting units evaluated for goodwill impairment by the Company have been
determined to be the same
as the Company’s operating segments in accordance with the criteria in SFAS No.
142 and SFAS No. 141(R) for determining reporting units and include RVP, HTP
R-HVAC and C-HVAC.
 
 During 2008, the Company recognized a
goodwill impairment charge totaling approximately $710.0 million based upon an
interim impairment test performed during the third quarter and finalized in the
fourth quarter.  As of December 31, 2008, the Company completed
another interim impairment test, but no additional charges were
recognized.  As of April 4, 2009, the Company has concluded that there
were no indictors that would suggest it was more likely than not that an
impairment had occurred.  Therefore, no additional impairment tests
have been performed.
 
 Consistent with the
impairment test performed as of December 31, 2008, based on the Company’s
estimates at April 4, 2009, the impact of reducing the Company’s fair value
estimates by 10% would have no impact on the Company’s goodwill assessment for
any of its reporting units, with the exception of the Company’s HTP reporting
unit.  Assuming a 10% reduction in the Company’s fair value estimates,
the carrying value of HTP may exceed its fair value, which could require the
Company to perform additional testing under SFAS No. 142 to determine if there
was a goodwill impairment for HTP.
 
 In accordance with SFAS No. 144, the
Companyevaluatesthe realizability of long-lived assets,
which primarily consist of property and equipment anddefinite livedintangible assets (the “SFAS No. 144
Long-Lived Assets”),when
events or business conditions warrant it, as well as whenever an interim
goodwill impairment test is required under SAFS No. 142,based on expectations of non-discounted
future cash flows for each subsidiary.SFAS No. 142 requires
that the SFAS No. 144 impairment test be completed and any SFAS No. 144
impairment be recorded prior to the goodwill impairment test.  As of April
4, 2009, the Company has concluded that no indicators of impairment
existed.
  The Company’s
businesses are experiencing a difficult market environment due primarily to weak
residential new construction, remodeling and residential air conditioning
markets and increased commodity costs, and expect these trends to continue in
2009.  The Company has evaluated the carrying value of reporting unit
goodwill and long-lived assets and has determined that despite the current
difficult market environment, no impairment indicators existed at April 4, 2009
or at the time these financial statements were completed.


Fair Value





In September 2006,
the Financial Accounting Standards
Board (“FASB”) issued SFASNo. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No.
157 was effective for the Company beginning January 1, 2008, including interim
periods within the year ending December 31, 2008.  SFAS No. 157
replaces multiple existing definitions of fair value with a single definition,
establishes a consistent framework for measuring fair value and expands
financial statement disclosures regarding fair value
measurements.  SFAS No. 157 applies only to fair value measurements
that already are required or permitted by other accounting standards and does
not require any new fair value measurements.





In February 2008,
the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive
Accounting Pronouncements That Address Leasing Transactions” (“FSP No. 157-1”),
and FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No.
157-2”).  FSP No. 157-1 removes leasing from the scope of SFAS No.
157.  FSP No. 157-2 delayed the effective date of SFAS No. 157 from
2008 to 2009 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually).





The adoption of SFAS No. 157, FSP No. 157-1 and FSP No. 157-2for the Company’s financialand non-financialassets and liabilities in
the first quarter of 2008and the first quarter of 2009, respectively,did not have a material impact on the
Company’s financial position or results of operations.  As of April 4,
2009, the Company did not have any significant financial assets or liabilities
carried at fair valueother
than cash which is valued based upon quoted prices for identical instruments in
active markets at the measurement date (“Level 1 Input”).


In October 2008, the FASB issued FSP
157-3, “Determining Fair Value of a Financial Asset in a Market That Is Not
Active” (“FSP 157-3”).  FSP 157-3 expands upon the implementation
guidance in SFAS No. 157 for estimating the present value of future cash flows
for some hard-to-value financial instruments, such as collateralized debt
obligations.  FSP 157-3 was effective upon issuance, including prior
periods for which financial statements had not been
issued.The
adoption of FSP 157-3 did not have a material impact on the Company’s financial
position or results of operations.




Stock-Based Compensation of Employees,
Officers and Directors




The Company follows the
modified-prospective transition method of accounting for stock-based
compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123R”).  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.  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,“Accounting for Stock-Based
Compensation”.




At April 4, 2009, certain employees and
consultants held approximately 23,269 C-1 units and approximately 40,745 C-2
units, which represent equity interests in THL-Nortek Investors, LLC (“Investors
LLC”), the parent of NTK Holdings, that function similar to stock
awards.  The C-1 units vest pro rata on a quarterly basis over a
three-year period and approximately 23,169 and 23,116 were vested at April 4,
2009 and December 31, 2008, respectively.  The totalgrant datefair value of the C-1 units is
approximately $1.2 million and approximately $0.1 million remains to be
amortized at April4,
2009.The C-2
units only vest in the event that certain performance-based criteria, as
defined, are met.  At April 4, 2009 and December 31, 2008, there was
approximately $1.6 million of unamortized stock-based employee compensation with
respect to the C-2 units, which will be recognized 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.





New Accounting
Pronouncements





In March 2008, the FASB issued SFAS No.
161, “Disclosure about Derivative Instruments and Hedging Activities – An
Amendment of FASB Statement No. 133 (“SFAS No. 161”).  SFAS No. 161
requires additional disclosures about an entity’s derivative and hedging
activities in order to improve the transparency of financial
reporting.  SFAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged.  Theadoption ofSFAS No. 161 on January 1, 2009did not have a material
impact on the Company’s financial position or results of
operations.





In December 2007,
the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements - an amendment of ARB No. 51” (“SFAS No.
160”).  SFAS No. 160 requires that noncontrolling (or minority)
interests in subsidiaries be reported in the equity section of the company’s
balance sheet, rather than in a mezzanine section of the balance sheet between
liabilities and equity.  SFAS No. 160 also changes the manner in which
the net income of the subsidiary is reported and disclosed in the controlling
company’s income statement.  SFAS No. 160 also establishes guidelines
for accounting for changes in ownership percentages and for
deconsolidation.  SFAS No. 160 is effective for financial statements
for fiscal years beginning on or after December 1, 2008 and interim periods
within those years.  The Company adopted SFAS No. 160 effective
January 1, 2009.The adoption of SFAS No. 160did not have a material
impact on the Company’s financial position or results of
operations.





In December 2007,
the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No.
141(R)”).  SFAS No. 141(R) replaces SFAS No. 141, “Business
Combinations”, but retains the requirement that the purchase method of
accounting for acquisitions be used for all business
combinations.  SFAS No. 141(R) expands on the disclosures previously
required by SFAS No. 141, better defines the acquirer and the acquisition date
in a business combination, and establishes principles for recognizing and
measuring the assets acquired (including goodwill), the liabilities assumed and
any noncontrolling interests in the acquired business.  SFAS No.
141(R) also requires an acquirer to record an adjustment to income tax expense
for changes in valuation allowances or uncertain tax positions related to
acquired businesses.  SFAS No. 141(R) is effective for all business
combinations with an acquisition date in the first annual period following
December 15, 2008.  The Company adopted SFAS No. 141(R) effective
January 1, 2009.  Approximately $1.2 million of the
Company’s unrecognized tax benefits as of December 31, 2008 was recognized and
reduced the Company’s effective tax rate used in developing the income tax
provision for the first quarter of 2009, rather than goodwill as stated
under previous accounting principles.





(B)
            At December
      31, 2008, the Company’s Best subsidiary was not in compliance with a
      maintenance covenant with respect to two loan agreements with aggregate
      borrowings outstanding of approximately $6.8
      million.  Non-compliance with these two long-term debt
      agreements would have resulted in non-compliance with two other long-term
      debt agreements totaling approximately $5.3 million at December 31,
      2008.  The Company’s Best subsidiary obtained waivers from the
      bank, which indicated that the Company’s Best subsidiary was not required
      to comply with the maintenance covenant as of December 31,
      2008.  The next measurement date for the maintenance covenant is
      for the year ended December 31, 2009 and the Company believes that it is
      probable that its Best subsidiary will not be in compliance with the
      maintenance covenant when their assessment of the required calculation is
      completed in the first quarter of 2010.  The Company and its
      Best subsidiary are currently in negotiations to refinance these two loan
      agreements; however as of April 4, 2009, a definitive agreement was not
      signed.  As a result, the Company has classified approximately
      $6.6 million and $8.1 million of outstanding borrowings under such
      “long-term debt” agreements as a current liability on its consolidated
      balance sheet at April 4, 2009 and December 31, 2008,
      respectively.  The Company and its Best subsidiary will continue
      to negotiate the refinancing of these debt obligations; however no
      assurance can be given that it will be successful in obtaining a
      refinancing, amendment or waiver on terms acceptable to the
      Company.  Accordingly, Nortek could be required to repay
      approximately $6.6 million at December 31, 2009 related to these loans in
      an event of non-compliance.





The agreements that
govern the terms of the Company’s debt, including the indentures that govern NTK
Holdings’ 10 3/4% Senior Discount Notes, Nortek’s 10% Senior Secured Notes and
Nortek’s 8 1/2% senior subordinated notes and the credit agreements that govern
NTK Holdings’ senior unsecured loan facility and Nortek’s ABL Facility, contain
covenants that restrict the Company’s ability and the ability of its
subsidiaries to incur additional indebtedness, pay dividends or make other
distributions, make loans or investments, incur certain liens, enter into
transactions with affiliates and consolidate, merge or sell assets.





The indentures that govern Nortek’s 10%
Senior Secured Notes and Nortek’s 8 1/2% Senior Subordinated Notes limit
Nortek’s ability to make certain payments, including dividends, loans or
investments or the redemption or retirement of any equity interests and
indebtedness subordinated to the notes.  These limitations are based
on a calculation of net income, equity issuances, receipt of capital
contributions and return on certain investments (as definedby the respective
indentures)since August 27,
2004.  Theamount
of the permitted payments depends in part on baskets which are available only if
Nortek meets certain financial tests.  No assurance can be given that
Nortek will have sufficient capacity under these limitations to make payments to
NTK Holdings to enable it to satisfy its debt service
obligations.As
ofApril4, 2009, Nortek had the capacity to make
certain payments, including dividends, of up to approximately $145.9million.Nortek is
under no obligation to make any distribution or other payment to NTK Holdings
even if Nortek has available cash and the making of such a payment is permitted
by the terms of its existing indebtedness (see Note A).





AtApril4, 2009,NTK Holdingshad approximately $6.9million available for the payment of
cash dividends, stock purchases or other restricted payments under the terms of
the indenture governingits10 3/4% Senior Discount Notes and the
agreement governingitssenior unsecured loan
facility.





In May 2009,
Moody’s affirmed its debt ratings for Nortek and NTK Holdings of “Caa2” and
affirmed its negative outlook.  Moody’s rating affirmation reflected
the Company’s high leverage, reduced financial flexibility and the anticipated
continuing difficulties in the new home construction market and depressed home
values on the Company’s 2009 financial performance.  The negative
ratings outlook reflects Moody’s concern that the market for the Company’s
products will remain under significant pressure so long as new housing starts do
not rebound and that the repair and remodeling market could contract further in
2009.  Additionally, Moody’s was concerned whether the Company’s cost
cutting initiatives would be successful enough to offset pressure on the
Company’s sales.





InApril 2009, Standard & Poor's(“S&P”)Ratings Services lowered its
corporatecredit rating on Nortekand issued a negative
outlook.  Additionally S&Ploweredthe issue-level rating on Nortek's10%senior secured notes due
2013and onNortek’s8 1/2%senior subordinated notes due
2014.  In addition, S&P loweredthe corporate credit rating on NTK
Holdings and lowered the issue-level rating on NTKHoldings’10 3/4%senior discount notes due 2014.These rating actions reflectS&P’sexpectations that NTK Holdings
andNortek's ability to service its current
capital structure over the next yearwill be challenged as difficult
operating conditions are likely to continuedue to depressed new residential
construction markets and an expected declinein remodeling and commercial
construction activity.





(C)
            During the
      first quarter ended April 4, 2009 and March 29, 2008, the Company’s
      results of operations include the following expense items recorded in
      selling, general and administrative expense, net in the accompanying
      unaudited condensed consolidated statement of
  operations:





For the first quarter
      endedApril 4,
    2009
                            
                            
                            March 29,
    2008(Amounts in
      millions)(1
                            )
                            A charge related to reserves for
      amounts due from customers in the RVP,HTP and C-HVAC
      segments
                            
                            $
                            1.0
                            
                            
                            $
                            ---(2
                            )
                            Foreign exchange losses related to
      transactions, including intercompanydebt not indefinitely
      invested in Nortek's subsidiaries
                            
                            
                            0.1
                            
                            
                            
                            0.1




Nortek and Nortek
Holdings, Inc. have 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 $0.5 million for
each of the first quarters ended April 4, 2009 and March 29, 2008, respectively,
related to this management agreement in the accompanying unaudited condensed
consolidated statement of operations.




(D)
            The Company is a diversified
      manufacturer of innovative, branded residential and commercial building
      products, operating within four reporting
  segments:





·
            the
      Residential Ventilation Products (“RVP”)
  segment,


·
            the Home
      Technology Products (“HTP”)
segment,


·
            the
      Residential Air Conditioning and Heating Products (“R-HVAC“) segment
      and


·
            the
      Commercial Air Conditioning and Heating Products (“C-HVAC“)
      segment.





Through these segments, the Company
manufactures and sells, primarily in theUnited States,CanadaandEurope, 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.





During 2008, the Company changed the
composition of its reporting segments toreportthe R-HVAC segment
separately.  In accordance with SFAS No. 131, “Disclosures about
Segments of anEnterpriseand Related Information”, the Company
has restated prior period segment disclosures toreflectthe new
composition.





The 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 HTP segment manufactures and sells a
broad array of products designed to provide convenience and security for
residential and certain 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,


·
            lighting and home automation
      controls, and


·
            structured
      wiring.





The R-HVAC segment manufactures and sells
heating, ventilating and air conditioning systems for site-built residential and
manufactured housing structures and certain commercial markets.  The
principal products sold by the segment are:





·
            split-system air
      conditioners,


·
            heat
  pumps,


·
            air handlers,
      and


·
            furnaces and related
      equipment.





The C-HVAC segment manufactures and sells
heating, ventilating and air conditioning systems for custom-designed commercial
applications to meet customer specifications.  The principal products
sold by the segment are large custom roof top cooling and heating
products.





The Company evaluates segment
performance based on operating earnings before allocations of corporate overhead
costs.  Intersegment net sales and intersegment eliminations are not
material for any of the periods presented.  The financial statement
impact of all purchase accounting adjustments, including intangible assets
amortization and goodwill, are reflected in the applicable operating segment,
which are the Company’s reporting units.  In the tables below,
Unallocated includes corporate related items, intersegment eliminations and
certain income and expense items not allocated to reportable
segments.





Unaudited net
sales, operating earnings (loss) and pre-tax loss for the Company’s reporting
segments for the first quarter ended April 4, 2009 and March 29, 2008 were as
follows:




For the first quarter
      endedApril 4,
    2009
                      
                      
                      March 29,
    2008(Dollar amounts in
      millions)Net sales:Residential ventilation
      products
                      
                      $
                      149.9
                      
                      
                      $
                      188.2Home technology
      products
                      
                      
                      98.4
                      
                      
                      
                      124.1Residential air conditioning and
      heating products
                      
                      
                      82.4
                      
                      
                      
                      120.1Commercial air conditioning and
      heating products
                      
                      
                      108.3
                      
                      
                      
                      107.8Consolidated net
      sales
                      
                      $
                      439.0
                      
                      
                      $
                      540.2Operating earnings
      (loss):Residential ventilation products
      (1)
                      
                      $
                      9.0
                      
                      
                      $
                      15.9Home technology products
      (2)
                      
                      
                      1.1
                      
                      
                      
                      10.3Residential air conditioning and
      heating products
                      
                      
                      (5.3
                      )
                      
                      
                      1.0Commercial air conditioning and
      heating products (3)
                      
                      
                      16.2
                      
                      
                      
                      3.7Subtotal
                      
                      
                      21.0
                      
                      
                      
                      30.9Unallocated:Foreign exchange gains on
      transactions,including intercompany
      debt
                      
                      
                      ---
                      
                      
                      
                      0.1Unallocated,
      net
                      
                      
                      (6.4
                      )
                      
                      
                      (7.6
                      )Consolidated
      operating earnings
                      
                      
                      14.6
                      
                      
                      
                      23.4Interest
      expense
                      
                      
                      (55.0
                      )
                      
                      
                      (43.0
                      )Investment
      income
                      
                      
                      0.1
                      
                      
                      
                      0.2Loss before provision
      (benefit) for income taxes
                      
                      $
                      (40.3
                      )
                      
                      $
                      (19.4
                      )




(1) The operating
results of the RVP segment for the first quarter ended April 4, 2009 include a
charge related to reserves for amounts due from customers of approximately $0.1
million and foreign exchange losses of approximately $0.4 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





The operating
results of the RVP segment for the first quarter ended March 29, 2008 include
net foreign exchange losses of approximately $0.5 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





(2) The operating
results of the HTP segment for the first quarter ended April 4, 2009 include a
charge related to reserves for amounts due from customers of approximately $0.6
million and foreign exchange losses of approximately $0.2 million related to
transactions.





(3) The operating
results of the C-HVAC segment for the first quarter ended April 4, 2009 include
a charge related to reserves for amounts due from customers of approximately
$0.3 million and foreign exchange gains of approximately $0.5 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





The operating
results of the C-HVAC segment for the first quarter ended March 29, 2008 include
net foreign exchange gains of approximately $0.3 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.




Unaudited
depreciation expense, amortization expense and capital expenditures for the
Company’s reporting segments for the first quarter ended April 4, 2009 and March
29, 2008 were as follows:




For the first quarter
      endedApril 4,
    2009
                    
                    
                    March 29,
    2008(Dollar amounts in
      millions)Depreciation
      Expense:Residential ventilation
      products
                    
                    $
                    3.4
                    
                    
                    $
                    4.2Home technology
      products
                    
                    
                    1.6
                    
                    
                    
                    1.6Residential air conditioning and
      heating products
                    
                    
                    2.8
                    
                    
                    
                    3.0Commercial air conditioning and
      heating products
                    
                    
                    1.7
                    
                    
                    
                    1.7Other
                    
                    
                    0.1
                    
                    
                    
                    0.2Consolidated
      depreciation expense
                    
                    $
                    9.6
                    
                    
                    $
                    10.7Amortization
      expense:Residential ventilation
      products
                    
                    $
                    1.7
                    
                    
                    $
                    1.9Home technology
      products
                    
                    
                    2.8
                    
                    
                    
                    3.3Residential air conditioning and
      heating products
                    
                    
                    0.2
                    
                    
                    
                    0.1Commercial air conditioning and
      heating products
                    
                    
                    1.2
                    
                    
                    
                    1.3Other
                    
                    
                    ---
                    
                    
                    
                    0.1Consolidated
      amortization expense
                    
                    $
                    5.9
                    
                    
                    $
                    6.7Capital
      Expenditures:Residential ventilation
      products
                    
                    $
                    0.6
                    
                    
                    $
                    4.1Home technology
      products
                    
                    
                    0.4
                    
                    
                    
                    0.8Residential air conditioning and
      heating products
                    
                    
                    0.7
                    
                    
                    
                    1.7Commercial air conditioning and
      heating products
                    
                    
                    0.8
                    
                    
                    
                    0.7Consolidated capital
      expenditures
                    
                    $
                    2.5
                    
                    
                    $
                    7.3




As noted
previously, during the fourth quarter of 2008, the Company changed the
composition of its reporting segments to reflect the Residential HVAC segment
separately.  Information relating to the R-HVAC and C-HVAC segments
for the second and third quarters of 2008 has been restated and is presented
below:




For the three months
      endedJune 28,
    2008
                    
                    
                    Sept. 27,
    2008(Dollar amounts in
      millions)Net sales:Residential air conditioning and
      heating products
                    
                    $
                    177.5
                    
                    
                    $
                    138.0Commercial air conditioning and
      heating products
                    
                    
                    151.4
                    
                    
                    
                    131.9Operating earnings
      (loss):Residential air conditioning and
      heating products (1)
                    
                    $
                    14.6
                    
                    
                    $
                    (197.9
                    )Commercial air conditioning and
      heating products
                    
                    
                    15.3
                    
                    
                    
                    8.4Depreciation
      Expense:Residential air conditioning and
      heating products
                    
                    $
                    2.7
                    
                    
                    $
                    2.6Commercial air conditioning and
      heating products
                    
                    
                    1.7
                    
                    
                    
                    1.7Amortization
      expense:Residential air conditioning and
      heating products
                    
                    $
                    0.2
                    
                    
                    $
                    0.2Commercial air conditioning and
      heating products
                    
                    
                    1.3
                    
                    
                    
                    1.3Capital
      Expenditures:Residential air conditioning and
      heating products
                    
                    $
                    2.4
                    
                    
                    $
                    1.4Commercial air conditioning and
      heating products
                    
                    
                    2.2
                    
                    
                    
                    0.3


(1)
            The operating
      loss for the Residential HVAC segment for the three months ended September
      27, 2008 includes an estimated non-cash goodwill impairment charge of
      approximately $200.0 million.





(E)
            The Company
      provided income taxes on an interim basis based upon the effective tax
      rate through April 4, 2009.  The following reconciles the
      federal statutory income tax rate to the effective tax rate of
      approximately (19.9)% and 27.8% for the first quarter ended April 4, 2009
      and March 29, 2008:





For the first quarter
  endedApril 4, 2009
                                    
                                    March 29, 2008Income tax at
      the federal statutory rate
                                    
                                    
                                    35.0
                                    %
                                    
                                    
                                    35.0
                                    %Net change
      from federal statutory rate:Increase in
      valuation allowance
                                    
                                    
                                    (47.2
                                    )
                                    
                                    
                                    ---Decrease
      (increase) in FIN 48 reserves, including interest
                                    
                                    
                                    3.4
                                    
                                    
                                    
                                    (2.9
                                    )State income
      tax provision, net of federalincome tax
      effect
                                    
                                    
                                    (9.3
                                    )
                                    
                                    
                                    (2.3
                                    )Tax effect
      resulting from foreign activities
                                    
                                    
                                    (0.6
                                    )
                                    
                                    
                                    (3.2
                                    )Non-deductible
      expenses
                                    
                                    
                                    (1.2
                                    )
                                    
                                    
                                    (1.3
                                    )Other,
      net
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    2.5Income tax at
      effective rate
                                    
                                    
                                    (19.9
                                    )%
                                    
                                    
                                    27.8
                                    %





During the second
quarter of 2008, the Company evaluated the realizability of its domestic
deferred tax assets as a result of economic conditions, the Company’s operating
results and the Company’s revised forecast, including the increase in future
interest expense as a result of the May 2008 debt refinancing.  As a
result of this analysis during the second quarter of 2008, the Company
established a valuation allowance of approximately $14.6 million against
domestic deferred tax assets in existence as of December 31, 2007.  In
addition, for the year ended December 31, 2008, the Company recorded a valuation
allowance against certain tax assets related to domestic and foreign operating
losses generated in 2008 of approximately $62.8 million.  For the
first quarter ended April 4, 2009, the Company provided an additional federal,
foreign and state valuation allowance of approximately $19.0
million.  In assessing the need for a valuation allowance, the Company
assessed the available means of recovering its deferred tax assets, including
the ability to carry back net operating losses, available deferred tax
liabilities, tax planning strategies and projections of future taxable
income.  The Company concluded that it is more likely than not, based
upon all available evidence, that a valuation allowance is required for
substantially all of its net domestic deferred tax assets, and certain foreign
deferred tax assets and net operating losses.





As of January 1,
2009, the Company had a liability of approximately $18.2 million for
unrecognized tax benefits related to various federal, foreign and state income
tax matters.  During the first quarter ended April 4, 2009, the
Company recorded a reduction (tax benefit) to this reserve of approximately $1.2
million as a result of the lapse in the statute of limitations on certain
foreign tax items.  As a result of additional provisions to the
reserve during the first quarter of 2009, the liability for uncertain tax
positions at April 4, 2009 is approximately $18.2 million.  The
corresponding amount of gross uncertain tax benefits was approximately $33.0
million and $31.3 million at April 4, 2009 and December 31, 2008,
respectively.





As of April 4,
2009, the Company has approximately $3.6 million in unrecognized benefits
relating to various state tax issues, for which the statute of limitations is
expected to expire in the fourth quarter of 2009.





As of January 1,
2009, the Company accrued approximately $4.5 million of interest related to
uncertain tax positions.  As of April 4, 2009, the total amount of
accrued interest related to uncertain tax positions is approximately $4.3
million. The Company accounts for interest and penalties related to uncertain
tax positions as part of its provision for federal and state taxes.





(F)       
At April 4, 2009, the Company’s former subsidiary, Ply Gem, guaranteed
approximately $16.7 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.  Nortek indemnified these
guarantees in connection with the sale of Ply Gem on February 12, 2004 and
recorded an estimated liability related to this indemnified guarantee of
approximately $0.7 million at April 4, 2009 in accordance with FASB
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 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, or fail to make payments in full, then
Nortek may be required to make payments on its
indemnification.  Should such payments be required, the Company cannot
be certain that the buyer of the former subsidiary will meet its financial
obligations with respect to its indemnification of Nortek.  As a
result, the Company has a contingent loss reserve of approximately $6.5 million
at April 4, 2009 in connection with this arrangement, representing Management’s
best estimate in accordance with SFAS No. 5, “Accounting for Contingencies”,
without consideration as to any amount that the Company might receive under the
buyer’s indemnification to Nortek.





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 $16.8 million and $17.1
million at April 4, 2009 and December 31, 2008,
respectively.  Approximately $4.7 million of short-term liabilities
and approximately $12.1 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 April 4, 2009 related to these
indemnifications.





The Company records insurance
liabilities and related expenses for health, workers compensation, product and
general liability losses and other insurance reserves and expenses in accordance
with either the contractual terms of its policies or, if self-insured, the total
liabilities that are estimable and probable as of the reporting
date.  Insurance liabilities are recorded as current liabilities to
the extent payments are expected to be made in the succeeding year by the
Company with the remaining requirements classified as long-term
liabilities.  The accounting for self-insured plans requires that
significant judgments and estimates be made both with respect to the future
liabilities to be paid for known claims and incurred but not reported claims as
of the reporting date.  The Company considers historical trends when
determining the appropriate insurance reserves to record in the consolidated
balance sheet.  In certain cases where partial insurance coverage
exists, the Company must estimate the portion of the liability that will be
covered by existing insurance policies to arrive at the net expected liability
to the Company.  The majority of the Company’s approximate
$61.9million of recorded insurance
liabilities atApril4, 2009relate to product liability accruals of
approximately $42.0million.





Changes in the Company’s combined
short-term and long-term product liability accruals during thefirstquarter endedApril 4, 2009andMarch 29, 2008are as follows:





For thefirstquarter
    endedApril 4,
    2009
                        
                        
                        March 29,
    2008(Amounts in
      millions)Balance, beginning of the
      period
                        
                        $
                        39.5
                        
                        
                        $
                        35.0Provision during the
      period
                        
                        
                        3.6
                        
                        
                        
                        2.9Payments made during the
      period
                        
                        
                        (1.1
                        )
                        
                        
                        (2.1
                        )Balance, end of the
      period
                        
                        $
                        42.0
                        
                        
                        $
                        35.8





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





Changes in the
Company’s combined short-term and long-term warranty accruals during the first
quarter ended April 4, 2009 and March 29, 2008 are as follows:





For thefirstquarter
    endedApril 4,
    2009
                    
                    
                    March 29,
    2008(Amounts in
      millions)Balance, beginning of the
      period
                    
                    $
                    51.5
                    
                    
                    $
                    47.3Warranties provided during the
      period
                    
                    
                    7.1
                    
                    
                    
                    7.3Settlements made during the
      period
                    
                    
                    (6.4
                    )
                    
                    
                    (6.5
                    )Changes in liability estimate,
      including expirations
                    
                    
                    (0.4
                    )
                    
                    
                    0.6Balance, end of the
      period
                    
                    $
                    51.8
                    
                    
                    $
                    48.7





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
that are not within the Company’s control.





(G)
            The Company
      and its subsidiaries have various pension plans, 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 $1.2million and $1.6million for thefirstquarter endedApril 4, 2009andMarch 29, 2008, respectively.





The Company’s policy is to generally
fund currently at least the minimum required annual contribution of its various
qualified defined benefit plans.  AtApril 4, 2009, the Company estimated that
approximately $3.0million would be contributed to the
Company’s defined benefit pension plans in 2009, of which approximately $0.8million wascontributedthrough the firstquarterof 2009.





The Company’s
unaudited net periodic benefit cost (income) for its defined benefit plans for
the first quarter ended April 4, 2009 and March 29, 2008 consists of the
following components:





For the first quarter endedApril 4, 2009
                  
                  
                  March 29, 2008(Dollar
      amounts in millions)Service
      cost
                  
                  $
                  0.1
                  
                  
                  $
                  0.1Interest
      cost
                  
                  
                  2.3
                  
                  
                  
                  2.5Expected
      return on plan assets
                  
                  
                  (1.8
                  )
                  
                  
                  (2.7
                  )Recognized
      actuarial loss
                  
                  
                  0.2
                  
                  
                  
                  ---Net periodic
      benefit cost (income)
                  
                  $
                  0.8
                  
                  
                  $
                  (0.1
                  )





The Company’s
unaudited net periodic benefit cost for its subsidiary’s Post-Retirement Health
Benefit Plan for the first quarter ended April 4, 2009 and March 29, 2008
consists of the following components:





For the first quarter endedApril 4, 2009
                  
                  
                  March 29, 2008(Dollar
      amounts in millions)Interest
      cost
                  
                  $
                  0.1
                  
                  
                  $
                  0.1Amortization
      of prior service cost
                  
                  
                  (0.1
                  )
                  
                  
                  (0.1
                  )Net periodic
      post-retirement health cost
                  
                  $
                  ---
                  
                  
                  $
                  ---










NTK HOLDINGS, INC. AND
SUBSIDIARIES
 MANAGEMENT’S
DISCUSSION AND ANALYSIS
 OF
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE FIRST QUARTER ENDED APRIL 4, 2009
 AND
THE FIRST QUARTER ENDED MARCH 29, 2008




Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





NTK Holdings, Inc.(“NTK Holdings”)and its wholly-owned subsidiaries
(collectivelywith Nortek,
Inc. (“Nortek”),the
“Company”) are diversified manufacturers of innovative, branded residential and
commercial building products, operating within four reporting
segments:





·
            the
      Residential Ventilation Products (“RVP”)
  segment,


·
            the Home
      Technology Products (“HTP”)
segment,


·
            the
      Residential Air Conditioning and Heating Products (“R-HVAC“) segment
      and


·
            the
      Commercial Air Conditioning and Heating Products (“C-HVAC“)
      segment.





Through these segments, the Company
manufactures and sells, primarily in theUnited States,CanadaandEurope, 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.





Duringthe fourth quarter of2008, the Company changed the
composition of its reporting segments toreportthe R-HVAC segment separately.  In
accordance with Statement of FinancialAccountingStandards (“SFAS”) No. 131, “Disclosures
about Segments of anEnterpriseand Related Information”, the Company
has restated prior period segment disclosures toreflectthe new
composition.





The 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 HTP segment manufactures and sells a
broad array of products designed to provide convenience and security for
residential and certain 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,


·
            lighting and home automation
      controls, and


·
            structured
      wiring.





The R-HVAC segment manufactures and sells
heating, ventilating and air conditioning systems for site-built residential and
manufactured housing structures and certain commercial markets.  The
principal products sold by the segment are:





·
            split-system air
      conditioners,


·
            heat
  pumps,


·
            air handlers,
      and


·
            furnaces and related
      equipment.





The C-HVAC segment manufactures and sells
heating, ventilating and air conditioning systems for custom-designed commercial
applications to meet customer specifications.  The principal products
sold by the segment are large custom roof top cooling and heating
products.





In the results of operations presented
below, Unallocated includes corporate related items, intersegment eliminations
and certain income and expense not allocated to its
segments.




Financial
Statement Presentation





The unaudited
condensed consolidated financial statements presented herein (the “Unaudited
Financial Statements”) reflect the financial position, results of operations and
cash flows of NTK Holdings and all of its wholly-owned subsidiaries, including
Nortek, and have been prepared on the basis of a going
concern.  However, the conditions noted further below in “Liquidity
and Capital Resources” create uncertainty about the Company’s ability to meet
its debt obligations as they come due on March 1, 2010 and
beyond.  The Unaudited Financial Statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.


Critical
Accounting Policies





The Company’s discussion and analysis of
its financial condition and results of operations are based upon the Company’sUnauditedFinancial Statements, which have been
prepared in accordance withU.S.generally acceptedaccounting principleson a going concern basis.  (See“Liquidity and Capital Resources” andthe Notes to theUnauditedFinancial Statements included elsewhere
herein.)Certain of the Company’s accounting policies require
the application of judgment in selecting the appropriate assumptions for
calculating financial estimates.  By their nature, these judgments are
subject to an inherent degree of uncertainty.  The Company
periodically evaluates the judgments and estimates used for its critical
accounting policies to ensure that such judgments and estimates are reasonable
for its interim and year-end reporting requirements.  These judgments
and estimates are based on the Company’s historical experience, current trends
and information available from other sources, as appropriate.  If
different conditions result from those assumptions used in the Company’s
judgments, the results could be materially different from the Company’s
estimates.  The Company’s critical accounting policies
include:





·
            Revenue
      Recognition, Accounts Receivable and Related
  Expenses


·
            Inventory
      Valuation


·
            Income
      Taxes


·
            Goodwill and
      Other Long-Lived Assets


·
            Pensions and
      Post-Retirement Health Benefits


·
            Warranty,
      Product Recalls and Safety Upgrades


·
            Insurance
      Liabilities, including Product Liability,
and


·
            Contingencies





Further detail
regarding the Company’s critical accounting policies can be found in the
consolidated financial statements and the notes included in NTK Holdings’ 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 following table
presents the financial information for the Company’s reporting segments for the
first quarter ended April 4, 2009 and March 29, 2008:





For the first quarter
      ended
                                    
                                    
                                    Net ChangeApril 4,
    2009
                                    
                                    
                                    March 29,
    2008
                                    
                                    
                                    $
                                    
                                    
                                    
                                    %(Dollar amounts in
      millions)Net sales:Residential ventilation
      products
                                    
                                    $
                                    149.9
                                    
                                    
                                    $
                                    188.2
                                    
                                    
                                    $
                                    (38.3
                                    )
                                    
                                    
                                    (20.4
                                    )
      %Home technology
      products
                                    
                                    
                                    98.4
                                    
                                    
                                    
                                    124.1
                                    
                                    
                                    
                                    (25.7
                                    )
                                    
                                    
                                    (20.7
                                    )Residential air conditioning and
      heating products
                                    
                                    
                                    82.4
                                    
                                    
                                    
                                    120.1
                                    
                                    
                                    
                                    (37.7
                                    )
                                    
                                    
                                    (31.4
                                    )Commercial air conditioning and
      heating products
                                    
                                    
                                    108.3
                                    
                                    
                                    
                                    107.8
                                    
                                    
                                    
                                    0.5
                                    
                                    
                                    
                                    0.5Consolidated net
      sales
                                    
                                    $
                                    439.0
                                    
                                    
                                    $
                                    540.2
                                    
                                    
                                    $
                                    (101.2
                                    )
                                    
                                    
                                    (18.7
                                    )
      %Operating earnings
      (loss):Residential ventilation products
      (1)
                                    
                                    $
                                    9.0
                                    
                                    
                                    $
                                    15.9
                                    
                                    
                                    $
                                    (6.9
                                    )
                                    
                                    
                                    (43.4
                                    )
      %Home technology products
      (2)
                                    
                                    
                                    1.1
                                    
                                    
                                    
                                    10.3
                                    
                                    
                                    
                                    (9.2
                                    )
                                    
                                    
                                    (89.3
                                    )Residential air conditioning and
      heating products
                                    
                                    
                                    (5.3
                                    )
                                    
                                    
                                    1.0
                                    
                                    
                                    
                                    (6.3
                                    )
                                    
                                    
                                    *Commercial air conditioning and
      heating products (3)
                                    
                                    
                                    16.2
                                    
                                    
                                    
                                    3.7
                                    
                                    
                                    
                                    12.5
                                    
                                    
                                    
                                    *Subtotal
                                    
                                    
                                    21.0
                                    
                                    
                                    
                                    30.9
                                    
                                    
                                    
                                    (9.9
                                    )
                                    
                                    
                                    (32.0
                                    )Unallocated:Foreign exchange gains on
      transactions,including intercompany
      debt
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    0.1
                                    
                                    
                                    
                                    (0.1
                                    )
                                    
                                    
                                    (100.0
                                    )Unallocated,
      net
                                    
                                    
                                    (6.4
                                    )
                                    
                                    
                                    (7.6
                                    )
                                    
                                    
                                    1.2
                                    
                                    
                                    
                                    15.8Consolidated
      operating earnings
                                    
                                    $
                                    14.6
                                    
                                    
                                    $
                                    23.4
                                    
                                    
                                    $
                                    (8.8
                                    )
                                    
                                    
                                    (37.6
                                    )
      %Depreciation and amortization
      expense:Residential ventilation
      products
                                    
                                    $
                                    5.1
                                    
                                    
                                    $
                                    6.1
                                    
                                    
                                    $
                                    (1.0
                                    )
                                    
                                    
                                    (16.4
                                    )
      %Home technology
      products
                                    
                                    
                                    4.4
                                    
                                    
                                    
                                    4.9
                                    
                                    
                                    
                                    (0.5
                                    )
                                    
                                    
                                    (10.2
                                    )Residential air conditioning and
      heating products
                                    
                                    
                                    3.0
                                    
                                    
                                    
                                    3.1
                                    
                                    
                                    
                                    (0.1
                                    )
                                    
                                    
                                    (3.2
                                    )Commercial air conditioning and
      heating products
                                    
                                    
                                    2.9
                                    
                                    
                                    
                                    3.0
                                    
                                    
                                    
                                    (0.1
                                    )
                                    
                                    
                                    (3.3
                                    )Unallocated
                                    
                                    
                                    0.1
                                    
                                    
                                    
                                    0.3
                                    
                                    
                                    
                                    (0.2
                                    )
                                    
                                    
                                    (66.7
                                    )$
                                    15.5
                                    
                                    
                                    $
                                    17.4
                                    
                                    
                                    $
                                    (1.9
                                    )
                                    
                                    
                                    (10.9
                                    )
      %Operating earnings (loss)
      margin:Residential ventilation products
      (1)
                                    
                                    
                                    6.0
                                    %
                                    
                                    
                                    8.4
                                    %Home technology products
      (2)
                                    
                                    
                                    1.1
                                    
                                    
                                    
                                    8.3Residential air conditioning and
      heating products
                                    
                                    
                                    (6.4
                                    )
                                    
                                    
                                    0.8Commercial air conditioning and
      heating products (3)
                                    
                                    
                                    15.0
                                    
                                    
                                    
                                    3.4Consolidated
                                    
                                    
                                    3.3
                                    %
                                    
                                    
                                    4.3
                                    %Depreciation and
      amortization expense as
      a % of net sales:Residential ventilation
      products
                                    
                                    
                                    3.4
                                    %
                                    
                                    
                                    3.2
                                    %Home technology
      products
                                    
                                    
                                    4.5
                                    
                                    
                                    
                                    3.9Residential air conditioning and
      heating products
                                    
                                    
                                    3.6
                                    
                                    
                                    
                                    2.6Commercial air conditioning and
      heating products
                                    
                                    
                                    2.7
                                    
                                    
                                    
                                    2.8Consolidated
                                    
                                    
                                    3.5
                                    %
                                    
                                    
                                    3.2
                                    %


*
            not
      meaningful or not applicable




(1) The operating
results of the RVP segment for the first quarter ended April 4, 2009 include a
charge related to reserves for amounts due from customers of approximately $0.1
million and foreign exchange losses of approximately $0.4 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





The operating
results of the RVP segment for the first quarter ended March 29, 2008 include
net foreign exchange losses of approximately $0.5 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





(2) The operating
results of the HTP segment for the first quarter ended April 4, 2009 include a
charge related to reserves for amounts due from customers of approximately $0.6
million and foreign exchange losses of approximately $0.2 million related to
transactions.





(3) The operating
results of the C-HVAC segment for the first quarter ended April 4, 2009 include
a charge related to reserves for amounts due from customers of approximately
$0.3 million and foreign exchange gains of approximately $0.5 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





The operating
results of the C-HVAC segment for the first quarter ended March 29, 2008 include
net foreign exchange gains of approximately $0.3 million related to
transactions, including intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





The following table
presents the financial information for the first quarter ended April 4, 2009 and
March 29, 2008.  The results of operations for the first quarter ended
April 4, 2009 are not necessarily indicative of the results of operations to be
expected for any other interim period or the full year.




Change in earnings
      inthe first quarter of
      2009as compared to
      theFor the first quarter
      ended
                                        
                                        
                                        first quarter of
      2008April 4,
    2009
                                        
                                        
                                        March 29,
    2008
                                        
                                        
                                        $
                                        
                                        
                                        
                                        %(Dollar amounts in
      millions)Net sales
                                        
                                        $
                                        439.0
                                        
                                        
                                        $
                                        540.2
                                        
                                        
                                        $
                                        (101.2
                                        )
                                        
                                        
                                        (18.7
                                        )
      %Cost of products
      sold
                                        
                                        
                                        317.5
                                        
                                        
                                        
                                        391.6
                                        
                                        
                                        
                                        74.1
                                        
                                        
                                        
                                        18.9Selling, general and
      administrative expense, net (1)
                                        
                                        
                                        101.0
                                        
                                        
                                        
                                        118.5
                                        
                                        
                                        
                                        17.5
                                        
                                        
                                        
                                        14.8Amortization of intangible
      assets
                                        
                                        
                                        5.9
                                        
                                        
                                        
                                        6.7
                                        
                                        
                                        
                                        0.8
                                        
                                        
                                        
                                        11.9Operating
      earnings
                                        
                                        
                                        14.6
                                        
                                        
                                        
                                        23.4
                                        
                                        
                                        
                                        (8.8
                                        )
                                        
                                        
                                        (37.6
                                        )Interest
      expense
                                        
                                        
                                        (55.0
                                        )
                                        
                                        
                                        (43.0
                                        )
                                        
                                        
                                        (12.0
                                        )
                                        
                                        
                                        (27.9
                                        )Investment
      income
                                        
                                        
                                        0.1
                                        
                                        
                                        
                                        0.2
                                        
                                        
                                        
                                        (0.1
                                        )
                                        
                                        
                                        (50.0
                                        )Loss before provision (benefit)
      for income taxes
                                        
                                        
                                        (40.3
                                        )
                                        
                                        
                                        (19.4
                                        )
                                        
                                        
                                        (20.9
                                        )
                                        
                                        
                                        *Provision (benefit) for income
      taxes
                                        
                                        
                                        8.0
                                        
                                        
                                        
                                        (5.4
                                        )
                                        
                                        
                                        (13.4
                                        )
                                        
                                        
                                        *Net loss
                                        
                                        $
                                        (48.3
                                        )
                                        
                                        $
                                        (14.0
                                        )
                                        
                                        $
                                        (34.3
                                        )
                                        
                                        
                                        *
                                        %




Change in percentage
      forPercentage of net sales
      for
                                                                      
                                                                      the first quarter of
      2009the first quarter
      ended
                                                                      
                                                                      as compared to
      theApril 4,
    2009
                                                                      
                                                                      March 29,
    2008
                                                                      
                                                                      first quarter of
      2008Net sales
                                                                      
                                                                      
                                                                      100.0
                                                                      %
                                                                      
                                                                      
                                                                      100.0
                                                                      %
                                                                      
                                                                      
                                                                      ---
                                                                      %Cost of products
      sold
                                                                      
                                                                      
                                                                      72.3
                                                                      
                                                                      
                                                                      
                                                                      72.5
                                                                      
                                                                      
                                                                      
                                                                      0.2Selling, general and
      administrative expense, net (1)
                                                                      
                                                                      
                                                                      23.1
                                                                      
                                                                      
                                                                      
                                                                      21.9
                                                                      
                                                                      
                                                                      
                                                                      (1.2
                                                                      )Amortization of intangible
      assets
                                                                      
                                                                      
                                                                      1.3
                                                                      
                                                                      
                                                                      
                                                                      1.3
                                                                      
                                                                      
                                                                      
                                                                      ---Operating
      earnings
                                                                      
                                                                      
                                                                      3.3
                                                                      
                                                                      
                                                                      
                                                                      4.3
                                                                      
                                                                      
                                                                      
                                                                      (1.0
                                                                      )Interest
      expense
                                                                      
                                                                      
                                                                      (12.5
                                                                      )
                                                                      
                                                                      
                                                                      (8.0
                                                                      )
                                                                      
                                                                      
                                                                      (4.5
                                                                      )Investment
      income
                                                                      
                                                                      
                                                                      ---
                                                                      
                                                                      
                                                                      
                                                                      0.1
                                                                      
                                                                      
                                                                      
                                                                      (0.1
                                                                      )Loss before provision (benefit)
      for income taxes
                                                                      
                                                                      
                                                                      (9.2
                                                                      )
                                                                      
                                                                      
                                                                      (3.6
                                                                      )
                                                                      
                                                                      
                                                                      (5.6
                                                                      )Provision (benefit) for income
      taxes
                                                                      
                                                                      
                                                                      1.8
                                                                      
                                                                      
                                                                      
                                                                      (1.0
                                                                      )
                                                                      
                                                                      
                                                                      (2.8
                                                                      )Net loss
                                                                      
                                                                      
                                                                      (11.0
                                                                      )
      %
                                                                      
                                                                      
                                                                      (2.6
                                                                      )
      %
                                                                      
                                                                      
                                                                      (8.4
                                                                      )
       %




(1)
            See Note C of
      the Notes to the Unaudited Financial Statements included elsewhere
      herein.





*
            not
      meaningful or not applicable








Critical factors in
the Company’s future performance, including the level of the Company’s sales,
profitability and cash flows, are the levels of residential remodeling and
replacement activity and new residential and non-residential construction
activity.  The level of new residential and non-residential
construction activity and, to a lesser extent, the level of residential
remodeling and replacement activity are affected by seasonality and cyclical
factors such as interest rates, inflation, consumer spending habits, employment
levels and other macroeconomic factors, over which the Company has no
control.  Any decline in economic activity as a result of these or
other factors typically results in a decline in new construction and, to a
lesser extent, residential remodeling and replacement purchases, which would
result in a decrease in the Company’s sales, profitability and cash
flows.





The severe impact
of the worldwide crisis in the credit and financial markets in the second
half of 2008 and the first quarter of 2009, the instability in the troubled
mortgage market, rising unemployment and decreasing home values have had a
negative impact on residential new construction activity, consumer disposable
income and spending on home remodeling and repair expenditures.  These
factors have had an adverse effect on the Company’s operating results for the
first quarter of 2009 and are expected to continue throughout the remainder of
2009.  Key industry activity affecting the Company’s businesses in the
United States for the first quarter of 2009, the fourth quarter of 2008 and the
full year 2008 were as follows:





% Increase /
      (Decrease)Sources
                                  
                                  
                                  1stQuarter
                                  
                                  4thQuarter
                                  Full
Yearof Data
                                  
                                  
                                  2009
                                  
                                  2008
                                  
                                  2008Private residential construction
      spending
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (32
                                  )%
                                  
                                  
                                  (25
                                  )%
                                  
                                  
                                  (28
                                  )%Total housing
      starts
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (51
                                  )%
                                  
                                  
                                  (44
                                  )%
                                  
                                  
                                  (33
                                  )%New home
    sales
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (38
                                  )%
                                  
                                  
                                  (42
                                  )%
                                  
                                  
                                  (38
                                  )%Existing home
      sales
                                  
                                  
                                  3
                                  
                                  
                                  
                                  (7
                                  )%
                                  
                                  
                                  (6
                                  )%
                                  
                                  
                                  (13
                                  )%Residential improvement
      spending
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (8
                                  )%
                                  
                                  
                                  4
                                  %
                                  
                                  
                                  (10
                                  )%Central air conditioning and heat
      pump shipments
                                  
                                  
                                  2
                                  
                                  
                                  
                                  (25
                                  )%
                                  
                                  
                                  (26
                                  )%
                                  
                                  
                                  (9
                                  )%Private non-residential
      construction spending
                                  
                                  
                                  1
                                  
                                  
                                  
                                  ---
                                  %
                                  
                                  
                                  8
                                  %
                                  
                                  
                                  15
                                  %Manufactured housing
      shipments
                                  
                                  
                                  1
                                  
                                  
                                  
                                  (45
                                  )%
                                  
                                  
                                  (29
                                  )%
                                  
                                  
                                  (14
                                  )%





Source of
    data:





(1)
            U.S.Census
    Bureau


(2)
            Air Conditioning and Refrigeration
      Institute


(3)
            National Association of
      Realtors





During 2008, and
continuing into the first quarter of 2009, the Company instituted cost reduction
measures by implementing initiatives to significantly reduce discretionary
spending and achieve reductions in workforce across all of its businesses given
the rapidly changing and challenging economic environment.  As a
result of these initiatives, the Company expects to reduce expense levels by an
amount between $50 million and $60 million in 2009 over 2008 levels, of which
the Company estimates approximately $19.8 million in cost reductions was
achieved during the first quarter of 2009 as compared to the first quarter of
2008.  The Company’s total selling, general and administrative
expense, net was approximately $17.5 million lower, while overhead expense
charged to cost of products sold was approximately $4.7 million lower for the
first quarter of 2009 over the first quarter of 2008.  These lower
expense levels reflect both reductions in spending levels and lower expenses, in
part, as a result of a decline in sales volume.  There can be no
assurance that these cost reduction measures will continue to be
successful.





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.





The demand for
certain of the Company’s products is seasonal, particularly in the Northeast and
Midwest regions of the United States where inclement weather during winter
months usually reduces the level of building and remodeling activity in both
home improvement and new construction markets, thereby reducing the Company’s
sales levels during the first and fourth quarters.




First quarterendedApril4, 2009as compared to thefirst quarterendedMarch29, 2008





Net Sales.As
discussed further in the following paragraphs, consolidated net sales for the
first quarter ended April 4, 2009 (“first quarter of 2009”) decreased by
approximately $101.2 million, or 18.7%, as compared to the first quarter ended
March 29, 2008 (“first quarter of 2008”).  The effect of changes in
foreign currency exchange rates reduced net sales by approximately $18.1 million
in the first quarter of 2009.  Excluding the effect of changes in
foreign currency exchange rates, consolidated net sales for the first quarter of
2009 decreased approximately $83.1 million as compared to the first quarter of
2008.





In the RVP segment,
net sales for the first quarter of 2009 decreased approximately $38.3 million or
20.4% as compared to the first quarter of 2008.  Net sales in the RVP
segment for the first quarter of 2009 reflect a decrease of approximately $9.1
million attributable to the effect of changes in foreign currency exchange
rates.





Excluding the
effect of changes in foreign currency exchange rates, net sales in the RVP
segment for the first quarter of 2009 decreased approximately $29.2 million as
compared to the first quarter of 2008.  This decrease reflects lower
sales volume of bathroom exhaust fans and kitchen range hoods, slightly offset
by higher average unit sales prices of bathroom exhaust fans.  The
average unit sales price of kitchen range hoods for the first quarter of 2009
decreased slightly as compared to the first quarter of 2008.  Higher
average unit sales prices of bathroom exhaust fans reflect, in part, the impact
of the sale of new products with higher price points and an increase in the
relative percentage of products sold with higher sales price points as compared
to 2008.  Kitchen range hoods and bathroom exhaust fans are the
largest product categories sold in the RVP segment, accounting for approximately
79.2% of the RVP segment’s total gross sales for the first quarter of
2009.  Sales of range hoods and bathroom exhaust fans for the RVP
segment’s domestic subsidiaries decreased approximately 15.6% in the first
quarter of 2009 and, excluding the effect of changes in foreign currency
exchange rates, sales of range hoods and bathroom exhaust fans for the RVP
segment’s foreign subsidiaries decreased approximately 29.9% in the first
quarter of 2009.





In the HTP segment,
net sales for the first quarter of 2009 decreased approximately $25.7 million or
20.7% as compared to the first quarter of 2008.  Net sales in the HTP
segment for the first quarter of 2009 include a decrease of approximately $0.3
million attributable to the effect of changes in foreign currency exchange
rates.  Excluding the effect of changes in foreign currency exchange
rates, net sales in the HTP segment for the first quarter of 2009 decreased
approximately $25.4 million.  A decrease in sales volume of products
sold within this segment, coupled with higher sales returns, drove the decrease
in net sales year over year.





In the R-HVAC
segment, net sales for the first quarter of 2009 decreased approximately $37.7
million or 31.4% as compared to the first quarter of 2008.  This
decrease is primarily a result of lower sales volume of HVAC product sold to
residential site built and manufactured housing customers as a result of the
overall economic downturn in the housing industry.  The Company’s net
sales to customers serving the manufactured housing markets, principally
consisting of air conditioners and furnaces, constituted approximately 3.8% and
4.5% of the Company’s consolidated net sales for the first quarter of 2009 and
2008, respectively.





In the C-HVAC
segment, net sales for the first quarter of 2009 increased approximately $0.5
million or 0.5% as compared to the first quarter of 2008.  Net sales
in the C-HVAC segment for the first quarter of 2009 include a decrease of
approximately $8.7 million attributable to the effect of changes in foreign
currency exchange rates.  Excluding the effect of changes in foreign
currency exchange rates, net sales in the C-HVAC segment for the first quarter
of 2009 increased approximately $9.2 million.  This increase is due,
in part, to an increase in sales volume of air handlers by certain of the
segment’s U.S and Canadian subsidiaries, approximately $3.9 million of net sales
deferred in 2008, under a large contract, and recognized as revenue upon the
resolution and collection of retainage in the first quarter of 2009 and, to a
lesser extent, from price increases implemented in 2008.  Backlog for
C-HVAC products was approximately $178.4 million at April 4, 2009, approximately
$202.0 million at December 31, 2008 and approximately $259.8 million at March
29, 2008.  The decrease in backlog at April 4, 2009 as compared to
December 31, 2008 reflects a decrease in orders during the past several months
for jobs expected to be delivered over the next six to nine
months.  The decrease in backlog at April 4, 2009 as compared to March
29, 2008 reflects the completion of a sizeable job during 2008 resulting in a
decrease to backlog of approximately $72.7 million.





Foreign net sales,
which are attributed based on the location of the Company’s subsidiary
responsible for the sale, were approximately 21.9% and 22.3% of consolidated net
sales for the first quarter of 2009 and 2008, respectively.  Net sales
from the Company’s Canadian subsidiaries were approximately 11.5% and 9.2% of
consolidated net sales for the first quarter of 2009 and 2008,
respectively.  Net sales from the Company’s Canadian subsidiaries
include net sales from the Company’s RVP and C-HVAC segments.  Net
sales from the Company’s European subsidiaries were approximately 8.0% and 10.7%
of consolidated net sales for the first quarter of 2009 and 2008,
respectively.  Net sales from the Company’s European subsidiaries
include net sales primarily from the Company’s RVP and C-HVAC segments and to a
lesser extent the Company’s HTP segment.





Cost of Products
Sold.Consolidated cost of products sold for the first quarter
of 2009 was approximately $317.5 million as compared to approximately $391.6
million for the first quarter of 2008.  Cost of products sold as a
percentage of net sales decreased from approximately 72.5% for the first quarter
of 2008 to approximately 72.3% for the first quarter of 2009 primarily as a
result of the factors described below.





The Company continually reviews the
costs of its product lines and seeks opportunities to increase prices to help
offset the rising costs of raw materials and transportation when
possible.  During 2008, the Company implemented certain price
increases, which have carried over into the first quarter of 2009, in each of
its four segments to help offset higher costs.





Overall,
consolidated material costs were approximately $197.1 million or 44.9% of net
sales for the first quarter of 2009 and approximately $253.5 million or 46.9% of
net sales for the first quarter of 2008.  During the first quarter of
2009, the Company experienced lower material costs as compared to the first
quarter of 2008 related primarily to purchases of steel, copper and aluminum and
related purchased components, such as compressors and
fans/blowers.  Strategic sourcing initiatives and improvements in
manufacturing efficiency also contributed to the decrease in material costs in
the first quarter of 2009 as compared to the first quarter of 2008.





Direct labor costs
were approximately $27.9 million or 6.4% of net sales for the first quarter of
2009 and approximately $32.0 million or 5.9% of net sales for the first quarter
2008.





Overhead costs were
approximately $72.6 million or 16.5% of net sales for the first quarter of 2009
and approximately $77.3 million or 14.3% of net sales for the first quarter of
2008.





The increase in the
percentage of overhead costs to net sales, and to a lesser extent the increase
in the percentage of direct labor costs to net sales, is due, in part, to a
decrease in sales volume which results in a lower absorption
rate.  The increase in the percentage of overhead costs to net sales
also reflects the effect of lower sales volume and the fixed nature of certain
overhead costs.





Freight costs were
approximately 4.9% and 5.3% of net sales for the first quarter of 2009 and 2008,
respectively.  During the first quarter of 2009, the Company
experienced decreased freight costs primarily due to decreased fuel surcharges
as compared to the first quarter of 2008.  Continued strategic
sourcing initiatives and other cost reduction measures also help to mitigate
fluctuations in fuel costs.  These cost reduction measures reduce the
overall effect of freight costs on cost of goods sold as a percentage of net
sales.





Overall, changes in
the cost of products sold (including material, direct labor, overhead and
freight costs) 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 first quarter of 2009 was approximately $113.5
million or 75.7% of the segment’s net sales, as compared to approximately $139.5
million, or 74.1% of the segment’s net sales for the first quarter of
2008.  Cost of products sold in the RVP segment for the first quarter
of 2009 includes a decrease of approximately $7.2 million related to the effect
of changes in foreign currency exchange rates.  The increase in the
percentage of cost of products sold to net sales reflects a decline in sales
volume of kitchen range hoods and bathroom exhaust fans without a proportionate
decrease in overhead costs, as well as an increase in material costs as a
percentage of net sales resulting primarily from purchases of steel and
motors.





In the HTP segment,
cost of products sold for the first quarter of 2009was approximately $56.9
million or 57.8% of the segment’s net sales, as compared to approximately $67.7
million, or 54.6% of the segment’s net sales for the first quarter of
2008.  The increase in the percentage of cost of products sold to net
sales primarily as a result of lower sales without a proportionate decrease in
overhead costs.  Cost of products sold in the HTP segment for the
first quarter of 2009 also reflects a decrease of approximately $0.1 million
related to the effect of changes in foreign currency exchange
rates.





In the R-HVAC
segment, cost of products sold for the first quarter of 2009 was approximately
$73.8 million, or 89.6% of the segment’s net sales, as compared to approximately
$102.6 million, or 85.4% of the segment’s net sales, for the first quarter of
2008.  Material costs in this segment are generally higher as a
percentage of net sales than the Company’s other segments and were approximately
62.6% and 60.7% for the first quarter of 2009 and 2008,
respectively.  The increase in cost of products sold as a percentage
of net sales reflects a decrease in sales volume without a proportionate
decrease in costs and expenses, including material costs relating to purchases
of motors.





In the C-HVAC
segment, cost of products sold for the first quarter of 2009 was approximately
$73.3 million, or 67.7% of the segment’s net sales, as compared to approximately
$81.8 million, or 75.9% of the segment’s net sales, for the first quarter of
2008.  Direct labor costs in this segment are generally higher as a
percentage of net sales than the Company’s other segments and were approximately
13.0% and 11.5% in the first quarter of 2009 and 2008,
respectively.  The decrease in cost of products sold as a percentage
of net sales reflects the effect of approximately $3.9 million of net sales
deferred in 2008, under a large contract, and recognized as revenue upon the
resolution and collection of retainage in the first quarter of 2009 without any
associated costs, as well as, an increase in sales volume without a
proportionate increase in costs and expenses, including a decrease in material
costs as a percentage of net sales.  Cost of products sold in the
C-HVAC segment for the first quarter of 2009 also includes a decrease of
approximately $6.3 million related to the effect of changes in foreign currency
exchange rates.





Selling, General and Administrative
Expense, Net.Consolidated selling, general and administrative
expense, net (“SG&A”) was approximately $101.0 million for the first quarter
of 2009 as compared to approximately $118.5 million for the first quarter of
2008.  SG&A decreased in the first quarter of 2009 as compared to
the same period of 2008, in part, due to cost reduction measures initiated in
2008 and 2009.  SG&A as a percentage of net sales increased from
approximately 21.9% for the first quarter of 2008 to approximately 23.1% for the
first quarter of 2009 as a result of the decline in net sales.





SG&A for the
first quarter of 2009 includes, among others, (1) a charge related to reserves
for amounts due from customers in the RVP, HTP and C-HVAC segments of
approximately $1.0 million, (2) a decrease of approximately $3.8 million related
to the effect of changes in foreign currency exchange rates and (3) net foreign
exchange losses related to transactions, including intercompany debt not
indefinitely invested in Nortek’s subsidiaries of approximately $0.1
million.  SG&A for the first quarter of 2008 includes, among
others, net foreign exchange losses related to transactions, including
intercompany debt not indefinitely invested in Nortek’s subsidiaries of
approximately $0.1 million.





Amortization of Intangible
Assets.  Amortization of intangible assets decreased
approximately $0.8 million from approximately $6.7 million for the first quarter
of 2008 to approximately $5.9 million for the first quarter of
2009.  The decrease is primarily the result of finalizing the fair
value adjustments to intangible assets relating to acquisitions in the RVP and
HTP segments during the first half of 2008.





Depreciation
Expense.  Depreciation expense decreased approximately $1.1
million from approximately $10.7 million for the first quarter of 2008 to
approximately $9.6 million for the first quarter of 2009.  This
decrease is primarily attributable to the decrease in the level of capital
expenditures in the first quarter of 2009 as compared to the first quarter of
2008.





Operating
Earnings.Consolidated operating earnings decreased by
approximately $8.8 million from approximately $23.4 million for the first
quarter of 2008 to approximately $14.6 million for the first quarter of
2009.  The effect of changes in foreign currency exchange rates
decreased operating earnings by approximately $0.6 million for the first quarter
of 2009.  Excluding the effect of changes in foreign currency exchange
rates, operating earnings decreased approximately $8.2 million for the first
quarter of 2009 as compared to the first quarter of 2008.  The
remaining decrease in consolidated operating earnings is primarily due to the
factors discussed above and that follow.





For the first
quarter of 2009, the RVP segment had operating earnings of approximately $9.0
million as compared to approximately $15.9 million for the first quarter of
2008.  This decrease is primarily a result of lower sales volume of
kitchen range hoods and bathroom exhaust fans without a proportionate decline in
overhead costs and an increase in material costs related to purchases of steel
and motors, and includes the effect of the factors discussed below.





Operating earnings
in the RVP segment for the first quarter of 2009 and 2008 also includes the
following other expense (income) items:





First quarter of2009
                        
                        
                        2008(Amounts
      in millions)(1
                        )
                        Decreased
      amortization of intangible assets
                        
                        $
                        (0.2
                        )
                        
                        $
                        ---(2
                        )
                        Decreased
      depreciation expense of property and equipment
                        
                        
                        (0.8
                        )
                        
                        
                        ---(3
                        )
                        Net foreign
      exchange losses related to transactions, including intercompany debt not
      indefinitely invested in Nortek’s subsidiaries
                        
                        
                        0.4
                        
                        
                        
                        0.5(4
                        )
                        A charge
      related to reserves for amounts due from customers
                        
                        
                        0.1
                        
                        
                        
                        ---





For the first
quarter of 2009, the HTP segment had operating earnings of approximately $1.1
million as compared to operating earnings of approximately $10.3 million for the
first quarter of 2008.  This decrease is primarily a result of
decreased sales volume without a proportionate decrease in overhead
costs.





Operating earnings
of the HTP segment for the first quarter of 2009 also reflect (1) a net foreign
exchange loss of approximately $0.2 million related to transactions, (2)
approximately $0.5 million of decreased amortization of intangible assets, (3) a
charge related to reserves for amounts due from customers of approximately $0.6
million and (4) an increase in operating earnings of approximately $0.2 million
related to the effect of changes in foreign currency exchange
rates.





For the first
quarter of 2009, the R-HVAC segment had an operating loss of approximately $5.3
million as compared to operating earnings of approximately $1.0 million for the
first quarter of 2008.  This decrease is primarily the result of
decreased sales volume without a proportionate decrease in costs and expenses,
including material costs relating to purchases of motors.





Operating losses of
the R-HVAC segment for 2009 also reflect approximately $0.2 million of decreased
depreciation expense of property and equipment and approximately $0.1 million of
increased amortization of intangible assets.





For the first
quarter of 2009, the C-HVAC segment had operating earnings of approximately
$16.2 million as compared to approximately $3.7 million for the first quarter of
2008.  This increase is primarily the result of increased sales volume
without a proportionate increase in costs and expenses, including a decrease in
material costs relating to the purchase of steel, copper and aluminum,
approximately $3.9 million of net sales deferred in 2008, under a large
contract, and recognized as revenue upon the resolution and collection of
retainage in the first quarter of 2009 without any associated costs or expenses
and, to a lesser extent, from price increases implemented in
2008.


Operating earnings
of the C-HVAC segment for the first quarter of 2009 also reflect (1) a charge
related to reserves for amounts due from customers of approximately $0.3
million, (2) a net foreign exchange gain of approximately $0.5 million related
to transactions, including intercompany debt not indefinitely invested in
Nortek’s subsidiaries, (3) approximately $0.1 million of decreased amortization
of intangible assets and (4) a decrease in earnings of approximately $0.8
million from the effect of changes in foreign currency exchange
rates.  Operating earnings of the C-HVAC segment for the first quarter
of 2008 reflect net foreign exchange gains of approximately $0.3 million related
to transactions, including intercompany debt not indefinitely invested in
Nortek’s subsidiaries.





Operating earnings
of foreign operations, consisting primarily of the results of operations of the
Company’s Canadian subsidiaries, were approximately 0.5% and 6.1% of operating
earnings (before unallocated and corporate expenses) for the first quarter of
2009 and 2008, respectively.  Net sales and earnings derived from
international markets are subject to, among others, the risks of currency
fluctuations.




Interest
Expense.  Interest expense increased approximately $12.0
million, or approximately 27.9%, during the first quarter of 2009 as compared to
the first quarter of 2008.  This increase is primarily due to the
impact of higher interest rates of approximately $8.9 million as a result of
Nortek’s 10% Senior Secured Notes due December 1, 2013 (the “10% Senior Secured
Notes”) and Nortek’s new five year $350.0 million senior secured asset-based
revolving credit facility (the “ABL Facility”) and higher average principal
balances of approximately $1.7 million.  In addition, the Company’s
interest expense increased approximately $1.1 million in the first quarter of
2009 related to increased amortization of deferred debt expense related to the
additional deferred financing costs associated with Nortek’s 10% Senior Secured
Notes and Nortek’s ABL Facility.





Investment
Income.Investment income for the first quarter of 2009 was
approximately $0.1 million as compared to approximately $0.2 million for the
first quarter of 2008.





Provision for Income
Taxes.The provision for income taxes for the first quarter of
2009 was approximately $8.0 million as compared to a benefit from income taxes
of approximately $5.4 million for the first quarter of 2008.  The
effective income tax rates of approximately (19.9)% and 27.8% for the first
quarter of 2009 and 2008, respectively, differ from the expected United States
federal statutory rate of 35% principally as a result of non-deductible
expenses, increases in valuation allowances against deferred tax assets, state
income tax provisions, the effect of foreign operations and interest on
uncertain tax positions.  The change in the effective income tax rates
between the first quarter of 2009 and 2008 is principally due to increases in
valuation allowances against deferred tax assets and interest on uncertain tax
positions.  See Note E of the Notes to the Unaudited Financial
Statements included elsewhere herein.





Net
Loss.  Consolidated net loss increased by approximately $34.3
million from approximately $14.0 million for the first quarter of 2008 to
approximately $48.3 million for the first quarter of 2009.  This
increase was primarily due to the factors discussed above, which includes a
decrease of approximately $8.8 million in consolidated operating earnings, an
increase of approximately $13.4 million in the provision for income taxes, an
increase of approximately $12.0 million in interest expense and a decrease in
investment income of approximately $0.1 million.





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 therefore, 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 therefore, 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 ABL 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 loss, which is the most directly comparable GAAP
operating performance measure, to EBITDA for thefirstquarterof 2009 and 2008:




For the first quarter
      of2009
                    
                    
                    2008(Dollar amounts in
      millions)Net loss (1),
      (2)
                    
                    $
                    (48.3
                    )
                    
                    $
                    (14.0
                    )Provision (benefit)
      for income taxes
                    
                    
                    8.0
                    
                    
                    
                    (5.4
                    )Interest
      expense  (3)
                    
                    
                    55.0
                    
                    
                    
                    43.0Investment
      income
                    
                    
                    (0.1
                    )
                    
                    
                    (0.2
                    )Depreciation
      expense
                    
                    
                    9.6
                    
                    
                    
                    10.7Amortization
      expense
                    
                    
                    5.9
                    
                    
                    
                    6.7EBITDA
                    
                    $
                    30.1
                    
                    
                    $
                    40.8


(1) Net loss and EBITDA
for the first quarter of 2009 includes a charge related to reserves for amounts
due from customers of approximately $1.0 million and net foreign exchange losses
of approximately $0.1 million related to transactions, including intercompany
debt not indefinitely invested in Nortek’s subsidiaries.





(2) Net
loss and EBITDA for the first quarter of 2008 includes net foreign exchange
losses of approximately $0.1 million related to transactions, including
intercompany debt not indefinitely invested in Nortek’s
subsidiaries.





(3) Interest expense
for the first quarter of 2009 includes cash interest of approximately $35.8
million and non-cash interest of approximately $19.2
million.  Interest expense for the first quarter of 2008 includes cash
interest of approximately $26.0 million and non-cash interest of approximately
$17.0 million.




Liquidity
and Capital Resources





NTK Holdings
conducts no separate operations and acts only as a holding
company.  NTK Holdings’ primary liquidity needs are to service its
outstanding indebtedness.  No cash payments are due under NTK
Holdings’ indebtedness during 2009; however, NTK Holdings has substantial debt
service obligations beginning in the fiscal year ending December 31,
2010.  During 2010, the total of principal and interest payments on
indebtedness owed by the Company, including payments owed by NTK Holdings is
approximately $308.9 million.  In 2010, NTK Holdings alone has cash
debt service obligations of approximately $162.3 million, including a payment of
approximately $147.4 million due on March 1, 2010 under its 10 3/4% Senior
Discount Notes.  Nortek has significant cash payments due on its
indebtedness and certain other specified obligations in 2009 and
thereafter.  For the year ending December 31, 2009, Nortek owes
principal and interest payments on its indebtedness in the total amount of
approximately $164.5 million.  In the fiscal year ending December 31,
2010, the total of principal and interest payments on Nortek’s indebtedness is
approximately $146.6 million.  Nortek’s principal sources of liquidity
include approximately $88.4 million of unrestricted cash and cash equivalents at
April 4, 2009, cash flow from Nortek’s subsidiaries in 2009, Nortek’s ability to
borrow under the terms of its ABL Facility and Nortek’s subsidiaries’
unrestricted cash and cash equivalent balances of approximately $40.0 million at
April 4, 2009.





The ability of NTK Holdings to service
its outstanding indebtedness depends on the likelihood of obtaining additional
capital, restructuring the terms of such indebtedness or obtaining dividends or
other payments from Nortek.  The ability of NTK Holdings to obtain
additional capital is adversely affected by the substantial amount of the
Company’s outstanding indebtedness, including indebtedness of Nortek, which is
structurally senior in right of payment to any new debt or equity financing for
NTK Holdings.  The ability of NTK Holdings to obtain dividends or
other payments from Nortek is constrained by the financial condition and
operating performance of Nortek and its subsidiaries and by the limitations on
making such distributions and other payments contained in the terms of Nortek’s
outstanding indebtedness.





Nortek is under no
obligation to make any distribution or other payment to NTK Holdings even if
Nortek has available cash and the making of such a payment is permitted by the
terms of Nortek’s existing indebtedness.  In light of Nortek’s own
substantial indebtedness and liquidity needs, NTK Holdings believes there is a
substantial likelihood that Nortek will choose not to make a distribution or
other payment to NTK Holdings sufficient to enable NTK Holdings to make the
payments due in 2010 on its outstanding indebtedness, including the payment due
on March 1, 2010 under its 10 3/4% Senior Discount Notes.  The failure
by NTK Holdings to make such payments will constitute events of default under
the documentation governing such indebtedness and will permit the holders of
such indebtedness to accelerate the payment of such indebtedness in
full.  Such defaults, including cross defaults under NTK Holdings’
senior unsecured loan facility, and any related acceleration will likely require
additional equity or a restructuring of the indebtedness, whether pursuant to
privately negotiated transactions or under supervision of an appropriate court
proceeding.





A restructuring of
the indebtedness of NTK Holdings could result in a change of control of
Nortek.  A change
of control may constitute an event of default under Nortek’s ABL Facility and
would also require Nortek to offer to purchase its 10% Senior Secured Notes due 2013 and 8
1/2% Senior Subordinated Notes due 2014at 101% of the principal amount
thereof, together with accrued and unpaid interest.  The failure of
Nortek to complete the purchase of any notes tendered pursuant to such offer,
whether due to lack of funds or otherwise, would constitute an event of default
under the indentures governing such notes.  Such defaults, including
cross defaults under substantially all of Nortek’s outstanding indebtedness, and
any related acceleration will likely require additional equity or a
restructuring of the indebtedness, whether pursuant to privately negotiated
transactions or under supervision of an appropriate court
proceeding.





Critical factors in
the Company’s future performance, including the level of the Company’s sales,
profitability and cash flows, are the levels of residential remodeling and
replacement activity and new residential and non-residential construction
activity.  The level of new residential and non-residential
construction activity and, to a lesser extent, the level of residential
remodeling and replacement activity are affected by seasonality and cyclical
factors such as interest rates, inflation, consumer spending habits, employment
levels and other macroeconomic factors, over which the Company has no
control.  Any decline in economic activity as a result of these or
other factors typically results in a decline in new construction and, to a
lesser extent, residential remodeling and replacement purchases, which would
result in a decrease in the Company’s sales, profitability and cash
flows.





The severe impact
of the worldwide crisis in the credit and financial markets in the second
half of 2008 and the first quarter of 2009, the instability in the troubled
mortgage market, rising unemployment and decreasing home values have had a
negative impact on residential new construction activity, consumer disposable
income and spending on home remodeling and repair expenditures.  These
factors have had an adverse effect on the Company’s operating results for the
first quarter of 2009 and are expected to continue throughout the remainder of
2009.





During 2008, and
continuing into the first quarter of 2009, the Company instituted cost reduction
measures by implementing initiatives to significantly reduce discretionary
spending and achieve reductions in workforce across all of its businesses given
the rapidly changing and challenging economic environment.  As a
result of these initiatives, the Company expects to reduce expense levels by an
amount between $50 million and $60 million in 2009 over 2008 levels, of which
the Company estimates approximately $19.8 million in cost reductions was
achieved during the first quarter of 2009 as compared to the first quarter of
2008.  The Company’s total selling, general and administrative
expense, net was approximately $17.5 million lower, while overhead expense
charged to cost of products sold was approximately $4.7 million lower for the
first quarter of 2009 over the first quarter of 2008.  These lower
expense levels reflect both reductions in spending levels and lower expenses, in
part, as a result of a decline in sales volume.  There can be no
assurance that these cost reduction measures will continue to be
successful.





The Company’s
outlook for 2009 is for the challenging market conditions to
continue.  Additionally, the weak economy and credit market is
expected to continue to impact the level of residential new construction, as
well as consumer confidence and the related spending on home remodeling and
repair expenditures.  The Company is looking at its business with a
long-term view and a continued focus on its low-cost country sourcing strategy
and cost reduction initiatives.  Balance sheet management is an
extremely important priority for all of the Company’s businesses so it can
maximize cash flow from operating activities.  During this challenging
environment, the Company will only fund necessary capital investments that will
improve its business operations.





The Company has
accumulated significant amounts of cash and its unrestricted cash balances at
April 4, 2009 were approximately $128.4 million.  In addition, as
noted above the Company has instituted certain strategies to significantly
reduce spending levels in 2009 in a manner to minimize the impact on its
customers, suppliers, market shares or their brands.  The Company
believes that these measures will allow the Company to continue to maintain its
business operations through the expected downturn in sales
activity.





In addition,
uncertainties due to the significant instability in the mortgage markets and the
resultant impact on the overall credit market could continue to adversely impact
the Company’s business.  The tightening of credit standards and the
decrease in home values are expected to result in a decline in consumer spending
for home remodeling and replacement projects which could continue to adversely
impact the Company’s operating results and the cash flow from its
subsidiaries.  Additionally, increases in the cost of home mortgages
and the difficulty in obtaining financing for new homes could continue to
materially impact the sales of the Company’s products in the residential
construction market.





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 agreements that
govern the terms of the Company’s debt, including the indentures that govern NTK
Holdings’ 10 3/4% Senior Discount Notes, Nortek’s 10% Senior Secured Notes and
Nortek’s 8 1/2% senior subordinated notes and the credit agreements that govern
NTK Holdings’ senior unsecured loan facility and Nortek’s ABL Facility, contain
covenants that restrict the Company’s ability and the ability of its
subsidiaries to incur additional indebtedness, pay dividends or make other
distributions, make loans or investments, incur certain liens, enter into
transactions with affiliates and consolidate, merge or sell assets.





The indentures that govern Nortek’s 10%
Senior Secured Notes and Nortek’s 8 1/2% Senior Subordinated Notes limit
Nortek’s ability to make certain payments, including dividends, loans or
investments or the redemption or retirement of any equity interests and
indebtedness subordinated to the notes.  These limitations are based
on a calculation of net income, equity issuances, receipt of capital
contributions and return on certain investments (as definedby the respective
indentures)since August 27,
2004.  Theamount
of the permitted payments depends in part on baskets which are available only if
Nortek meets certain financial tests.  No assurance can be given that
Nortek will have sufficient capacity under these limitations to make payments to
NTK Holdings to enable it to satisfy its debt service
obligations.As
ofApril4, 2009, Nortek had the capacity to make
certain payments, including dividends, of up to approximately $145.9million.Nortek is
under no obligation to make any distribution or other payment to NTK Holdings
even if Nortek has available cash and the making of such a payment is permitted
by the terms of its existing indebtedness.





At April 4, 2009, NTK Holdings had
approximately $6.9million available for the payment of
cash dividends, stock purchases or other restricted payments under the terms of
the indenture governing its 10 3/4% Senior Discount Notes and the agreement
governing its senior unsecured loan facility.





At December 31,
2008, the Company’s Best subsidiary was not in compliance with a maintenance
covenant with respect to two loan agreements with aggregate borrowings
outstanding of approximately $6.8 million.  Non-compliance with these
two long-term debt agreements would have resulted in non-compliance with two
other long-term debt agreements totaling approximately $5.3 million at December
31, 2008.  The Company’s Best subsidiary obtained waivers from the
bank, which indicated that the Company’s Best subsidiary was not required to
comply with the maintenance covenant as of December 31, 2008.  The
next measurement date for the maintenance covenant is for the year ended
December 31, 2009 and the Company believes that it is probable that its Best
subsidiary will not be in compliance with the maintenance covenant when their
assessment of the required calculation is completed in the first quarter of
2010.  The Company and its Best subsidiary are currently in
negotiations to refinance these two loan agreements; however as of April 4,
2009, a definitive agreement was not signed.  As a result, the Company
has classified approximately $6.6 million and $8.1 million of outstanding
borrowings under such “long-term debt” agreements as a current liability on its
consolidated balance sheet at April 4, 2009 and December 31, 2008,
respectively.  The Company and its Best subsidiary will continue to
negotiate the refinancing of these debt obligations; however no assurance can be
given that it will be successful in obtaining a refinancing, amendment or waiver
on terms acceptable to the Company.  Accordingly, Nortek could be
required to repay approximately $6.6 million at December 31, 2009 related to
these loans in an event of non-compliance.





In May 2009,
Moody’s affirmed its debt ratings for Nortek and NTK Holdings of “Caa2” and
affirmed its negative outlook.  Moody’s rating affirmation reflected
the Company’s high leverage, reduced financial flexibility and the anticipated
continuing difficulties in the new home construction market and depressed home
values on the Company’s 2009 financial performance.  The negative
ratings outlook reflects Moody’s concern that the market for the Company’s
products will remain under significant pressure so long as new housing starts do
not rebound and that the repair and remodeling market could contract further in
2009.  Additionally, Moody’s was concerned whether the Company’s cost
cutting initiatives would be successful enough to offset pressure on the
Company’s sales.





InApril 2009, Standard & Poor's(“S&P”)Ratings Services lowered its
corporatecredit rating on Nortekand issued a negative
outlook.  Additionally S&Ploweredthe issue-level rating on Nortek's10%senior secured notes due
2013and onNortek’s8 1/2%senior subordinated notes due
2014.  In addition, S&P loweredthe corporate credit rating on NTK
Holdings and lowered the issue-level rating on NTKHoldings’10 3/4%senior discount notes due 2014.These rating actions reflectS&P’sexpectations that NTK Holdings
andNortek's ability to service its current
capital structure over the next yearwill be challenged as difficult
operating conditions are likely to continuedue to depressed new residential
construction markets and an expected declinein remodeling and commercial
construction activity.





The Company had
consolidated debt at April 4, 2009 of approximately $2,236.7 million consisting
of the following:





(Amounts
      in millions)NTK Holdings’ 10 3/4% Senior
      Discount Notes due 2014(“10 3/4% Notes”), net of unamortized discount of
      approximately $17.2million
                      
                      $
                      385.8NTK Holdings’ senior unsecured
      loan facility due 2014, including approximately $63.5million of debt accretion related
      to the PIK option *
                      
                      
                      265.2Subtotal
                      
                      
                      651.0Nortek’s 10% Senior Secured Notes
      due 2013, net of
      unamortized discount of approximately $6.8million
                      
                      
                      743.2Nortek’s 8 1/2% Senior
      Subordinated Notes due 2014 (“8 1/2% Notes”)
                      
                      
                      625.0Nortek’s ABL
      Facility
                      
                      
                      145.0Nortek’s long-term notes, mortgage
      notes and other indebtedness
                      
                      
                      38.2Nortek’s short-term bank
      obligations
                      
                      
                      24.3Nortek’s 9 7/8% Senior
      Subordinated Notes due 2011, including unamortized
      premium
                      
                      
                      10.0Subtotal
                      
                      
                      1,585.7Consolidated debt at April 4,
      2009
                      
                      $
                      2,236.7





*
            Also net of approximately
      $3.3million of unamortized debt
      discount atApril4, 2009.





During the first
quarter of 2009, the Company had a net increase in its consolidated debt of
approximately $2.9 million resulting from:





(Amounts
      in millions)Non-cash
      interest activity (1)
                          
                          $
                          16.9Other debt
      activity (2)
                          
                          
                          (14.0
                          )$
                          2.9





(1) Debt activity
related to non-cash interest activity is comprised of the
following:





(Amounts
      in millions)Debt
      accretion relating to NTK Holdings’
                        10 3/4% Senior Discount Notes
                      
                      $
                      9.9Debt
      accretion relating to the PIK option on NTK Holdings’ senior unsecured
      loan facility
                      
                      
                      6.5Amortization
      of debt discount, net relating to NTK Holdings’ senior unsecured loan
      facility and Nortek’s 10% Senior Secured Notes
                      
                      
                      0.5$
                      16.9





(2) Other debt activity
is comprised of the following:





(Amounts
      in millions)Principal
      payments
                    
                    $
                    (12.3
                    )Changes in
      foreign currency exchange rates and other
                    
                    
                    (1.7
                    )$
                    (14.0
                    )


NTK Holdings and
its subsidiaries, including Nortek, affiliates or significant shareholders may
from time to time, in their sole discretion, purchase, repay, refinance, redeem
or retire any of its outstanding debt (including publicly issued debt), in
privately negotiated or open market transactions, by tender offer or otherwise,
which may be subject to restricted payment limitations.  Certain
executive officers of Nortek and THL Advisors, through limited partnerships,
purchased for approximately $29.1 million in cash approximately $78.5 million of
accreted value at December 31, 2008 of NTK Holdings’ senior unsecured loan
facility in a negotiated transaction during the fourth quarter of
2008.





From time to time,
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, but does not
expect to consummate any acquisitions in 2009.  Contingent
consideration of approximately $14.1 million related to the acquisition of
Gefen, Inc., which was accrued for at December 31, 2008, was paid during the
first quarter of 2009.  The remaining estimated total maximum
potential amount of contingent consideration that may be paid in the future for
all completed acquisitions is approximately $11.3 million.





As noted
previously, the Company expects to meet its cash flow requirements for fiscal
2009, including debt repayments and payments related to acquisitions, from
existing cash and cash equivalents, cash from operations and the use of
borrowings under Nortek’s ABL Facility.  Nortek and its subsidiaries
have entered into a number of operating lease obligations, purchase obligations
and have guaranteed certain obligations of these parties, however, no
significant changes in these obligations have occurred since December 31,
2008.





The Company’s combined short-term and
long-term product liability accruals increased from approximately $39.5 million
at December 31, 2008 to approximately $42.0million at April 4,
2009.  Product liability expense increased from approximately $2.9
million for the firstquarter of 2008 to approximately $3.6
million for the first quarter of 2009.  This increase in expense is
primarily the result of the RVP segment, which experienced an increase in
product liability expense of approximately $0.7 million in the first quarter of
2009 as compared to the first quarter of 2008.  The Company records
insurance liabilities and related expenses for product and general liability
losses in accordance with either the contractual terms of its policies or, if
self-insured, the total liabilities that are estimable and probable as of the
reporting date (see NoteFof theNotes to the Unaudited Financial
Statements included elsewhere herein).





The Company’s
combined short-term and long-term warranty accruals increased from approximately
$51.5 million at December 31, 2008 to approximately $51.8 million at April 4,
2009.  Warranty expense decreased only slightly from approximately
$7.3 million for the first quarter of 2008 to approximately $7.1 million for the
first quarter of 2009.  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 (see Note F
of the Notes to the Unaudited Financial Statements included elsewhere
herein).





Unrestricted cash
and cash equivalents decreased from approximately $182.2 million at December 31,
2008 to approximately $128.4 million at April 4, 2009 primarily as a result of
interest payments of approximately $32.0 million on Nortek’s 8 1⁄2% Notes and
other debt, approximately $14.1 million of contingent consideration paid in 2009
which was earned in 2008 and principal payments on the Company’s debt of
approximately $12.3 million.  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 April 4, 2009, approximately $3.3 million (of which
approximately $2.4 million is included in long-term assets) of cash and cash
equivalents were held primarily as collateral to fund certain benefit
obligations relating to supplemental executive retirement plans.





Capital
expenditures were approximately $2.5 million for the first quarter of 2009 as
compared to approximately $7.3 million for the first quarter of
2008.  Capital expenditures were approximately $25.4 million for the
year ended December 31, 2008 and are expected to be between approximately $15.0
million and $20.0 million in 2009.





The Company’s
working capital and current ratio decreased from approximately $348.3 million
and 1.8:1, respectively, at December 31, 2008 to approximately $211.8 million
and 1.4:1, respectively, at April 4, 2009.  This decrease in working
capital was primarily a result of the reclassification of approximately $125.7
million in debt obligations related to NTK Holdings’ 10 3⁄4% Notes which are due
on March 1, 2010 and a decrease in unrestricted cash of approximately $53.8
million as discussed above.  These factors in the change in working
capital were partially offset by decreases in accounts payable and accrued
expenses and taxes, net, as described further below and previously.





Accounts receivable
decreased approximately $2.9 million, or approximately 1.1%, between December
31, 2008 and April 4, 2009, while net sales decreased approximately $60.8
million, or approximately 12.2%, in the first quarter of 2009 as compared to the
fourth quarter of 2008.  This decrease in accounts receivable is
primarily the result of decreased sales in the Company’s RVP and HTP
segments.  The resolution and collection of retainage under a large
contract in the C-HVAC segment in the first quarter of 2009 and the effect of
changes in foreign currency exchange rates decreased accounts receivable at
April 4, 2009 by approximately $3.9 million and $1.2 million,
respectively.  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 April 4, 2009 as compared to December 31,
2008.  Accounts receivable from customers related to foreign
operations decreased approximately $14.7 million, or approximately 16.1%,
between December 31, 2008 and April 4, 2009.





Inventories
increased approximately $0.7 million, or approximately 0.2%, between December
31, 2008 and April 4, 2009 primarily as a result of increased inventories in the
R-HVAC and C-HVAC segments in anticipation of higher sales levels in the second
quarter of 2009 versus the first quarter of 2009, partially offset by lower
inventories in the RVP and HTP segments as a result of lower sales
levels.  The effect of
changes in foreign currency exchange ratesdecreased inventory atApril4, 2009by approximately $0.5million.





Accounts payable
decreased approximately $12.5 million, or 8.2%, between December 31, 2008 and
April 4, 2009 primarily due to decreases in the RVP and HTP segments, and to a
lesser extent in the C-HVAC segment, partially offset by an increase in the
R-HVAC segment which increased its inventories in anticipation of higher sales
levels in the second quarter of 2009 as compared to the first quarter of
2009.  The decrease also
reflects the effect of
changes in foreign currency exchange rateswhich resulted in a decrease
toaccounts payable atApril4, 2009ofapproximately $0.9million.





Accrued expenses and taxes, net
decreased approximately $19.8 million, or approximately 9.1%, between December
31, 2008 and April 4, 2009 primarily as a result of contingent consideration
payments of approximately $14.1 million which were accrued at December 31, 2008
and were paid in the first quarter of 2009.





Changes in certain
working capital accounts, as noted above, between December 31, 2008 and April 4,
2009, differ from the changes reflected in the Company’s consolidated statement
of cash flows for such period as a result of the specific items mentioned in the
four 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 decreased approximately $25.4 million from net cash
provided by operating activities of approximately $0.5 million for the first
quarter of 2008 to net cash used in operating activities of approximately $24.9
million for the first quarter of 2009.  This was primarily the net
result of an increase in the net loss of approximately $34.3 million, partially
offset by an increase in the deferred federal income tax provision (benefit) of
approximately $12.4 million and other non-cash items of approximately $0.2
million.  An increase in working capital and other of approximately
$3.7 million was also a factor.  Net cash flows used in investing
activities increased by approximately $8.3 million from approximately $8.4
million for the first quarter of 2008 to approximately $16.7 million for the
first quarter of 2009.  This increase was primarily due to an increase
in payments for acquisitions of approximately $14.1 million, offset by a
decrease in the level of capital expenditures of approximately $4.8
million.  Net cash flows from financing activities decreased by
approximately $19.7 million from net cash provided by financing activities of
approximately $7.5 million for the first quarter of 2008 to net cash used in
financing activities of approximately $12.2 million for the first quarter of
2009 as a result of a decrease in net borrowings.  As discussed
earlier, the Company generally uses cash flows from operations, and where
necessary borrowings, to finance its capital expenditures and strategic
acquisitions, to meet the service requirements of its existing indebtedness and
for working capital and other general corporate purposes.


Unrestricted cash
and cash equivalents decreased approximately $53.8 million from December 31,
2008 to April 4, 2009 and approximately $0.4 million from December 31, 2007 to
March 29, 2008, principally as a result of the following:




Condensed
      ConsolidatedCash Flows
    (1)For the first quarter
      of2009
                          
                          
                          2008(Dollar amounts in
      millions)Operating
      Activities:Cash flow from
      operations, net
                          
                          $
                          (10.2
                          )
                          
                          $
                          11.5Change in accounts
      receivable, net
                          
                          
                          3.0
                          
                          
                          
                          (4.6
                          )Change in
      inventories
                          
                          
                          (1.3
                          )
                          
                          
                          (28.8
                          )Change in prepaids
      and other current assets
                          
                          
                          (0.3
                          )
                          
                          
                          (3.2
                          )Change in accounts
      payable
                          
                          
                          (11.6
                          )
                          
                          
                          43.4Change in accrued
      expenses and taxes
                          
                          
                          (6.3
                          )
                          
                          
                          (19.7
                          )Investing
      Activities:Capital
      expenditures
                          
                          
                          (2.5
                          )
                          
                          
                          (7.3
                          )Net cash paid for
      businesses acquired
                          
                          
                          (14.1
                          )
                          
                          
                          ---Proceeds from the
      sale of property and equipment
                          
                          
                          0.1
                          
                          
                          
                          0.1Change in restricted
      cash and marketable securities
                          
                          
                          (0.2
                          )
                          
                          
                          ---Financing
      Activities:Change in borrowings,
      net
                          
                          
                          (12.3
                          )
                          
                          
                          7.4Other, net
                          
                          
                          1.9
                          
                          
                          
                          0.8$
                          (53.8
                          )
                          
                          $
                          (0.4
                          )





(1)
            Summarized
      from the Company’s unaudited condensed consolidated statement of cash
      flows for the first quarter of 2009 and 2008 (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 an operating performance
measure.  Liquidity measure disclosures with respect to EBITDA are
provided below.  Refer to the Results of Operations section for
operating performance measure disclosures with respect to EBITDA and a
reconciliation from net earnings (loss) to EBITDA.





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





Company management
uses EBITDA as a supplementary non-GAAP liquidity measure to allow the Company
to evaluate its operating units’ cash-generating ability to fund income tax
payments, corporate overhead, debt service, 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 ABL 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) provided by operating
activities, which is the most directly comparable GAAP liquidity measure, to
EBITDA for the first quarter of 2009 and 2008:






For the first quarter
      of2009
                      
                      
                      2008(Dollar amounts in
      millions)Net cash (used in)
      provided by operating activities
                      
                      $
                      (24.9
                      )
                      
                      $
                      0.5Cash used by working
      capital and other long-termasset and liability
      changes
                      
                      
                      14.7
                      
                      
                      
                      11.0Deferred federal
      income tax (provision) benefit
                      
                      
                      (3.5
                      )
                      
                      
                      8.9Gain on sale of
      property and equipment
                      
                      
                      0.1
                      
                      
                      
                      ---Non-cash interest
      expense, net
                      
                      
                      (19.2
                      )
                      
                      
                      (17.0
                      )Provision (benefit)
      for income taxes
                      
                      
                      8.0
                      
                      
                      
                      (5.4
                      )Interest expense
      (3)
                      
                      
                      55.0
                      
                      
                      
                      43.0Investment
      income
                      
                      
                      (0.1
                      )
                      
                      
                      (0.2
                      )EBITDA (1),
    (2)
                      
                      $
                      30.1
                      
                      
                      $
                      40.8







(1) EBITDA
for the first quarter of 2009 includes a charge related to reserves for amounts
due from customers of approximately $1.0 million and net foreign exchange losses
of approximately $0.1 million related to transactions, including intercompany
debt not indefinitely invested in Nortek’s subsidiaries.





(2) EBITDA
for the first quarter of 2008 includes net foreign exchange losses of
approximately $0.1 million related to transactions, including intercompany debt
not indefinitely invested in Nortek’s subsidiaries.





(3) Interest expense
for the first quarter of 2009 includes cash interest of approximately $35.8
million and non-cash interest of approximately $19.2
million.  Interest expense for the first quarter of 2008 includes cash
interest of approximately $26.0 million and non-cash interest of approximately
$17.0 million.




Inflation,
Trends and General Considerations





From time to time,
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 does not expect to consummate any
acquisitions in 2009.





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





The severe impact
of the worldwide crisis in the credit and financial markets in the second
half of 2008 and the first quarter of 2009, the instability in the troubled
mortgage market, rising unemployment and decreasing home values have had a
negative impact on residential new construction activity, consumer disposable
income and spending on home remodeling and repair expenditures.  Total
industry housing starts in the United States declined 51% in the first quarter
of 2009 over the first quarter of 2008, while residential improvement spending
declined 8% in the first quarter of 2009 over the first quarter of
2008.  In addition, industry central air conditioning and heat pump
shipments declined 25% in the first quarter of 2009 over the first quarter of
2008.  These factors have had an adverse effect on the Company’s
operating results for the first quarter of 2009 and are expected to continue
throughout the remainder of 2009.





During 2008, and
continuing into the first quarter of 2009, the Company instituted cost reduction
measures by implementing initiatives to significantly reduce discretionary
spending and achieve reductions in workforce across all of its businesses given
the rapidly changing and challenging economic environment.  As a
result of these initiatives, the Company expects to reduce expense levels by an
amount between $50 million and $60 million in 2009 over 2008 levels, of which
the Company estimates approximately $19.8 million in cost reductions was
achieved during the first quarter of 2009 as compared to the first quarter of
2008.  The Company’s total selling, general and administrative
expense, net was approximately $17.5 million lower, while overhead expense
charged to cost of products sold was approximately $4.7 million lower for the
first quarter of 2009 over the first quarter of 2008.  These lower
expense levels reflect both reductions in spending levels and lower expenses, in
part, as a result of a decline in sales volume.  There can be no
assurance that these cost reduction measures will continue to be
successful.





The Company is
subject to the effects of changing prices and the impact of inflation which
could have a significant adverse effect on its results of operations for the
periods presented.  In some circumstances, market conditions or
customer expectations may prevent the Company from increasing the prices of its
products to offset the inflationary pressures that may increase costs in the
future.  During the first quarter of 2009, the Company experienced
lower material costs as compared to the first quarter of 2008 related primarily
to purchases of steel, copper and aluminum and related purchased components,
such as compressors and fans/blowers.  Additionally, during the first
quarter of 2009, the Company experienced decreased freight costs primarily due
to decreased fuel surcharges as compared to the same period of
2008.  Continued strategic sourcing initiatives and improvements in
manufacturing efficiency, as well as sales price increases, help to mitigate
fluctuations in these costs.





As of April 4,
2009, approximately 8.2% of the Company’s workforce was subject to various
collective bargaining agreements.





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





Market
Risk





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





A.                       
Interest Rate Risk





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





The Company’s
investing strategy, to manage interest rate exposure, is to invest in
short-term, highly liquid investments and marketable
securities.  Short-term investments primarily consist of federal
agency discount notes, treasury bills and bank issued money market instruments
with original maturities of 90 days or less.  At April 4, 2009, the
fair value of the Company’s unrestricted and restricted investments and
marketable securities was not materially different from their cost
basis.





The Company manages
its borrowing exposure to changes in interest rates by optimizing the use of
fixed rate debt with extended maturities.  At April 4, 2009,
approximately 80.9% of the carrying value of the Company’s long-term debt was at
fixed interest rates.  The remaining portion of the Company’s
long-term debt is at variable interest rates.  Based upon interest
rates in effect at April 4, 2009, an overall unfavorable change in interest
rates of 100 basis points would result in an additional charge to interest
expense for the remaining nine months of 2009 of approximately $3.2
million.





B.                       
Foreign Currency Risk





The Company’s
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of currencies in foreign markets primarily
related to changes in the Euro, the Canadian Dollar and the British
Pound.  In the first quarter of 2009, the net impact of changes in
foreign currency exchange rates was not material to the Company’s financial
condition or results of operations.  The impact of changes in foreign
currency exchange rates related to translation resulted in a decrease in
stockholder’s investment of approximately $1.7 million for the first quarter
ended April 4, 2009.  The Company manages its exposure to foreign
currency exchange risk principally by trying to minimize the Company’s net
investment in foreign assets, including, the use of strategic short and
long-term borrowings at the foreign subsidiary level.  Consistent with
this strategy, notes payable and other short-term obligations at April 4, 2009
consist primarily of short-term borrowings by certain of the Company’s foreign
subsidiaries.  The Company generally does not enter into derivative
financial instruments to manage foreign currency exposure.  At April
4, 2009, 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, aluminum, plate
mirror glass, various chemicals, paints, plastics, motors and
compressors.  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 April 4, 2009, the Company did not
have any material outstanding commodity forward contracts.





Forward-Looking
Statements





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





Item
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
2.                      Unregistered
Sales of Equity Securities and Use of Proceeds





The Company and its
subsidiaries, affiliates or significant shareholders may from time to time, in
their sole discretion, purchase, repay, redeem or retire any of the Company’s
outstanding debt (including publicly issued debt), in privately negotiated or
open market transactions, by tender offer or otherwise.





Item
6.                      Exhibits





The items marked
with an asterisk are filed herewith.





3.1
              Amended and
      Restated Certificate of Incorporation of Nortek, Inc. (Exhibit 3.1 to
      Nortek Form S-4 filed October 22, 2004).3.2
              By-Laws of
      Nortek, Inc. (Exhibit 3.2 to Nortek Form S-4 filed October 22,
      2004).3.3
              Certificate
      of Incorporation of NTK Holdings (Exhibit 3.1 to NTK Holdings S-4 filed
      July 5, 2005).3.4
              By-Laws of
      NTK Holdings, Inc. (Exhibit 3.2 to NTK Holdings S-4 filed July 5,
      2005).*
              31.1
              Certificate
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
              31.2
              Certificate
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.*
              32
              Certificate
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      1350, Chapter 63 of Title 18, United States Code, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002.









SIGNATURE














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








NTK HOLDINGS, INC.


(Registrant)














/s/ Almon C.
      Hall


Almon C.
Hall,


Vice President and
Chief


Financial
Officer

















May 19,
2009