jun3007_10qntk.htm

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 June 30, 2007

[ ] 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: 333-119902

Nortek, Inc.
(exact name of registrant as specified in its charter)

Delaware	05-0314991
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

50 Kennedy Plaza Providence, Rhode Island	02903-2360
(Address of principal executive offices)	(zip code)

Registrant’s Telephone Number, Including Area Code: (401) 751-1600

Securities registered pursuant to Section 12(b) of the Act: None

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

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

Large accelerated filer [_]

Accelerated Filer [_]

Non-accelerated filer [X]

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

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

The number of shares of Common Stock outstanding as of August 10, 2007 was 3,000.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Dollar amounts in millions, except share data)

	June 30,		December 31,
	2007		2006
Assets
Current Assets:
Unrestricted cash and cash equivalents	$	75.3	$	57.4
Restricted cash		1.3		1.2
Accounts receivable, less allowances of $12.9 and $9.4		384.4		328.9
Inventories:
Raw materials		93.0		83.1
Work in process		33.6		28.7
Finished goods		193.6		166.8
		320.2		278.6

Prepaid expenses		13.5		13.7
Other current assets		11.4		24.4
Prepaid income taxes		30.2		21.2
Total current assets		836.3		725.4

Property and Equipment, at Cost:
Land		9.9		9.5
Buildings and improvements		104.1		101.9
Machinery and equipment		192.8		177.2
		306.8		288.6
Less accumulated depreciation		84.4		66.1
Total property and equipment, net		222.4		222.5

Other Assets:
Goodwill		1,509.3		1,481.4
Intangible assets, less accumulated amortization of $65.2 and $52.4		142.0		150.4
Deferred debt expense		30.2		33.1
Restricted investments and marketable securities		2.0		3.3
Other assets		12.7		11.2
		1,696.2		1,679.4
Total Assets	$	2,754.9	$	2,627.3

Liabilities and Stockholder’s Investment

Current Liabilities:
Notes payable and other short-term obligations	$	99.4	$	23.3
Current maturities of long-term debt		26.9		20.0
Accounts payable		243.8		188.2
Accrued expenses and taxes, net		235.0		282.8
Total current liabilities		605.1		514.3

Other Liabilities:
Deferred income taxes		29.2		33.9
Long-term payable to affiliate		30.0		24.9
Other		144.5		128.8
		203.7		187.6

Notes, Mortgage Notes and Obligations Payable, Less Current Maturities		1,349.6		1,362.3

Stockholder’s Investment:
Common stock, $0.01 par value, authorized 3,000 shares; 3,000 issued and
outstanding at June 30, 2007 and December 31, 2006		---		---
Additional paid-in capital		412.3		412.1
Retained earnings		164.1		139.4
Accumulated other comprehensive income		20.1		11.6
Total stockholder's investment		596.5		563.1
Total Liabilities and Stockholder's Investment	$	2,754.9	$	2,627.3

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the second quarter ended
	June 30, 2007			July 1, 2006
	(Dollar amounts in millions)

Net Sales	$	644.3		$	563.8

Costs and Expenses:
Cost of products sold		452.1			393.7
Selling, general and administrative expense, net (see Note D)		121.1			67.3
Amortization of intangible assets		6.4			5.8
		579.6			466.8
Operating earnings		64.7			97.0
Interest expense		(30.8	)		(28.0	)
Investment income		0.5			0.5
Earnings before provision for income taxes		34.4			69.5
Provision for income taxes		15.7			26.4
Net earnings	$	18.7		$	43.1

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	For the first six months ended
	June 30, 2007			July 1, 2006
	(Dollar amounts in millions)

Net Sales	$	1,196.8		$	1,098.3

Costs and Expenses:
Cost of products sold		836.7			764.2
Selling, general and administrative expense, net (see Note D)		238.1			162.4
Amortization of intangible assets		12.4			10.0
		1,087.2			936.6
Operating earnings		109.6			161.7
Interest expense		(60.0	)		(56.0	)
Investment income		0.9			1.2
Earnings before provision for income taxes		50.5			106.9
Provision for income taxes		22.6			40.6
Net earnings	$	27.9		$	66.3

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	For the first six months ended
	June 30, 2007			July 1, 2006
	(Dollar amounts in millions)
Cash Flows from operating activities:
Net earnings	$	27.9		$	66.3

Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expense		31.1			28.3
Non-cash interest expense, net		2.8			2.5
Non-cash stock-based compensation expense		0.2			0.2
Gain from curtailment of post-retirement medical benefits		---			(35.9	)
Loss on property and equipment		0.2			1.8
Deferred federal income tax provision		4.1			7.4
Changes in certain assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable, net		(47.2	)		(28.5	)
Inventories		(33.7	)		(37.9	)
Prepaids and other current assets		2.3			5.3
Accounts payable		49.5			27.4
Accrued expenses and taxes		9.7			18.3
Long-term assets, liabilities and other, net		(0.8	)		2.8
Total adjustments to net earnings		18.2			(8.3	)
Net cash provided by operating activities		46.1			58.0
Cash Flows from investing activities:
Capital expenditures		(14.1	)		(22.7	)
Net cash paid for businesses acquired		(76.3	)		(56.9	)
Payment in connection with NTK Holdings senior unsecured loan facility rollover		(4.5	)		---
Proceeds from the sale of property and equipment		0.1			2.6
Change in restricted cash and marketable securities		1.2			---
Other, net		(0.6	)		(2.6	)
Net cash used in investing activities		(94.2	)		(79.6	)
Cash Flows from financing activities:
Increase in borrowings		89.0			68.9
Payment of borrowings		(23.0	)		(40.0	)
Dividends		---			(28.1	)
Other, net		---			(1.5	)
Net cash provided by (used in) financing activities		66.0			(0.7	)
Net change in unrestricted cash and cash equivalents		17.9			(22.3	)
Unrestricted cash and cash equivalents at the beginning of the period		57.4			77.2
Unrestricted cash and cash equivalents at the end of the period	$	75.3		$	54.9

Supplemental disclosure of cash flow information:

Interest paid	$	52.8		$	53.8

Income taxes (refunded) paid, net	$	(0.4	)	$	14.4

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE SECOND QUARTER ENDED JULY 1, 2006

(Dollar amounts in millions)

							Accumulated
	Additional						Other
	Paid-in			Retained			Comprehensive		Comprehensive
	Capital			Earnings			Income		Income


Balance, April 1, 2006	$	415.3		$	101.0		$	8.1	$	---
Net earnings		---			43.1			---		43.1
Other comprehensive income:
Currency translation adjustment		---			---			6.3		6.3
Comprehensive income									$	49.4
Capital contribution from (dividend to) parent		1.5			(28.1	)		---
Adjustment of carryover basis of continuing
management investors in the THL Transaction		(4.9	)		---			---
Stock-based compensation		0.1			---			---
Balance, July 1, 2006	$	412.0		$	116.0		$	14.4

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE FIRST SIX MONTHS ENDED JULY 1, 2006

(Dollar amounts in millions)

							Accumulated
	Additional						Other
	Paid-in			Retained			Comprehensive		Comprehensive
	Capital			Earnings			Income		Income


Balance, December 31, 2005	$	415.0		$	77.8		$	7.5	$	---
Net earnings		---			66.3			---		66.3
Other comprehensive income:
Currency translation adjustment		---			---			6.9		6.9
Comprehensive income									$	73.2
Capital contribution from (dividend to) parent		1.7			(28.1	)		---
Adjustment of carryover basis of continuing
management investors in the THL Transaction		(4.9	)		---			---
Stock-based compensation		0.2			---			---
Balance, July 1, 2006	$	412.0		$	116.0		$	14.4

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE SECOND QUARTER ENDED JUNE 30, 2007

(Dollar amounts in millions)

					Accumulated
	Additional				Other
	Paid-in		Retained		Comprehensive			Comprehensive
	Capital		Earnings		Income (Loss)			Income (Loss)


Balance, March 31, 2007	$	412.2	$	145.4	$	13.0		$	---
Net earnings		---		18.7		---			18.7
Other comprehensive income (loss):
Currency translation adjustment		---		---		7.2			7.2
Pension liability adjustment		---		---		(0.1	)		(0.1	)
Comprehensive income								$	25.8
Adoption of FIN 48 (see Note F)		---		---		---
Stock-based compensation		0.1		---		---
Balance, June 30, 2007	$	412.3	$	164.1	$	20.1

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

NORTEK, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S INVESTMENT

FOR THE FIRST SIX MONTHS ENDED JUNE 30, 2007

(Dollar amounts in millions)

						Accumulated
	Additional					Other
	Paid-in		Retained			Comprehensive			Comprehensive
	Capital		Earnings			Income (Loss)			Income (Loss)


Balance, December 31, 2006	$	412.1	$	139.4		$	11.6		$	---
Net earnings		---		27.9			---			27.9
Other comprehensive income (loss):
Currency translation adjustment		---		---			8.6			8.6
Pension liability adjustment		---		---			(0.1	)		(0.1	)
Comprehensive income									$	36.4
Adoption of FIN 48 (see Note F)		---		(3.2	)		---
Stock-based compensation		0.2		---			---
Balance, June 30, 2007	$	412.3	$	164.1		$	20.1

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

NORTEK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007 AND JULY 1, 2006

(A)

The unaudited condensed consolidated financial statements presented herein (the “Unaudited Financial Statements”) reflect the financial position, results of operations and cash flows of Nortek, Inc. (the “Company” or “Nortek”) and all of its wholly-owned subsidiaries. The Unaudited Financial Statements include the accounts of Nortek, as appropriate, 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. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted, the Company believes that the disclosures included are adequate to make the information presented not misleading. Certain amounts in the prior year’s Unaudited Financial Statements have been reclassified to conform to the current year presentation. It is suggested that these Unaudited Financial Statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s latest annual report on Form 10-K and its latest Current Reports on Form 8-K as filed with the Securities and Exchange Commission (“SEC”).

On May 5, 2006, NTK Holdings, Inc. (“NTK Holdings”), the ultimate parent of Nortek, filed a registration statement on Form S-1 (most recently amended on September 15, 2006) with the SEC for an initial public offering of shares of its common stock (the “Offering”). Although NTK Holdings has not withdrawn its registration statement on Form S-1, there can be no assurance that NTK Holdings will complete the Offering in the foreseeable future.

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. 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.

At June 30, 2007, certain employees and consultants held approximately 23,059 C-1 units and approximately 45,232 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 20,523 and 16,720 were vested at June 30, 2007 and December 31, 2006, respectively. The total fair value of the C-1 units is approximately $1.1 million and approximately $0.2 million remains to be amortized at June 30, 2007. The C-2 units only vest in the event that certain performance-based criteria, as defined, are met. At June 30, 2007 and December 31, 2006, 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.

The Company recorded stock-based compensation charges in selling, general and administrative expense, net of approximately $0.1 million for each of the second quarters ended June 30, 2007 and July 1, 2006, respectively, and approximately $0.2 million for each of the first six months ended June 30, 2007 and July 1, 2006, respectively, in accordance with SFAS No. 123R.

Income Taxes

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)”, (“FIN 48”). FIN 48 clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of “more-likely-than-not” and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. The Company adopted FIN 48 on January 1, 2007 (see Note F).

Goodwill

The following table presents a summary of the activity in goodwill for the first six months ended June 30, 2007:

	(Amounts in millions)

Balance at December 31, 2006		$	1,481.4
Acquisitions during the first six months ended June 30, 2007			22.9
Adoption of FIN 48 (see Note F)			3.8
Realization of FIN 48 reserves			(0.2	)
Purchase accounting adjustments			0.1
Impact of foreign currency translation			1.3
Balance at June 30, 2007		$	1,509.3

The Company has classified as goodwill the cost in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions (see Note C). Approximately $9.7 million and $62.3 million of goodwill associated with certain companies acquired during the first six months ended June 30, 2007 and the year ended December 31, 2006, respectively, will be deductible for income tax purposes. Purchase accounting adjustments relate principally to final revisions resulting from the completion of fair value adjustments and adjustments to deferred income taxes that impact goodwill.

Long-term payable to affiliate

At June 30, 2007 and December 31, 2006, the Company had approximately $30.0 million and $24.9 million, respectively, recorded on the accompanying unaudited condensed consolidated balance sheet related to a long-term payable to affiliate. This payable primarily relates to deferred taxes related to NTK Holdings which have been transferred to Nortek.

New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the Company beginning January 1, 2008, including interim periods within the year ending December 31, 2008. Earlier adoption is encouraged. The Company is currently evaluating the impact of adopting SFAS No. 157 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for fiscal years beginning after November 15, 2007, or January 1, 2008 for the Company. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.

(B)

At June 30, 2007, the Company had approximately $84.0 million outstanding and approximately $84.3 million of additional borrowing capacity under the U.S. revolving portion of its senior secured credit facility, with approximately $21.7 million in outstanding letters of credit. Borrowings under the revolving portion of the senior secured credit facility are used for general working capital purposes. Under the Canadian revolving portion of its senior secured credit facility the Company had no outstanding borrowings and approximately $10.0 million of additional borrowing capacity. Letters of credit have been issued under the Company’s revolving credit facility as additional security for (1) approximately $17.2 million relating to certain of the Company’s insurance programs, (2) approximately $3.6 million relating to leases outstanding for certain of the Company’s manufacturing facilities and (3) approximately $0.9 million relating to certain of the subsidiaries’ purchases and other requirements. Letters of credit reduce borrowing availability under the Company’s revolving credit facility on a dollar for dollar basis. Subsequent to June 30, 2007, the Company repaid approximately $5.0 million of outstanding borrowings under the U.S. revolving portion of its senior secured credit facility.

At June 30, 2007, approximately $167.9 million was available for the payment of cash dividends, stock purchases or other restricted payments by the Company as defined under the terms of the Company’s most restrictive loan agreement, the Company’s senior secured credit facility.

(C)

On June 25, 2007, the Company, through its wholly-owned subsidiary, Linear LLC (“Linear”), acquired International Electronics, Inc. (“IEI”) through a cash tender offer to purchase all of the outstanding shares of common stock of IEI at a price of $6.65 per share. The total purchase price was approximately $13.8 million, of which approximately $2.3 million will be paid in the third quarter of 2007. IEI is located in Canton, MA and designs and sells security and access control components and systems for use in residential and light commercial applications.

On April 10, 2007, the Company, through Linear, acquired the assets and certain liabilities of c.p. All Star Corporation (“All Star”) for an initial purchase price of approximately $2.8 million (utilizing approximately $2.3 million of cash and issuing unsecured 6% subordinated notes totaling $0.5 million due April 2009). All Star is located in Downington, PA and is a leading manufacturer and distributor of residential, commercial and industrial gate operators, garage door openers, radio controls and accessory products for the garage door and perimeter security industry.

On March 2, 2007, the Company, through Linear, acquired the stock of LiteTouch, Inc. (“LiteTouch”) for approximately $10.5 million (utilizing approximately $8.0 million of cash and issuing unsecured 6% subordinated notes totaling $2.5 million due March 2009) plus contingent consideration, which may be payable in future years. LiteTouch is located in Salt Lake City, UT and designs, manufactures and sells automated lighting controls for a variety of uses including residential, commercial, new construction and retro-fit applications.

On December 12, 2006, the Company, through Linear, acquired the stock of Gefen, Inc. (“Gefen”) for approximately $24.0 million (utilizing approximately $21.5 million of cash and issuing unsecured 6% subordinated notes totaling $2.5 million due December 2008) plus contingent consideration, which may be payable in future years. Gefen is located in Chatsworth, CA and designs and sells audio and video products which extend, switch, distribute and convert signals in a variety of formats, including high definition, for both the residential and commercial markets.

On November 17, 2006, the Company, through its wholly-owned subsidiary, Broan-NuTone LLC (“Broan”), acquired the stock of Zephyr Corporation (“Zephyr”) and Pacific Zephyr Range Hood, Inc. (“Pacific”) for approximately $26.5 million (utilizing approximately $22.5 million of cash and issuing unsecured 6% subordinated notes totaling $4.0 million due November 2009). Zephyr and Pacific are both located in San Francisco, CA. Zephyr designs and sells upscale range hoods, while Pacific designs, sells and installs range hoods and other kitchen products for Asian cooking markets in the United States.

On July 18, 2006, the Company, through Linear, acquired the stock of Magenta Research, Ltd. (“Magenta”) for approximately $14.4 million (utilizing approximately $11.9 million of cash, of which approximately $10.0 million was borrowed under Nortek’s revolving credit facility and was repaid in the second quarter of 2007, and issuing unsecured 6% subordinated notes totaling $2.5 million due July 2008) plus contingent consideration, which may be payable in future years. Magenta is located in New Milford, CT and designs and sells products that distribute audio and video signals over Category 5 and fiber optic cable to multiple display screens.

On June 26, 2006, the Company, through Linear, acquired the stock of Secure Wireless, Inc. (“Secure Wireless”) and Advanced Bridging Technologies, Inc. (“ABT”) through two mergers for approximately $10.5 million, plus contingent consideration of approximately $18.1 million that was earned by Secure Wireless in 2006 and was paid in April 2007. Additional contingent consideration may be payable in future years. Secure Wireless designs and sells wireless security products for the residential and commercial markets while ABT designs and sells innovative radio frequency control products and accessories. Both Secure Wireless and ABT are located in Carlsbad, CA.

On April 14, 2006, the Company, through two newly formed subsidiaries of its HVAC segment, acquired the assets and certain liabilities of Huntair, Inc. (“Huntair”) and Cleanpak International, LLC (“Cleanpak”), for approximately $48.4 million (utilizing approximately $38.4 million of cash and issuing unsecured 6% subordinated notes totaling $10.0 million due April 2008) plus contingent consideration of approximately $30.0 million which was earned in 2006 and was paid in April 2007. Both Huntair and Cleanpak are located near Portland, OR and manufacture, market and distribute custom air handlers and related products for commercial and cleanroom applications.

On February 22, 2006, the Company, through Linear, acquired the assets and certain liabilities of Furman Sound, Inc. (“Furman”) for approximately $3.3 million. Furman is located in Petaluma, CA and designs and sells audio and video signal processors and innovative power conditioning and surge protection products.

On January 25, 2006, the Company, through its wholly-owned subsidiary, Mammoth China Ltd. (“Mammoth China”), increased its ownership interests in Mammoth (Zhejiang) EG Air Conditioning Ltd. (“MEG”) and Shanghai Mammoth Air Conditioning Co., Ltd. (“MSH”) to sixty-percent for approximately $2.4 million. The majority ownership transaction relating to MSH was finalized with the Chinese authorities in May 2006. Prior to January 25, 2006, Mammoth China had a forty-percent minority interest in MEG and a fifty-percent interest in MSH. On June 15, 2007, the Company further increased its ownership in MEG and MSH to seventy-five percent.

Acquisitions contributed approximately $35.2 million, $4.9 million and $1.6 million to net sales, operating earnings and depreciation and amortization expense, respectively, for the second quarter ended June 30, 2007 and contributed approximately $88.9 million, $15.1 million and $4.3 million to net sales, operating earnings and depreciation and amortization expense, respectively, for the first six months ended June 30, 2007. With the exception of Zephyr and Pacific, which are included in the Residential Ventilation Products segment, and Huntair, Cleanpak, MEG and MSH, which are included in the Air Conditioning and Heating Products segment, all acquisitions are included in the Home Technology Products segment in the Company’s segment reporting (see Note E).

Acquisitions are accounted for as purchases and accordingly have been included in the Company’s consolidated results of operations since the acquisition date. For recent acquisitions, the Company has made preliminary estimates of the fair value of the assets and liabilities of the acquired companies, including intangible assets and property and equipment, as of the date of acquisition, utilizing information available at the time that the Company’s Unaudited Financial Statements were prepared and these estimates are subject to refinement until all pertinent information has been obtained. The Company is in the process of obtaining appraisals of intangible assets and property and equipment and finalizing the integration plans for certain of the acquired companies, which are expected to be completed by the end of 2007.

On July 23, 2007, the Company, through Linear, acquired the assets and certain liabilities of Aigis Mechtronics LLC (“Aigis”) for an initial purchase price of approximately $2.8 million (utilizing approximately $2.2 million of cash and issuing unsecured 6% subordinated notes totaling approximately $0.6 million due July 2011). Aigis is located in Winston-Salem, NC and manufactures and sells equipment, such as cameras, and housings into the close-circuit television portion of the global security market. Aigis will be included in the Home Technology Products segment in the Company’s segment reporting.

On July 27, 2007, the Company acquired all of the ownership units of HomeLogic LLC (“HomeLogic”) for an initial purchase price of approximately $5.0 million (utilizing approximately $3.0 million of cash and issuing unsecured 6% subordinated notes totaling approximately $2.0 million due July 2011) plus contingent consideration, which may be payable in future years. HomeLogic is located in Marblehead, MA and designs and sells software and hardware that facilitates the control of third party residential subsystems such as home theatre, whole-house audio, climate control, lighting, security and irrigation. HomeLogic will be included in the Home Technology Products segment in the Company’s segment reporting.

As described above, $48.1 million of contingent consideration was paid in April 2007 related to the Secure Wireless and the Huntair and Cleanpak acquisitions. Contingent consideration of approximately $7.5 million related to the acquisition of OmniMount, which was accrued for at December 31, 2006, was paid in the first quarter of 2007. The remaining estimated total maximum potential amount of contingent consideration that may be paid in the future for all completed acquisitions is approximately $95.2 million.

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

(D)

During the second quarter ended June 30, 2007 and July 1, 2006, the Company’s results of operations include the following (income) and expense items recorded in cost of products sold and selling, general and administrative expense, net in the accompanying unaudited condensed consolidated statement of operations:

	For the second quarter ended *
	June 30, 2007			July 1, 2006
	(Amounts in millions)

Gain from curtailment of post-retirement medical and life insurance benefits (see Note I)	$	---		$	(35.9	)
Charges related to the closure of the Company’s NuTone, Inc. Cincinnati, OH facility (1)		0.8			3.5
Charges related to the closure of the Company’s Mammoth, Inc. Chaska, MN facility		0.3			---
Legal and other professional fees and expenses incurred in connection with matters related to certain subsidiaries based in Italy and Poland		0.3			---
Reserve for amounts due from a customer in the HTP segment		0.5			---
Product safety upgrade reserves in the RVP and HTP segments (2)		(0.2	)		4.0
Gain on settlement of litigation in the HVAC segment		---			(0.4	)
Non-cash foreign exchange loss (gain) related to intercompany debt not indefinitely invested in the Company’s subsidiaries		0.3			(0.2	)
	$	2.0		$	(29.0	)

Unless otherwise indicated, all items noted in the table have been recorded in selling, general and administrative expense, net in the accompanying unaudited conden