sept2907_10qntkhld.htm

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

Delaware	20-1934298
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

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

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

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

	September 29,		December 31,
	2007		2006
Assets
Current Assets:
Unrestricted cash and cash equivalents	$	66.6	$	57.4
Restricted cash		1.0		1.2
Accounts receivable, less allowances
of $12.5 and $9.4		356.5		328.9
Inventories:
Raw materials		97.2		83.1
Work in process		36.3		28.7
Finished goods		196.4		166.8
		329.9		278.6

Prepaid expenses		13.2		13.7
Other current assets		16.9		24.4
Prepaid income taxes		30.5		21.2
Total current assets		814.6		725.4

Property and Equipment, at Cost:
Land		10.2		9.5
Buildings and improvements		108.0		101.9
Machinery and equipment		208.5		177.2
		326.7		288.6
Less accumulated depreciation		94.3		66.1
Total property and equipment, net		232.4		222.5

Other Assets:
Goodwill		1,515.6		1,481.4
Intangible assets, less accumulated amortization
of $72.1 and $52.4		152.1		150.4
Deferred debt expense		33.0		41.7
Restricted investments and marketable securities		2.0		3.3
Other assets		9.8		11.2
		1,712.5		1,688.0
Total Assets	$	2,759.5	$	2,635.9

Liabilities and Stockholder’s Investment

Current Liabilities:
Notes payable and other short-term obligations	$	112.8	$	23.3
Current maturities of long-term debt		27.0		20.0
Accounts payable		216.4		188.2
Accrued expenses and taxes, net		235.4		283.7
Total current liabilities		591.6		515.2

Other Liabilities:
Deferred income taxes		31.5		35.9
Other		140.0		128.8
		171.5		164.7

Notes, Mortgage Notes and Obligations
Payable, Less Current Maturities		1,910.2		1,883.2

Stockholder’s Investment:
Common stock, $0.01 par value, authorized 3,000 shares;
3,000 issued and outstanding at September 29, 2007 and
December 31, 2006		---		---
Additional paid-in capital		21.6		21.3
Retained earnings		36.5		39.9
Accumulated other comprehensive income		28.1		11.6
Total stockholder's investment		86.2		72.8
Total Liabilities and Stockholder's Investment	$	2,759.5	$	2,635.9

	For the third quarter ended
	Sept. 29, 2007			Sept. 30, 2006
	(Dollar amounts in millions)

Net Sales	$	602.2		$	579.0

Costs and Expenses:
Cost of products sold (see Note D)		433.0			404.2
Selling, general and administrative expense, net (see Note D)		125.1			101.1
Amortization of intangible assets		6.5			6.2
		564.6			511.5
Operating earnings		37.6			67.5
Interest expense		(46.4	)		(41.8	)
Investment income		0.6			0.4
(Loss) earnings before provision for income taxes		(8.2	)		26.1
Provision for income taxes		0.5			10.9
Net (loss) earnings	$	(8.7	)	$	15.2

	For the first nine months ended
	Sept. 29, 2007			Sept. 30, 2006
	(Dollar amounts in millions)

Net Sales	$	1,799.0		$	1,677.3

Costs and Expenses:
Cost of products sold (see Note D)		1,269.7			1,168.4
Selling, general and administrative expense, net (see Note D)		363.3			263.7
Amortization of intangible assets		18.9			16.2
		1,651.9			1,448.3
Operating earnings		147.1			229.0
Interest expense		(137.4	)		(120.2	)
Investment income		1.5			1.6
Earnings before provision for income taxes		11.2			110.4
Provision for income taxes		11.4			43.5
Net (loss) earnings	$	(0.2	)	$	66.9

	For the first nine months ended
	Sept. 29, 2007			Sept. 30, 2006
	(Dollar amounts in millions)
Cash Flows from operating activities:
Net (loss) earnings	$	(0.2	)	$	66.9

Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization expense		46.9			44.2
Non-cash interest expense, net		50.4			33.3
Non-cash stock-based compensation expense		0.3			0.3
Gain from curtailment of post-retirement medical benefits		---			(35.9	)
Loss on property and equipment		1.0			1.4
Deferred federal income tax (benefit) provision		(9.4	)		10.2
Changes in certain assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable, net		(12.6	)		(43.4	)
Inventories		(36.7	)		(37.9	)
Prepaids and other current assets		1.4			5.1
Accounts payable		16.3			9.2
Accrued expenses and taxes		(3.5	)		19.6
Long-term deferred compensation		---			(54.0	)
Long-term assets, liabilities and other, net		4.1			0.3
Total adjustments to net (loss) earnings		58.2			(47.6	)
Net cash provided by operating activities		58.0			19.3
Cash Flows from investing activities:
Capital expenditures		(24.1	)		(33.0	)
Net cash paid for businesses acquired		(93.5	)		(67.0	)
Proceeds from the sale of property and equipment		0.6			3.4
Change in restricted cash and marketable securities		1.5			0.4
Other, net		(1.4	)		(3.1	)
Net cash used in investing activities		(116.9	)		(99.3	)
Cash Flows from financing activities:
Increase in borrowings		112.8			83.9
Payment of borrowings		(40.2	)		(46.8	)
Payment in connection with senior unsecured loan facility rollover		(4.5	)		---
Borrowing under the senior unsecured loan facility		---			200.8
Dividends		---			(174.9	)
Payment of expenses in connection with IPO		---			(2.4	)
Other, net		---			(1.6	)
Net cash provided by financing activities		68.1			59.0
Net change in unrestricted cash and cash equivalents		9.2			(21.0	)
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	$	66.6		$	56.2

Supplemental disclosure of cash flow information:

Interest paid	$	95.4		$	95.9

Income taxes paid, net	$	4.7		$	17.1

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


Balance, July 1, 2006	$	21.2	$	33.9	$	14.4		$	---
Net earnings		---		15.2		---			15.2
Other comprehensive income (loss):
Currency translation adjustment		---		---		(0.2	)		(0.2	)
Comprehensive income								$	15.0
Stock-based compensation		0.1		---		---
Balance, September 30, 2006	$	21.3	$	49.1	$	14.2

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


Balance, December 31, 2005	$	130.2		$	52.8		$	7.5	$	---
Net earnings		---			66.9			---		66.9
Other comprehensive income:
Currency translation adjustment		---			---			6.7		6.7
Comprehensive income									$	73.6
Dividends		(104.3	)		(70.6	)		---
Adjustment of carryover basis of continuing
management investors in the THL Transaction		(4.9	)		---			---
Stock-based compensation		0.3			---			---
Balance, September 30, 2006	$	21.3		$	49.1		$	14.2

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


Balance, June 30, 2007	$	21.5	$	45.2		$	20.1		$	---
Net loss		---		(8.7	)		---			(8.7	)
Other comprehensive income (loss):
Currency translation adjustment		---		---			8.1			8.1
Pension liability adjustment		---		---			(0.1	)		(0.1	)
Comprehensive loss									$	(0.7	)
Stock-based compensation		0.1		---			---
Balance, September 29, 2007	$	21.6	$	36.5		$	28.1

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


Balance, December 31, 2006	$	21.3	$	39.9		$	11.6		$	---
Net loss		---		(0.2	)		---			(0.2	)
Other comprehensive income (loss):
Currency translation adjustment		---		---			16.7			16.7
Pension liability adjustment		---		---			(0.2	)		(0.2	)
Comprehensive income									$	16.3
Adoption of FIN 48 (see Note F)		---		(3.2	)		---
Stock-based compensation		0.3		---			---
Balance, September 29, 2007	$	21.6	$	36.5		$	28.1

(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. (the “Company” or “NTK Holdings”) and all of its wholly-owned subsidiaries. The Unaudited Financial Statements include the accounts of NTK Holdings, as appropriate, and all of its wholly-owned subsidiaries, including Nortek, Inc. ("Nortek"), 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”).

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 September 29, 2007, certain employees and consultants held approximately 23,383 C-1 units and approximately 44,778 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 22,409 and 16,720 were vested at September 29, 2007 and December 31, 2006, respectively. The total fair value of the C-1 units is approximately $1.1 million and approximately $0.1 million remains to be amortized at September 29, 2007. The C-2 units only vest in the event that certain performance-based criteria, as defined, are met. At September 29, 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.

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).

The Company has classified as goodwill the cost in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions (see Note C). Approximately $18.1 million and $62.3 million of goodwill associated with certain companies acquired during the first nine months ended September 29, 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.

Under SFAS No. 142, goodwill determined to have an indefinite useful life are not amortized, instead these assets are evaluated for impairment on an annual basis or more frequently if events or business conditions warrant it. The Company has set the annual evaluation date as of the first day of its fiscal fourth quarter. The Company primarily utilizes a discounted cash flow approach in order to value the Company’s reporting units required to be tested for impairment by SFAS No. 142, which requires that the Company forecast future cash flows of the reporting units and discount the cash flow stream based upon a weighted average cost of capital that is derived from comparable companies within similar industries. The discounted cash flow calculations also include a terminal value calculation that is based upon an expected long-term growth rate for the applicable reporting unit. The Company believes that its procedures for estimating gross future cash flows, including the terminal valuation, are reasonable and consistent with market conditions at the time of estimation.

The Company believes that despite the current difficult market environment, that once it completes its annual evaluation for the potential impairment of goodwill as of the first day of its fiscal fourth quarter, it is more likely than not that there will not be a need to reduce the fair value of goodwill of its reporting segments below its carrying value as of September 29, 2007. However, there can be no assurances that the results of the Company’s evaluation as of the first day of its fiscal fourth quarter will not result in an impairment of goodwill.

The Company performs the evaluation as of the first day of its fiscal fourth quarter and more frequently if impairment indicators are identified, for the impairment of long-lived assets, other than goodwill, based on expectations of non-discounted future cash flows compared to the carrying value of the subsidiary in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). The Company’s cash flow estimates are based upon historical cash flows, as well as future projected cash flows received from subsidiary management in connection with the annual Company wide planning process, and include a terminal valuation for the applicable subsidiary based upon a multiple of EBITDA. The Company estimates the EBITDA multiple by reviewing comparable company information and other industry data. The Company has not identified any impairment indicators during the third quarter of 2007.

The Company believes that despite the current difficult market environment, that once it completes its annual evaluation for the potential impairment of other long- lived assets as of the first day of its fiscal fourth quarter, it is more likely than not that there will not be a need to reduce the fair value of other long-lived assets of its reporting segments below its carrying value as of September 29, 2007. However, there can be no assurances that the results of the Company’s evaluation as of the first day of its fiscal fourth quarter will not result in an impairment of other long-lived assets.

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)

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

On May 10, 2007, the Company exercised an option to extend the maturity date of the senior unsecured loan facility to March 1, 2014 (the “Option”) and paid a loan extension fee of approximately $4.5 million. As a result, the Company recorded approximately $4.5 million as debt discount and recorded approximately $3.9 million of additional non-cash interest expense in the second quarter of 2007 related primarily to the decrease in the fair value of the Option. The debt discount is being amortized as non-cash interest expense using the interest method through March 1, 2014.

The senior unsecured loan facility bears interest at LIBOR plus a spread, which spread increases over time, subject to a cap on the overall interest rate of 11% per annum. At September 29, 2007, the senior unsecured loan facility had an actual interest rate of approximately 10.38%. The Company is accruing at an interest rate of approximately 10.94%, reflecting the estimated average interest rate over the remaining term of the senior unsecured loan facility. NTK Holdings has the option to pay interest in cash (“Cash Option”) or by adding interest to the principal amount of the loans under the senior unsecured loan facility (“PIK Option”). If the Company exercises the PIK Option with respect to any interest period, an amount equal to the unpaid interest accrued will be added to the principal amount of the senior unsecured loan facility and such accrued interest will be deemed to have been paid. Following an increase in the principal amount of the senior unsecured loan facility as a result of the payment through the PIK Option, the senior unsecured loan facility will bear interest on such increased principal amount. The Company must elect the form of interest payment for each interest period. Since the initial borrowing on May 10, 2006, the Company has elected the PIK option to increase the principal amount of the senior unsecured loan facility for the interest accrued during the applicable interest periods. As a result of exercising this PIK Option, the Company recorded approximately $5.8 million and $15.8 million of accrued interest for the third quarter and first nine months ended September 29, 2007, respectively, and approximately $4.1 million and $6.3 million of accrued interest for the third quarter ended September 30, 2006 and the period from May 10, 2006 to September 30, 2006, respectively, as additional indebtedness relating to the senior unsecured loan facility. At September 29, 2007 and December 31, 2006, the actual outstanding principal balance on the senior unsecured loan facility was approximately $231.8 million and $216.0 million, respectively. The amount recorded as of September 29, 2007, net of unamortized debt discount, is approximately $227.5 million. The senior unsecured loan facility is not guaranteed by any of the NTK Holdings’ subsidiaries and is not secured by any assets of NTK Holdings or any of its subsidiaries.

At September 29, 2007, Nortek had approximately $89.0 million outstanding and approximately $79.5 million of available borrowing capacity under the U.S. revolving portion of its senior secured credit facility, with approximately $21.5 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, Nortek had no outstanding borrowings and approximately $10.0 million of available borrowing capacity. Letters of credit have been issued under Nortek’s revolving credit facility as additional security for (1) approximately $17.2 million relating to certain of the Company’s insurance programs, (2) approximately $3.6 million relating to leases outstanding for certain of the Company’s manufacturing facilities and (3) approximately $0.7 million relating to certain of the subsidiaries’ purchases and other requirements. Letters of credit reduce borrowing availability under Nortek’s revolving credit facility on a dollar for dollar basis. Subsequent to September 29, 2007, Nortek repaid approximately $29.0 million of outstanding borrowings under the U.S. revolving portion of its senior secured credit facility.

At September 29, 2007, the Company had approximately $57.7 million available for the payment of cash dividends, stock purchases or other restricted payments (“Restricted Payments”) under the terms of the indenture governing the Company’s 10 3/4% Senior Discount Notes’ and the agreement governing the Company’s senior unsecured loan facility. Restricted Payments to NTK Holdings and Nortek Holdings from Nortek are limited by the terms of Nortek’s most restrictive loan agreement, Nortek’s senior secured credit facility. The amount available for such payments under Nortek’s senior secured credit facility was approximately $172.4 million at September 29, 2007.

(C)

On September 18, 2007, the Company acquired all the capital stock of Stilpol SP. Zo.O. (“Stilpol”) and certain assets and liabilities of Metaltecnica S.r.l. (“Metaltecnica”) for approximately $7.9 million in cash and the assumption of indebtedness (estimated to be approximately $4.5 million at September 29, 2007) through its kitchen range hood subsidiaries, based in Italy and Poland (“Best Subsidiaries”). The Company’s Best subsidiaries borrowed the cash portion of the purchase price from banks in Italy. These acquisitions supply various fabricated material components and sub-assemblies used by the Company’s Best subsidiaries in the manufacture of kitchen range hoods.

On July 27, 2007, the Company acquired all of the ownership units of HomeLogic LLC (“HomeLogic”) for approximately $5.1 million (utilizing approximately $3.1 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.

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. 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 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 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 $30.9 million, $2.2 million and $1.0 million to net sales, operating earnings and depreciation and amortization expense, respectively, for the third quarter ended September 29, 2007 and contributed approximately $119.8 million, $17.3 million and $5.3 million to net sales, operating earnings and depreciation and amortization expense, respectively, for the first nine months ended September 29, 2007. With the exception of Stilpol, Metaltecnica, Triangle, 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 first half of 2008.

	For the third quarter ended *
	Sept. 29, 2007		Sept. 30, 2006
	(Amounts in millions)

Charges related to the closure of the Company’s NuTone, Inc. Cincinnati, OH facility (1)	$	0.4	$	0.3
Charges related to the closure of the Company’s Mammoth, Inc. Chaska, MN facility		2.3		---
Charges related to the closure of the Company’s Jensen, Inc. Vernon, CA facility		0.2		---
Legal and other professional fees and expenses incurred in connection with matters related to certain subsidiaries based
in Italy and Poland		0.9		---
Increase in product liability expense for the third quarter of 2007 as compared to the same period

	(Amounts in millions)

Balance at December 31, 2006	$	1,481.4
Acquisitions during the first nine months ended September 29, 2007		37.2
Adoption of FIN 48 (see Note F)		3.8
Realization of FIN 48 reserves		(1.4	)
Purchase accounting adjustments		(7.4	)
Impact of foreign currency translation		2.0
Balance at September 29, 2007	$	1,515.6

	(Amounts in millions)
Segment:
Residential Ventilation Products	$	801.2
Home Technology Products		398.2
Air Conditioning and Heating Products *		316.2
	$	1,515.6