The unaudited condensed consolidated financial statements (the “Unaudited Financial Statements”) presented have been prepared by Nortek, Inc. and include the accounts of Nortek, Inc., and all of its wholly-owned subsidiaries (the “Company”) 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 accounting principles generally accepted in the United States have been omitted, the Company believes that the disclosures included are adequate to make the information presented not misleading. Effective in the third quarter of 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and accordingly the presentation for all periods, including the accompanying audited condensed consolidated balance sheet at December 31, 2001, has been reclassified to conform with the new standard. See Notes C and K. 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 Report on Form 8-K filed October 11, 2002 with the Securities and Exchange Commission (“SEC”).

On June 20, 2002, Nortek Holdings, Inc. (“Nortek Holdings”), a newly formed Delaware corporation and wholly-owned subsidiary of Nortek, entered into an Agreement and Plan of Recapitalization, as amended, (the “Recapitalization Agreement”) with the Company and K Holdings, Inc. (“K Holdings”), a Delaware corporation and affiliate of Kelso & Company, L.P. (“Kelso”), to effect a recapitalization (the “Recapitalization”) whereby the Company will be acquired by K Holdings and its designees and certain members of the Company’s management (the “Management Investors”) for cash of $46 per share of common and special common stock of the Company pursuant to the terms of the Recapitalization Agreement. The Recapitalization is subject to the satisfactory completion by all parties of the terms and conditions outlined in the Recapitalization Agreement, including the approval of the Company’s shareholders, the availability of certain financing and other customary conditions and is expected to close late in the fourth quarter of 2002 or early 2003. The aggregate estimated purchase price to redeem the Company’s common and special common stock and to cash out options to purchase common and special common stock is approximately $498,969,000.

The Company believes the Recapitalization will be accounted for as a purchase in accordance with the provisions of SFAS No. 141 “Business Combinations” (“SFAS No. 141”), which will result in a new valuation for the assets and liabilities of the Company upon the completion of the Recapitalization. Transaction fees for investment, legal, accounting and other transaction costs associated with the Recapitalization are estimated to be approximately $43,000,000. A portion of these fees and expenses will be recorded in selling, general and administrative expenses, as they will become obligations of the Company prior to the Recapitalization. During the third quarter and first nine months of 2002, the Company recorded expenses of approximately $1,000,000 and $6,200,000, respectively related to the Recapitalization, primarily for fees and expenses related to legal and investment advice incurred by the Special Committee of the Company’s Board of Directors in their evaluation of the fairness of the transaction. Under certain circumstances, including the subsequent acceptance by the Company of a superior acquisition offer or a change in recommendation by the Company with respect to the Recapitalization, the Company may be liable to Kelso and K Holdings for additional fees and expenses in the range of approximately $0 to $24,000,000 in the event that the Recapitalization is not consummated.

Prior to the consummation of the Recapitalization, the Company will reorganize into a holding company structure and each outstanding share of the Company will be converted into an identical share of capital stock of Nortek Holdings with Nortek Holdings becoming the successor public company and the Company becoming a wholly-owned subsidiary of Nortek Holdings.

If the amendment to the certificate of incorporation required to effect the Recapitalization is approved by the stockholders of the Company, the Company will declare and distribute to Nortek Holdings a dividend currently estimated to be approximately $120,000,000, which will be paid out of unrestricted cash and cash equivalents on hand. The amount of the estimated dividend to be paid is the estimated maximum amount at June 30, 2002 permissible under the most restrictive covenants with respect to the indentures of the Company’s 8 7/8% Senior Notes due 2008, 9 1/4% Senior Notes due 2007, 9 1/8% Senior Notes due 2007 and 9 7/8% Senior Subordinated Notes due 2011 (collectively, the “Existing Notes”). Using certain of the proceeds from an equity investment by K Holdings and the dividend received from the Company, Nortek Holdings will redeem all outstanding shares of common and special common stock, with the exception of certain shares held by Management Investors, for $46 per share in cash.

The Company’s Board of Directors, based upon the recommendation of a Special Committee of disinterested directors, has approved the Recapitalization. A financial advisor to the Special Committee delivered its opinion that, as of the date of such opinion, and based upon and subject to the matters describe in that opinion, the $46 per share redemption payment to be received by the public shareholders of the Company, other than the Management Investors, was fair to such shareholders from a financial point of view.

In connection with the Recapitalization, Kelso has received a financing commitment, subject to certain terms and conditions, including the completion of the Recapitalization, from a bank for a senior unsecured term loan facility not to exceed $955,000,000 (the “Bridge Facility”). The Bridge Facility may be used to fund, if necessary, any change in control offers the Company may make in connection with the Recapitalization. The Company does not expect to use this Bridge Facility because the structure of the Recapitalization does not require the Company to make any change of control offers (as defined in the Company’s indentures).

Under applicable rules and regulations of the SEC, the proxy statement to be delivered to stockholders in connection with the pending acquisition by Kelso and the Management Investors must include or incorporate by reference audited annual financial statements that reclassify any business sold, since the financial statements were originally published, as a discontinued operation for all periods presented in such statements. On April 2, 2002 the Company sold its Hoover Treated Wood Products, Inc. (“Hoover”) subsidiary. (See Note K.) Although this subsidiary was not a significant subsidiary within the meaning of applicable rules and regulations of the SEC, the rule requiring that Hoover be reclassified as a discontinued operation in the audited annual financial statements still applied. If the Company had not sold this subsidiary no re-audit of its historical audited annual financial statements would have been required in connection with the preparation of the proxy statement. The re-audit did not result from any inquiry made by the SEC or any other party, and would be required of any similarly situated public company. On October 11, 2002, the Company filed a Current Report on Form 8-K, which included the audited consolidated balance sheets of Nortek, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related audited consolidated statements of operations, stockholders’ investment, and cash flows for each of the three years in the period ended December 31, 2001 as a result of this re-audit. Except for the reclassification of Hoover as a discontinued operation, the re-audit confirmed, without change, the operating earnings, earnings per share, balance sheet and cash flow amounts previously reported. (See Notes C and K.)

Upon completion of the Recapitalization, Nortek Holdings will no longer be a public company and will apply to the New York Stock Exchange for the delisting of its shares of common stock and to the SEC for the deregistration of its shares of common stock under the Securities Exchange Act of 1934. Nortek Holdings will continue to file periodic reports with the SEC as required by the respective indentures of the Company’s Existing Notes.

Under the terms of one of the Company’s supplemental executive retirement plans, the Company is required to make one-time cash payments to participants in the plan in satisfaction of obligations under the plan upon a change of control transaction (as defined in the plan), such as the Recapitalization. Accordingly, upon completion of the Recapitalization, assuming the Recapitalization closes on or after January 1, 2003, the Company will make payments under the plan of approximately $85,000,000 to the participants in the plan. The Company intends to satisfy approximately $10,200,000 of its obligation to one of the participants through the transfer of a life insurance policy with approximately $10,200,000 of cash surrender value. The Company believes that there will be sufficient assets in the supplemental executive retirement plan trust at the date of the Recapitalization to settle and pay all obligations under the plan due upon completion of the Recapitalization, except for those obligations under the plan that will be satisfied through the transfer of the life insurance policy.

On July 25, 2002, the Company entered into a $200,000,000 Senior Secured Credit Facility (the “Senior Secured Credit Facility”), which is syndicated among several banks. The Senior Secured Credit Facility is secured by substantially all of the Company’s accounts receivable and inventory, as well as certain intellectual property rights, and permits borrowings up to the lesser of $200,000,000 or the total of 85% of eligible accounts receivable, as defined, and 50% of eligible inventory, as defined. The outstanding principal balances under the Senior Secured Credit Facility accrue interest at the Company’s option at either LIBOR plus a margin ranging from 2.0% to 2.5% or the banks’ prime rate plus a margin ranging from 0.5% to 1.0% depending upon the excess available borrowing capacity, as defined, and the timing of the borrowing as the margin rates will be adjusted quarterly. The Senior Secured Credit Facility includes customary limitations and covenants, but does not require the Company to maintain any financial covenant unless excess available borrowing capacity, as defined, is less than $40,000,000 in which case the Company would be required to maintain, on a trailing four quarter basis, a minimum level of $175,000,000 of earnings before interest, taxes, depreciation and amortization, as defined. The Senior Secured Credit Facility permits the Company to complete the Recapitalization provided certain conditions are met. On July 25, 2002, proceeds from the Senior Secured Credit Facility were used to refinance the remaining approximately $42,700,000 due on the Ply Gem credit facility and provide for letters of credit totaling approximately $24,800,000, which were previously issued under the Ply Gem credit facility. In addition, the Company refinanced approximately $3,800,000 of subsidiary debt. At September 28, 2002 there were no outstanding borrowings under the Senior Secured Credit Facility.

A preliminary Proxy Statement was filed with the SEC for its review on October 11, 2002 relative to the Recapitalization. The Proxy Statement is in preliminary form and is subject to completion. Upon completion of the SEC’s review, the Company will file an amendment and, in connection with the solicitation of proxies with respect to the special meeting of stockholders of the Company concerning the proposed Recapitalization, will furnish to security holders, a final definitive proxy statement, which security holders are advised to carefully read in its entirety as it will contain important information.

SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method.

On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill and intangible assets determined to have an indefinite useful life are no longer amortized, instead these assets are evaluated for impairment on an annual basis and whenever events or business conditions warrant. All other intangible assets will continue to be amortized over their remaining estimated useful lives and are evaluated for impairment in accordance with the provisions of SFAS No. 144. In addition, SFAS No. 142 requires additional disclosures with respect to each major intangible asset class relative to gross and net carrying amounts, accumulated amortization, amortization expense, weighted-average amortization periods and residual value assumptions, if any. SFAS No. 142 also requires that the estimated aggregate amortization expense for each of the five succeeding years be disclosed. The adoption of SFAS No. 142 did not result in any material changes to the Company’s accounting for intangible assets. Additional disclosures will be required in the Company’s 2002 annual report on Form 10-K to be filed with the SEC, along with the transitional disclosures provided in the tables below.

The table that follows presents the major components of intangible assets as of December 31, 2001:

As of December 31, 2001, the estimated annual intangible asset amortization expense for each of the succeeding five years aggregates approximately $28,041,000 as follows:

The Company has evaluated the carrying value of goodwill and determined that no impairment exists and therefore no impairment loss will be required to be recorded in the Company’s Consolidated Financial Statements as a result of adopting SFAS No. 142 on January 1, 2002. SFAS No. 142 also requires additional disclosures with respect to goodwill by reportable segment for changes in goodwill balances, impairment losses, if any, including the methodology for determination and the amount of goodwill included in the gain or loss on disposal of a reporting unit.

Goodwill amortization included in operating earnings in the third quarter and first nine months of 2001 was approximately $4,030,000 and $12,299,000, respectively, as determined under the then applicable accounting principles generally accepted in the United States in effect in the year 2001.

The tables that follow present earnings from continuing operations, net earnings and the related earnings per share for the three months and nine months ended September 29, 2001, as adjusted to reflect the elimination of goodwill amortization expense and the related income tax impact:

SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”) addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 with early adoption permitted. The Company is currently evaluating the impact of adopting SFAS No. 143 on its consolidated financial statements.

SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and does not apply to goodwill or intangible assets that are not being amortized and certain other long-lived assets. This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and the accounting and reporting provisions of APB Opinion No. 30 “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”), for the disposal of a segment of a business (as previously defined in that Opinion). This statement also amends ARB No. 51, “Consolidated Financial Statements”, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 with early adoption encouraged. The Company adopted SFAS No. 144 in the third quarter of 2001 and, as required by the standard, applied this accounting standard as of January 1, 2001. Adoption of this accounting standard did not result in any material changes in net earnings from accounting standards previously applied. Adoption of this standard did result in the accounting for the gain (loss) on the sale of certain businesses and their related operating results as discontinued operations. The presentation for all periods presented has been reclassified to conform with the new standard (see Note K).

SFAS No. 145 “Rescission of FASB Statements No. 4, 44 and 64 Amendment of FASB Statement No. 13 and Technical Corrections” (“SFAS No. 145”), was issued in April 2002 and addresses the reporting of gains and losses resulting from the extinguishment of debt, accounting for sale-leaseback transactions and rescinds or amends other existing authoritative pronouncements. SFAS No. 145 requires that any gain or loss on the extinguishment of debt that does not meet the criteria of APB 30 for classification as an extraordinary item shall not be classified as extraordinary and shall be included in earnings from continuing operations. The provisions of this statement related to the extinguishment of debt are effective for financial statements issued in fiscal years beginning after May 15, 2002 with early application encouraged. Upon adoption of SFAS No. 145, all prior periods presented will be required to be restated. The Company plans to adopt SFAS No. 145 on January 1, 2003. Upon adoption, the Company’s $3,600,000 after tax extraordinary loss from debt retirement recorded in the third quarter of 2001 will be reclassified to earnings from continuing operations.

In the first quarter of 2001, the Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS No. 133”), by recording an approximate $800,000 liability in its balance sheet at March 31, 2001, representing the fair value of the Company’s interest rate collar agreement. As a result, interest expense includes a non-cash reduction in interest expense of approximately $400,000 ($.02 per share, net of tax) and $1,200,000 ($.06 per share, net of tax) for the third quarter and first nine months of 2002, respectively, and a non-cash charge to interest expense of approximately $525,000 ($.03 per share, net of tax) and $1,400,000 ($.08 per share, net of tax) for the third quarter and first nine months of 2001, respectively. The interest rate collar agreement matured on August 27, 2002.

Comprehensive income included in stockholders’ investment was $14,187,000 and $58,037,000 for the third quarter and first nine months ended September 28, 2002, respectively, and comprehensive loss was $30,938,000 and $16,931,000 for the third quarter and first nine months ended September 29, 2001, respectively. Currency translation losses of $2,209,000 and currency translation gains of $3,317,000 were included in comprehensive income in the third quarter and first nine months of 2002, respectively, and currency translation losses of $229,000 and $3,535,000 were included in comprehensive loss in the third quarter and first nine months of 2001, respectively.

Acquisitions are accounted for as purchases and, accordingly, have been included in the Company’s consolidated results of operations since the acquisition date. Purchase price allocations are subject to refinement until all pertinent information regarding the acquisitions is obtained.

In the second quarter of 2002, approximately $4,400,000 was charged to operating earnings and is included in selling, general and administrative expenses relating to an incentive earned by certain of the Company’s officers under the Company’s 1999 Equity Performance Plan. In addition, as discussed in Note B, the Company has recorded expenses of approximately $1,000,000 and $6,200,000 in selling, general and administrative expenses in the third quarter and first nine months of 2002, respectively, related to fees and expenses associated with the Recapitalization of the Company. In the third quarter of 2002, the Company incurred approximately $2,100,000 in connection with its re-audit of the Company’s Consolidated Financial Statements for each of the three years in the period ended December 31, 2001 (see Notes B and K). In the third quarter of 2002, the Company incurred approximately $1,600,000 of direct expenses and third party fees associated with the Company’s strategic sourcing initiative which are recorded in Other in the Company’s segment reporting. In the third quarter and first nine months of 2001, the Company expensed approximately $4,000,000 and $6,100,000, respectively, of third party fees and expenses associated with this strategic sourcing initiative. Approximately $1,300,000 and $2,700,000 of these fees and expenses were charged to the Residential Building Products Segment, $2,200,000 and $2,800,000 to the Air Conditioning and Heating Products Segment and $500,000 and $600,000 to the Windows, Doors and Siding Products Segment in the third quarter and first nine months of 2001, respectively. The Company estimates that it has realized benefits associated with this strategic sourcing initiative of between $4,000,000 and $5,000,000 in the third quarter of 2002 as compared to the third quarter of 2001 and between $11,000,000 and $15,000,000 in the first nine months of 2002 as compared to the first nine months of 2001. In the third quarter and first nine months of 2001, the Company expensed approximately $600,000 and $2,800,000, respectively, of manufacturing costs incurred in connection with the start up of a residential air conditioning facility and a vinyl fence and decking facility. In the first half of 2001, the Company recorded in operating earnings a non-taxable gain of approximately $3,200,000 ($.29 per share) from net death benefit insurance proceeds related to life insurance maintained on former managers. In the third quarter and first nine months of 2001, the Company also incurred certain duplicative net interest expense as discussed in Note I. In the third quarter of 2001, the Company recorded approximately $1,700,000 of interest income resulting from the favorable abatement of state income taxes. The abatement of state income taxes did not have a significant effect on the overall annual effective income tax rate in 2001.

The Company’s Board of Directors has authorized a number of programs to purchase shares of the Company’s Common and Special Common Stock. The most recent of these programs was announced on May 4, 2000, to purchase up to 1,000,000 shares of the Company’s Common and Special Common Stock in open market or negotiated transactions, subject to market conditions, cash availability and provisions of the Company’s outstanding debt instruments. As of November 1, 2002, the Company has purchased approximately 461,000 shares of its Common and Special Common Stock for approximately $9,200,000 under this program and accounted for such purchases as treasury stock.

At November 1, 2002, approximately $146,800,000 was available for the payment of cash dividends, stock purchases or other restricted payments as defined under the terms of the Company’s most restrictive indentures related to such payments.

In June 2001, the Company sold $250,000,000 principal amount of its 9 7/8% Senior Subordinated Notes due 2011 (“9 7/8% Notes”) at a slight discount. Net proceeds from the sale of the 9 7/8% Notes, after deducting underwriting commissions and expenses amounted to approximately $241,800,000 and a portion of such proceeds was used to redeem, on July 12, 2001, $204,822,000 principal amount of the Company’s 9 7/8% Senior Subordinated Notes due 2004 (which notes were called for redemption on June 13, 2001), and pay approximately $2,900,000 of redemption premium and approximately $7,400,000 of accrued interest. As a result of this redemption, the Company recorded an extraordinary loss of approximately $5,500,000 ($.32 per share, net of tax) in the third quarter of 2001 under then existing accounting principles generally accepted in the United States. As discussed in Note C, SFAS No. 145 provides new guidance with respect to the classification of gains or losses on debt extinguishments once adopted. In the third quarter and first nine months of 2001, the Company incurred approximately $450,000 ($.03 per share, net of tax) and $1,250,000 ($.07 per share, net of tax), respectively, of duplicative interest expense, net of interest income, since the redemption of the 9 7/8% Senior Subordinated Notes due 2004 did not occur on the same day as the financing.

Basic earnings per share amounts have been computed using the weighted average number of common and common equivalent shares outstanding during each period. Special Common Stock is treated as the equivalent of Common Stock in determining earnings per share results. Diluted earnings per share amounts have been computed using the weighted average number of common and common equivalent shares and the dilutive potential common and special common shares outstanding during each period.

A reconciliation between basic and diluted earnings per share from continuing operations is as follows:

Options to purchase approximately 7,800 shares of common and special common stock were not included in the computation of diluted earnings per share for the nine months ended September 28, 2002 and options to purchase approximately 393,700 and 374,400 shares of common and special common stock were not included in the computation of diluted earnings per share for the third quarter and nine months ended September 29, 2001, respectively, because the options’ exercise prices were greater than the average market price of the common shares and thus their effect would have been antidilutive. There were no antidilutive shares for the third quarter ended September 28, 2002.

On April 2, 2002, the Company’s Ply Gem Industries, Inc. (“Ply Gem”) subsidiary sold the capital stock of its subsidiary Hoover for approximately $20,000,000 of net cash proceeds and recorded a pre-tax gain of approximately $5,400,000 ($.37 per share, net of tax benefit from the utilization of a capital loss carry forward of $.15 per share) in the second quarter of 2002. The operating results of Hoover were previously included in Other in the Company’s segment reporting. Approximately $8,500,000 of the cash proceeds was used to pay down outstanding debt under the Company’s Ply Gem credit facility in the second quarter of 2002.

On September 21, 2001, the Company sold the capital stock of Peachtree Doors and Windows, Inc. (“Peachtree”) and SNE Enterprises, Inc. (“SNE”), subsidiaries of its Ply Gem subsidiary for approximately $45,000,000, and recorded a pre-tax loss on the sale of approximately $34,000,000 ($1.79 per share, net of tax), including the write off of approximately $11,700,000 of unamortized intangible assets. Peachtree and SNE were previously part of the Windows, Doors and Siding Products segment. A portion of the cash proceeds was used to pay down approximately $20,500,000 of outstanding debt under the Company’s Ply Gem credit facility.

The sale of these subsidiaries and their related operating results have been excluded from earnings from continuing operations and are classified as discontinued operations for all periods presented.

The following is a summary of the results of discontinued operations for the three months ended September 29, 2001 and the nine months ended September 28, 2002 and September 29, 2001:

The table that follows presents a breakdown of the major components of assets and liabilities of discontinued operations at December 31, 2001:

The Company has three reportable segments: the Residential Building Products Segment; the Air Conditioning and Heating Products Segment; and the Windows, Doors and Siding Products Segment. In the tables below, Other includes corporate related items, intersegment eliminations and certain income and expense items not allocated to reportable segments or separately set forth.

On April 2, 2002, the Company sold the capital stock of Hoover. On September 21, 2001, the Company sold the capital stock of Peachtree and SNE. Accordingly, the results of Hoover, which were previously part of the Other Segment and Peachtree and SNE, which were previously part of the Windows, Doors and Siding Products Segment, have been excluded from earnings from continuing operations and classified separately as discontinued operations for all periods presented (see Notes C and K). Accordingly the segment information presented below excludes Hoover, Peachtree and SNE for all periods.

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

Summarized unaudited financial information for the Company’s reportable segments is presented in the tables that follow for the three and nine months ended September 28, 2002 and September 29, 2001: