UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x        QUARTERLY
      REPORT PURSUANT TO SECTION 13 or
15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
      the quarterly period ended April 4,
2009


or


 ̈        TRANSITION
      REPORT PURSUANT TO SECTION 13 or
15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





For
      the transition period from _____________ to
  _____________.





Commission
File Number:   333-114041





PLY
GEM HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            3089
            20-0645710(State
      or other jurisdiction of incorporation or organization)
            (Primary
      Standard Industrial Classification Code Number)
            (I.R.S.
      Employer Identification No.)


5020 Weston
Parkway, Suite 400


Cary, North
Carolina 27513





Registrant's
telephone number, including area code: 919-677-3900




Indicate
by check mark whether the 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes  ̈No  ̈




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




Large accelerated filer
   ̈                                                                   Accelerated
filer  ̈


Non-accelerated filer  x                                                                
Smaller reporting company  ̈


(Do
not check if a smaller reporting company)




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




As of
May 19, 2009, there were 100 shares of common stock, $0.01 par value,
outstanding.




* The
registrant is not required to file this Quarterly Report on Form 10-Q pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.  The
filing is required, however, pursuant to the terms of the indenture governing
Ply Gem Industries, Inc.’s 11.75% senior secured notes due 2013.







PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


FORM
10-Q


QUARTERLY
PERIOD ENDED APRIL 4, 2009





CONTENTS








PART
      I – FINANCIAL INFORMATIONItem
      1.
            Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Statements of Operations –Three months ended April 4, 2009 and March 29, 2008
            2Condensed
      Consolidated Balance Sheets –April 4, 2009 and December 31, 2008
            3Condensed
      Consolidated Statements of Cash Flows –Three
      months ended April 4, 2009 and March 29, 2008
            4Notes
      to Condensed Consolidated Financial Statements
            5Item
      2.
            Management’s
      Discussion and Analysis of Financial ConditionAnd Results of Operations
            27Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            37Item
      4.
            Controls
      and Procedures
            38PART
      II – OTHER INFORMATIONItem
      1A
            Risk
      Factors
            39Item
      6.
            Exhibits
            39Signatures
            
            40








1





PART
I - FINANCIAL INFORMATION





Item
1.                 FINANCIAL
STATEMENTS





PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)














For
      the three months endedApril
      4,
            
            
            March
      29,2009
            
            
            2008(Amounts
      in thousands)Net
      sales
            
            $
            182,751
            
            
            $
            256,373Costs
      and expenses:Cost
      of products sold
            
            
            169,691
            
            
            
            225,881Selling,
      general and administrative expenses
            
            
            40,962
            
            
            
            39,862Amortization
      of intangible assets
            
            
            4,906
            
            
            
            4,914Total
      costs and expenses
            
            
            215,559
            
            
            
            270,657Operating
      loss
            
            
            (32,808
            )
            
            
            (14,284
            )Foreign
      currency loss
            
            
            (88
            )
            
            
            (551
            )Interest
      expense
            
            
            (33,756
            )
            
            
            (23,074
            )Interest
      income
            
            
            65
            
            
            
            203Loss
      before benefit for income taxes
            
            
            (66,587
            )
            
            
            (37,706
            )Benefit
      for income taxes
            
            
            (3,949
            )
            
            
            (15,864
            )Net
      loss
            
            $
            (62,638
            )
            
            $
            (21,842
            )







See
accompanying notes to condensed consolidated financial
statements.


2





PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(UNAUDITED)





April
      4,
            
            
            December
      31,2009
            
            
            2008(Amounts
      in thousands, except share amounts)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            17,215
            
            
            $
            58,289Accounts
      receivable, less allowances of $6,877 and $6,405,
    respectively
            
            
            106,409
            
            
            
            90,527Inventories:Raw
      materials
            
            
            44,821
            
            
            
            53,060Work
      in process
            
            
            24,917
            
            
            
            28,085Finished
      goods
            
            
            36,580
            
            
            
            42,267Total
      inventory
            
            
            106,318
            
            
            
            123,412Prepaid
      expenses and other current assets
            
            
            22,807
            
            
            
            19,985Deferred
      income taxes
            
            
            -
            
            
            
            13,924Total
      current assets
            
            
            252,749
            
            
            
            306,137Property
      and Equipment, at cost:Land
            
            
            3,709
            
            
            
            3,709Buildings
      and improvements
            
            
            35,235
            
            
            
            35,206Machinery
      and equipment
            
            
            255,523
            
            
            
            253,290Total
      property and equipment
            
            
            294,467
            
            
            
            292,205Less
      accumulated depreciation
            
            
            (131,060
            )
            
            
            (122,194
            )Total
      property and equipment, net
            
            
            163,407
            
            
            
            170,011Other
      Assets:Intangible
      assets, less accumulated amortization of $69,394 and
    $64,488,respectively
            
            
            188,698
            
            
            
            193,604Goodwill
            
            
            390,685
            
            
            
            390,779Other
            
            
            38,671
            
            
            
            40,579Total
      other assets
            
            
            618,054
            
            
            
            624,962$
            1,034,210
            
            
            $
            1,101,110LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            48,090
            
            
            $
            59,603Accrued
      expenses and taxes
            
            
            94,370
            
            
            
            76,304Total
      current liabilities
            
            
            142,460
            
            
            
            135,907Deferred
      income taxes
            
            
            4,395
            
            
            
            25,412Other
      long term liabilities
            
            
            68,585
            
            
            
            68,233Long-term
      debt
            
            
            1,124,433
            
            
            
            1,114,186Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock $0.01 par, 100 shares authorized, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock $0.01 par, 100 shares authorized, issued and
    outstanding
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,919
            
            
            
            209,908Accumulated
      deficit
            
            
            (509,631
            )
            
            
            (446,993
            )Accumulated
      other comprehensive loss
            
            
            (5,951
            )
            
            
            (5,543
            )Total
      stockholder's deficit
            
            
            (305,663
            )
            
            
            (242,628
            )$
            1,034,210
            
            
            $
            1,101,110





See
accompanying notes to condensed consolidated financial
statements.


3


PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)









For
      the three months endedApril
      4,
            
            
            March
      29,2009
            
            
            2008(Amounts
      in thousands)Cash
      flows from operating activities:Net
      loss
            
            $
            (62,638
            )
            
            $
            (21,842
            )Adjustments
      to reconcile net loss to cashused
      in operating activities:Depreciation
      and amortization expense
            
            
            13,896
            
            
            
            16,026Non-cash
      interest expense, net
            
            
            2,044
            
            
            
            1,745Loss
      on foreign currency transactions
            
            
            88
            
            
            
            551(Gain)
      loss on sale of assets
            
            
            (1
            )
            
            
            323Deferred
      income taxes
            
            
            (7,056
            )
            
            
            461Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            (15,926
            )
            
            
            (25,068
            )Inventories
            
            
            17,044
            
            
            
            6,477Prepaid
      expenses and other current assets
            
            
            (2,817
            )
            
            
            (3,374
            )Accounts
      payable
            
            
            (11,514
            )
            
            
            11,910Accrued
      expenses and taxes
            
            
            20,465
            
            
            
            (30,439
            )Cash
      payments on restructuring liabilities
            
            
            (1,926
            )
            
            
            (1,919
            )Other
            
            
            (375
            )
            
            
            21Net
      cash used in operating activities
            
            
            (48,716
            )
            
            
            (45,128
            )Cash
      flows from investing activities:Capital
      expenditures
            
            
            (2,446
            )
            
            
            (4,681
            )Proceeds
      from sale of assets
            
            
            21
            
            
            
            5,810Other
            
            
            -
            
            
            
            (15
            )Net
      cash (used in) provided by investing activities
            
            
            (2,425
            )
            
            
            1,114Cash
      flows from financing activities:Proceeds
      from revolver borrowings
            
            
            10,000
            
            
            
            15,000Payments
      on long-term debt
            
            
            -
            
            
            
            (51
            )Debt
      issuance costs paid
            
            
            (26
            )
            
            
            -Equity
      repurchases
            
            
            -
            
            
            
            (126
            )Net
      cash provided by financing activities
            
            
            9,974
            
            
            
            14,823Impact
      of exchange rate movements on cash
            
            
            93
            
            
            
            (249
            )Net
      decrease in cash and cash equivalents
            
            
            (41,074
            )
            
            
            (29,440
            )Cash
      and cash equivalents at the beginning of the period
            
            
            58,289
            
            
            
            52,053Cash
      and cash equivalents at the end of the period
            
            $
            17,215
            
            
            $
            22,613







See
accompanying notes to condensed consolidated financial
statements.


4


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Presentation





The
accompanying unaudited condensed consolidated financial statements of Ply Gem
Holdings, Inc. and its subsidiaries (referred to herein as “Ply Gem Holdings”,
“Ply Gem”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance
with U.S. generally accepted accounting principles as described in the
consolidated financial statements and related notes included in our 2008 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2009.  These statements do not include all of the information and
footnotes required by U.S. generally accepted accounting principles and should
be read in conjunction with our 2008 Annual Report on Form 10-K.  In
management’s opinion, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included.  Operating results for the period from January 1, 2009
through April 4, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009.





The
condensed consolidated balance sheet at December 31, 2008 has been derived from
the audited consolidated financial statements of Ply Gem Holdings at that date,
but does not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial
statements.





The
Company’s fiscal quarters are based on periods ending on the last Saturday of
the last week in the quarter.  Therefore, the financial results of
certain fiscal quarters will not be comparable to the prior and subsequent
fiscal quarters.





The
accompanying financial statements include the Company’s consolidated results of
operations and cash flows for the Company for the three month periods ended
April 4, 2009 and March 29, 2008, and the consolidated financial position for
the Company as of April 4, 2009 and December 31, 2008.





Ply Gem
is a diversified manufacturer of residential and commercial building products,
which are sold primarily in the United States and Canada, and include a wide
variety of products for the residential and commercial construction, the
do-it-yourself and the professional remodeling and renovation markets. The
demand for our products is seasonal, particularly in the Northeast and Midwest
regions of the United States and Western Canada where inclement weather during
the winter months usually reduces the level of building and remodeling activity
in both the home repair and remodeling and new home construction
sectors.  Our sales are usually lower during the first and fourth
quarters. As a
result, the Company has historically had lower profits or losses in the
first quarter, and reduced profits in the fourth quarter of each calendar year
due to the weather.  Our results of operations for future quarters may
be impacted by adverse weather conditions. Since a portion of our manufacturing
overhead and operating expenses are relatively fixed throughout the year,
operating income and net earnings tend to be lower in quarters with lower sales
levels.  In addition, the demand for cash to fund our working capital
is greater from late in the fourth quarter through the first
quarter.




Our
performance is dependent to a significant extent upon the levels of home repair
and remodeling and new home construction spending, all of which are affected by
such factors as interest rates, inflation, consumer confidence, unemployment,
and availability of consumer credit.







Principles
of Consolidation





The
condensed consolidated financial statements include the accounts of Ply Gem
Holdings, Inc. and its subsidiaries, all of which are wholly
owned.  All intercompany accounts and transactions have been
eliminated.


5


Reclassifications





Certain
amounts in the prior fiscal year have been reclassified to conform to the
presentation adopted in the current fiscal year with no effect on net loss or
accumulated deficit.








Accounting
Policies and Use of Estimates





The
preparation of these condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States involves
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of income and expense
during the reporting periods.  Certain of the Company’s accounting
policies require the application of judgment in selecting the appropriate
assumptions for calculating financial estimates.  By their nature,
these judgments are subject to an inherent degree of uncertainty.  The
Company periodically evaluates the judgments and estimates used in their
critical accounting policies to ensure that such judgments and estimates are
reasonable.  Such estimates include the allowance for doubtful
accounts receivable, valuation reserve for inventories, warranty reserves, legal
contingencies, assumptions used in the calculation of income taxes, and
projected cash flows used in the goodwill and intangible asset impairment
tests.  These judgments are based on the Company’s historical
experience, current trends and information available from other sources, as
appropriate and are based on management’s best estimates and
judgments.  The Company adjusts such estimates and assumptions when
facts and circumstances dictate.  Illiquid credit markets, volatile
equity, foreign currency, and the depressed housing and remodeling market have
combined to increase the uncertainty inherent in such estimates and
assumptions.  If different conditions result from those assumptions
used in the Company’s judgments, actual results could be materially different
from the Company’s estimates.





Inventories





Inventories
in the accompanying consolidated balance sheets are valued at the lower of cost
or market. During the year ended December 31, 2008, the Company elected to
conform its method of valuing its inventory to the FIFO method from the LIFO
method for a portion of its inventory.  The change in accounting
method occurred following the consolidation of the LIFO inventory into another
location that uses the FIFO method of accounting.  The Company
determined that the impact of this change on 2008 interim periods was not
significant.





The
Company records provisions, as appropriate, to write-down obsolete and excess
inventory to estimated net realizable value.  The process for
evaluating obsolete and excess inventory often requires the Company to make
subjective judgments and estimates concerning future sales levels, quantities
and prices at which such inventory will be sold in the normal course of
business.  Accelerating the disposal process or incorrect estimates of
future sales potential may cause actual results to differ from estimates at the
time such inventory is disposed or sold.As of April
4, 2009, the Company had inventory purchase commitments of approximately $26.2
million.





Intangible Assets, Goodwill and other Long-lived
Assets





The
Company applies SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” to its intangible and other long-lived
assets.  SFAS No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets but does not apply to goodwill
or intangible assets that are not being amortized and certain other long-lived
assets.





The
Company’s acquisitions are accounted for under the purchase method of accounting
pursuant to SFAS No. 141(R), “Business
Combinations.”  Accordingly, the purchase price is allocated to the
tangible assets and liabilities and intangible assets acquired based on their
estimated fair values. The excess purchase price over the fair value is recorded
as goodwill.  Identifiable intangible assets are valued separately and
are amortized over their expected useful lives.


6





SFAS No. 142,“Goodwill and Other
Intangible Assets” requires the Company to test goodwill for impairment on an
annual basis and between annual tests in certain circumstances, and to write
down goodwill and non-amortizable intangible assets when impaired. These
assessments require the Company to estimate the fair value of its reporting
units. If the Company determines that the fair value of its reporting units is
less than the carrying amount, an impairment charge must be recognized against
earnings for the difference between the estimated fair value of the goodwill of
the reporting unit and its carrying value.  The Company has two
reporting units- (Siding, Fencing, and Stone) and (Windows and Doors)- and
therefore separate valuations are performed for each of the reporting
units.  The reporting units are identical to the Company’s operating
segments.




Goodwill
is evaluated for impairment at least annually during the fourth quarter, or
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. In addition to other possible indicators, the Company
considers the following factors to be the more significant or likely
to trigger an interim impairment review:


•
            Significant
      under-performance relative to historical or projected future operating
      results;•
            Significant
      negative industry or economic trends;•
            Significant
      decline in its stock valuation for a sustained period;
  and•
            Significant
      changes in the manner of its use of acquired assets or the strategy for
      its overall business.





The
Company assesses goodwill for impairment during the fourth quarter of each year
and also at any other date when events or changes in circumstances indicate that
the carrying value of these assets may exceed their fair value.  To
evaluate goodwill for impairment, the Company estimates the fair value of
reporting units considering such factors as discounted cash flows and valuation
multiples for comparable publicly traded companies.  A significant
reduction in projected sales and earnings which would lead to a reduction in
future cash flows could indicate potential impairment.  The Company
did not have a triggering event to evaluate goodwill impairment for the quarter
ended April 4, 2009.  The Company will
continue to evaluate goodwill during future periods and further declines in the
residential housing and remodeling markets could result in goodwill impairments
in future periods.





The
reporting unit goodwill balances were as follows as of April 4, 2009 and
December 31, 2008.





(amounts
in thousands)


April
      4, 2009
            
            
            December
      31, 2008Windows
      and Doors
            
            $
            70,589
            
            
            $
            70,683Siding,
      Fencing, and Stone
            
            
            320,096
            
            
            
            320,096$
            390,685
            
            
            $
            390,779





The
change in goodwill during the first quarter of 2009 was due to currency
translation adjustments.





Debt
Issuance Costs





Debt
issuance costs, composed of facility, agency, and certain legal fees associated
with acquiring new debt financing are amortized over the contractual term of the
related agreement using the effective interest method.  Debt issuance
costs, net of accumulated amortization, amounted to approximately $30.7 million
and $32.5 million at April 4, 2009 and December 31, 2008, respectively, and have
been recorded in other long term assets.


7




Foreign
Currency




The
Company’s Canadian subsidiary, CWD Windows and Doors, Inc. (“CWD”), utilizes the
Canadian dollar as its functional currency.  For reporting purposes,
the Company translates the assets and liabilities of its foreign entity at the
exchange rates in effect at the end of the reporting periods.  Net
sales and expenses are translated using average exchange rates in effect during
the periods.  Gains and losses from foreign currency translation are
credited or charged to accumulated other comprehensive income (loss) in the
accompanying consolidated balance sheets.  A gain or loss resulting
from fluctuations in the exchange rate may be recognized due to debt,
denominated in US dollars, recorded by CWD.





For the
three month periods ended April 4, 2009 and March 29, 2008, the Company recorded
a loss from foreign currency transactions of approximately $0.1 million and $0.6
million, respectively.  As of April 4, 2009, and December 31, 2008,
accumulated other comprehensive loss included a currency translation
adjustment of approximately $1.0 million and $0.6 million,
respectively.




Concentration
of Credit Risk




The
accounts receivable balance related to one customer of the Siding, Fencing and
Stone segment was approximately $10.4 million and $5.8 million at April 4, 2009
and December 31, 2008, respectively.  This customer accounted for
approximately 10.2% of net sales for the three month period ended April 4, 2009
and 9.2% of net sales for the year ended December 31, 2008.




Fair
Value Measurement




In the
first quarter of 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements”  for financial assets and liabilities. This standard defines
fair value, provides guidance for measuring fair value and requires certain
disclosures. This standard does not require any new fair value measurements, but
rather applies to all other accounting pronouncements that require or permit
fair value measurements. This standard does not apply measurements related to
share-based payments, nor does it apply to measurements related to
inventory.





SFAS 157
discusses valuation techniques, such as the market approach (comparable market
prices), the income approach (present value of future income or cash flows), and
the cost approach (cost to replace the service capacity of an asset or
replacement cost). The statement utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three
levels:





·
              Level 1:
      Observable inputs such as quoted prices (unadjusted) in active markets for
      identical assets or
liabilities.


·
              Level 2:
      Inputs other than quoted prices that are observable for the asset or
      liability, either directly or indirectly. These include quoted prices for
      similar assets or liabilities in active markets and quoted prices for
      identical or similar assets or liabilities in markets that are not
      active.


·
              Level 3:
      Observable inputs that reflect the reporting entity’s own
      assumptions.





8


The
hierarchy requires the use of observable market data, when available, and to
minimize the use of unobservable inputs when determining fair
value.  The Company’s population of recurring financial assets and
liabilities subject to fair value measurements and the necessary disclosures are
as follows:





(Amounts
      in Thousands)Quoted
      Prices
            
            
            Significant
            
            
            Significantin
      Active Markets
            
            
            Other
      Observable
            
            
            Unobservablefor
      Identical Assets
            
            
            Inputs
            
            
            InputsDescription
            
            Total
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Assets:Money
      market funds
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Liabilities:Senior
      Subordinated Notes- 9%
            
            $
            93,600
            
            
            $
            93,600
            
            
            
            -
            
            
            
            -Senior
      Secured Notes-11.75%
            
            
            304,500
            
            
            
            304,500
            
            
            
            -
            
            
            
            -As
      of April 4, 2009
            
            $
            398,100
            
            
            $
            398,100
            
            
            $
            -
            
            
            $
            -Assets:Money
      market funds
            
            $
            29,197
            
            
            $
            29,197
            
            
            $
            -
            
            
            $
            -Liabilities:Senior
      Subordinated Notes- 9%
            
            $
            86,400
            
            
            $
            86,400
            
            
            
            -
            
            
            
            -Senior
      Secured Notes-11.75%
            
            
            378,000
            
            
            
            378,000
            
            
            
            -
            
            
            
            -As
      of December 31, 2008
            
            $
            464,400
            
            
            $
            464,400
            
            
            $
            -
            
            
            $
            -





The
fair value of the long-term debt instruments was determined by utilizing
available market information.  The carrying value of the Company’s
other financial instruments approximates their fair value.





In
accordance with Financial Accounting Standards Board Staff Position No. 157-2,
“Effective Date of FASB Statement No. 157”, the Company adopted application of
SFAS 157 for non-financial assets and non-financial liabilities on January 1,
2009.  Certain non-financial assets and non-financial liabilities
measured at fair value on a recurring basis include reporting units measured at
fair value in the first step of a goodwill impairment test.  Certain
non-financial assets and non-financial liabilities measured at fair value on a
non-recurring basis include non-financial assets and non-financial liabilities
measured at fair value in the second step of a goodwill impairment test, as well
as intangible assets and other non-financial long-lived assets measured at fair
value for impairment assessment.





New
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations”.  This Statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date to be measured at their fair values as of that
date.  An acquirer is required to recognize assets or liabilities
arising from all other contingencies (contractual contingencies) as of the
acquisition date, measured at their acquisition-date fair values, only if it is
more likely than not that they meet the definition of an asset or a liability in
FASB Concepts Statement No. 6, “Elements of Financial Statements”. Any
acquisition related costs are to be expensed. The provisions of
SFAS


No. 141(R)
are effective for the Company’s fiscal year beginning January 1, 2009, and
are to be applied prospectively. The impact to the Company from the adoption of
SFAS 141(R) in 2009 will depend on acquisition activity after January 1,
2009.





In
December 2007, the FASB issued SFASNo. 160,
“Noncontrolling Interests in Consolidated Financial Statements”. This standard
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. The provisions of SFAS
No. 160 are effective for the Company’s fiscal year beginning
January 1, 2009, and are to be applied prospectively. The adoption of SFAS
No. 160 did not impact the Company’s financial statements.





9


In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”.  This standard reorganizes the GAAP hierarchy
in order to improve financial reporting by providing a consistent framework for
determining what accounting principles should be used when preparing U.S. GAAP
financial statements.  SFAS 162 shall be effective 60 days after the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
Interim Auditing Standard, AU Section 411, “The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles”. Management is
currently evaluating the impact, if any, this new standard may have on its
balance sheet, results of operations, or cash flows.





In
December 2008, the FASB issued FSP SFAS 132(R)-1 “Employers’ Disclosures
about Postretirement Benefit Plan Assets.” This FSP amends the disclosure
requirements for employer’s disclosure of plan assets for defined benefit
pensions and other postretirement plans. The objective of this FSP is to provide
users of financial statements with an understanding of how investment allocation
decisions are made, the major categories of plan assets held by the plans, the
inputs and valuation techniques used to measure the fair value of plan assets,
significant concentration of risk within the Company’s plan assets, and for fair
value measurements determined using significant unobservable inputs a
reconciliation of changes between the beginning and ending balances. FSP SFAS
132(R)-1 is effective for fiscal years ending after December 15, 2009. The
Company will adopt the new disclosure requirements in the 2009 annual reporting
period.





In
January 2009, SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133” became effective
for the Company. SFAS No. 161 seeks qualitative disclosures about the objectives
and strategies for using derivatives, quantitative data about the fair value of
and gains and losses on derivative contracts, and details of credit-risk-related
contingent features in hedged positions. SFAS No. 161 also seeks enhanced
disclosure around derivative instruments in financial statements, accounting
under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, and how hedges affect an entity’s financial position, financial
performance and cash flows. The adoption of SFAS No. 161 did not have any
impact on the Company’s condensed consolidated financial
statements.





In
April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that are not Orderly”. FSP FAS
No. 157-4 clarifies the methodology used to determine fair value when there
is no active market or where the price inputs being used represent distressed
sales. FSP FAS No. 157-4 also reaffirms the objective of fair value
measurement, as stated in FAS No. 157, “Fair Value Measurements,” which is
to reflect how much an asset would be sold for in an orderly transaction. It
also reaffirms the need to use judgment to determine if a formerly active market
has become inactive, as well as to determine fair values when markets have
become inactive. The guidance is effective for financial statement purposes for
interim and annual financial statements issued for fiscal periods ending after
June 15, 2009. The Company will adopt the provisions of FSP FAS
No. 157-4 effective April 5, 2009, which the Company does not expect
to have a material impact on the condensed consolidated financial
statements.





In
April 2009, the FASB issued FSP FAS No. 107-1 and APB Opinion
No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments”
(“FSP FAS No. 107-1 and APB Opinion No. 28-1”). FSP FAS No. 107-1
and APB Opinion No. 28-1 requires fair value disclosures for financial
instruments that are not reflected in the condensed consolidated balance sheets
at fair value. Prior to the issuance of FSP FAS No. 107-1 and APB Opinion
No. 28-1, the fair values of those assets and liabilities were disclosed
only once each year. With the issuance of FSP FAS No. 107-1 and APB Opinion
No. 28-1, the Company will now be required to disclose this information on
a quarterly basis, providing quantitative and qualitative information about fair
value estimates for all financial instruments not measured in the condensed
consolidated balance sheets at fair value. FSP FAS No. 107-1 and APB
Opinion No. 28-1 will be effective for interim reporting periods that end
after June 15, 2009. The Company will adopt the disclosure requirements in
the July 4, 2009 condensed consolidated financial statements.











10





2.  PURCHASE
ACCOUNTING





United Stone Veneer
Acquisition





On
October 31, 2008, Ply Gem Industries completed the asset acquisition of United
Stone Veneer, LLC (“USV”).  The Company accounted for the transaction
as a purchase in accordance with the provisions of SFAS No. 141.  USV
manufactures stone veneer enabling the Company to expand its building products
offering across different areas and capitalize on this product growth
opportunity.  The condensed consolidated financial statements
include the operating results of USV for periods after October 31,
2008.  As a result of the USV acquisition, the Company changed the
title of its “Siding, Fencing, and Railing” segment to “Siding, Fencing, and
Stone.”





The
preliminary purchase price was allocated to the assets and liabilities based on
their fair values.  The following is the allocation of the purchase
price.





(in
      thousands)Other
      current assets, net of cash
            
            $
            566Inventories
            
            
            307Property,
      plant and equipment
            
            
            1,863Goodwill
            
            
            1,584Current
      liabilities
            
            
            (706
            )Purchase
      price, net of cash acquired
            
            $
            3,614





The
goodwill is expected to be deductible for tax purposes.






3.  INTANGIBLE
ASSETS





The
table that follows presents the components of intangible assets as of April 4,
2009 and December 31, 2008:


AverageAmortizationPeriod
            
            
            
            
            
            Accumulated
            
            
            Net
      Carrying(in Years)
            
            
            Cost
            
            
            Amortization
            
            
            Value(Amounts
      in thousands)As
      of April 4, 2009Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (4,769
            )
            
            $
            8,001Trademarks/Tradenames
            
            
            15
            
            
            
            85,644
            
            
            
            (17,052
            )
            
            
            68,592Customer
      relationships
            
            
            13
            
            
            
            158,158
            
            
            
            (46,949
            )
            
            
            111,209Other
            
            
            4
            
            
            
            1,520
            
            
            
            (624
            )
            
            
            896Total
      intangible assets
            
            
            
            
            
            $
            258,092
            
            
            $
            (69,394
            )
            
            $
            188,698As
      of December 31, 2008Patents
            
            
            14
            
            
            $
            12,770
            
            
            $
            (4,533
            )
            
            $
            8,237Trademarks/Tradenames
            
            
            15
            
            
            
            85,644
            
            
            
            (15,578
            )
            
            
            70,066Customer
      relationships
            
            
            13
            
            
            
            158,158
            
            
            
            (43,850
            )
            
            
            114,308Other
            
            
            4
            
            
            
            1,520
            
            
            
            (527
            )
            
            
            993Total
      intangible assets
            
            
            
            
            
            $
            258,092
            
            
            $
            (64,488
            )
            
            $
            193,604





Amortization
expense for the remainder of 2009 and for fiscal years 2010, 2011, 2012, and
2013 is estimated to be approximately $14.8 million, $19.5 million, $19.1
million, $19.1 million, and $19.1 million, respectively.





11


4.  COMPREHENSIVE
LOSS





Comprehensive
loss is comprised of the following:





Three Months EndedApril 4,2009
            
            
            March 29,2008(Amounts
      in thousands)Net
      loss
            
            $
            (62,638
            )
            
            $
            (21,842
            )Foreign
      currency translation adjustment
            
            
            (407
            )
            
            
            (1,173
            )Comprehensive
      loss
            
            $
            (63,045
            )
            
            $
            (23,015
            )










5.  LONG-TERM
DEBT





Long-term
debt in the accompanying condensed consolidated balance sheets at April 4, 2009
and December 31, 2008 consists of the following:





April 4, 2009
            
            
            December 31, 2008(Amounts
      in thousands)Senior
      secured asset based revolving credit facility
            
            $
            70,000
            
            
            $
            60,000Senior
      subordinated notes due 2012, net
              of
      unamortized premium of $136 and $146
            
            
            360,136
            
            
            
            360,146Senior
      secured notes due 2013, net of
              unamortized
      discount of $5,703 and $5,960
            
            
            694,297
            
            
            
            694,040$
            1,124,433
            
            
            $
            1,114,186







11.75% Senior Secured Notes
due 2013





On June
9, 2008, Ply Gem Industries issued $700.0 million of 11.75% senior secured notes
due 2013 (the “Senior Secured Notes”) at an approximate 1.0% discount, yielding
proceeds of approximately $693.5 million.  Ply Gem Industries used the
proceeds to repay all of the outstanding indebtedness under the existing senior
secured credit facility of approximately $676.2 million of term loan borrowings
and approximately $15.0 million of revolver borrowings.  The Senior
Secured Notes will mature on June 15, 2013 and bear interest at the rate of
11.75% per annum.  Interest will be paid semi-annually on June 15 and
December 15 of each year.





Prior
to April 1, 2011, Ply Gem Industries may redeem up to 35% of the aggregate
principal amount of the Senior Secured Notes with the net cash proceeds from
certain equity offerings at a redemption price equal to 111.75% of the aggregate
principal amount of the Senior Secured Notes, plus accrued and unpaid interest,
if any, provided that at least 65% of the original aggregate principal amount of
the Senior Secured Notes remains outstanding after the redemption.  In
addition, not more than once during any twelve-month period, Ply Gem Industries
may redeem up to $70.0 million of the Senior Secured Notes at a redemption price
equal to 103% of the aggregate amount of the Senior Secured Notes, plus accrued
and unpaid interest, if any.  At any time on or after April 1, 2011,
Ply Gem Industries may redeem the Senior Secured Notes, in whole or in part, at
declining redemption prices set forth in the indenture governing the Senior
Secured Notes, plus, in each case, accrued and unpaid interest, if any, to the
redemption date.


12


The
Senior Secured Notes are fully and unconditionally guaranteed on a joint and
several basis by Ply Gem Holdings and all of the domestic subsidiaries of Ply
Gem Industries (the “Guarantors”).  The indenture governing the Senior
Secured Notes contains certain covenants that limit the ability of Ply Gem
Industries and its subsidiaries to incur additional indebtedness, pay dividends
or make other distributions or repurchase or redeem their stock, make loans and
investments, sell assets, incur certain liens, enter into agreements restricting
their ability to pay dividends, enter into transactions with affiliates, and
consolidate, merge or sell Ply Gem Industries’ assets. On November 3, 2008, Ply
Gem Industries completed its exchange offer with respect to the Senior Secured
Notes by exchanging $700.0 million Senior Secured Notes, which were registered
under the Securities Act of 1933, as amended (the "Securities Act"), for $700.0
million of the issued and outstanding Senior Secured Notes.  Upon
completion of the exchange offer, all issued and outstanding Senior Secured
Notes were registered under the Securities Act.





The
Senior Secured Notes and the related guarantees are secured on a first-priority
lien basis by substantially all of the assets (other than the assets
securing the Company's obligations under the senior secured
asset-based revolving credit facility, or ABL Facility, which consist primarily
of accounts receivable and inventory) of Ply Gem Industries and the Guarantors
and on a second-priority lien basis by the assets that secure the ABL
Facility.





In
addition, the Company’s stock ownership in its subsidiaries collateralizes the
Senior Secured Notes to the extent that such equity interests and other
securities can secure the notes without Rule 3-16 of Regulation S-X
under the Securities Act of 1933 requiring separate financial statements of such
subsidiary to be filed with the SEC.  As of April 4, 2009, no
subsidiary’s stock has been excluded from the collateral arrangement due to the
Rule 3-16 requirement.





Senior Secured Asset Based
Revolving Credit Facility





Concurrently
with the Senior Secured Notes offering, Ply Gem Industries, the Company and the
subsidiaries of Ply Gem Industries entered into a new senior secured asset-based
revolving credit facility (the “ABL Facility”).  The ABL Facility
provides for revolving credit financing of up to $150.0 million, subject to
borrowing base availability, with a maturity of five years including
sub-facilities for letters of credit, swingline loans, and borrowings in
Canadian dollars and United States dollars.  However, the ABL Facility
will mature on October 15, 2011 if Ply Gem Industries’ Senior Subordinated Notes
are not refinanced by such date.  In addition, the ABL Facility
provides that the revolving commitments may be increased to $200.0 million,
subject to certain terms and conditions.  The Company had borrowings
of $70.0 million outstanding under the ABL Facility as of April 4,
2009.





As of
April 4, 2009, Ply Gem Industries had approximately $73.1 million of contractual
availability and approximately $43.8 million of borrowing base availability
under the ABL Facility, reflecting $70.0 million of borrowings outstanding under
the ABL Facility and approximately $6.9 million of letters of credit issued
under the ABL Facility.





The
interest rates applicable to loans under our ABL Facility are, at our option,
equal to either a base rate plus an applicable interest margin, or an adjusted
LIBOR rate plus an applicable interest margin, as defined in the ABL Facility
credit agreement.  As of April 4, 2009, the Company’s interest rate on
the ABL Facility was approximately 4.4%.  The ABL Facility contains a
requirement to maintain a fixed charge coverage ratio of 1.1:1.0 if the
Company’s borrowings under the ABL Facility exceed 85% of the $150.0 million
commitment or $127.5 million.





All
obligations under the ABL Facility, and the guarantees of those obligations, are
secured, subject to certain exceptions, by substantially all of the assets of
Ply Gem Industries and the Guarantors, including a first-priority security
interest in personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds of the foregoing
and a second-priority security interest in, and mortgages on, substantially all
of Ply Gem Industries’ material owned real property and equipment and all assets
that secure the Senior Secured Notes on a first-priority basis.





13


9.00% Senior Subordinated
Notes due 2012





Concurrently
with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem
Industries issued $225.0 million aggregate principal amount of its Senior
Subordinated Notes, which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries.  Subsequently, in August of 2004
in connection with the MW acquisition, Ply Gem Industries issued an additional
$135.0 million of Senior Subordinated Notes, (the "Senior Subordinated Notes"
for $360.0 million) which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries, including MWM Holding and its
subsidiaries.  Ply Gem Industries pays interest semi-annually on
February 15 and August 15 of each year.  See Note 13 for related party
transaction related to the Senior Subordinated Notes.





On
March 20, 2009, Ply Gem Industries commenced a consent solicitation to amend the
indenture governing the Senior Subordinated Notes.  On March 24, 2009,
after receipt of the requisite consents, Ply Gem Industries entered into a Fifth
Supplemental Indenture (the “Fifth Supplemental Indenture”) among Ply Gem
Industries, the Company, the other guarantors party thereto and U.S. Bank
National Association, as trustee, containing the amendments to the
indenture.  The Fifth Supplemental Indenture eliminated substantially
all of the restrictive covenants of the indenture governing the Senior
Subordinated Notes, including, among other things, the limitation on
indebtedness, the change of control put provisions, the limitation on restricted
payments, the limitation on liens, the limitation on asset sales, the limitation
on transactions with affiliates, the limitation on dividends and other
restrictions affecting restricted subsidiaries, the limitation on layering
indebtedness and the limitation on the issuance or sale of equity interests in
restricted subsidiaries.  The Fifth Supplemental Indenture also
eliminated certain events of default in the indenture governing the Senior
Subordinated Notes.  The amendments contained in the Fifth
Supplemental Indenture became operative upon completion of the purchase of a
specified amount of the Senior Subordinated Notes by certain affiliates of the
Company’s controlling stockholder.  In connection with this debt
modification, the Company incurred third-party fees of approximately $1.3
million for the period ended April 4, 2009 which has been expensed within
interest expense in the condensed consolidated statement of
operations.





Senior Term Loan
Facility





The
Company’s senior facilities with a syndicate of financial institutions and
institutional lenders provided for senior secured financing of up to
approximately $762.1 million, originally consisting of approximately $687.1
million of term loan facilities maturing in August 2011 and a $75.0 million
revolving loan facility, including a letter of credit subfacility, maturing in
February 2009.  On May 23, 2008, the Company entered into an amendment
of the fifth amended and restated credit agreement which consisted of changes to
certain debt covenant ratios.  The amendment also increased the
interest rate on the term loan and extended the maturity of the revolving credit
facility from February 12, 2009 to August 12, 2010.  On May 23, 2008,
Ply Gem received from CI Capital Partners LLC a $30.0 million cash equity
contribution as a condition to the credit facility amendment.  On June
9, 2008, the Company used the proceeds from the Senior Secured Notes offering to
pay off the existing obligation under the senior term loan
facility.





The
following table summarizes the Company’s long-term debt maturities due in each
twelve month period  after April 4, 2009:


(Amounts in
thousands)


April
      3, 2010
            
            $
            -April
      2, 2011
            
            
            -March
      31, 2012
            
            
            360,136March
      30, 2013
            
            
            -March
      29, 2014 and thereafter
            
            
            764,297$
            1,124,433





The ABL facility of $70.0 million
has been included in the twelve month period ending March 29, 2014 as this
represents the contractual maturity date assuming the Senior Subordinated Notes
are refinanced by 2011.




14





6.  PENSION
PLANS





The
Company has two separate pension plans, the Ply Gem Group Pension Plan and the
MW Manufacturers, Inc. Retirement Plan.




The
Company’s net periodic expense for the combined pension plans for the periods
indicated consists of the following components:




For
      the three
              months
      ended
              April 4, 2009
            
            
            For
      the three
              months
      ended
              March 29, 2008(Amounts
      in thousands)Service
      cost
            
            $
            44
            
            
            $
            48Interest
      cost
            
            
            500
            
            
            
            506Expected
      return on plan assets
            
            
            (366
            )
            
            
            (550
            )Amortization
      of loss
            
            
            126
            
            
            
            -Net
      periodic expense
            
            $
            304
            
            
            $
            4








7.  COMMITMENTS
AND CONTINGENCIES







In
connection with the Ply Gem acquisition, in which Ply Gem Industries was
acquired from Nortek, Inc. (“Nortek”) in February 2004, Nortek has agreed to
indemnify the Company for certain liabilities as set forth in the stock purchase
agreement governing the Ply Gem acquisition.  In the event Nortek is
unable to satisfy amounts due under these indemnifications, the Company would be
liable.  The Company believes that Nortek has the financial capacity
to honor its indemnification obligations and therefore does not anticipate
incurring any losses related to liabilities indemnified by Nortek under the
stock purchase agreement.  A receivable related to this
indemnification has been recorded in other long-term assets in the approximate
amount of $7.7 million and $7.8 million at April 4, 2009 and December 31, 2008,
respectively.  The Company has indemnified third parties in certain
transactions involving dispositions of former subsidiaries.  As of
April 4, 2009 and December 31, 2008, the Company has recorded liabilities in
relation to these indemnifications of approximately $2.7 million and $2.7
million, respectively, in current liabilities and $5.0 million and $5.1 million,
respectively, in long-term liabilities, consisting of the
following:





(Amounts
      in thousands)April 4,
      2009
            
            
            December 31, 2008Product
      claim liabilities
            
            $
            3,634
            
            
            $
            3,718Multiemployer
      pension plan withdrawal liability
            
            
            3,442
            
            
            
            3,492Other
            
            
            580
            
            
            
            584$
            7,656
            
            
            $
            7,794





The
Company sells a number of products and offers a number of
warranties.  The specific terms and conditions of these warranties
vary depending on the product sold and the country in which the product is
sold.  The Company estimates the costs that may be incurred under
their warranties and records a liability for such costs at the time of sale,
which is recorded in accrued expenses and other long-term
liabilities.  Factors that affect the Company’s warranty liabilities
include the number of units sold, historical and anticipated rates of warranty
claims, cost per claim and new product introduction.  The Company
periodically assesses the adequacy of the recorded warranty claims and adjusts
the amounts as necessary.  As of April 4, 2009 and December 31, 2008,
warranty liabilities of approximately $12.2 million and $12.1 million,
respectively, have been recorded in current liabilities and approximately $32.3
million and $33.6 million, respectively, have been recorded in long-term
liabilities.


15


Changes
in the Company’s warranty liabilities are as follows:


For
      the three
              months
      ended
              April 4, 2009
            
            
            For
      the three
              months
      ended
              March29, 2008(Amounts
      in thousands)Balance,
      beginning of period
            
            $
            45,653
            
            
            $
            49,899Warranty
      expense provided during period
            
            
            832
            
            
            
            977Settlements
      made during period
            
            
            (1,987
            )
            
            
            (2,023
            )Balance,
      end of period
            
            $
            44,498
            
            
            $
            48,853





The
Company is subject to other contingencies, including legal proceedings and
claims arising out of its businesses that cover a wide range of matters,
including, among others, environmental matters, contract and employment claims,
product liability, warranty and modification, adjustment or replacement of
component parts of units sold, which may include product
recalls.  Product liability, environmental and other legal proceedings
also include matters with respect to businesses previously owned.  The
Company has used various substances in their products and manufacturing
operations, which have been or may be deemed to be hazardous or dangerous, and
the extent of its potential liability, if any, under environmental, product
liability and workers’ compensation statutes, rules, regulations and case law is
unclear. Further, due to the lack of adequate information and the potential
impact of present regulations and any future regulations, there are certain
circumstances in which no range of potential exposure may be reasonably
estimated.  It is not possible to ascertain the ultimate legal and
financial liability with respect to contingent liabilities, including lawsuits,
and therefore no such estimate has been made.





8.  ACCRUED
EXPENSES, TAXES, AND OTHER LONG-TERM LIABILITIES





Accrued
expenses and taxes consist of the following at April 4, 2009 and December 31,
2008:




April 4, 2009
            
            
            December 31,2008(Amounts
      in thousands)Insurance
            
            $
            5,277
            
            
            $
            5,169Employee
      compensation and benefits
            
            
            8,964
            
            
            
            6,705Sales
      and marketing
            
            
            13,683
            
            
            
            18,023Product
      warranty
            
            
            12,165
            
            
            
            12,069Short-term
      product claim liability
            
            
            2,321
            
            
            
            2,321Accrued
      freight
            
            
            1,427
            
            
            
            748Interest
            
            
            30,080
            
            
            
            17,238Accrued
      severance
            
            
            463
            
            
            
            471Accrued
      pension
            
            
            1,810
            
            
            
            1,810Accrued
      deferred compensation
            
            
            1,886
            
            
            
            1,886Accrued
      taxes
            
            
            5,978
            
            
            
            1,188Other
            
            
            10,316
            
            
            
            8,676$
            94,370
            
            
            $
            76,304







Other
long-term liabilities consist of the following at April 4 2009 and December 31,
2008:




April 4, 2009
            
            
            December 31, 2008(Amounts
      in thousands)Insurance
            
            $
            3,483
            
            
            $
            3,697Pension
      liabilities
            
            
            11,211
            
            
            
            10,744Multiemployer
      pension withdrawal liability
            
            
            3,442
            
            
            
            3,492Product
      warranty
            
            
            32,333
            
            
            
            33,584Long-term
      product claim liability
            
            
            1,313
            
            
            
            1,396Long-term
      deferred compensation
            
            
            3,549
            
            
            
            3,416Liabilities
      for tax uncertainties
            
            
            9,120
            
            
            
            7,806Other
            
            
            4,134
            
            
            
            4,098$
            68,585
            
            
            $
            68,233





Accrued severance
for the three months ended April 4, 2009 includes approximately $443,000 related
to restructuring activities (see Note 9), and approximately $20,000 related to
other austerity initiatives.




16




9.   RESTRUCTURING







In
September 2008, the Company commenced its plan to move certain metal production
from its Valencia, Pennsylvania facility to its Sidney, Ohio
facility.  The Valencia facility remained open on a reduced production
schedule, primarily performing contract coating for third
parties.  Total costs are expected to be approximately $2.2 million.
Termination benefits costs are expected to be approximately $0.8 million,
contract termination costs are expected to be approximately $0.2 million and
other restructuring costs are expected to be $1.2 million.





In
November 2008, the Company announced the closure of its Hammonton, New Jersey
and Phoenix, Arizona window and door manufacturing facilities.  During
December 2008, production began to shift to other locations and production
ceased at Hammonton and Phoenix during 2009.  By shifting production
to other facilities within the Company, the closures will reduce costs and
increase operating efficiencies.  Total costs are expected to be
approximately $6.3 million, including approximately $1.1 million for
personnel-related costs and approximately $5.2 million in other
facilities-related costs, which include approximately $4.8 million in lease
costs.




On
April 2, 2009, the Company announced that it would consolidate production across
several of its manufacturing facilities improving the Company’s overall
operating efficiency.  The Company’s plans include shifting the
majority of the production from its Kearney, Missouri facility to its other
three vinyl siding manufacturing facilities.  The Company plans to
continue to operate the Kearney facility on a limited basis until the housing
market recovers.  The Company also plans to close its Tupelo,
Mississippi window and door manufacturing facility.  In addition, the
Company will consolidate all the vinyl lineal production of its Rocky Mount,
Virginia facility and realign production of its west coast window and door
facilities at Sacramento, California and Auburn, Washington to better serve
customers and improve overall operating efficiency. In connection with the April
2, 2009 announcement, the Company expects to incur pre-tax exit and
restructuring costs, all of which will be cash charges, of approximately $3.1
million, including approximately $1.3 million for personnel-related costs,
approximately $0.5 million for contract termination costs, and approximately
$1.3 million in other facilities-related costs.  There was no
restructuring activity recorded in the condensed consolidated statement of
operations or balance sheets as of and for the period ended April 4, 2009 for
Kearney, Tupelo, and Auburn.





The
following table summarizes the Company’s restructuring activity for period ended
April 4, 2009:





(amounts
      in thousands)
            
            Accrued
      as of
            
            
            Adjustments
            
            
            Cash
      payments
            
            
            Expensed
            
            
            Accrued
      as ofDecember 31, 2008
            
            
            During 2009
            
            
            During 2009
            
            
            During 2009
            
            
            April 4, 2009Valencia, PASeverance
      costs
            
            $
            243
            
            
            $
            -
            
            
            $
            (359
            )
            
            $
            116
            
            
            $
            -Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (618
            )
            
            
            618
            
            
            
            -$
            243
            
            
            $
            -
            
            
            $
            (977
            )
            
            $
            734
            
            
            $
            -Hammonton, NJSeverance
      costs
            
            $
            217
            
            
            $
            -
            
            
            $
            (462
            )
            
            $
            688
            
            
            $
            443Other
      termination benefits
            
            
            -
            
            
            
            136
            
            
            
            (59
            )
            
            
            -
            
            
            
            77Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (63
            )
            
            
            63
            
            
            
            -$
            217
            
            
            $
            136
            
            
            $
            (584
            )
            
            $
            751
            
            
            $
            520Phoenix, AZSeverance
      costs
            
            $
            11
            
            
            $
            -
            
            
            $
            (43
            )
            
            $
            32
            
            
            $
            -Other
      termination benefits
            
            
            -
            
            
            
            23
            
            
            
            (16
            )
            
            
            -
            
            
            
            7Contract
      terminations
            
            
            -
            
            
            
            -
            
            
            
            (122
            )
            
            
            1,597
            
            
            
            1,475Equipment
      removal and other
            
            
            -
            
            
            
            -
            
            
            
            (184
            )
            
            
            184
            
            
            
            -$
            11
            
            
            $
            23
            
            
            $
            (365
            )
            
            $
            1,813
            
            
            $
            1,482





For the
three months ended April 4, 2009, the Company incurred restructuring costs of
approximately $3.3 million.  Approximately $0.7 million were recorded
in selling, general and administrative expenses in the Siding, Fencing and Stone
segment and approximately $2.6 million were recorded in selling, general and
administrative expenses in the Windows and Doors segment.




17




10.   INCOME
TAXES






The
Company utilizes the asset and liability method of accounting for income taxes
in accordance with SFAS No. 109, “Accounting for Income Taxes” which requires
that deferred tax assets and liabilities be recorded to reflect the future tax
consequences of temporary differences between the book and tax basis of various
assets and liabilities.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  The effect of changes in tax rates on deferred tax assets
and liabilities is recognized as income or expense in the period in which the
rate change occurs.  A valuation allowance is established to offset
any deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized.




Estimates
are required with respect to, among other things, the appropriate state income
tax rates to use in the various states that the Company and its subsidiaries are
required to file, the potential utilization of operating and capital loss
carry-forwards for both federal and state income tax purposes and valuation
allowances required, if any, for tax assets that may not be realized in the
future.  The Company establishes reserves when, despite our belief
that our tax return positions are fully supportable, certain positions could be
challenged, and the positions may not be fully sustained.  Subsequent
to February 12, 2004, U.S. federal income tax returns are prepared and filed by
Ply Gem Investment Holdings, Inc. on behalf of itself, Ply Gem Holdings, Inc.,
Ply Gem Industries, Inc. and its subsidiaries.  The existing tax
sharing agreement between Ply Gem Holdings and Ply Gem Investment Holdings,
Inc., under which tax liabilities for each respective party are computed on a
stand-alone basis, was amended during 2006 to include Ply Gem Prime Holdings,
Inc.  U.S. subsidiaries file unitary, combined federal income tax
returns and separate state income tax returns.  CWD Windows and Doors
files separate Canadian income tax returns.




Income
taxes for the interim period presented have been included in the accompanying
financial statements on the basis of an estimated annual effective tax rate in
accordance with FIN 18, “Accounting for Income Taxes in Interim Periods-an
interpretation of APB Opinion No. 28”.  In addition to the amount of
tax resulting from applying the estimated annual effective tax rate to pre-tax
loss, the Company includes certain items treated as discrete events to arrive at
an estimated overall tax amount.  During the quarter ended April 4,
2009, the Company’s estimated effective income tax rate was approximately 4.9%
which varied from the statutory rate primarily due to disallowed related party
interest, state tax expense, and an increase in the valuation
allowance.  A valuation allowance has been provided against deferred
tax assets as it is presently deemed more likely than not that the benefit of
such net tax assets will not be utilized.  The Company currently has
goodwill of approximately $13.3 million that is not amortized and in a deferred
tax liability position as of April 4, 2009.  Therefore, the reversal
of deferred tax liabilities related to this goodwill is not considered a source
of future taxable income in assessing the realization of its deferred tax
assets.  The Company continues to evaluate the realizability of its
net deferred tax assets and its estimates are subject to
change.  During the quarter ended April 4, 2009, the Company’s
valuation allowance increased approximately $19.5 million.


During
the quarter ended April 4, 2009, affiliates of the Company's controlling
stockholder purchased a majority of the Senior Subordinated
Notes.  The Company determined that approximately $95.7 million would
be considered cancellation of indebtedness (“COD”) income for the quarter ended
April 4, 2009 as the acquiring party was deemed a related party for tax
purposes.  The Company is in process of evaluating the tax
implications associated with this transaction and their effect on the annual tax
provision given the Company’s tax planning strategies.  Adjustments to
income tax expense, operating loss carryforwards, and valuation allowances may
be recorded in future periods as a result.




On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”).  Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010.  The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years.  The Company does not currently plan to defer the COD income on
the related party transaction.


18




During
the quarter ended April 4, 2009, the Company also filed an amended federal
income tax return for the year ended December 31, 2005 adjusting net operating
loss limitations.  As a result, the Company recorded this income tax
benefit as an income tax receivable of approximately $4.1 million as of April 4,
2009 which has been recorded in prepaid expense and other current assets in the
condensed consolidated balance sheets.  During the quarter ended March
29, 2008, the Company’s effective tax rate was 40.3% which was consistent with
the Company’s expectations for the full fiscal year.




Despite
our belief that our tax return positions are consistent with applicable tax
laws, the Company believes that certain positions may be challenged by taxing
authorities.  Our tax reserves reflect the difference between the tax
benefit claimed on tax returns and the amount recognized in the financial
statements in accordance with FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). These reserves have been established
based on management’s assessment as to potential exposure attributable to
permanent differences and interest applicable to both permanent and temporary
differences.  The tax reserves are reviewed periodically and adjusted
in light of changing facts and circumstances, such as progress of tax audits,
lapse of applicable statutes of limitations and changes in tax law. During
the year ending December 31, 2009, it is reasonably possible the Company may
reverse approximately $6.1 million of tax contingency reserves primarily related
to additional federal and state taxes that have expiring statutes of
limitations.  The Company is not currently under audit with the
Internal Revenue Service.






11.  STOCK-BASED
COMPENSATION





Stock Option
Plan





A
summary of changes in stock options outstanding as of April 4, 2009 is presented
below:





Stock Options
            
            
            Weighted-Average
      Exercise
              Price
            
            
            Weighted-Average
      Remaining Contractual Term
      (Years)Balance
      at January 1, 2009
            
            
            314,694
            
            
            $
            48.79
            
            
            
            7.83Granted
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -Balance
      at April 4, 2009
            
            
            314,694
            
            
            $
            48.79
            
            
            
            7.57





As of
April 4, 2009, 51,994 options have vested.  At April 4, 2009, the
Company had approximately $0.1 million of total unrecognized compensation
expense that will be recognized over the weighted average period of 2.58
years.





Other Share-Based
Compensation





Upon
completion of  the acquisition of Ply Gem, the acquisition of MW and
the acquisition of AWC Holding Company and its subsidiaries (collectively,
“Alenco”), certain members of management made a cash contribution to Ply Gem
Prime Holdings, Inc. in exchange for shares of Ply Gem Prime Holdings, Inc.’s
common stock.





A
summary of the changes in Ply Gem Prime Holdings, Inc.’s common stock shares as
of April 4, 2009 is presented below.


Common
      Stock
              Shares
      Owned by
              ManagementBalance
      at January 1, 2009
            
            
            642,895Shares
      issued
            
            
            -Shares
      repurchased
            
            
            -Balance
      at April 4, 2009
            
            
            642,895







19







12.  SEGMENT
INFORMATION





Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (SFAS 131) requires companies to report
certain information about operating segments in their financial statements and
established standards for related disclosures about products and services,
geographic areas and major customers.  SFAS 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by management in deciding
how to allocate resources and in assessing performance.  Operating
segments meeting certain aggregation criteria may be combined into one
reportable segment for disclosure purposes. Comparative information for prior
years is presented to conform to our current organizational
structure.





The
Company has two reportable segments: 1) Siding, Fencing, and Stone, and 2)
Windows and Doors.  Prior to the acquisition of USV on October 31,
2008, the Siding, Fencing, and Stone segment was titled Siding, Fencing, and
Railing and did not include USV.





The
operating earnings (loss) of each segment includes the revenue generated on
transactions involving products within that segment less identifiable
expenses.  Corporate unallocated income and expenses include items
which are not directly attributed to or allocated to either of our reporting
segments.  Such items include interest, legal costs, corporate
payroll, and unallocated finance and accounting expenses. Corporate unallocated
assets include deferred financing costs, cash and certain non-operating
receivables.





Following
is a summary of the Company’s segment information.





Three
      months endedApril 4, 2009
            
            
            March 29, 2008(Amounts
      in thousands)Net
      SalesSiding,
      Fencing, and Stone
            
            $
            108,460
            
            
            $
            147,060Windows
      and Doors
            
            
            74,291
            
            
            
            109,313$
            182,751
            
            
            $
            256,373Operating
      Earnings (loss)Siding,
      Fencing, and Stone
            
            $
            (7,517
            )
            
            $
            (4,186
            )Windows
      and Doors
            
            
            (21,682
            )
            
            
            (7,605
            )Unallocated
            
            
            (3,609
            )
            
            
            (2,493
            )$
            (32,808
            )
            
            $
            (14,284
            )As
      of
            
            
            As
      ofApril 4, 2009
            
            
            December 31, 2008Total
      assetsSiding,
      Fencing, and Stone
            
            $
            641,003
            
            
            $
            652,560Windows
      and Doors
            
            
            336,312
            
            
            
            357,151Unallocated
            
            
            56,895
            
            
            
            91,399$
            1,034,210
            
            
            $
            1,101,110











20





13.  RELATED
PARTY TRANSACTIONS





The
Company has entered into two advisory agreements with an affiliate of CI Capital
Partners LLC, formerly Caxton-Iseman Capital, LLC (the “Caxton-Iseman Party”),
which we refer to as the “Debt Financing Advisory Agreement” and the “General
Advisory Agreement”.  The Caxton-Iseman party provides the Company
with acquisition and financial advisory services as the Board of Directors shall
reasonably request.  Under the General Advisory Agreement, the Company
expensed management fees to the Caxton-Iseman Party of approximately $0.7
million and $0.1 million within selling, general, and administrative expenses
for the three month periods ended April 4, 2009 and March 29, 2008,
respectively.





During
March 2009, certain affiliates of the Company’s controlling stockholder
purchased a majority of the outstanding Senior Subordinated
Notes.  The Notes are outstanding as of April 4, 2009 and have been
included within long-term debt on the condensed consolidated balance
sheet.








14.  GUARANTOR
/ NON-GUARANTOR FINANCIAL INFORMATION





The
Senior Secured Notes and Senior Subordinated Notes were both issued by our
direct subsidiary, Ply Gem Industries, and are fully and unconditionally
guaranteed on a joint and several basis by the Company and certain of Ply Gem
Industries’ 100% owned subsidiaries.  Accordingly, the following
guarantor and non-guarantor information is presented as of April 4, 2009 and
December 31, 2008 and for the three month periods ended April 4, 2009 and March
29, 2008.  The non-guarantor information presented represents CWD, our
Canadian subsidiary.











PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the three months ended April 4, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            173,623
            
            
            $
            9,128
            
            
            $
            -
            
            
            $
            182,751Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            162,592
            
            
            
            7,099
            
            
            
            -
            
            
            
            169,691Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            3,609
            
            
            
            34,747
            
            
            
            2,606
            
            
            
            -
            
            
            
            40,962Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            1,737
            
            
            
            -
            
            
            
            (1,737
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            4,906
            
            
            
            -
            
            
            
            -
            
            
            
            4,906Total
      costs and expenses
            
            
            -
            
            
            
            3,609
            
            
            
            203,982
            
            
            
            9,705
            
            
            
            (1,737
            )
            
            
            215,559Operating
      loss
            
            
            -
            
            
            
            (3,609
            )
            
            
            (30,359
            )
            
            
            (577
            )
            
            
            1,737
            
            
            
            (32,808
            )Foreign
      currency loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (88
            )
            
            
            -
            
            
            
            (88
            )Intercompany
      interest
            
            
            -
            
            
            
            30,351
            
            
            
            (29,842
            )
            
            
            (509
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (33,756
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (33,756
            )Interest
      income
            
            
            -
            
            
            
            9
            
            
            
            55
            
            
            
            1
            
            
            
            -
            
            
            
            65Intercompany
      administrative income
            
            
            -
            
            
            
            1,737
            
            
            
            -
            
            
            
            -
            
            
            
            (1,737
            )
            
            
            -Loss
      before equity insubsidiaries'
      loss
            
            
            -
            
            
            
            (5,268
            )
            
            
            (60,146
            )
            
            
            (1,173
            )
            
            
            -
            
            
            
            (66,587
            )Equity
      in subsidiaries' loss
            
            
            (62,638
            )
            
            
            (57,682
            )
            
            
            -
            
            
            
            -
            
            
            
            120,320
            
            
            
            -Loss
      before benefit forincome
      taxes
            
            
            (62,638
            )
            
            
            (62,950
            )
            
            
            (60,146
            )
            
            
            (1,173
            )
            
            
            120,320
            
            
            
            (66,587
            )Benefit
      for income taxes
            
            
            -
            
            
            
            (312
            )
            
            
            (3,316
            )
            
            
            (321
            )
            
            
            -
            
            
            
            (3,949
            )Net
      loss
            
            $
            (62,638
            )
            
            $
            (62,638
            )
            
            $
            (56,830
            )
            
            $
            (852
            )
            
            $
            120,320
            
            
            $
            (62,638
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (407
            )
            
            
            -
            
            
            
            (407
            )Total
      comprehensive loss
            
            $
            (62,638
            )
            
            $
            (62,638
            )
            
            $
            (56,830
            )
            
            $
            (1,259
            )
            
            $
            120,320
            
            
            $
            (63,045
            )


21








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENTS OF OPERATIONSFor
      the three months ended March 29, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            236,696
            
            
            $
            19,677
            
            
            $
            -
            
            
            $
            256,373Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            212,291
            
            
            
            13,590
            
            
            
            -
            
            
            
            225,881Selling,
      general andadministrative
      expenses
            
            
            -
            
            
            
            2,493
            
            
            
            33,419
            
            
            
            3,950
            
            
            
            -
            
            
            
            39,862Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            2,368
            
            
            
            -
            
            
            
            (2,368
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            4,914
            
            
            
            -
            
            
            
            -
            
            
            
            4,914Total
      costs and expenses
            
            
            -
            
            
            
            2,493
            
            
            
            252,992
            
            
            
            17,540
            
            
            
            (2,368
            )
            
            
            270,657Operating
      earnings (loss)
            
            
            -
            
            
            
            (2,493
            )
            
            
            (16,296
            )
            
            
            2,137
            
            
            
            2,368
            
            
            
            (14,284
            )Foreign
      currency loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (551
            )
            
            
            -
            
            
            
            (551
            )Intercompany
      interest
            
            
            -
            
            
            
            22,158
            
            
            
            (22,158
            )
            
            
            -
            
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (22,689
            )
            
            
            16
            
            
            
            (401
            )
            
            
            -
            
            
            
            (23,074
            )Interest
      income
            
            
            -
            
            
            
            161
            
            
            
            3
            
            
            
            39
            
            
            
            -
            
            
            
            203Intercompany
      administrative income
            
            
            -
            
            
            
            2,368
            
            
            
            -
            
            
            
            -
            
            
            
            (2,368
            )
            
            
            -Income
      (loss) before equity insubsidiaries'
      income (loss)
            
            
            -
            
            
            
            (495
            )
            
            
            (38,435
            )
            
            
            1,224
            
            
            
            -
            
            
            
            (37,706
            )Equity
      in subsidiaries' income (loss)
            
            
            (21,842
            )
            
            
            (21,555
            )
            
            
            -
            
            
            
            -
            
            
            
            43,397
            
            
            
            -Income
      (loss) before benefit forincome
      taxes
            
            
            (21,842
            )
            
            
            (22,050
            )
            
            
            (38,435
            )
            
            
            1,224
            
            
            
            43,397
            
            
            
            (37,706
            )Provision
      (benefit) for income taxes
            
            
            -
            
            
            
            (208
            )
            
            
            (16,060
            )
            
            
            404
            
            
            
            -
            
            
            
            (15,864
            )Net
      income (loss)
            
            $
            (21,842
            )
            
            $
            (21,842
            )
            
            $
            (22,375
            )
            
            $
            820
            
            
            $
            43,397
            
            
            $
            (21,842
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,173
            )
            
            
            -
            
            
            
            (1,173
            )Total
      comprehensive loss
            
            $
            (21,842
            )
            
            $
            (21,842
            )
            
            $
            (22,375
            )
            
            $
            (353
            )
            
            $
            43,397
            
            
            $
            (23,015
            )














22








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of April 4, 2009Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            -
            
            
            $
            13,704
            
            
            $
            783
            
            
            $
            2,728
            
            
            $
            -
            
            
            $
            17,215Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            101,661
            
            
            
            4,748
            
            
            
            -
            
            
            
            106,409Inventories:Raw
      materials
            
            
            -
            
            
            
            -
            
            
            
            41,259
            
            
            
            3,562
            
            
            
            -
            
            
            
            44,821Work
      in process
            
            
            -
            
            
            
            -
            
            
            
            23,973
            
            
            
            944
            
            
            
            -
            
            
            
            24,917Finished
      goods
            
            
            -
            
            
            
            -
            
            
            
            34,967
            
            
            
            1,613
            
            
            
            -
            
            
            
            36,580Total
      inventory
            
            
            -
            
            
            
            -
            
            
            
            100,199
            
            
            
            6,119
            
            
            
            -
            
            
            
            106,318Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            3,770
            
            
            
            17,356
            
            
            
            1,681
            
            
            
            -
            
            
            
            22,807Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      current assets
            
            
            -
            
            
            
            17,474
            
            
            
            219,999
            
            
            
            15,276
            
            
            
            -
            
            
            
            252,749Investments
      in subsidiaries
            
            
            (305,663
            )
            
            
            (290,918
            )
            
            
            -
            
            
            
            -
            
            
            
            596,581
            
            
            
            -Property
      and Equipment, at cost:Land
            
            
            -
            
            
            
            -
            
            
            
            3,567
            
            
            
            142
            
            
            
            -
            
            
            
            3,709Buildings
      and improvements
            
            
            -
            
            
            
            -
            
            
            
            34,406
            
            
            
            829
            
            
            
            -
            
            
            
            35,235Machinery
      and equipment
            
            
            -
            
            
            
            1,356
            
            
            
            248,395
            
            
            
            5,772
            
            
            
            -
            
            
            
            255,523-
            
            
            
            1,356
            
            
            
            286,368
            
            
            
            6,743
            
            
            
            -
            
            
            
            294,467Less
      accumulated depreciation
            
            
            -
            
            
            
            (299
            )
            
            
            (128,134
            )
            
            
            (2,627
            )
            
            
            -
            
            
            
            (131,060
            )Total
      property and equipment, net
            
            
            -
            
            
            
            1,057
            
            
            
            158,234
            
            
            
            4,116
            
            
            
            -
            
            
            
            163,407Other
      Assets:Intangible
      assets, net
            
            
            -
            
            
            
            -
            
            
            
            188,698
            
            
            
            -
            
            
            
            -
            
            
            
            188,698Goodwill
            
            
            -
            
            
            
            -
            
            
            
            381,852
            
            
            
            8,833
            
            
            
            -
            
            
            
            390,685Intercompany
      note receivable
            
            
            -
            
            
            
            1,104,260
            
            
            
            -
            
            
            
            -
            
            
            
            (1,104,260
            )
            
            
            -Other
            
            
            -
            
            
            
            38,364
            
            
            
            307
            
            
            
            -
            
            
            
            -
            
            
            
            38,671Total
      other assets
            
            
            -
            
            
            
            1,142,624
            
            
            
            570,857
            
            
            
            8,833
            
            
            
            (1,104,260
            )
            
            
            618,054$
            (305,663
            )
            
            $
            870,237
            
            
            $
            949,090
            
            
            $
            28,225
            
            
            $
            (507,679
            )
            
            $
            1,034,210LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            -
            
            
            $
            1,326
            
            
            $
            44,527
            
            
            $
            2,237
            
            
            $
            -
            
            
            $
            48,090Accrued
      expenses and taxes
            
            
            -
            
            
            
            36,832
            
            
            
            56,925
            
            
            
            613
            
            
            
            -
            
            
            
            94,370Total
      current liabilities
            
            
            -
            
            
            
            38,158
            
            
            
            101,452
            
            
            
            2,850
            
            
            
            -
            
            
            
            142,460Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            1,773
            
            
            
            2,622
            
            
            
            -
            
            
            
            4,395Intercompany
      note payable
            
            
            -
            
            
            
            -
            
            
            
            1,088,998
            
            
            
            15,262
            
            
            
            (1,104,260
            )
            
            
            -Other
      long term liabilities
            
            
            -
            
            
            
            13,309
            
            
            
            54,375
            
            
            
            901
            
            
            
            -
            
            
            
            68,585Long-term
      debt, less currentmaturities
            
            
            -
            
            
            
            1,124,433
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,124,433Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,919
            
            
            
            209,919
            
            
            
            188,876
            
            
            
            (385
            )
            
            
            (398,410
            )
            
            
            209,919Retained
      earnings (accumulated deficit)
            
            
            (509,631
            )
            
            
            (509,631
            )
            
            
            (486,384
            )
            
            
            7,986
            
            
            
            988,029
            
            
            
            (509,631
            )Accumulated
      othercomprehensive
      loss
            
            
            (5,951
            )
            
            
            (5,951
            )
            
            
            -
            
            
            
            (1,011
            )
            
            
            6,962
            
            
            
            (5,951
            )$
            (305,663
            )
            
            $
            870,237
            
            
            $
            949,090
            
            
            $
            28,225
            
            
            $
            (507,679
            )
            
            $
            1,034,210





23


PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of December 31, 2008Guarantor
              
              
              Issuer
              
              
              
              
              
              Non-Ply
      Gem
              
              
              Ply
      Gem
              
              
              Guarantor
              
              
              Guarantor
              
              
              ConsolidatingHoldings, Inc.
              
              
              Industries, Inc.
              
              
              Subsidiaries
              
              
              Subsidiary
              
              
              Adjustments
              
              
              Consolidated(Amounts
      in thousands)ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              -
              
              
              $
              46,181
              
              
              $
              4,490
              
              
              $
              7,618
              
              
              $
              -
              
              
              $
              58,289Accounts
      receivable, net
              
              
              -
              
              
              
              -
              
              
              
              83,537
              
              
              
              6,990
              
              
              
              -
              
              
              
              90,527Inventories:Raw
      materials
              
              
              -
              
              
              
              -
              
              
              
              49,448
              
              
              
              3,612
              
              
              
              -
              
              
              
              53,060Work
      in process
              
              
              -
              
              
              
              -
              
              
              
              27,137
              
              
              
              948
              
              
              
              -
              
              
              
              28,085Finished
      goods
              
              
              -
              
              
              
              -
              
              
              
              40,133
              
              
              
              2,134
              
              
              
              -
              
              
              
              42,267Total
      inventory
              
              
              -
              
              
              
              -
              
              
              
              116,718
              
              
              
              6,694
              
              
              
              -
              
              
              
              123,412Prepaid
      expenses and othercurrent
      assets
              
              
              -
              
              
              
              3,956
              
              
              
              15,559
              
              
              
              470
              
              
              
              -
              
              
              
              19,985Deferred
      income taxes
              
              
              -
              
              
              
              -
              
              
              
              13,924
              
              
              
              -
              
              
              
              -
              
              
              
              13,924Total
      current assets
              
              
              -
              
              
              
              50,137
              
              
              
              234,228
              
              
              
              21,772
              
              
              
              -
              
              
              
              306,137Investments
      in subsidiaries
              
              
              (242,628
              )
              
              
              (289,731
              )
              
              
              -
              
              
              
              -
              
              
              
              532,359
              
              
              
              -Property
      and Equipment, at cost:Land
              
              
              -
              
              
              
              -
              
              
              
              3,565
              
              
              
              144
              
              
              
              -
              
              
              
              3,709Buildings
      and improvements
              
              
              -
              
              
              
              -
              
              
              
              34,378
              
              
              
              828
              
              
              
              -
              
              
              
              35,206Machinery
      and equipment
              
              
              -
              
              
              
              1,246
              
              
              
              246,211
              
              
              
              5,833
              
              
              
              -
              
              
              
              253,290-
              
              
              
              1,246
              
              
              
              284,154
              
              
              
              6,805
              
              
              
              -
              
              
              
              292,205Less
      accumulated depreciation
              
              
              -
              
              
              
              (257
              )
              
              
              (119,426
              )
              
              
              (2,511
              )
              
              
              -
              
              
              
              (122,194
              )Total
      property and equipment, net
              
              
              -
              
              
              
              989
              
              
              
              164,728
              
              
              
              4,294
              
              
              
              -
              
              
              
              170,011Other
      Assets:Intangible
      assets, net
              
              
              -
              
              
              
              -
              
              
              
              193,604
              
              
              
              -
              
              
              
              -
              
              
              
              193,604Goodwill
              
              
              -
              
              
              
              -
              
              
              
              381,854
              
              
              
              8,925
              
              
              
              -
              
              
              
              390,779Intercompany
      note receivable
              
              
              -
              
              
              
              1,107,260
              
              
              
              -
              
              
              
              -
              
              
              
              (1,107,260
              )
              
              
              -Other
              
              
              -
              
              
              
              40,273
              
              
              
              306
              
              
              
              -
              
              
              
              -
              
              
              
              40,579Total
      other assets
              
              
              -
              
              
              
              1,147,533
              
              
              
              575,764
              
              
              
              8,925
              
              
              
              (1,107,260
              )
              
              
              624,962$
              (242,628
              )
              
              $
              908,928
              
              
              $
              974,720
              
              
              $
              34,991
              
              
              $
              (574,901
              )
              
              $
              1,101,110LIABILITIES
      AND STOCKHOLDER'S EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
              
              $
              -
              
              
              $
              1,070
              
              
              $
              55,304
              
              
              $
              3,229
              
              
              $
              -
              
              
              $
              59,603Accrued
      expenses and taxes
              
              
              -
              
              
              
              24,600
              
              
              
              49,795
              
              
              
              1,909
              
              
              
              -
              
              
              
              76,304Total
      current liabilities
              
              
              -
              
              
              
              25,670
              
              
              
              105,099
              
              
              
              5,138
              
              
              
              -
              
              
              
              135,907Deferred
      income taxes
              
              
              -
              
              
              
              -
              
              
              
              22,469
              
              
              
              2,943
              
              
              
              -
              
              
              
              25,412Intercompany
      note payable
              
              
              -
              
              
              
              -
              
              
              
              1,088,999
              
              
              
              18,261
              
              
              
              (1,107,260
              )
              
              
              -Other
      long term liabilities
              
              
              -
              
              
              
              11,700
              
              
              
              55,623
              
              
              
              910
              
              
              
              -
              
              
              
              68,233Long-term
      debt, less currentmaturities
              
              
              -
              
              
              
              1,114,186
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,114,186Commitments
      and contingenciesStockholder's
      Equity (Deficit):Preferred
      stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Common
      stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Additional
      paid-in-capital
              
              
              209,908
              
              
              
              209,908
              
              
              
              132,084
              
              
              
              (497
              )
              
              
              (341,495
              )
              
              
              209,908Retained
      earnings (accumulated deficit)
              
              
              (446,993
              )
              
              
              (446,993
              )
              
              
              (429,554
              )
              
              
              8,838
              
              
              
              867,709
              
              
              
              (446,993
              )Accumulated
      othercomprehensive loss
              
              
              (5,543
              )
              
              
              (5,543
              )
              
              
              -
              
              
              
              (602
              )
              
              
              6,145
              
              
              
              (5,543
              )$
              (242,628
              )
              
              $
              908,928
              
              
              $
              974,720
              
              
              $
              34,991
              
              
              $
              (574,901
              )
              
              $
              1,101,110





24




PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the three months ended April 4, 2009Guarantor
              
              
              Issuer
              
              
              
              
              
              Non-Ply
      Gem
              
              
              Ply
      Gem
              
              
              Guarantor
              
              
              Guarantor
              
              
              ConsolidatingHoldings, Inc.
              
              
              Industries, Inc.
              
              
              Subsidiaries
              
              
              Subsidiary
              
              
              Adjustments
              
              
              Consolidated(Amounts
      in thousands)Cash
      flows from operatingactivities:Net
      loss
              
              $
              (62,638
              )
              
              $
              (62,638
              )
              
              $
              (56,830
              )
              
              $
              (852
              )
              
              $
              120,320
              
              
              $
              (62,638
              )Adjustments
      to reconcile netloss
      to cash provided by(used
      in) operating activities:Depreciation
      and amortizationexpense
              
              
              -
              
              
              
              43
              
              
              
              13,683
              
              
              
              170
              
              
              
              -
              
              
              
              13,896Non-cash
      interest expense, net
              
              
              -
              
              
              
              2,044
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,044Loss
      on foreign currency transactions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              88
              
              
              
              -
              
              
              
              88Gain
      on sale of assets
              
              
              -
              
              
              
              -
              
              
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              (1
              )Deferred
      income taxes
              
              
              -
              
              
              
              -
              
              
              
              (7,056
              )
              
              
              -
              
              
              
              -
              
              
              
              (7,056
              )Equity
      in subsidiaries' net income (loss)
              
              
              62,638
              
              
              
              57,682
              
              
              
              -
              
              
              
              -
              
              
              
              (120,320
              )
              
              
              -Changes
      in operating assets andliabilities:Accounts
      receivable, net
              
              
              -
              
              
              
              -
              
              
              
              (18,124
              )
              
              
              2,198
              
              
              
              -
              
              
              
              (15,926
              )Inventories
              
              
              -
              
              
              
              -
              
              
              
              16,519
              
              
              
              525
              
              
              
              -
              
              
              
              17,044Prepaid
      expenses and othercurrent
      assets
              
              
              -
              
              
              
              184
              
              
              
              (1,800
              )
              
              
              (1,201
              )
              
              
              -
              
              
              
              (2,817
              )Accounts
      payable
              
              
              -
              
              
              
              256
              
              
              
              (10,696
              )
              
              
              (1,074
              )
              
              
              -
              
              
              
              (11,514
              )Accrued
      expenses and taxes
              
              
              -
              
              
              
              13,979
              
              
              
              7,932
              
              
              
              (1,446
              )
              
              
              -
              
              
              
              20,465Cash
      payments on restructuring liabilities
              
              
              -
              
              
              
              -
              
              
              
              (1,926
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,926
              )Other
              
              
              -
              
              
              
              11
              
              
              
              (31
              )
              
              
              (355
              )
              
              
              -
              
              
              
              (375
              )Net
      cash provided by (used in)operating
      activities
              
              
              -
              
              
              
              11,561
              
              
              
              (58,330
              )
              
              
              (1,947
              )
              
              
              -
              
              
              
              (48,716
              )Cash
      flows from investingactivities:Capital
      expenditures
              
              
              -
              
              
              
              (109
              )
              
              
              (2,301
              )
              
              
              (36
              )
              
              
              -
              
              
              
              (2,446
              )Proceeds
      from sale of assets
              
              
              -
              
              
              
              -
              
              
              
              21
              
              
              
              -
              
              
              
              -
              
              
              
              21Other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      cash used ininvesting
      activities
              
              
              -
              
              
              
              (109
              )
              
              
              (2,280
              )
              
              
              (36
              )
              
              
              -
              
              
              
              (2,425
              )Cash
      flows from financingactivities:Proceeds
      from revolver borrowings
              
              
              -
              
              
              
              10,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,000Proceeds
      from intercompany
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -investment
              
              
              -
              
              
              
              (53,903
              )
              
              
              56,903
              
              
              
              (3,000
              )
              
              
              -
              
              
              
              -Debt
      issuance costs paid
              
              
              -
              
              
              
              (26
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (26
              )Net
      cash provided by (used in)financing
      activities
              
              
              -
              
              
              
              (43,929
              )
              
              
              56,903
              
              
              
              (3,000
              )
              
              
              -
              
              
              
              9,974Impact
      of exchange rate movementon
      cash
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              93
              
              
              
              -
              
              
              
              93Net
      decrease in cashand
      cash equivalents
              
              
              -
              
              
              
              (32,477
              )
              
              
              (3,707
              )
              
              
              (4,890
              )
              
              
              -
              
              
              
              (41,074
              )Cash
      and cash equivalents at thebeginning
      of the period
              
              
              -
              
              
              
              46,181
              
              
              
              4,490
              
              
              
              7,618
              
              
              
              -
              
              
              
              58,289Cash
      and cash equivalents at the endof
      the period
              
              $
              -
              
              
              $
              13,704
              
              
              $
              783
              
              
              $
              2,728
              
              
              $
              -
              
              
              $
              17,215





25








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the three months ended March 29, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Cash
      flows from operatingactivities:Net
      income (loss)
            
            $
            (21,842
            )
            
            $
            (21,842
            )
            
            $
            (22,375
            )
            
            $
            820
            
            
            $
            43,397
            
            
            $
            (21,842
            )Adjustments
      to reconcile netincome
      (loss) to cash provided by(used
      in) operating activities:Depreciation
      and amortizationexpense
            
            
            -
            
            
            
            10
            
            
            
            15,816
            
            
            
            200
            
            
            
            -
            
            
            
            16,026Non-cash
      interest expense, net
            
            
            -
            
            
            
            1,745
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,745Loss
      on foreign currency transactions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            551
            
            
            
            -
            
            
            
            551Loss
      on sale of assets
            
            
            -
            
            
            
            -
            
            
            
            323
            
            
            
            -
            
            
            
            -
            
            
            
            323Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            316
            
            
            
            145
            
            
            
            -
            
            
            
            461Equity
      in subsidiaries' net income (loss)
            
            
            21,842
            
            
            
            21,555
            
            
            
            -
            
            
            
            -
            
            
            
            (43,397
            )
            
            
            -Changes
      in operating assets andliabilities:Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            (24,965
            )
            
            
            (103
            )
            
            
            -
            
            
            
            (25,068
            )Inventories
            
            
            -
            
            
            
            -
            
            
            
            6,280
            
            
            
            197
            
            
            
            -
            
            
            
            6,477Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            (175
            )
            
            
            (3,214
            )
            
            
            15
            
            
            
            -
            
            
            
            (3,374
            )Accounts
      payable
            
            
            -
            
            
            
            (6
            )
            
            
            12,944
            
            
            
            (1,028
            )
            
            
            -
            
            
            
            11,910Accrued
      expenses and taxes
            
            
            -
            
            
            
            2,713
            
            
            
            (29,351
            )
            
            
            (3,801
            )
            
            
            -
            
            
            
            (30,439
            )Cash
      payments on restructuring liabilities
            
            
            -
            
            
            
            -
            
            
            
            (1,919
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,919
            )Other
            
            
            -
            
            
            
            (1
            )
            
            
            9
            
            
            
            13
            
            
            
            -
            
            
            
            21Net
      cash provided by (used in)operating
      activities
            
            
            -
            
            
            
            3,999
            
            
            
            (46,136
            )
            
            
            (2,991
            )
            
            
            -
            
            
            
            (45,128
            )Cash
      flows from investingactivities:Capital
      expenditures
            
            
            -
            
            
            
            (100
            )
            
            
            (4,525
            )
            
            
            (56
            )
            
            
            -
            
            
            
            (4,681
            )Proceeds
      from sale of assets
            
            
            -
            
            
            
            5,810
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,810Acquisitions,
      net of cash acquired
            
            
            -
            
            
            
            (15
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (15
            )Net
      cash provided by (used in)investing
      activities
            
            
            -
            
            
            
            5,695
            
            
            
            (4,525
            )
            
            
            (56
            )
            
            
            -
            
            
            
            1,114Cash
      flows from financingactivities:Proceeds
      from revolver borrowings
            
            
            -
            
            
            
            15,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            15,000Proceeds
      from intercompany
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -investment
            
            
            -
            
            
            
            (50,750
            )
            
            
            50,750
            
            
            
            -
            
            
            
            -
            
            
            
            -Payments
      on long-term debt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (51
            )
            
            
            -
            
            
            
            (51
            )Equity
      repurchases
            
            
            -
            
            
            
            (126
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (126
            )Net
      cash provided by (used in)financing
      activities
            
            
            -
            
            
            
            (35,876
            )
            
            
            50,750
            
            
            
            (51
            )
            
            
            -
            
            
            
            14,823Impact
      of exchange rate movementon
      cash
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (249
            )
            
            
            -
            
            
            
            (249
            )Net
      increase (decrease) in cashand
      cash equivalents
            
            
            -
            
            
            
            (26,182
            )
            
            
            89
            
            
            
            (3,347
            )
            
            
            -
            
            
            
            (29,440
            )Cash
      and cash equivalents at thebeginning
      of the period
            
            
            -
            
            
            
            40,446
            
            
            
            5,423
            
            
            
            6,184
            
            
            
            -
            
            
            
            52,053Cash
      and cash equivalents at the endof
      the period
            
            $
            -
            
            
            $
            14,264
            
            
            $
            5,512
            
            
            $
            2,837
            
            
            $
            -
            
            
            $
            22,613











26


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





The
information contained in this discussion and in the unaudited Condensed
Consolidated Financial Statements and Accompanying Notes presented in this Form
10-Q should be read in conjunction with information set forth in Ply Gem
Holdings, Inc.’s Annual Report on Form


10-K.  Certain
statements in this “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” are “forward-looking statements”.  See
“Special Note Regarding Forward-Looking Statements.”  As used in this
Quarterly Report on Form 10-Q, the “Company”, “we”, “us”, and “our” refer to Ply
Gem Holdings, Inc. and its subsidiaries, except where the context otherwise
requires or as otherwise indicated.








Overview





We are
a leading manufacturer of residential exterior building products in North
America.  We offer a comprehensive product line of vinyl siding and
skirting, vinyl windows and doors, vinyl and composite fencing and railing, and
stone veneer that serves both the home repair and remodeling and the new home
construction sectors in the United States and Western Canada.  We also
manufacture vinyl and aluminum soffit and siding accessories, aluminum trim
coil, wood and aluminum windows, wood, vinyl and aluminum clad windows, and
steel and fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core vinyl
products.   We have two reportable segments: (i) Siding, Fencing,
and Stone, and (ii) Windows and Doors.





We are
a holding company with no operations or assets of our own other than the capital
stock of our subsidiaries. The terms of Ply Gem Industries’ ABL Facility place
restrictions on its ability to pay dividends and otherwise transfer assets to
us.  Further, the terms of the indenture governing Ply Gem Industries'
Senior Secured Notes places restrictions on the ability of Ply Gem Industries
and our other subsidiaries to pay dividends and otherwise transfer assets to
us.





PVC
resin and aluminum are major components in the production of our products and
changes in PVC resin and aluminum prices have a direct impact on our cost of
products sold.  Historically, we have been able to pass on the price
increases to our customers.  The results of operations for individual
quarters can be negatively impacted by a delay between the time of raw material
cost increases and price increases that we implement in our products, or
conversely can be positively impacted by a delay between the time of a raw
material price decrease and competitive pricing moves that we implement
accordingly.








Financial
statement presentation





Net Sales.  Net
sales represent the selling price of our products plus certain shipping charges
less applicable provisions for discounts and allowances.  Allowances
include cash discounts, volume rebates and gross returns among
others.





Cost of products
sold.  Cost of products sold includes direct material and
manufacturing costs, manufacturing depreciation, third-party and in-house
delivery costs and product warranty expense.





Selling, general and administrative
expenses.  Selling, general and administrative expenses, or
“SG&A expenses,” includes all non-product related operating expenses,
including selling, marketing, research and development costs, information
technology and other general and administrative expenses.





Operating earnings
(loss).  Operating earnings (losses) represents net sales less
cost of products sold, SG&A expenses and amortization of intangible
assets.





Comparability.   All
periods after the USV acquisition in October 2008 include the results of
operations of USV.  As a result, the three month period ended April 4,
2009 will not be directly comparable to the three month period ended March 29,
2008.








27





Impact
of weather





Since
our building products are intended for exterior use, our sales and operating
earnings tend to be lower during periods of inclement
weather.  Weather conditions in the first quarter of each calendar
year historically result in that quarter producing significantly less revenue
than in any other period of the year.  As a result, we have
historically had lower profits or losses in the first quarter, and reduced
profits in the fourth quarter of each calendar year due to the
weather.  Our results of operations for individual quarters in the
future may be impacted by adverse weather conditions.








Critical
Accounting Policies





Our
discussion and analysis of financial condition and results of operations are
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of our financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We base these estimates on our historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, and
these estimates form the basis for our judgments concerning the carrying values
of assets and liabilities that are not readily apparent from other sources. We
periodically evaluate these estimates and judgments based on available
information and experience. Actual results could differ from our estimates under
different assumptions and conditions. If actual results significantly differ
from our estimates, our financial condition and results of operations could be
materially impacted. For more information regarding our critical accounting
policies and estimates please refer to “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Critical Accounting Policies”
contained in our Annual Report on Form 10-K for the year ended December 31,
2008 and Note 1 to our condensed consolidated financial statements. There have
been no material changes to the critical accounting policies previously
disclosed in that report.








Results
of Operations





The
following table summarizes net sales and operating earnings (loss) by segment
and is derived from the accompanying condensed consolidated statements of
operations included in this report.





Three
      months endedApril 4, 2009
            
            
            March 29, 2008(unaudited)
            
            
            (unaudited)Net
      SalesSiding,
      Fencing, and Stone
            
            $
            108,460
            
            
            $
            147,060Windows
      and Doors
            
            
            74,291
            
            
            
            109,313Operating
      lossSiding,
      Fencing, and Stone
            
            
            (7,517
            )
            
            
            (4,186
            )Windows
      and Doors
            
            
            (21,682
            )
            
            
            (7,605
            )Unallocated
            
            
            (3,609
            )
            
            
            (2,493
            )Foreign
      currency lossWindows
      and Doors
            
            
            (88
            )
            
            
            (551
            )Interest
      expense, netSiding,
      Fencing, and Stone
            
            
            55
            
            
            
            16Windows
      and Doors
            
            
            1
            
            
            
            (359
            )Unallocated
            
            
            (33,747
            )
            
            
            (22,528
            )Income
      tax benefitUnallocated
            
            
            3,949
            
            
            
            15,864Net
      loss
            
            
            (62,638
            )
            
            
            (21,842
            )




28




The
Company’s business is seasonal and the results of operations for the periods
presented are not necessarily indicative of the results for a full fiscal
year.




This
review of performance is organized by business segment, reflecting the way we
manage our business.  Each business group leader is responsible for
operating results down to operating earnings.  We use operating
earnings as a performance measure as it captures the income and expenses within
the management control of our business leaders.  Corporate management
is responsible for making all financing decisions.  Therefore, each
segment discussion focuses on the factors affecting operating earnings, while
interest expense and income taxes and certain other unallocated expenses are
separately discussed at the corporate level.




The following tables set
forth our results of operations based on the amounts and the percentage
relationship of the items listed to net sales for the periods
indicated.  However, our results of operations set forth in the tables
below may not necessarily be representative of our future operating
results.





Siding,
Fencing and Stone Segment








For
      the three months ended(dollars
      in thousands)
            
            April 4, 2009
            
            
            March 29, 2008(unaudited)
            
            
            (unaudited)Statement of
      operations data:Net
      sales
            
            $
            108,460
            
            
            
            100
            %
            
            $
            147,060
            
            
            
            100
            %Cost
      of products sold
            
            
            95,475
            
            
            
            88.0
            %
            
            
            130,538
            
            
            
            88.8
            %Gross
      profit
            
            
            12,985
            
            
            
            12.0
            %
            
            
            16,522
            
            
            
            11.2
            %SG&A
      expenses
            
            
            18,372
            
            
            
            16.9
            %
            
            
            18,571
            
            
            
            12.6
            %Amortization
      of intangible assets
            
            
            2,130
            
            
            
            2.0
            %
            
            
            2,137
            
            
            
            1.5
            %Operating
      loss
            
            $
            (7,517
            )
            
            
            -6.9
            %
            
            $
            (4,186
            )
            
            
            -2.8
            %





Net
Sales





Net
sales for the three months ended April 4, 2009 decreased compared to the same
period in 2008 by approximately $38.6 million, or 26.2%.  The decrease in
net sales was driven by industry wide market declines resulting from lower
single family housing starts, which negatively impacted the new construction
sector and overall softness in repair and remodeling
expenditures.  These market conditions negatively impacted demand for
our products.  According to the National Association of Home Builders
(“NAHB”), first quarter 2009 single family housing starts are estimated to show
a decline of approximately 64.2% from actual levels achieved in the first
quarter of 2008.  Additionally, according to the NAHB’s April 2009
forecast, single family housing starts are expected to decline in 2009 by 41.4%
as compared to their full year 2008 estimate.  The decrease in net
sales resulting from industry wide market demand declines was partially offset
by market share gains from sales to new customers, expanded sales to existing
customers from additional products, sales in new geographical regions, and sales
from United Stone Veneer, which was acquired in October 2008.





Cost of Products
Sold





Cost of
products sold for the three months ended April 4, 2009 decreased compared to the
same period in 2008 by approximately $35.1 million, or 26.9%.  The
decrease in cost of products sold coincided with the lower sales discussed
previously. Gross profit percentage improved from 11.2% in the first fiscal
quarter of 2008 to 12.0% for the three months ended April 4,
2009.  The improvement in gross profit percentage resulted from
management’s initiatives to reduce fixed expenses, which included the February
2008 closure of the Denison, Texas vinyl siding plant and the consolidation of
our metal accessory production from our Valencia, Pennsylvania facility into our
Sidney, Ohio facility which occurred during the later part of 2008 and early
2009. In addition, material costs and freight expense were lower during the
first three months of 2009 as compared to 2008, but were partially offset by
lower selling prices. The improvement in gross profit that resulted from
management’s initiatives was partially offset by initial costs that were
incurred with new customers that resulted from the buy-back, or lift out, of our
competitor’s product on the initial stocking orders with these
customers.


29





Selling, general and
administrative expenses





SG&A
expenses for the three months ended April 4, 2009 decreased by approximately
$0.2 million, or 1.1%, from the same period in 2008. The decrease in SG&A
expense was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions, as well as a decrease
in restructuring expense of approximately $1.0 million. The Company incurred
restructuring and reorganization expenses of approximately $1.2 million and $2.2
million in the first three months of 2009 and 2008, respectively. These
reductions in administrative expenses and restructuring expenses were largely
offset by higher marketing expenses related to brand conversion from Alcoa Home
Exteriors to Mastic Home Exteriors, as well as, SG&A expenses associated
with United Stone Veneer, which was acquired in October 2008.





Amortization of intangible
assets





Amortization
expense for the three months ended April 4, 2009 was consistent with the
same period in 2008.







Windows
and Doors Segment







For
      the three months ended(dollars
      in thousands)
            
            April 4, 2009
            
            
            March 29, 2008(unaudited)
            
            
            (unaudited)Statement of
      operations data:Net
      sales
            
            $
            74,291
            
            
            
            100
            %
            
            $
            109,313
            
            
            
            100
            %Cost
      of products sold
            
            
            74,216
            
            
            
            99.9
            %
            
            
            95,343
            
            
            
            87.2
            %Gross
      profit
            
            
            75
            
            
            
            0.1
            %
            
            
            13,970
            
            
            
            12.8
            %SG&A
      expenses
            
            
            18,981
            
            
            
            25.5
            %
            
            
            18,798
            
            
            
            17.2
            %Amortization
      of intangible assets
            
            
            2,776
            
            
            
            3.7
            %
            
            
            2,777
            
            
            
            2.5
            %Operating
      loss
            
            $
            (21,682
            )
            
            
            29.2
            %
            
            $
            (7,605
            )
            
            
            -7.0
            %Currency
      transaction loss
            
            $
            (88
            )
            
            
            -0.1
            %
            
            $
            (551
            )
            
            
            -0.5
            %





Net
Sales





Net
sales for the three months ended April 4, 2009 decreased compared to the same
period in 2008 by approximately $35.0 million, or 32.0%. The decrease was
due to lower sales of our new construction window products which were negatively
impacted by market wide decreased demand that resulted from reductions in single
family housing starts as discussed previously, as well as lower demand for our
repair and remodeling windows which declined due to a slowdown in the remodeling
and replacement activity across the United States.  The decrease in
net sales that resulted from industry wide market demand declines was partially
offset by market share gains from sales to new customers, expanded sales to
existing customers from additional products, and sales in new geographical
regions.





Cost of Products
Sold





Cost of
products sold for the three months ended April 4, 2009 decreased by
approximately $21.1 million, or 22.2%, over the same period in
2008.  The decrease in costs of products was due to lower sales as
discussed previously. Gross profit percentage decreased from 12.8% in 2008 to
0.1% in 2009.  The decrease in gross profit percentage was primarily
driven by fixed manufacturing costs that were not reduced in proportion to lower
sales.  In response to lower market demand, the Company announced that
it would close its Hammonton, New Jersey and Phoenix, Arizona window plants in
the first quarter of 2009.  In addition, the Company announced that it
would close its Tupelo, Mississippi window and door plant, and realign
production within its three west coast window plants during 2009.  The
closure of the three window plants and realignment of window production on the
west coast are intended to lower operating costs and improve future gross profit
performance in light of the current housing market.


30





Selling, general and
administrative expenses





SG&A
expenses for the three months ended April 4, 2009 increased by
approximately $0.2 million, or 1.0%, over the same period in
2008. The increase in SG&A expense was due to higher restructuring
expense of approximately $1.7 million related to the closure of our Hammonton,
New Jersey and Phoenix, Arizona window and door manufacturing facilities which
was announced during the fourth quarter of 2008. The Company incurred
restructuring and reorganization expenses of approximately $2.7 million and $1.0
million in the first three months of 2009 and 2008 respectively.  The
increase in SG&A expense that resulted from restructuring expense was
partially offset by lower administrative and other fixed expenses that
have been reduced in light of current market
conditions.  Additionally, certain general and administrative expenses
have been reduced as a result of centralizing various administrative functions
of our U.S. window companies.





Amortization of intangible
assets





Amortization
expense for the three months ended April 4, 2009 was consistent with the
same period in 2008.







Unallocated
Operating Earnings, Interest, and Benefit for Income Taxes




For
      the three months ended(dollars
      in thousands)
            
            April 4, 2009
            
            March 29, 2008(unaudited)
            
            (unaudited)Statement of
      operations data:Operating
      loss
            
            $
            (3,609
            )
            
            $
            (2,493
            )Interest
      expense
            
            
            (33,756
            )
            
            
            (23,074
            )Interest
      income
            
            
            65
            
            
            
            203Benefit
      for income taxes
            
            $
            3,949
            
            
            $
            15,864





Operating
loss





Unallocated
losses include items which are not directly attributed to or allocated to either
of our reporting segments.  Such items include legal costs, corporate
payroll, and unallocated finance and accounting expenses.  Unallocated
operating loss for the three months ended April 4, 2009 increased by
approximately $1.1 million over the same period in 2008.  The increase
was driven by the expansion of the corporate office and centralization of back
office functions from the field to the corporate office.





Interest
expense





Interest
expense for the three months ended April 4, 2009 increased by approximately
$10.7 million over the same period in 2008.  The increase was
primarily due to 2009 interest of approximately $21.2 million on the $700.0
million Senior Secured Notes issued June 9, 2008 as compared to approximately
$13.0 million of 2008 interest on the Company’s previous term loan which was
repaid effective June 9, 2008.  The increase in interest expense also
included an increase of approximately $1.2 million of revolver interest and
letter of credit fees and approximately $1.3 million of  interest
charges related to the debt modification which occurred in March 2009.





Income
taxes





The
income tax benefit for the three months ended April 4, 2009 decreased by
approximately $11.9 million over the same period in 2008 primarily due to the
uncertainty of realizing deferred tax assets.  During the quarter
ended April 4, 2009 the Company increased their valuation allowance by
approximately $19.5 million. The Company’s estimated effective income tax rate
for the quarter was approximately 4.9% which varied from the statutory rate
primarily due to disallowed related party interest, state tax expense, and
an increase in the valuation allowance. A valuation allowance has been
provided against deferred tax assets as it is presently deemed more likely than
not that the benefit of such net tax assets will not be utilized.  The
Company currently has goodwill of approximately $13.3 million that is not
amortized and in a deferred tax liability position as of April 4,
2009.  Therefore, the reversal of its deferred tax liabilities related
to this goodwill is not considered a source of future taxable income in
assessing the realization of its deferred tax assets.  The Company
continues to evaluate the realizability of its net deferred tax assets and its
estimates are subject to change.
  31





During
the quarter ended April 4, 2009, certain affiliates of our controlling
stockholder purchased a majority of the Senior Subordinated
Notes.  The Company determined that approximately $95.7 million would
be considered cancellation of indebtedness (“COD”) income for the quarter ended
April 4, 2009 as the acquiring party was deemed a related party for tax
purposes.  The Company is in process of evaluating the tax
implications associated with this transaction and their effect on the annual tax
provision given the Company’s tax planning strategies.  Adjustments to
income tax expense, operating loss carryforwards, and valuation allowances may
be recorded in future periods as a result.





On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Among its provisions, the Act permits certain
taxpayers to elect to defer the taxation of COD income arising from certain
repurchases, exchanges or modifications of their outstanding debt that occur
during 2009 and 2010. The COD income can be deferred for five years and then
included in taxable income ratably over the next five years. The Company does
not currently plan to defer the COD income on the related party
transaction.





During
the quarter ended April 4, 2009, the Company also filed an amended federal
income tax return for the year ended December 31, 2005 adjusting net operating
loss limitations.  As a result, the Company recorded an income tax
benefit as an income tax receivable of approximately $4.1 million as of April 4,
2009 which has been recorded in prepaid expense and other current assets in the
condensed consolidated balance sheets. During the quarter ended March 29, 2008,
the Company’s effective tax rate was 40.3% which was consistent with the
Company’s expectations for the full fiscal year.







Liquidity
and Capital Resources





Our
primary cash needs are for working capital, capital expenditures and debt
service.  We finance these cash requirements through internally
generated cash flow and funds borrowed under Ply Gem Industries’ senior secured
asset based revolving credit facility.





Cash used in operating
activities





Net
cash used in operating activities for the three months ended April 4, 2009 was
approximately $48.7 million.  Net cash used in operating activities
for the three months ended March 29, 2008 was approximately $45.1
million.  The increase in cash used in operating activities for 2009
as compared to 2008 was primarily driven by increased losses offset by positive
working capital attributes associated primarily with lower inventory
levels.





Cash provided by (used in)
investing activities





Net
cash used in investing activities for the three months ended April 4, 2009 was
approximately $2.4 million.  Net cash provided by investing activities
for the three months ended March 29, 2008 was approximately $1.1
million.  The cash used in investing activities for the three months
ended April 4, 2009 was primarily used for capital expenditures.  The
cash provided by investing activities for the three months ended March 29, 2008
was from the sale of assets of approximately $5.8 million, partially offset by
capital expenditures of approximately $4.7 million.





Cash provided by financing
activities





Net
cash provided by financing activities for the three months ended April 4, 2009
was approximately $10.0 million.  Net cash provided by financing
activities for the three months ended March 29, 2008 was approximately $14.8
million.  The cash provided by financing activities for both periods
was primarily proceeds from revolver borrowings.





11.75% Senior Secured Notes
due 2013





On June
9, 2008, Ply Gem Industries issued $700.0 million of its Senior Secured Notes,
which are fully and unconditionally guaranteed on a joint and several basis by
Ply Gem Holdings and all of the domestic subsidiaries of Ply Gem
Industries.  Ply Gem Industries used the proceeds to repay all of the
outstanding indebtedness under the existing senior secured credit facility of
approximately $691.2 million.  The Senior Secured Notes will mature on
June 15, 2013 and bear interest at the rate of 11.75% per
annum.  Interest is payable semi-annually on June 15 and December 15
of each year.


32





The
Senior Secured Notes and the related guarantees are secured on a first-priority
lien basis by substantially all of the assets (other than the assets securing
our obligations under our ABL Facility on a first-lien basis, which consist
primarily of accounts receivable and inventory) of Ply Gem Industries and the
Guarantors and on a second-priority lien basis by the assets that secure the ABL
Facility on a first-lien basis.





Senior Secured Asset-Based
Revolving Credit Facility





Concurrently
with the closing of the issuance of the Senior Secured Notes on June 9,
2008, the Company and the subsidiaries of Ply Gem Industries entered into a
senior secured asset-based revolving credit facility (the “ABL Facility”), which
initially provided for revolving credit financing of up to $135.0 million, and
was subsequently increased to $150.0 million as of August 14, 2008, subject to
borrowing base availability, with a maturity of five years, including
sub-facilities for letters of credit, swingline loans and borrowings in Canadian
dollars and United States dollars by CWD.   However, the ABL
Facility will mature on October 15, 2011 if Ply Gem Industries’ Senior
Subordinated Notes are not refinanced by such date.  In addition, the
ABL Facility provides that the revolving commitments may be further increased to
$200.0 million, subject to certain terms and
conditions.




All
obligations under the ABL Facility are fully and unconditionally guaranteed by
substantially all of Ply Gem Industries’ existing and future, direct and
indirect, wholly-owned domestic subsidiaries, and in any event by all
subsidiaries that guarantee the notes. All obligations under the ABL Facility,
and the guarantees of those obligations, are secured, subject to certain
exceptions, by substantially all of the assets of Ply Gem Industries and the
guarantors, including a first-priority security interest in personal property
consisting of accounts receivable, inventory, cash, deposit accounts, and
certain related assets and proceeds of the foregoing and a second-priority
security interest in, and mortgages on, substantially all of Ply Gem Industries’
material owned real property and equipment and all assets that secure the notes
on a first-priority basis.




The
obligations of CWD, which is a borrower under the Canadian sub-facility under
the ABL Facility, will be secured by a first-priority security interest in
substantially all of the assets of such Canadian subsidiary and by Ply Gem
Industries’ and the guarantors’ assets on the same basis as borrowings by Ply
Gem Industries are secured under the ABL Facility, plus additional mortgages in
Canada, and a pledge by Ply Gem Industries of the remaining 35% of the equity
interests of CWD pledged only to secure the Canadian sub-facility.




As of
April 4, 2009, Ply Gem Industries had approximately $73.1 million of contractual
availability and approximately $43.8 million of borrowing base availability
under the ABL Facility, reflecting $70.0 million of borrowings outstanding under
the ABL Facility and approximately $6.9 million of letters of credit issued
under the ABL Facility.





The
interest rates applicable to loans under our ABL Facility are, at our option,
equal to either a base rate plus an applicable interest margin, or an adjusted
LIBOR rate plus an applicable interest margin, as defined in the ABL Facility
credit agreement.  As of April 4, 2009, the Company’s interest rate on
the ABL Facility was approximately 4.4%.  The ABL Facility contains a
requirement to maintain a fixed charge coverage ratio of 1.1:1.0 if the
Company’s borrowings under the ABL Facility exceed 85% of the $150.0 million
commitment or $127.5 million.





The
Company’s previous senior facilities with a syndicate of financial institutions
and institutional lenders provided for senior secured financing of up to
approximately $762.1 million, originally consisting of approximately $687.1
million of term loan facilities maturing in August 2011 and a $75.0 million
revolving loan facility, including a letter of credit subfacility, maturing in
February 2009.  These credit facilities imposed certain restrictions
on Ply Gem Industries, including a requirement to maintain a minimum Leverage
Ratio of EBITDA (adjusted for certain items as allowed) to Net Debt (as defined
in the credit facility).  In April 2008, the Company revised its 2008
forecast in response to market wide increases in raw material prices and fuel
costs, as well as continued declines in both the residential new construction
and repair/remodeling markets.  Under the revised forecast, the
Company did not expect to be able to comply with the required Leverage Ratio
required for fiscal quarters in 2008 following March 29, 2008.  The
failure to comply with this covenant would have caused an event of
default.  On May 23, 2008, the Company entered into an amendment of
the fifth amended and restated credit agreement which consisted of changes to
certain debt covenant ratios.  The amendment also increased the
interest rate on the term loan and extended the maturity of the revolving credit
facility from February 12, 2009 to August 12, 2010.  On May 23, 2008,
Ply Gem received from CI Capital Partners LLC a $30.0 million cash equity
contribution as a condition to the credit facility amendment.  The
outstanding indebtedness under the credit facility was subsequently paid off on
June 9, 2008 with the proceeds from the Senior Secured Notes
offering.


33





9% Senior Subordinated Notes
due 2012





Concurrently
with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem
Industries issued $225.0 million aggregate principal amount of its Senior
Subordinated Notes, which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries.  Subsequently, in August of 2004
in connection with the MW acquisition, Ply Gem Industries issued an additional
$135.0 million of Senior Subordinated Notes, which are guaranteed by Ply Gem
Holdings and the domestic subsidiaries of Ply Gem Industries, including MWM
Holding and its subsidiaries.  The Senior Subordinated Notes will
mature on February 15, 2012 and bear interest at a rate of 9.0% per
annum.  Interest is paid semi-annually on February 15 and August 15 of
each year.





During
the three months ended April 4, 2009, certain affiliates of the Company’s
controlling stockholder purchased a majority of the outstanding Senior
Subordinated Notes.





On
March 24, 2009, after receipt of the requisite consents, Ply Gem Industries
entered into a Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”)
among Ply Gem Industries, the Company, the other guarantors party thereto and
U.S. Bank National Association, as trustee, containing the amendments to the
indenture governing Ply Gem Industries' Senior Subordinated
Notes.  The Fifth Supplemental Indenture eliminated substantially all
of the restrictive covenants of the indenture governing the Senior Subordinated
Notes, including, among other things, the limitation on indebtedness, the change
of control put provisions, the limitation on restricted payments, the limitation
on liens, the limitation on asset sales, the limitation on transactions with
affiliates, the limitation on dividends and other restrictions affecting
restricted subsidiaries, the limitation on layering indebtedness and the
limitation on the issuance or sale of equity interests in restricted
subsidiaries.  The Fifth Supplemental Indenture also eliminated
certain events of default in the indenture governing the Senior Subordinated
Notes.  The amendments contained in the Fifth Supplemental Indenture
became operative upon completion of the purchase of a specified amount of the
Senior Subordinated Notes by certain affiliates of our controlling
stockholder.





Liquidity
requirements





We
intend to fund our ongoing capital and working capital requirements, including
our internal growth, through a combination of cash flows from operations and, if
necessary, from borrowings under the revolving credit portion of our ABL
Facility.  As of April 4, 2009, we had approximately $1,124.4 million
of indebtedness and $73.1 million of contractual availability under the ABL
facility and approximately $43.8 million of borrowing base availability
reflecting $70.0 million of ABL borrowings and approximately $6.9 million of
letters of credit issued under the ABL facility.





Because
of the inherent seasonality in our business and the resulting working capital
requirements, our liquidity position within a given year will
fluctuate.  The seasonal effect that creates our greatest needs has
historically been experienced during the first six months of the year and we
anticipate borrowing funds under our ABL Facility to support this
requirement.  However, we anticipate the funds generated from
operations and funds available under the ABL Facility will be adequate to
finance our ongoing operational cash flow needs, capital expenditures, debt
service obligations, management incentive expenses, and other fees payable under
other contractual obligations for the foreseeable future.








Off
Balance Sheet Arrangements





The
Company has no off-balance sheet arrangements.





Contractual
Obligations





In
addition to the items listed in the Contractual Obligations table presented in
the Company’s Annual Report on Form 10-K, the Company has a potential obligation
related to certain tax issues of approximately $9.1 million, including interest
of approximately $1.0 million.  The timing of the potential tax
payments is unknown.


34





Inflation;
Seasonality





Our
performance is dependent to a significant extent upon the levels of home repair
and remodeling and new home construction spending, all of which are affected by
such factors as interest rates, inflation, consumer confidence and
unemployment.





The
demand for our products is seasonal, particularly in the Northeast and Midwest
regions of the United States and Western Canada where inclement weather during
the winter months usually reduces the level of building and remodeling activity
in both the home repair and remodeling and new home construction
sectors.  Our sales are usually lower during the first and fourth
quarters.  Since a portion of our manufacturing overhead and operating
expenses are relatively fixed throughout the year, operating income and net
earnings tend to be lower in quarters with lower sales levels.  In
addition, the demand for cash to fund our working capital is greater from late
in the fourth quarter through the first quarter.





Recent
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.”  This Statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date to be measured at their fair values as of that
date.  An acquirer is required to recognize assets or liabilities
arising from all other contingencies (contractual contingencies) as of the
acquisition date, measured at their acquisition-date fair values, only if it is
more likely than not that they meet the definition of an asset or a liability in
FASB Concepts Statement No. 6, “Elements of Financial Statements”. Any
acquisition related costs are to be expensed. The provisions of
SFAS


No. 141(R)
are effective for the Company’s fiscal year beginning January 1, 2009, and
are to be applied prospectively. The impact to the Company from the adoption of
SFAS 141(R) in 2009 will depend on acquisition activity after January 1,
2009.





In
December 2007, the FASB issued SFASNo. 160,
“Noncontrolling Interests in Consolidated Financial Statements.” This standard
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. The provisions of SFAS
No. 160 are effective for the Company’s fiscal year beginning
January 1, 2009, and are to be applied prospectively. The adoption of SFAS
No. 160 did not impact the Company’s financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”.  This standard reorganizes the GAAP hierarchy
in order to improve financial reporting by providing a consistent framework for
determining what accounting principles should be used when preparing U.S. GAAP
financial statements.  SFAS 162 shall be effective 60 days after the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
Interim Auditing Standard, AU Section 411, “The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles”. Management is
currently evaluating the impact, if any, this new standard may have on its
balance sheet, results of operations, or cash flows.





In
December 2008, the FASB issued FSP SFAS 132(R)-1 “Employers’ Disclosures
about Postretirement Benefit Plan Assets.” This FSP amends the disclosure
requirements for employer’s disclosure of plan assets for defined benefit
pensions and other postretirement plans. The objective of this FSP is to provide
users of financial statements with an understanding of how investment allocation
decisions are made, the major categories of plan assets held by the plans, the
inputs and valuation techniques used to measure the fair value of plan assets,
significant concentration of risk within the Company’s plan assets, and for fair
value measurements determined using significant unobservable inputs a
reconciliation of changes between the beginning and ending balances. FSP SFAS
132(R)-1 is effective for fiscal years ending after December 15, 2009. The
Company will adopt the new disclosure requirements in the 2009 annual reporting
period.





35


In
January 2009, SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133” became effective
for the Company. SFAS No. 161 seeks qualitative disclosures about the objectives
and strategies for using derivatives, quantitative data about the fair value of
and gains and losses on derivative contracts, and details of credit-risk-related
contingent features in hedged positions. SFAS No. 161 also seeks enhanced
disclosure around derivative instruments in financial statements, accounting
under SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, and how hedges affect an entity’s financial position, financial
performance and cash flows. The adoption of SFAS No. 161 did not have any
impact on the Company’s condensed consolidated financial
statements.





In
April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that are not Orderly”. FSP FAS
No. 157-4 clarifies the methodology used to determine fair value when there
is no active market or where the price inputs being used represent distressed
sales. FSP FAS No. 157-4 also reaffirms the objective of fair value
measurement, as stated in FAS No. 157, “Fair Value Measurements,” which is
to reflect how much an asset would be sold for in an orderly transaction. It
also reaffirms the need to use judgment to determine if a formerly active market
has become inactive, as well as to determine fair values when markets have
become inactive. The guidance is effective for financial statement purposes for
interim and annual financial statements issued for fiscal periods ending after
June 15, 2009. The Company will adopt the provisions of FSP FAS
No. 157-4 effective April 5, 2009, which the Company does not expect
to have a material impact on the condensed consolidated financial
statements.





In
April 2009, the FASB issued FSP FAS No. 107-1 and APB Opinion
No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments”
(“FSP FAS No. 107-1 and APB Opinion No. 28-1”). FSP FAS No. 107-1
and APB Opinion No. 28-1 requires fair value disclosures for financial
instruments that are not reflected in the condensed consolidated balance sheets
at fair value. Prior to the issuance of FSP FAS No. 107-1 and APB Opinion
No. 28-1, the fair values of those assets and liabilities were disclosed
only once each year. With the issuance of FSP FAS No. 107-1 and APB Opinion
No. 28-1, the Company will now be required to disclose this information on
a quarterly basis, providing quantitative and qualitative information about fair
value estimates for all financial instruments not measured in the condensed
consolidated balance sheets at fair value. FSP FAS No. 107-1 and APB
Opinion No. 28-1 will be effective for interim reporting periods that end
after June 15, 2009. The Company will adopt the disclosure requirements in
the July 4, 2009 condensed consolidated financial statements.







Special
Note Regarding Forward-Looking Statements




This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions.  Actual
events or results may differ materially.





Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements.  All written and oral forward-looking statements made in
connection with this Quarterly Report on Form 10-Q report that are attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the "Risk Factors" set forth in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008 and the “Risk Factors” and other cautionary
statements included herein.  We are under no duty to update any of the
forward-looking statements after the date of this Quarterly Report on Form 10-Q
to conform such statements to actual results or to changes in our
expectations.





36


There
can be no assurance that other factors will not affect the accuracy of these
forward-looking statements or that our actual results will not differ materially
from the results anticipated in such forward-looking statements. While it is
impossible to identify all such factors, factors which could cause actual
results to differ materially from those estimated by us include, but are not
limited to, those factors or conditions described under "Risk factors," and the
following:




·
            our
      high degree of leverage and significant debt service
      obligations;


·
            restrictions
      under the indentures governing the Senior Secured Notes and our Senior
      Subordinated Notes and restrictions under our ABL
  Facility;


·
            the
      competitive nature of our industry;


·
            changes
      in interest rates, and general economic, home repair and remodeling and
      new home construction market
conditions;


·
            changes
      in the price and availability of raw materials;
  and


·
            changes
      in our relationships with our significant
  customers.




Other factors that
could cause actual results to differ from those implied by the forward-looking
statements contained in this Quarterly Report include those set forth in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2008.  We undertake no obligation to update the forward-looking
statements in this report.






Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Interest
Rate Risk





Our
principal interest rate exposure relates to the loans outstanding under our ABL
Facility, which provides for borrowings of up to $150.0 million, bearing
interest at a variable rate, based on an adjusted LIBOR rate plus an applicable
interest margin or the base rate plus an applicable interest
margin.  Assuming the ABL facility is fully drawn, each quarter point
increase or decrease in the interest rate would change our interest expense by
approximately $0.4 million per year.  In the future, we may enter into
interest rate swaps, involving exchange of floating for fixed rate interest
payments, to reduce our exposure to interest rate volatility.





Foreign
Currency Risk




Our
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of the Canadian dollar.  For the three
months ended April 4, 2009, the net impact of foreign currency changes to the
Company’s results of operations was a loss of $0.1 million.  The
impact of foreign currency changes related to translation resulted in a decrease
in stockholder's equity of approximately $0.4 million for the three months ended
April 4, 2009.  The revenue or expense reported by us as a result of
currency fluctuations will be greater in times of U.S. dollar devaluation and
less in times of U.S. dollar appreciation. We generally do not enter into
derivative financial instruments to manage foreign currency
exposure.  At April 4, 2009, we did not have any outstanding foreign
currency hedging contracts.





Commodity
pricing risk





We are
subject to significant market risk with respect to the pricing of our principal
raw materials, which include PVC resin, aluminum, and wood.  If prices
of these raw materials were to increase dramatically, we may not be able to pass
such increases on to our customers and, as a result, gross margins could decline
significantly.  We manage the exposure to commodity pricing risk by
continuing to diversify our product mix, strategic buying programs and vendor
partnering.


37





Inflation





We do
not believe that inflation has had a material effect on our business, financial
condition or results of operations.  Our lease payments related to our
sale/leaseback agreement include an annual increase based on the Consumer Price
Index, which could expose us to potential higher costs in years with high
inflation.




Consumer
and Commercial Credit




As
general economic conditions in the United States have deteriorated significantly
over the past year, the availability of consumer and commercial credit has
tightened.  As such, the Company has increased its focus on the credit
worthiness of our customers.  These procedures are necessary to ensure
that our allowance for doubtful accounts is adequate and that we are performing
proper due diligence prior to initiating sales.  We will continue to
monitor these statistics over the next year to ensure that issues, if any, are
identified in a timely manner to reduce risk and minimize the Company's bad debt
exposure.  If general economic conditions continue to worsen,
additional reserves may be necessary.








Item
4.     CONTROLS AND PROCEDURES





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as of the end of the period covered by this report.  Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as of April 4, 2009 were
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission’s rules and forms and that the information
required to be discussed by us is accumulated and communicated to our management
to allow timely decisions regarding the required disclosure. There have been no
changes in our internal control over financial reporting during the
three month period ended April 4, 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





38




PART
II - OTHER INFORMATION








Item
1A.     RISK FACTORS





Increases
in fuel costs could cause our cost of products sold to increase and net income
to decrease.





Increases
in fuel costs can negatively impact our cost to deliver our products to our
customers and thus increase our cost of products sold.  If we are
unable to increase the selling price of our products to our customers to cover
any increases in fuel costs, net income may be adversely affected.











Item
6.       EXHIBITS





(a) Exhibits








Exhibit
No.                                                                  Description of
Exhibit





4.1
            Fifth
      Supplemental Indenture, dated as of March 24, 2009, among Ply Gem
      Industries, Inc., the other guarantors party thereto and U.S. Bank
      National Association, as trustee (incorporated by reference from Exhibit
      4.6 to the Company’s Annual Report on Form 10-K, dated March 30, 2009
      (File No. 333-114041-07)).10.1
            Letter
      to Shawn K. Poe, dated as of February 11, 2009, regarding Renewal of
      Amended and Restated Retention Agreement (incorporated by reference from
      Exhibit 10.19 to the Company’s Annual Report on Form 10-K, dated March 30,
      2009 (File No. 333-114041-07)).*  31.1
            Certification
      by President and Chief Executive Officer pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934**  31.2
            Certification
      by Vice President and Chief Financial Officer pursuant to Rule 13a-14(a)
      of the Securities Exchange Act of 1934*


*  Filed
herewith.




39





SIGNATURES





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





PLY GEM HOLDINGS, INC.


(Registrant)








Date:  May
19, 2009





By:
            
            /s/ Gary E.
      RobinetteName:
            
            Gary E.
      RobinetteTitle:
            
            President and
      Chief Executive Officer











Date:  May
19, 2009





By:
            
            /s/ Shawn K.
      PoeName:
            
            Shawn K.
      PoeTitle:
            
            Vice
      President, Chief Financial Officer, Treasurer and
  Secretary











40