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 1934For
      the quarterly period ended June 28, 2008or ̈        TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d)OF
      THE SECURITIES EXCHANGE ACT OF 1934For
      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 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
August 11, 2008, 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 indentures governing Ply Gem
Industries, Inc.’s 9% senior subordinated notes due 2012 and 11.75% senior
secured notes due 2013.











PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


FORM
10-Q


QUARTERLY
PERIOD ENDED JUNE 28, 2008





CONTENTS








PART
      I – FINANCIAL INFORMATIONItem
      1.
            Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Statements of Operations –Three
      months ended June 28, 2008 and June 30, 2007
            2Condensed
      Consolidated Statements of Operations –Six
      months ended June 28, 2008 and June 30, 2007
            3Condensed
      Consolidated Balance Sheets –June
      28, 2008 and December 31, 2007
            4Condensed
      Consolidated Statements of Cash Flows –Six
      months ended June 28, 2008 and June 30, 2007
            5Notes
      to Condensed Consolidated Financial Statements
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial ConditionAnd
      Results of Operations
            27Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            39Item
      4.
            Controls
      and Procedures
            40PART
      II – OTHER INFORMATIONItem
      1A.
            Risk
      Factors
            41Item
      6.
            Exhibits
            41Signatures
            
            43











-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 endedJune
      28,
            
            
            June
      30,2008
            
            
            2007(Amounts
      in thousands)Net
      sales
            
            $
            341,280
            
            
            $
            390,695Costs
      and expenses:Cost
      of products sold
            
            
            271,093
            
            
            
            292,896Selling,
      general and administrative expense
            
            
            44,402
            
            
            
            41,897Amortization
      of intangible assets
            
            
            4,912
            
            
            
            4,302Total
      costs and expenses
            
            
            320,407
            
            
            
            339,095Operating
      earnings
            
            
            20,873
            
            
            
            51,600Foreign
      currency gain
            
            
            56
            
            
            
            1,992Interest
      expense
            
            
            (51,065
            )
            
            
            (25,823
            )Interest
      income
            
            
            107
            
            
            
            245Income
      (loss) before provision (benefit) for income taxes
            
            
            (30,029
            )
            
            
            28,014Provision
      (benefit) for income taxes
            
            
            (10,536
            )
            
            
            10,744Net
      income (loss)
            
            $
            (19,493
            )
            
            $
            17,270











See
accompanying notes to condensed consolidated financial statements.





-2-











PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)














For
      the six months endedJune
      28,
            
            
            June
      30,2008
            
            
            2007(Amounts
      in thousands)Net
      sales
            
            $
            597,653
            
            
            $
            675,969Costs
      and expenses:Cost
      of products sold
            
            
            495,359
            
            
            
            530,980Selling,
      general and administrative expense
            
            
            85,879
            
            
            
            79,294Amortization
      of intangible assets
            
            
            9,826
            
            
            
            8,936Total
      costs and expenses
            
            
            591,064
            
            
            
            619,210Operating
      earnings
            
            
            6,589
            
            
            
            56,759Foreign
      currency gain (loss)
            
            
            (495
            )
            
            
            2,208Interest
      expense
            
            
            (74,139
            )
            
            
            (51,089
            )Interest
      income
            
            
            310
            
            
            
            822Income
      (loss) before provision (benefit) for income taxes
            
            
            (67,735
            )
            
            
            8,700Provision
      (benefit) for income taxes
            
            
            (26,400
            )
            
            
            2,294Net
      income (loss)
            
            $
            (41,335
            )
            
            $
            6,406











See
accompanying notes to condensed consolidated financial statements.





-3-





PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(UNAUDITED)





June
      28,
            
            
            December
      31,2008
            
            
            2007(Amounts
      in thousands, exceptshare
      amounts)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            61,480
            
            
            $
            65,207Accounts
      receivable, less allowances of $7,152 and $7,320,
    respectively
            
            
            176,362
            
            
            
            111,653Inventories:Raw
      materials
            
            
            54,300
            
            
            
            60,003Work
      in process
            
            
            32,969
            
            
            
            23,071Finished
      goods
            
            
            37,355
            
            
            
            45,208Total
      inventory
            
            
            124,624
            
            
            
            128,282Prepaid
      expenses and other current assets
            
            
            21,016
            
            
            
            16,462Deferred
      income taxes
            
            
            12,773
            
            
            
            12,797Total
      current assets
            
            
            396,255
            
            
            
            334,401Property
      and Equipment, at cost:Land
            
            
            3,738
            
            
            
            4,017Buildings
      and improvements
            
            
            33,953
            
            
            
            37,927Machinery
      and equipment
            
            
            244,064
            
            
            
            240,921Total
      property and equipment
            
            
            281,755
            
            
            
            282,865Less
      accumulated depreciation
            
            
            (100,724
            )
            
            
            (83,869
            )Total
      property and equipment, net
            
            
            181,031
            
            
            
            198,996Other
      Assets:Intangible
      assets, less accumulated amortization of $54,661 and
    $45,081,respectively
            
            
            203,431
            
            
            
            213,257Goodwill
            
            
            835,967
            
            
            
            835,820Other
            
            
            46,949
            
            
            
            43,133Total
      other assets
            
            
            1,086,347
            
            
            
            1,092,210$
            1,663,633
            
            
            $
            1,625,607LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      Liabilities:Current
      maturities of long-term debt
            
            $
            -
            
            
            $
            6,873Accounts
      payable
            
            
            127,286
            
            
            
            96,256Accrued
      expenses and taxes
            
            
            87,601
            
            
            
            93,416Total
      current liabilities
            
            
            214,887
            
            
            
            196,545Deferred
      income taxes
            
            
            62,973
            
            
            
            91,151Other
      long term liabilities
            
            
            65,197
            
            
            
            67,144Long-term
      debt, less current maturities
            
            
            1,093,729
            
            
            
            1,031,223Commitments
      and contingenciesStockholder's
      Equity: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
            
            
            209,884
            
            
            
            180,667Retained
      earnings
            
            
            7,907
            
            
            
            49,242Accumulated
      other comprehensive income
            
            
            9,056
            
            
            
            9,635Total
      stockholder's equity
            
            
            226,847
            
            
            
            239,544$
            1,663,633
            
            
            $
            1,625,607





See accompanying notes to condensed consolidated financial
statements.





-4-





PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)














For
      the six months endedJune
      28,
            
            
            June
      30,2008
            
            
            2007(Amounts
      in thousands)Net
      cash used in operating activities
            
            $
            (65,108
            )
            
            $
            (13,428
            )Cash
      flows from investing activities:Capital
      expenditures
            
            
            (7,039
            )
            
            
            (7,201
            )Proceeds
      from sale of assets
            
            
            8,803
            
            
            
            15Other
            
            
            (127
            )
            
            
            (223
            )Net
      cash provided by (used in) investing activities
            
            
            1,637
            
            
            
            (7,409
            )Cash
      flows from financing activities:Proceeds
      from long-term debt
            
            
            693,504
            
            
            
            -Proceeds
      from revolver borrowings
            
            
            80,000
            
            
            
            30,000Payments
      on long-term debt
            
            
            (677,910
            )
            
            
            (3,187
            )Payments
      on revolver borrowings
            
            
            (40,000
            )
            
            
            (10,000
            )Debt
      issuance costs
            
            
            (24,843
            )
            
            
            (2,100
            )Equity
      contributions
            
            
            30,000
            
            
            
            -Equity
      repurchases
            
            
            (793
            )
            
            
            (3,175
            )Net
      cash provided by financing activities
            
            
            59,958
            
            
            
            11,538Impact
      of exchange rate movements on cash
            
            
            (214
            )
            
            
            290Net
      decrease in cash and cash equivalents
            
            
            (3,727
            )
            
            
            (9,009
            )Cash
      and cash equivalents at the beginning of the period
            
            
            65,207
            
            
            
            53,274Cash
      and cash equivalents at the end of the period
            
            $
            61,480
            
            
            $
            44,265







See
accompanying notes to condensed consolidated financial statements.





-5-





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. (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 2007 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 25,
2008.  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 2007 Annual Report on Form 10-K.  In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.  Operating results for the period from January 1, 2008
through June 28, 2008 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2008.





The
condensed consolidated balance sheet at December 31, 2007 has been derived from
the audited consolidated financial statements of Ply Gem Holdings, Inc. 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 consolidated results of operations
and cash flows for the Company for the three month and six month periods ended
June 28, 2008 and June 30, 2007, and the consolidated financial position for the
Company as of June 28, 2008 and December 31, 2007.





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.




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 sales
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. 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
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.





-6-








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 income
(loss) or retained earnings.





Accounting
Policies and Use of Estimates





The
preparation of these consolidated financial statements in conformity with
generally accepted accounting principles 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 for their interim and year-end
reporting requirements.  These judgments are based on the Company’s
historical experience, current trends and information available from other
sources, as appropriate.  If different conditions result from those
assumptions used in the Company’s judgments, the results could be materially
different from the Company’s estimates.





Inventories





Inventories in the accompanying
consolidated balance sheets are valued at the lower of cost or market. At June
28, 2008 and December 31, 2007, approximately $11.5 million and $10.9 million of
total inventories, respectively, were valued on the last-in, first-out method
(“LIFO”).  Under the first-in, first-out method (“FIFO”) of
accounting, such inventories would have been approximately $3.7 million higher
at both June 28, 2008 and December 31, 2007.  All other inventories
were valued under the FIFO method.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 the estimates at the time such inventory is
disposed or sold.





Income
taxes





We
account for deferred income taxes using the asset and liability method in
accordance with SFAS No. 109, “Accounting for Income Taxes,” or “SFAS No. 109,”
which requires that the deferred tax consequences of temporary differences
between the amounts recorded in our financial statements and the amount included
in our federal and state income tax returns be recognized in the balance
sheet.  Estimates are required with respect to, among other things,
the appropriate state income tax rates to use in the various states that we and
our 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.  We establish 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.  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. (“Ply Gem Industries”) 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 and separate state income tax returns.  CWD Windows
and Doors, Inc. (“CWD”) files separate Canadian income tax returns.  For
the six months ended June 28, 2008, the Company’s tax benefit includes
approximately $0.7 million tax benefit to correct for recent legislative changes
in Canada that impact the future settlement of deferred taxes.







-7-










Related
Party Transactions




The
Company has entered into two advisory agreements with an affiliate of CI Capital
Partners LLC, formerly known as Caxton-Iseman Capital, LLC (the “Caxton-Iseman
Party”), which we refer to as the “Debt Financing Advisory Agreement” and the
“General Advisory Agreement”.  Under the General Advisory Agreement,
the Company expensed management fees to the Caxton-Iseman Party of approximately
$0.7 million and $1.3 million for the three month periods ended June 28, 2008
and June 30, 2007, respectively, and approximately $0.8 million and $1.7 million
for the six month periods ended June 28, 2008 and June 30, 2007,
respectively.






Foreign
Currency




The
Company’s Canadian subsidiary 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 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 the
Company’s Canadian subsidiary.





For the
three month periods ended June 28, 2008 and June 30, 2007, the Company recorded
a gain from foreign currency transactions of approximately $0.1 million and $2.0
million, respectively.  For the six month periods ending June 28, 2008
and June 30, 2007, the Company recorded a loss from foreign currency
transactions of approximately $0.5 million and a gain from foreign currency
transactions of approximately $2.2 million, respectively.  As of June
28, 2008, and December 31, 2007 accumulated other comprehensive income included
a currency translation adjustment of approximately $8.3 million and $8.9
million, respectively.




Concentration
of Credit Risk




The
accounts receivable balance related to one customer of our siding, fencing and
railing segment was approximately $14.4 million and $6.4 million at June 28,
2008 and December 31, 2007, respectively.  This customer accounted for
approximately 10.2% of net sales for the six month period ended June 28, 2008
and approximately 10.2% of net sales for the year ended December 31,
2007.




Fair
Value Measurement




In the
first quarter of 2008, the Company adopted SFAS 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-








As of
June 28, 2008, the Company did not have any financial assets or liabilities that
are affected by the adoption of this standard.





In
accordance with Financial Accounting Standards Board Staff Position No. 157-2,
“Effective Date of FASB Statement No. 157”, the Company will delay application
of SFAS 157 for non-financial assets and non-financial liabilities, until
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.  As permitted under the deferral for non-financial assets
and liabilities, SFAS 157 will be applicable to these fair value measurements
beginning January 1, 2009.




Fair
Value of Financial Instruments




The
carrying value of the Company’s 9% senior subordinated notes due 2012 (the
“Senior Subordinated Notes”) was approximately $360.2 million and $360.2 million
at June 28, 2008 and December 31, 2007, respectively.  The fair value
of the Company’s senior subordinated notes at June 28, 2008 and December 31,
2007 was estimated to be approximately $208.8 million and $279.0 million,
respectively, based on available market information.




The
carrying value of the Company’s 11.75% senior secured notes due 2013 was
approximately $693.6 million at June 28, 2008 and the fair value of the notes at
June 28, 2008 was estimated to be approximately $630.0 million, based on
available market information.




The
carrying value of the Company’s other financial instruments approximates their
fair value.







New
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)”. This standard requires employers
to recognize the underfunded or overfunded status of each pension and
postretirement benefit plan as an asset or liability in its balance sheet and to
recognize changes in the funded status in the year in which the changes occur
through accumulated other comprehensive income, which is a component of
stockholders’ equity.  SFAS No. 158 does not change the amount of
actuarially determined expense that is recorded in the consolidated statement of
income. The new reporting requirements and related new footnote disclosure rules
of SFAS No. 158 were effective for our December 31, 2007 financial
statements.  Additionally, SFAS No. 158 requires employers to measure
the funded status of a plan as of its year-end balance sheet.  For our
financial statements as of December 31, 2008, we will change our September 30
measurement date for our plans’ assets and obligations to comply with this
requirement. The Company is currently evaluating the impact of the measurement
date change.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”.  SFAS No. 159
permits entities to choose to measure certain financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS No. 159
is effective for fiscal years beginning January 1, 2008, however the Company did
not elect the option to report any of the selected financial assets and
liabilities at fair value.





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 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 impact to the Company from the
adoption of SFAS 141(R) in 2009 will depend on acquisitions at the time.
The





-9-





provisions
of SFAS No. 141(R) are effective for the Company’s fiscal year beginning
January 1, 2009, and are to be applied prospectively.





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 Company is
currently evaluating the impact that the implementation of SFAS No. 160 will
have on its 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 our
balance sheet, results of operations, or cash flows.














2.  PURCHASE
ACCOUNTING








Pacific Windows
Acquisition





On
September 30, 2007, Ply Gem completed its acquisition of CertainTeed
Corporation’s vinyl window and patio door business through a stock
acquisition.  On the acquisition date, the Company changed the name of
the acquired business to Ply Gem Pacific Windows Corporation (“Pacific
Windows”). The Company accounted for the transaction as a purchase in accordance
with the provisions of SFAS No. 141, which results in a new valuation for the
assets and liabilities of Pacific Windows based upon fair values as of the
purchase date.  The acquired vinyl window business is a leading
manufacturer of premium vinyl windows and patio doors and produces windows for
the residential new construction and remodeling markets. The acquisition
provides the Company with a physical window manufacturing presence on the west
coast.





The
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
            
            $
            10,828Inventories
            
            
            11,038Property,
      plant and equipment
            
            
            19,269Trademarks
            
            
            1,200Customer
      relationships
            
            
            1,800Goodwill
            
            
            17,134Other
      assets
            
            
            1,398Current
      liabilities
            
            
            (12,571
            )Other
      liabilities
            
            
            (13,514
            )Purchase
      price, net of cash acquired
            
            $
            36,582








-10-





Goodwill
increased by approximately $0.1 million from December 31, 2007 to June 28,
2008.  An increase of approximately $1.0 million was due to a change
in the allocation of the Pacific Windows purchase price related to accrued
warranties and a decrease of approximately $0.9 million was due to currency
translation changes.








3.  INTANGIBLE
ASSETS





The table
that follows presents the components of intangible assets as of June 28, 2008
and December 31, 2007:





Average
                Amortization
                Period
                (in Years)
              
              
              Cost
              
              
              Accumulated
                Amortization
              
              
              Net
      Carrying
                Value(Amounts
      in thousands)As
      of June 28, 2008Patents
              
              
              14
              
              
              $
              12,770
              
              
              $
              (4,066
              )
              
              $
              8,704Trademarks/Tradenames
              
              
              15
              
              
              
              85,644
              
              
              
              (12,629
              )
              
              
              73,015Customer
      relationships
              
              
              13
              
              
              
              158,158
              
              
              
              (37,651
              )
              
              
              120,507Other
              
              
              
              
              
              
              1,520
              
              
              
              (315
              )
              
              
              1,205Total
      intangible assets
              
              
              
              
              
              $
              258,092
              
              
              $
              (54,661
              )
              
              $
              203,431As
      of December 31, 2007Patents
              
              
              14
              
              
              $
              12,770
              
              
              $
              (3,591
              )
              
              $
              9,179Trademarks/Tradenames
              
              
              15
              
              
              
              85,644
              
              
              
              (9,679
              )
              
              
              75,965Customer
      relationships
              
              
              13
              
              
              
              158,158
              
              
              
              (31,452
              )
              
              
              126,706Other
              
              
              
              
              
              
              1,520
              
              
              
              (113
              )
              
              
              1,407Total
      intangible assets
              
              
              
              
              
              $
              258,092
              
              
              $
              (44,835
              )
              
              $
              213,257





Amortization
expense for the six months ended June 28, 2008 and June 30, 2007 was
approximately $9.8 million and $8.9 million,
respectively.  Amortization expense for the remainder of 2008 and for
fiscal years 2009, 2010, 2011, and 2012 is estimated to be approximately $9.8
million, $19.6 million, $19.5 million, $19.1 million, and $19.1 million,
respectively.





























4.  COMPREHENSIVE
INCOME (LOSS)





Comprehensive
income (loss) is comprised of the following:





Three Months Ended
            
            
            Six Months EndedJune 28, 2008
            
            
            June 30, 2007
            
            
            June 28, 2008
            
            
            June 30, 2007(Amounts
      in thousands)Net
      income (loss)
            
            $
            (19,493
            )
            
            $
            17,270
            
            
            $
            (41,335
            )
            
            $
            6,406Foreign
      currency translation adjustment
            
            
            594
            
            
            
            2,760
            
            
            
            (579
            )
            
            
            3,296Comprehensive
      income (loss)
            
            $
            (18,899
            )
            
            $
            20,030
            
            
            $
            (41,914
            )
            
            $
            9,702








-11-








5.  LONG-TERM
DEBT





Long-term
debt in the accompanying consolidated balance sheets at June 28, 2008 and
December 31, 2007 consists of the following:


June 28, 2008
            
            
            December 31, 2007(Amounts
      in thousands)Senior
      term loan facility
            
            $
            -
            
            
            $
            677,910Asset
      based lending revolving facility
            
            
            40,000
            
            
            
            -Senior
      subordinated notes due 2012 net
              of
      unamortized premium of $163 and $186
            
            
            360,163
            
            
            
            360,186Senior
      secured notes due 2013 net of
              unamortized
      discount of $6,434
            
            
            693,566
            
            
            
            -1,093,729
            
            
            
            1,038,096Less
      current maturities
            
            
            -
            
            
            
            6,873$
            1,093,729
            
            
            $
            1,031,223





11.75% Senior Secured Notes
due 2013





On June
9, 2008, Ply Gem Industries issued $700.0 million of senior secured subordinated
notes (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 our 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 will be paid semi-annually on June 15 and
December 15 of each year commencing on December 15, 2008.





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.





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 Senior Secured Indenture
contains certain covenants that will 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.





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 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.








-12-





ABL
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 $135.0 million, subject to
borrowing base availability, with a maturity of five years including
sub-facilities for letters of





As of
June 28, 2008, Ply Gem Industries had $31.1 million of availability under the
ABL Facility, due to the $40.0 million borrowed under the ABL Facility and
approximately $3.9 million of letters of credit issued under the ABL Facility.
Further, approximately $3.2 million of letters of credit have been issued apart
from the ABL facility to secure certain environmental obligations and this
amount does not reduce our availability 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.  Our rate at June 28, 2008 was approximately
5.4%.





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.





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 9.0% Senior
Subordinated Notes due 2012, 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.





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.





As a
result of the debt amendment that occurred on May 23, 2008 and the issuance of
Senior Secured Notes on June 9, 2008, the Company evaluated its financing costs
and expensed approximately $27.6 million of fees in the three and six month
periods ended June 28, 2008 which has been recorded within interest expense on
the Condensed Consolidated Statement of Operations.  The Company
deferred costs of approximately $24.8 million as of June 28, 2008 which have
been recorded within other assets in the Condensed Consolidated Balance Sheets
at June 28, 2008. For the three and six month periods ended June 30, 2007, the
Company expensed deferred financing costs of approximately $1.1 million which
has been recorded within interest expense.











-13-








The
following table summarizes the Company’s long-term debt maturities due in each
twelve month period after June 28, 2008:  (Amounts in
thousands)





Twelve month period ending:July
      4, 2009
            
            $
            -July
      3, 2010
            
            
            -July
      2, 2011
            
            
            -June
      30, 2012
            
            
            360,163June
      29, 2013 and thereafter
            
            
            733,566$
            1,093,729















6.  PENSION
PLANS





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




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


For
      the six
              months
      ended
              June 28, 2008
            
            
            For
      the six
              months
      ended
              June 30, 2007(Amounts
      in thousands)Service
      cost
            
            $
            97
            
            
            $
            157Interest
      cost
            
            
            1,011
            
            
            
            981Expected
      return on plan assets
            
            
            (1,101
            )
            
            
            (1,009
            )Net
      periodic expense
            
            $
            7
            
            
            $
            129

















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 $8.0 million and $8.2 million at June 28, 2008 and December 31, 2007,
respectively.  The Company has indemnified third parties in certain
transactions involving dispositions of former subsidiaries.  As of
June 28, 2008 and December 31, 2007, the Company has recorded liabilities in
relation to these indemnifications of approximately $8.0 million and $8.2
million, respectively, consisting of the following:


(Amounts
      in thousands)June 28,
              2008
            
            
            December 31,
              2007Product
      claim liabilities
            
            $
            3,775
            
            
            $
            3,780Multiemployer
      pension plan withdrawal liability
            
            
            3,587
            
            
            
            3,681Other
            
            
            603
            
            
            
            721$
            7,965
            
            
            $
            8,182




-14-





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 June 28, 2008, warranty liabilities
of approximately $11.1 million have been recorded in current liabilities and
approximately $37.7 million have been recorded in long-term
liabilities.





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


For
      the six
              months
      ended
              June 28, 2008
            
            
            For
      the six
              months
      ended
              June 30, 2007(Amounts
      in thousands)Balance,
      beginning of period
            
            $
            49,899
            
            
            $
            36,947Warranty
      expense provided during period
            
            
            2,667
            
            
            
            3,411Settlements
      made during period
            
            
            (4,417
            )
            
            
            (3,324
            )Liability
      incurred with Pacific Windows acquisition
            
            
            644
            
            
            
            -Balance,
      end of period
            
            $
            48,793
            
            
            $
            37,034





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 June 28, 2008 and December 31,
2007:




June 28, 2008
            
            
            December 31, 2007(Amounts
      in thousands)Insurance
            
            $
            6,829
            
            
            $
            6,566Employee
      compensation and benefits
            
            
            12,323
            
            
            
            19,722Sales
      and marketing
            
            
            21,651
            
            
            
            20,384Product
      warranty
            
            
            11,053
            
            
            
            11,453Short-term
      product claim liability
            
            
            2,321
            
            
            
            2,321Accrued
      freight
            
            
            2,576
            
            
            
            753Interest
            
            
            17,115
            
            
            
            12,426Accrued
      severance
            
            
            94
            
            
            
            1,931Accrued
      taxes
            
            
            3,130
            
            
            
            5,844Other,
      net
            
            
            10,509
            
            
            
            12,016$
            87,601
            
            
            $
            93,416







The
accrued severance amount in the above table as of December 31, 2007 was a result
of the Denison restructuring (Note 9).







-15-





During
2008, cash severance payments were made for approximately $1.8 million and the
accrual balance for Denison severance is approximately $0.1 million as of June
28, 2008.




Other
long-term liabilities consist of the following at June 28, 2008 and December 31,
2007:




June 28, 2008
            
            
            December 31, 2007(Amounts
      in thousands)Insurance
            
            $
            4,567
            
            
            $
            4,757Pension
      liabilities
            
            
            3,022
            
            
            
            4,056Multiemployer
      pension withdrawal liability
            
            
            3,587
            
            
            
            3,681Product
      warranty
            
            
            37,740
            
            
            
            38,446Long-term
      lease liabilities
            
            
            25
            
            
            
            38Long-term
      product claim liability
            
            
            1,454
            
            
            
            1,459Long-term
      deferred compensation
            
            
            5,050
            
            
            
            4,810Liabilities
      for tax uncertainties
            
            
            7,316
            
            
            
            7,193Other
            
            
            2,436
            
            
            
            2,704$
            65,197
            
            
            $
            67,144










9.   RESTRUCTURING







In
October 2007, the Company commenced its plan to close the Denison, Texas
facility in 2008.  The Company began to shift production to other
facilities within the Company during November 2007, and production ceased at the
Denison facility during February 2008.  The following table summarizes
the restructuring activity for the six months ended June 28, 2008:




Accrued
      as of
                December 31,
      2007
              
              
              Cash
      payments
                During
      2008
              
              
              Expensed
                During
      2008
              
              
              Accrued
      as of
                June 28,
      2008(Amounts
      In thousands)Severance
      costs
              
              $
              1,931
              
              
              $
              (1,837
              )
              
              $
              -
              
              
              $
              94Contract
      terminations
              
              
              -
              
              
              
              -
              
              
              
              67
              
              
              
              67Equipment
      removal and other
              
              
              -
              
              
              
              (4,408
              )
              
              
              4,408
              
              
              
              -$
              1,931
              
              
              $
              (6,245
              )
              
              $
              4,475
              
              
              $
              161


For the
three months and six months ended June 28, 2008, the Company incurred
restructuring costs of approximately $2.7 million and $4.5 million,
respectively.  All costs were recorded in selling, general and
administrative expense in the Siding, Fencing and Railing segment.








10.  STOCK-BASED
COMPENSATION





Stock Option
Plan





A summary
of changes in stock options outstanding as of June 28, 2008 is presented
below:


Stock Options
            
            
            Weighted-Average
      Exercise
              Price
            
            
            Weighted-Average
      Remaining Contractual Term
      (Years)Balance
      at January 1, 2008
            
            
            248,594
            
            
            $
            38.12
            
            
            
            7.95Granted
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
      or expired
            
            
            8,400
            
            
            $
            10.00
            
            
            
            -Balance
      at June 28, 2008
            
            
            240,194
            
            
            $
            39.11
            
            
            
            7.50




-16-





As of
June 28, 2008, no options have vested.  At June 28, 2008, the Company
had approximately $0.1 million of total unrecognized compensation expense that
will be recognized over the weighted average period of 2.5 years.





Other Share-Based
Compensation





Upon
completion of each of the Ply Gem Acquisition, the MW Acquisition 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.   During 2007, shares were issued to certain
members of management in exchange for cash.





A summary
of the changes in common stock shares as of June 28, 2008 is presented
below.





Common
      Stock
              Shares
      Owned by
              ManagementBalance
      at January 1, 2008
            
            
            675,758Shares
      issued
            
            
            -Shares
      repurchased
            
            
            (31,440
            )Balance
      at June 28, 2008
            
            
            644,318

















11.  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 railing, and 2)
windows and doors.





The
operating earnings 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.





-17-





Following
is a summary of the Company’s segment information.  (Amounts in thousands)








Three
      months ended
            
            
            Six
      months endedJune 28, 2008
            
            
            June 30, 2007
            
            
            June 28, 2008
            
            
            June 30, 2007Net
      SalesSiding,
      Fencing, and Railing
            
            $
            209,250
            
            
            $
            246,972
            
            
            $
            356,310
            
            
            $
            416,486Windows
      and Doors
            
            
            132,030
            
            
            
            143,723
            
            
            
            241,343
            
            
            
            259,483$
            341,280
            
            
            $
            390,695
            
            
            $
            597,653
            
            
            $
            675,969Operating
      earnings (loss)Siding,
      Fencing, and Railing
            
            $
            21,971
            
            
            $
            37,123
            
            
            $
            17,770
            
            
            $
            36,708Windows
      and Doors
            
            
            1,235
            
            
            
            16,265
            
            
            
            (6,321
            )
            
            
            23,792Corporate
      unallocated
            
            
            (2,333
            )
            
            
            (1,788
            )
            
            
            (4,860
            )
            
            
            (3,741
            )$
            20,873
            
            
            $
            51,600
            
            
            $
            6,589
            
            
            $
            56,759As
      of
            
            
            As
      ofJune 28, 2008
            
            
            December 31, 2007Total
      AssetsSiding,
      Fencing, and Railing
            
            $
            855,547
            
            
            $
            826,480Windows
      and Doors
            
            
            715,966
            
            
            
            717,740Corporate
      unallocated
            
            
            92,120
            
            
            
            81,387$
            1,663,633
            
            
            $
            1,625,607











-18-








12.  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 June 28, 2008 and for
the three and six month periods ended June 28, 2008 and June 30,
2007.  The non-guarantor information presented represents our Canadian
subsidiary.








PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSFor
      the three months ended June 28, 2008Guarantor
            
            
            Issuer
            
            
            
            
            
            Non-Ply
      Gem
            
            
            Ply
      Gem
            
            
            Guarantor
            
            
            Guarantor
            
            
            ConsolidatingHoldings, Inc.
            
            
            Industries, Inc.
            
            
            Subsidiaries
            
            
            Subsidiary
            
            
            Adjustments
            
            
            Consolidated(Amounts
      in thousands)Net
      sales
            
            $
            -
            
            
            $
            -
            
            
            $
            319,358
            
            
            $
            21,922
            
            
            $
            -
            
            
            $
            341,280Costs
      and expenses:Cost
      of products sold
            
            
            -
            
            
            
            -
            
            
            
            256,648
            
            
            
            14,445
            
            
            
            -
            
            
            
            271,093Selling,
      general andadministrative
      expense
            
            
            -
            
            
            
            2,333
            
            
            
            37,991
            
            
            
            4,078
            
            
            
            -
            
            
            
            44,402Intercompany
      administrativecharges
            
            
            -
            
            
            
            -
            
            
            
            3,195
            
            
            
            -
            
            
            
            (3,195
            )
            
            
            -Amortization
      of intangible assets
            
            
            -
            
            
            
            -
            
            
            
            4,912
            
            
            
            -
            
            
            
            -
            
            
            
            4,912Total
      costs and expenses
            
            
            -
            
            
            
            2,333
            
            
            
            302,746
            
            
            
            18,523
            
            
            
            (3,195
            )
            
            
            320,407Operating
      earnings (loss)
            
            
            -
            
            
            
            (2,333
            )
            
            
            16,612
            
            
            
            3,399
            
            
            
            3,195
            
            
            
            20,873Foreign
      currency gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            56
            
            
            
            -
            
            
            
            56Intercompany
      interest
            
            
            -
            
            
            
            18,351
            
            
            
            (18,233
            )
            
            
            (118
            )
            
            
            -
            
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (50,823
            )
            
            
            13
            
            
            
            (255
            )
            
            
            -
            
            
            
            (51,065
            )Interest
      income
            
            
            
            
            
            
            86
            
            
            
            3
            
            
            
            18
            
            
            
            -
            
            
            
            107Intercompany
      administrative income
            
            
            -
            
            
            
            3,195
            
            
            
            -
            
            
            
            -
            
            
            
            (3,195
            )
            
            
            -Income
      (loss) before equity insubsidiaries'
      income
            
            
            -
            
            
            
            (31,524
            )
            
            
            (1,605
            )
            
            
            3,100
            
            
            
            -
            
            
            
            (30,029
            )Equity
      in subsidiaries' income
            
            
            (19,493
            )
            
            
            970
            
            
            
            -
            
            
            
            -
            
            
            
            18,523
            
            
            
            -Income
      (loss) before income taxprovision
      (benefit)
            
            
            (19,493
            )
            
            
            (30,554
            )
            
            
            (1,605
            )
            
            
            3,100
            
            
            
            18,523
            
            
            
            (30,029
            )Provision
      (benefit) for income taxes
            
            
            -
            
            
            
            (11,061
            )
            
            
            (498
            )
            
            
            1,023
            
            
            
            -
            
            
            
            (10,536
            )Net
      income (loss)
            
            $
            (19,493
            )
            
            $
            (19,493
            )
            
            $
            (1,107
            )
            
            $
            2,077
            
            
            $
            18,523
            
            
            $
            (19,493
            )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            594
            
            
            
            -
            
            
            
            594Total
      comprehensive income (loss)
            
            $
            (19,493
            )
            
            $
            (19,493
            )
            
            $
            (1,107
            )
            
            $
            2,671
            
            
            $
            18,523
            
            
            $
            (18,899
            )








-19-














PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSFor
      the three months ended June 30, 2007Guarantor
                Ply
      Gem
                Holdings, Inc.
              
              
              Issuer
                Ply
      Gem
                Industries, Inc.
              
              
              Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiary
              
              
              Consolidating
                Adjustments
              
              
              Consolidated(Amounts
      in thousands)Net
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              370,127
              
              
              $
              20,568
              
              
              $
              -
              
              
              $
              390,695Costs
      and expenses:Cost
      of products sold
              
              
              -
              
              
              
              -
              
              
              
              279,385
              
              
              
              13,511
              
              
              
              -
              
              
              
              292,896Selling,
      general andadministrative
      expense
              
              
              -
              
              
              
              1,788
              
              
              
              36,627
              
              
              
              3,482
              
              
              
              -
              
              
              
              41,897Intercompany
      administrativecharges
              
              
              -
              
              
              
              -
              
              
              
              3,705
              
              
              
              -
              
              
              
              (3,705
              )
              
              
              -Amortization
      of intangible assets
              
              
              -
              
              
              
              -
              
              
              
              4,302
              
              
              
              -
              
              
              
              -
              
              
              
              4,302Total
      costs and expenses
              
              
              -
              
              
              
              1,788
              
              
              
              324,019
              
              
              
              16,993
              
              
              
              (3,705
              )
              
              
              339,095Operating
      earnings (loss)
              
              
              -
              
              
              
              (1,788
              )
              
              
              46,108
              
              
              
              3,575
              
              
              
              3,705
              
              
              
              51,600Foreign
      currency gain
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,992
              
              
              
              -
              
              
              
              1,992Intercompany
      interest
              
              
              -
              
              
              
              22,497
              
              
              
              (22,399
              )
              
              
              (98
              )
              
              
              -
              
              
              
              -Interest
      expense
              
              
              -
              
              
              
              (25,292
              )
              
              
              -
              
              
              
              (531
              )
              
              
              -
              
              
              
              (25,823
              )Interest
      income
              
              
              -
              
              
              
              153
              
              
              
              69
              
              
              
              23
              
              
              
              -
              
              
              
              245Intercompany
      administrative income
              
              
              -
              
              
              
              3,705
              
              
              
              -
              
              
              
              -
              
              
              
              (3,705
              )
              
              
              -Income
      (loss) before equity insubsidiaries'
      income
              
              
              -
              
              
              
              (725
              )
              
              
              23,778
              
              
              
              4,961
              
              
              
              -
              
              
              
              28,014Equity
      in subsidiaries' income
              
              
              17,270
              
              
              
              18,268
              
              
              
              -
              
              
              
              -
              
              
              
              (35,538
              )
              
              
              -Income
      before income taxprovision
              
              
              17,270
              
              
              
              17,543
              
              
              
              23,778
              
              
              
              4,961
              
              
              
              (35,538
              )
              
              
              28,014Provision
      for income taxes
              
              
              -
              
              
              
              273
              
              
              
              8,834
              
              
              
              1,637
              
              
              
              -
              
              
              
              10,744Net
      income
              
              $
              17,270
              
              
              $
              17,270
              
              
              $
              14,944
              
              
              $
              3,324
              
              
              $
              (35,538
              )
              
              $
              17,270Other
      comprehensive income:Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,760
              
              
              
              -
              
              
              
              2,760Total
      comprehensive income
              
              $
              17,270
              
              
              $
              17,270
              
              
              $
              14,944
              
              
              $
              6,084
              
              
              $
              (35,538
              )
              
              $
              20,030








-20-





PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSFor
      the six months ended June 28, 2008Guarantor
                Ply
      Gem
                Holdings, Inc.
              
              
              Issuer
                Ply
      Gem
                Industries, Inc.
              
              
              Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiary
              
              
              Consolidating
                Adjustments
              
              
              Consolidated(Amounts
      in thousands)Net
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              556,054
              
              
              $
              41,599
              
              
              $
              -
              
              
              $
              597,653Costs
      and expenses:Cost
      of products sold
              
              
              -
              
              
              
              -
              
              
              
              467,324
              
              
              
              28,035
              
              
              
              -
              
              
              
              495,359Selling,
      general andadministrative
      expense
              
              
              -
              
              
              
              4,860
              
              
              
              72,991
              
              
              
              8,028
              
              
              
              -
              
              
              
              85,879Intercompany
      administrativecharges
              
              
              -
              
              
              
              -
              
              
              
              5,563
              
              
              
              -
              
              
              
              (5,563
              )
              
              
              -Amortization
      of intangible assets
              
              
              -
              
              
              
              -
              
              
              
              9,826
              
              
              
              -
              
              
              
              -
              
              
              
              9,826Total
      costs and expenses
              
              
              -
              
              
              
              4,860
              
              
              
              555,704
              
              
              
              36,063
              
              
              
              (5,563
              )
              
              
              591,064Operating
      earnings (loss)
              
              
              -
              
              
              
              (4,860
              )
              
              
              350
              
              
              
              5,536
              
              
              
              5,563
              
              
              
              6,589Foreign
      currency loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (495
              )
              
              
              -
              
              
              
              (495
              )Intercompany
      interest
              
              
              -
              
              
              
              40,509
              
              
              
              (40,391
              )
              
              
              (118
              )
              
              
              -
              
              
              
              -Interest
      expense
              
              
              -
              
              
              
              (73,512
              )
              
              
              29
              
              
              
              (656
              )
              
              
              -
              
              
              
              (74,139
              )Interest
      income
              
              
              
              
              
              
              247
              
              
              
              6
              
              
              
              57
              
              
              
              
              
              
              
              310Intercompany
      administrative income
              
              
              -
              
              
              
              5,563
              
              
              
              -
              
              
              
              -
              
              
              
              (5,563
              )
              
              
              -Income
      (loss) before equity insubsidiaries'
      income
              
              
              -
              
              
              
              (32,053
              )
              
              
              (40,006
              )
              
              
              4,324
              
              
              
              -
              
              
              
              (67,735
              )Equity
      in subsidiaries' income
              
              
              (41,335
              )
              
              
              (21,775
              )
              
              
              -
              
              
              
              -
              
              
              
              63,110
              
              
              
              -Income
      (loss) before income taxprovision
      (benefit)
              
              
              (41,335
              )
              
              
              (53,828
              )
              
              
              (40,006
              )
              
              
              4,324
              
              
              
              63,110
              
              
              
              (67,735
              )Provision
      (benefit) for income taxes
              
              
              -
              
              
              
              (12,493
              )
              
              
              (15,333
              )
              
              
              1,426
              
              
              
              -
              
              
              
              (26,400
              )Net
      income (loss)
              
              $
              (41,335
              )
              
              $
              (41,335
              )
              
              $
              (24,673
              )
              
              $
              2,898
              
              
              $
              63,110
              
              
              $
              (41,335
              )Other
      comprehensive income (loss):Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (579
              )
              
              
              -
              
              
              
              (579
              )Total
      comprehensive income (loss)
              
              $
              (41,335
              )
              
              $
              (41,335
              )
              
              $
              (24,673
              )
              
              $
              2,319
              
              
              $
              63,110
              
              
              $
              (41,914
              )








-21-





PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSFor
      the six months ended June 30, 2007Guarantor
                Ply
      Gem
                Holdings, Inc.
              
              
              Issuer
                Ply
      Gem
                Industries, Inc.
              
              
              Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiary
              
              
              Consolidating
                Adjustments
              
              
              Consolidated(Amounts
      in thousands)Net
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              639,319
              
              
              $
              36,650
              
              
              $
              -
              
              
              $
              675,969Costs
      and expenses:Cost
      of products sold
              
              
              -
              
              
              
              -
              
              
              
              506,147
              
              
              
              24,833
              
              
              
              -
              
              
              
              530,980Selling,
      general andadministrative
      expense
              
              
              -
              
              
              
              3,741
              
              
              
              68,834
              
              
              
              6,719
              
              
              
              -
              
              
              
              79,294Intercompany
      administrativecharges
              
              
              -
              
              
              
              -
              
              
              
              6,397
              
              
              
              -
              
              
              
              (6,397
              )
              
              
              -Amortization
      of intangible assets
              
              
              -
              
              
              
              -
              
              
              
              8,936
              
              
              
              -
              
              
              
              -
              
              
              
              8,936Total
      costs and expenses
              
              
              -
              
              
              
              3,741
              
              
              
              590,314
              
              
              
              31,552
              
              
              
              (6,397
              )
              
              
              619,210Operating
      earnings (loss)
              
              
              -
              
              
              
              (3,741
              )
              
              
              49,005
              
              
              
              5,098
              
              
              
              6,397
              
              
              
              56,759Foreign
      currency gain
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,208
              
              
              
              -
              
              
              
              2,208Intercompany
      interest
              
              
              -
              
              
              
              46,198
              
              
              
              (46,001
              )
              
              
              (197
              )
              
              
              -
              
              
              
              -Interest
      expense
              
              
              -
              
              
              
              (50,037
              )
              
              
              (1
              )
              
              
              (1,051
              )
              
              
              -
              
              
              
              (51,089
              )Interest
      income
              
              
              -
              
              
              
              448
              
              
              
              328
              
              
              
              46
              
              
              
              -
              
              
              
              822Intercompany
      administrative income
              
              
              -
              
              
              
              6,397
              
              
              
              -
              
              
              
              -
              
              
              
              (6,397
              )
              
              
              -Income
      (loss) before equity insubsidiaries'
      income
              
              
              -
              
              
              
              (735
              )
              
              
              3,331
              
              
              
              6,104
              
              
              
              -
              
              
              
              8,700Equity
      in subsidiaries' income
              
              
              6,406
              
              
              
              7,418
              
              
              
              -
              
              
              
              -
              
              
              
              (13,824
              )
              
              
              -Income
      before income taxprovision
              
              
              6,406
              
              
              
              6,683
              
              
              
              3,331
              
              
              
              6,104
              
              
              
              (13,824
              )
              
              
              8,700Provision
      for income taxes
              
              
              -
              
              
              
              277
              
              
              
              3
              
              
              
              2,014
              
              
              
              -
              
              
              
              2,294Net
      income
              
              $
              6,406
              
              
              $
              6,406
              
              
              $
              3,328
              
              
              $
              4,090
              
              
              $
              (13,824
              )
              
              $
              6,406Other
      comprehensive income :Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,296
              
              
              
              -
              
              
              
              3,296Total
      comprehensive income
              
              $
              6,406
              
              
              $
              6,406
              
              
              $
              3,328
              
              
              $
              7,386
              
              
              $
              (13,824
              )
              
              $
              9,702





-22-





PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of June 28, 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
            
            $
            -
            
            
            $
            46,805
            
            
            $
            11,277
            
            
            $
            3,398
            
            
            $
            -
            
            
            $
            61,480Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            164,412
            
            
            
            11,950
            
            
            
            -
            
            
            
            176,362Inventories:Raw
      materials
            
            
            -
            
            
            
            -
            
            
            
            49,508
            
            
            
            4,792
            
            
            
            -
            
            
            
            54,300Work
      in process
            
            
            -
            
            
            
            -
            
            
            
            31,633
            
            
            
            1,336
            
            
            
            -
            
            
            
            32,969Finished
      goods
            
            
            -
            
            
            
            -
            
            
            
            33,840
            
            
            
            3,515
            
            
            
            -
            
            
            
            37,355Total
      inventory
            
            
            -
            
            
            
            -
            
            
            
            114,981
            
            
            
            9,643
            
            
            
            -
            
            
            
            124,624Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            3,997
            
            
            
            16,441
            
            
            
            578
            
            
            
            -
            
            
            
            21,016Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            12,773
            
            
            
            -
            
            
            
            -
            
            
            
            12,773Total
      current assets
            
            
            -
            
            
            
            50,802
            
            
            
            319,884
            
            
            
            25,569
            
            
            
            -
            
            
            
            396,255Property
      and Equipment, at cost:Land
            
            
            -
            
            
            
            -
            
            
            
            3,565
            
            
            
            173
            
            
            
            -
            
            
            
            3,738Buildings
      and improvements
            
            
            -
            
            
            
            -
            
            
            
            33,004
            
            
            
            949
            
            
            
            -
            
            
            
            33,953Machinery
      and equipment
            
            
            -
            
            
            
            1,098
            
            
            
            236,611
            
            
            
            6,355
            
            
            
            -
            
            
            
            244,064Total
      property and equipment, net
            
            
            -
            
            
            
            1,098
            
            
            
            273,180
            
            
            
            7,477
            
            
            
            -
            
            
            
            281,755Less
      accumulated depreciation
            
            
            -
            
            
            
            (188
            )
            
            
            (97,887
            )
            
            
            (2,649
            )
            
            
            -
            
            
            
            (100,724
            )Total
      property and equipment, net
            
            
            -
            
            
            
            910
            
            
            
            175,293
            
            
            
            4,828
            
            
            
            -
            
            
            
            181,031Other
      Assets:Intangible
      assets, net
            
            
            -
            
            
            
            -
            
            
            
            203,431
            
            
            
            -
            
            
            
            -
            
            
            
            203,431Goodwill
            
            
            -
            
            
            
            -
            
            
            
            790,732
            
            
            
            45,235
            
            
            
            -
            
            
            
            835,967Investments
      in subsidiaries
            
            
            226,847
            
            
            
            151,951
            
            
            
            -
            
            
            
            -
            
            
            
            (378,798
            )
            
            
            -Intercompany
      note receivable
            
            
            -
            
            
            
            1,107,260
            
            
            
            -
            
            
            
            -
            
            
            
            (1,107,260
            )
            
            
            -Other
            
            
            -
            
            
            
            43,394
            
            
            
            3,555
            
            
            
            -
            
            
            
            -
            
            
            
            46,949Total
      other assets
            
            
            226,847
            
            
            
            1,302,605
            
            
            
            997,718
            
            
            
            45,235
            
            
            
            (1,486,058
            )
            
            
            1,086,347$
            226,847
            
            
            $
            1,354,317
            
            
            $
            1,492,895
            
            
            $
            75,632
            
            
            $
            (1,486,058
            )
            
            $
            1,663,633LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      Liabilities:Current
      maturities of long-term debt
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Accounts
      payable
            
            
            -
            
            
            
            2,193
            
            
            
            119,062
            
            
            
            6,031
            
            
            
            -
            
            
            
            127,286Accrued
      expenses and taxes
            
            
            -
            
            
            
            20,276
            
            
            
            63,570
            
            
            
            3,755
            
            
            
            -
            
            
            
            87,601Total
      current liabilities
            
            
            -
            
            
            
            22,469
            
            
            
            182,632
            
            
            
            9,786
            
            
            
            -
            
            
            
            214,887Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            58,556
            
            
            
            4,417
            
            
            
            -
            
            
            
            62,973Intercompany
      note payable
            
            
            -
            
            
            
            -
            
            
            
            1,088,999
            
            
            
            18,261
            
            
            
            (1,107,260
            )
            
            
            -Other
      long term liabilities
            
            
            -
            
            
            
            11,272
            
            
            
            52,784
            
            
            
            1,141
            
            
            
            -
            
            
            
            65,197Long-term
      debt, less currentmaturities
            
            
            -
            
            
            
            1,093,729
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,093,729Commitments
      and contingenciesStockholder's
      Equity:Preferred
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            209,884
            
            
            
            209,884
            
            
            
            84,975
            
            
            
            5,853
            
            
            
            (300,712
            )
            
            
            209,884Retained
      earnings
            
            
            7,907
            
            
            
            7,907
            
            
            
            24,949
            
            
            
            27,840
            
            
            
            (60,696
            )
            
            
            7,907Accumulated
      othercomprehensive
      income
            
            
            9,056
            
            
            
            9,056
            
            
            
            -
            
            
            
            8,334
            
            
            
            (17,390
            )
            
            
            9,056$
            226,847
            
            
            $
            1,354,317
            
            
            $
            1,492,895
            
            
            $
            75,632
            
            
            $
            (1,486,058
            )
            
            $
            1,663,633




-23-









PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATING BALANCE SHEETAs
      of December 31, 2007Guarantor
            
            
            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
            
            $
            -
            
            
            $
            40,647
            
            
            $
            18,376
            
            
            $
            6,184
            
            
            $
            -
            
            
            $
            65,207Accounts
      receivable, net
            
            
            -
            
            
            
            -
            
            
            
            100,221
            
            
            
            11,432
            
            
            
            -
            
            
            
            111,653Inventories:Raw
      materials
            
            
            -
            
            
            
            -
            
            
            
            55,506
            
            
            
            4,497
            
            
            
            -
            
            
            
            60,003Work
      in process
            
            
            -
            
            
            
            -
            
            
            
            21,987
            
            
            
            1,084
            
            
            
            -
            
            
            
            23,071Finished
      goods
            
            
            -
            
            
            
            -
            
            
            
            42,296
            
            
            
            2,912
            
            
            
            -
            
            
            
            45,208Total
      inventory
            
            
            -
            
            
            
            -
            
            
            
            119,789
            
            
            
            8,493
            
            
            
            -
            
            
            
            128,282Prepaid
      expenses and othercurrent
      assets
            
            
            -
            
            
            
            3,451
            
            
            
            12,622
            
            
            
            389
            
            
            
            -
            
            
            
            16,462Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            12,797
            
            
            
            -
            
            
            
            -
            
            
            
            12,797Total
      current assets
            
            
            -
            
            
            
            44,098
            
            
            
            263,805
            
            
            
            26,498
            
            
            
            -
            
            
            
            334,401Property
      and Equipment, at cost:Land
            
            
            -
            
            
            
            -
            
            
            
            3,840
            
            
            
            177
            
            
            
            -
            
            
            
            4,017Buildings
      and improvements
            
            
            -
            
            
            
            106
            
            
            
            36,865
            
            
            
            956
            
            
            
            -
            
            
            
            37,927Machinery
      and equipment
            
            
            -
            
            
            
            49
            
            
            
            234,750
            
            
            
            6,122
            
            
            
            -
            
            
            
            240,921-
            
            
            
            155
            
            
            
            275,455
            
            
            
            7,255
            
            
            
            -
            
            
            
            282,865Less
      accumulated depreciation
            
            
            -
            
            
            
            (126
            )
            
            
            (81,417
            )
            
            
            (2,326
            )
            
            
            -
            
            
            
            (83,869
            )Total
      property and equipment, net
            
            
            -
            
            
            
            29
            
            
            
            194,038
            
            
            
            4,929
            
            
            
            -
            
            
            
            198,996Other
      Assets:Intangible
      assets, net
            
            
            -
            
            
            
            -
            
            
            
            213,257
            
            
            
            -
            
            
            
            -
            
            
            
            213,257Goodwill
            
            
            -
            
            
            
            -
            
            
            
            789,575
            
            
            
            46,245
            
            
            
            -
            
            
            
            835,820Investments
      in subsidiaries
            
            
            239,544
            
            
            
            115,861
            
            
            
            -
            
            
            
            -
            
            
            
            (355,405
            )
            
            
            -Intercompany
      note receivable
            
            
            -
            
            
            
            1,088,999
            
            
            
            -
            
            
            
            -
            
            
            
            (1,088,999
            )
            
            
            -Other
            
            
            -
            
            
            
            37,932
            
            
            
            5,201
            
            
            
            -
            
            
            
            -
            
            
            
            43,133Total
      other assets
            
            
            239,544
            
            
            
            1,242,792
            
            
            
            1,008,033
            
            
            
            46,245
            
            
            
            (1,444,404
            )
            
            
            1,092,210$
            239,544
            
            
            $
            1,286,919
            
            
            $
            1,465,876
            
            
            $
            77,672
            
            
            $
            (1,444,404
            )
            
            $
            1,625,607LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      Liabilities:Current
      maturities of long-term debt
            
            $
            -
            
            
            $
            6,623
            
            
            $
            -
            
            
            $
            250
            
            
            $
            -
            
            
            $
            6,873Accounts
      payable
            
            
            -
            
            
            
            547
            
            
            
            90,317
            
            
            
            5,392
            
            
            
            -
            
            
            
            96,256Accrued
      expenses and taxes
            
            
            -
            
            
            
            17,787
            
            
            
            68,787
            
            
            
            6,842
            
            
            
            -
            
            
            
            93,416Total
      current liabilities
            
            
            -
            
            
            
            24,957
            
            
            
            159,104
            
            
            
            12,484
            
            
            
            -
            
            
            
            196,545Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            86,866
            
            
            
            4,285
            
            
            
            -
            
            
            
            91,151Intercompany
      note payable
            
            
            -
            
            
            
            -
            
            
            
            1,088,999
            
            
            
            -
            
            
            
            (1,088,999
            )
            
            
            -Other
      long term liabilities
            
            
            -
            
            
            
            11,508
            
            
            
            54,473
            
            
            
            1,163
            
            
            
            -
            
            
            
            67,144Long-term
      debt, less currentmaturities
            
            
            -
            
            
            
            1,010,910
            
            
            
            -
            
            
            
            20,313
            
            
            
            -
            
            
            
            1,031,223Commitments
      and contingenciesStockholder's
      Equity:Preferred
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Additional
      paid-in-capital
            
            
            180,667
            
            
            
            180,667
            
            
            
            26,812
            
            
            
            5,572
            
            
            
            (213,051
            )
            
            
            180,667Retained
      earnings
            
            
            49,242
            
            
            
            49,242
            
            
            
            49,622
            
            
            
            24,942
            
            
            
            (123,806
            )
            
            
            49,242Accumulated
      othercomprehensive
      income (loss)
            
            
            9,635
            
            
            
            9,635
            
            
            
            -
            
            
            
            8,913
            
            
            
            (18,548
            )
            
            
            9,635$
            239,544
            
            
            $
            1,286,919
            
            
            $
            1,465,876
            
            
            $
            77,672
            
            
            $
            (1,444,404
            )
            
            $
            1,625,607




-24-


PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the six months ended June 28, 2008Guarantor
                Ply
      Gem
                Holdings, Inc.
              
              
              Issuer
                Ply
      Gem
                Industries, Inc.
              
              
              Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiary
              
              
              Consolidating
                Adjustments
              
              
              Consolidated(Amounts
      in thousands)Net
      cash provided by (used in)operating
      activities
              
              $
              -
              
              
              $
              3,280
              
              
              $
              (68,514
              )
              
              $
              126
              
              
              $
              -
              
              
              $
              (65,108
              )Cash
      flows from investingactivities:Capital
      expenditures
              
              
              -
              
              
              
              (556
              )
              
              
              (6,087
              )
              
              
              (396
              )
              
              
              -
              
              
              
              (7,039
              )Proceeds
      from sale of assets
              
              
              -
              
              
              
              5,810
              
              
              
              2,993
              
              
              
              -
              
              
              
              -
              
              
              
              8,803Other
              
              
              -
              
              
              
              (127
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (127
              )Net
      cash provided by (used in)investing
      activities
              
              
              -
              
              
              
              5,127
              
              
              
              (3,094
              )
              
              
              (396
              )
              
              
              -
              
              
              
              1,637Cash
      flows from financingactivities:Proceeds
      from long-term debt
              
              
              -
              
              
              
              693,504
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              693,504Proceeds
      from revolver borrowings
              
              
              -
              
              
              
              80,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              80,000Proceeds
      from intercompanyinvestment
              
              
              -
              
              
              
              (82,257
              )
              
              
              63,996
              
              
              
              18,261
              
              
              
              -
              
              
              
              -Payments
      on long-term debt
              
              
              -
              
              
              
              (657,347
              )
              
              
              -
              
              
              
              (20,563
              )
              
              
              -
              
              
              
              (677,910
              )Payments
      on revolver borrowings
              
              
              -
              
              
              
              (40,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (40,000
              )Debt
      issuance costs
              
              
              -
              
              
              
              (24,843
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (24,843
              )Equity
      contributions
              
              
              -
              
              
              
              30,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              30,000Equity
      repurchase
              
              
              -
              
              
              
              (793
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (793
              )Net
      cash provided by (used in)financing
      activities
              
              
              -
              
              
              
              (1,736
              )
              
              
              63,996
              
              
              
              (2,302
              )
              
              
              -
              
              
              
              59,958Impact
      of exchange rate movementon
      cash
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (214
              )
              
              
              -
              
              
              
              (214
              )Net
      increase (decrease) in cashand
      cash equivalents
              
              
              -
              
              
              
              6,671
              
              
              
              (7,612
              )
              
              
              (2,786
              )
              
              
              -
              
              
              
              (3,727
              )Cash
      and cash equivalents at thebeginning
      of the period
              
              
              -
              
              
              
              40,647
              
              
              
              18,376
              
              
              
              6,184
              
              
              
              -
              
              
              
              65,207Cash
      and cash equivalents at the endof
      the period
              
              $
              -
              
              
              $
              47,318
              
              
              $
              10,764
              
              
              $
              3,398
              
              
              $
              -
              
              
              $
              61,480





-25-







PLY
      GEM HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATING
      STATEMENT OF CASH FLOWSFor
      the six months ended June 30, 2007Guarantor
                Ply
      Gem
                Holdings, Inc.
              
              
              Issuer
                Ply
      Gem
                Industries, Inc.
              
              
              Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiary
              
              
              Consolidating
                Adjustments
              
              
              Consolidated(Amounts
      in thousands)Net
      cash provided by (used in)operating
      activities
              
              $
              -
              
              
              $
              2,182
              
              
              $
              (16,225
              )
              
              $
              615
              
              
              $
              -
              
              
              $
              (13,428
              )Cash
      flows from investing activities:Capital
      expenditures
              
              
              -
              
              
              
              -
              
              
              
              (6,459
              )
              
              
              (742
              )
              
              
              -
              
              
              
              (7,201
              )Proceeds
      from sale of assets
              
              
              -
              
              
              
              -
              
              
              
              15
              
              
              
              -
              
              
              
              -
              
              
              
              15Other
              
              
              -
              
              
              
              (223
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (223
              )Net
      cash used in investingactivities
              
              
              -
              
              
              
              (223
              )
              
              
              (6,444
              )
              
              
              (742
              )
              
              
              -
              
              
              
              (7,409
              )Cash
      flows from financing activities:Proceeds
      from long-term debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Proceeds
      from revolver borrowings
              
              
              -
              
              
              
              30,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              30,000Proceeds
      from intercompanyinvestment,
      net
              
              
              -
              
              
              
              (25,853
              )
              
              
              25,853
              
              
              
              -
              
              
              
              -
              
              
              
              -Payments
      on long-term debt
              
              
              -
              
              
              
              (3,061
              )
              
              
              -
              
              
              
              (126
              )
              
              
              -
              
              
              
              (3,187
              )Payments
      on revolver borrowings
              
              
              -
              
              
              
              (10,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,000
              )Debt
      issuance costs
              
              
              -
              
              
              
              (2,100
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,100
              )Equity
      repurchases
              
              
              -
              
              
              
              (3,175
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,175
              )Net
      cash provided by (used in)financing
      activities
              
              
              -
              
              
              
              (14,189
              )
              
              
              25,853
              
              
              
              (126
              )
              
              
              -
              
              
              
              11,538Impact
      of exchange rate movementon
      cash
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              290
              
              
              
              -
              
              
              
              290Net
      increase (decrease) in cashand
      cash equivalents
              
              
              -
              
              
              
              (12,230
              )
              
              
              3,184
              
              
              
              37
              
              
              
              -
              
              
              
              (9,009
              )Cash
      and cash equivalents at thebeginning
      of the period
              
              
              -
              
              
              
              35,632
              
              
              
              14,319
              
              
              
              3,323
              
              
              
              -
              
              
              
              53,274Cash
      and cash equivalents at the endof
      the period
              
              $
              -
              
              
              $
              23,402
              
              
              $
              17,503
              
              
              $
              3,360
              
              
              $
              -
              
              
              $
              44,265




-26-





Item
      2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
      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, aluminum windows, and vinyl and composite
fencing and railing that serves both the home repair and remodeling and new home
construction sectors in all 50 states and Western Canada.  We also
manufacture vinyl and aluminum soffit and siding accessories, aluminum trim
coil, wood and 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 railing, 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’ credit facility
place restrictions on its ability to pay dividends and otherwise transfer assets
to us.  Further, the terms of the indentures governing Ply Gem
Industries' Senior Subordinated Notes and Senior Secured Notes place
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 siding, fencing and
railing 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
expense.  Selling, general and administrative expense, or
“SG&A expense,” includes all non-product related operating expenses,
including selling, marketing, research and development costs, information
technology and other general and administrative expenses.





Operating
earnings.  Operating earnings represents net sales less cost of
products sold, SG&A expense and amortization of intangible
assets.





Comparability.   All
periods after the Pacific Windows Acquisition in September 2007 include the
results of operations of Pacific Windows.  As a result, the three and
six month periods ended June 28, 2008 will not be directly comparable to the
three and six month periods ended June 30, 2007.





-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 sales
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





The
following discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting
principles.  Certain of our accounting policies require the
application of judgments in selecting the appropriate assumptions for
calculating financial estimates.  By their nature, these judgments are
subject to an inherent degree of uncertainty.  We periodically
evaluate the judgments and estimates used for our critical accounting policies
to ensure that such judgments and estimates are reasonable for our interim and
year-end reporting requirements.  These judgments and estimates are
based upon our historical experience, current trends and information available
from other sources, as appropriate.  If different conditions result
compared to our assumptions and judgments, the results could be materially
different from our estimates.  Significant judgments and estimates are
used in the Company’s goodwill and intangible asset impairment tests where
different assumptions could produce varying results. Management also believes
that the two areas where different assumptions could result in materially
different reported results are accounts receivable related to estimation of
allowances for doubtful accounts and inventories in estimating reserves for
obsolete and excess inventory.  Although we believe the likelihood of
a material difference in either of these two areas is low based upon our
historical experience, a 10% change in our allowance for doubtful accounts and
our inventory reserve estimates at June 28, 2008 would result in a $0.7 million
and $0.9 million impact upon SG&A expense and cost of products sold,
respectively. Additionally, we have included in the discussion that follows our
estimation methodology for both accounts receivable and
inventories.  While all significant policies are important to our
combined and consolidated financial statements, some of these policies may be
viewed as being critical.  Our critical accounting policies
include:





Revenue
Recognition.  We recognize sales based upon shipment of
products to our customers net of applicable provisions for discounts and
allowances.  Generally, the customer takes title upon shipment and
assumes the risks and rewards of ownership of the product.  For
certain products, our customers take title upon delivery, at which time revenue
is then recognized.  Revenue includes selling price of the product and
all shipping costs paid by the customer.  Revenue is reduced at the
time of sale for estimated sales returns and all applicable allowances and
discounts based on historical experience.  We also provide for
estimates of warranty, bad debts, shipping costs and certain sales-related
customer programs at the time of sale.  Shipping and warranty costs
are included in cost of products sold.  Bad debt expense and
sales-related marketing programs are included in selling, general and
administrative expense.  We believe that our procedures for estimating
such amounts are reasonable and historically have not resulted in material
adjustments in subsequent periods when the estimates are reconciled to the
actual amounts.





Accounts
Receivable.  We maintain an allowance for doubtful accounts for
estimated losses from the inability of our customers to make required payments,
which is provided for in bad debt expense.  We determine the adequacy
of this allowance by regularly reviewing our accounts receivable aging and
evaluating individual customers’ receivables, considering customers’ financial
condition, credit history and other current economic conditions.  If a
customer’s financial condition were to deteriorate which might impact its
ability to make payment, then additional allowances may be
required.





Inventories.  Inventories
in the accompanying consolidated balance sheets are valued at the lower of cost
or market.  At June 28, 2008, and December 31, 2007 approximately
$11.5 million and $10.9 million of total inventories, respectively, were valued
on the last-in, first-out method, or “LIFO.”  Under the first-in,
first-out method, or “FIFO,” of accounting, such inventories would have been
approximately $3.7 million and $3.7 million higher at June 28, 2008 and December
31, 2007, respectively.  All other inventories were valued under the
FIFO method.  We record provisions, as appropriate, to write-down
obsolete and excess inventory to estimated net realizable
value.





-28-





The
process for evaluating obsolete and excess inventory often requires 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 the estimates at
the time such inventory is disposed or sold.





Asset Impairment.  In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, if a triggering event occurs, we would evaluate the
realizability of certain long-lived assets, which primarily consist of property
and equipment and purchased intangible assets subject to amortization, based on
expectations of non-discounted future cash flows for each asset group having a
material amount of long-lived assets.  If circumstances indicate a
potential impairment, and if the sum of the expected non-discounted future cash
flow is less than the carrying amount of all assets including SFAS No. 144
long-lived assets, we would recognize an impairment loss.  A drop in
projected cash flows due to price increases for raw materials and market wide
declines in the housing industry was determined to be a triggering event for an
impairment test during the first quarter of 2008.  The test results
did not indicate that an impairment existed at March 29, 2008.





Goodwill
Impairment.  In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets”, we perform an annual test for goodwill
impairment.  We assess 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 EBITDA 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 a
potential impairment.  A drop in projected cash flows due to price
increases for raw materials and market wide declines in the housing industry was
determined to be a triggering event for an impairment test during the first
quarter of 2008.  The test results did not indicate that an impairment
existed at March 29, 2008.





Insurance
Liabilities.  We record insurance liabilities and related
expenses for health, workers’ compensation, product and general liability losses
and other insurance expenses in accordance with either the contractual terms of
their policies or, if self-insured, the total liabilities that are estimable and
probable as of the reporting date.  Insurance liabilities are recorded
as current liabilities to the extent they are expected to be paid in the
succeeding year with the remaining requirements classified as long-term
liabilities.  The accounting for self-insured plans requires that
significant judgments and estimates be made both with respect to the future
liabilities to be paid for known claims and incurred but not reported claims as
of the reporting date.  The Company relies on historical trends when
determining the appropriate health insurance reserves to record in our
consolidated balance sheets. The Company relies heavily on the advice and
calculations of a third-party actuarial consultant (AON Global Risk Consulting)
when determining the appropriate insurance reserves to record in our
consolidated balance sheets for a substantial portion of our workers’
compensation and general and product liability losses.  In certain
cases where partial insurance coverage exists, the Company must estimate the
portion of the liability that will be covered by existing insurance
policies.





Income
Taxes.   We account for deferred income taxes using the
liability method in accordance with SFAS No. 109, “Accounting for Income Taxes,”
(SFAS No. 109), which requires that the deferred tax consequences of temporary
differences between the amounts recorded in our financial statements and the
amount included in our federal and state income tax returns be recognized in the
balance sheet.  Effective January 1, 2007, the Company adopted FASB
Interpretation No. 48, “Accounting for Uncertainties in Income Taxes” (FIN 48),
an interpretation of SFAS No. 109.  FIN 48 interprets and clarifies
SFAS No. 109 regarding the required accounting of and establishes specific
disclosures for uncertain tax positions taken or expected to be taken within an
entity’s income tax returns and recognized in an entity’s financial
statements.  FIN 48 prescribes the minimum financial statement
recognition threshold for tax benefits generated by deductions, non-filing of
tax returns or other tax positions taken or expected to be taken in an entity’s
tax returns. The amount recorded in our financial statements reflects estimates
of final amounts due to timing of completion and filing of actual income tax
returns.  Estimates are required with respect to, among other things,
the appropriate state income tax rates to use in the various states that we and
our 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.  We establish 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.





-29-





We
have executed a tax sharing agreement with Ply Gem Holdings, Inc. and Ply Gem
Investment Holdings, Inc. pursuant to which tax liabilities for each respective
party are computed on a stand-alone basis.  Our U.S. subsidiaries file
unitary, combined and separate state income tax returns.  CWD files
separate Canadian income tax returns.





Purchase
accounting.Business acquisitions are accounted for using the
purchase method of accounting. The cost of the acquired company is allocated to
identifiable tangible and intangible assets based on estimated fair value, with
the excess allocated to goodwill.









Results
of Operations





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


(Amounts
in thousands)







Three
      months ended
            
            
            Six
      months endedJune
      28,
            
            
            June
      30,
            
            
            June
      28,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      SalesSiding,
      Fencing and Railing
            
            $
            209,250
            
            
            $
            246,972
            
            
            $
            356,310
            
            
            $
            416,486Windows
      and Doors
            
            
            132,030
            
            
            
            143,723
            
            
            
            241,343
            
            
            
            259,483Operating
      earnings (loss)Siding,
      Fencing and Railing
            
            
            21,971
            
            
            
            37,123
            
            
            
            17,770
            
            
            
            36,708Windows
      and Doors
            
            
            1,235
            
            
            
            16,265
            
            
            
            (6,321
            )
            
            
            23,792Unallocated
            
            
            (2,333
            )
            
            
            (1,788
            )
            
            
            (4,860
            )
            
            
            (3,741
            )Foreign
      currency gain (loss)Windows
      and Doors
            
            
            56
            
            
            
            1,992
            
            
            
            (495
            )
            
            
            2,208Interest
      expense, netSiding,
      Fencing and Railing
            
            
            13
            
            
            
            49
            
            
            
            29
            
            
            
            75Windows
      and Doors
            
            
            (234
            )
            
            
            (488
            )
            
            
            (593
            )
            
            
            (753
            )Unallocated
            
            
            (50,737
            )
            
            
            (25,139
            )
            
            
            (73,265
            )
            
            
            (49,589
            )Income
      tax expense (benefit)Unallocated
            
            
            (10,536
            )
            
            
            10,744
            
            
            
            (26,400
            )
            
            
            2,294Net
      income (loss)
            
            $
            (19,493
            )
            
            $
            17,270
            
            
            $
            (41,335
            )
            
            $
            6,406







In view
of the seasonality of our business, it must be emphasized that the results of
operations for the periods presented are not necessarily indicative of the
results for a full fiscal year.




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.




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.








-30-








Siding,
Fencing and Railing Segment








For
      the three months ended(dollars
      in thousands)
            
            June 28, 2008
            
            
            June 30, 2007(unaudited)
            
            
            (unaudited)Statement
      of operations data:Net
      sales
            
            $
            209,250
            
            
            
            100
            %
            
            $
            246,972
            
            
            
            100
            %Cost
      of products sold
            
            
            164,272
            
            
            
            78.5
            %
            
            
            184,399
            
            
            
            74.7
            %Gross
      profit
            
            
            44,978
            
            
            
            21.5
            %
            
            
            62,573
            
            
            
            25.3
            %SG&A
      expense
            
            
            20,870
            
            
            
            10.0
            %
            
            
            23,244
            
            
            
            9.4
            %Amortization
      of intangible assets
            
            
            2,137
            
            
            
            1.0
            %
            
            
            2,206
            
            
            
            0.9
            %Operating
      earnings
            
            $
            21,971
            
            
            
            10.5
            %
            
            $
            37,123
            
            
            
            15.0
            %





Net
Sales





Net sales
for the three months ended June 28, 2008 decreased compared to the same period
in 2007 by approximately $37.7 million, or 15%.  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 of the
market and overall softness in repair and remodeling expenditures which
negatively impacted demand for our products.  According to the
National Association of Home Builders (“NAHB”), second quarter 2008 single
family housing starts are estimated to show a decline of approximately 28.1%
from actual levels achieved in the second quarter of 2007.  The new
construction sector of the market is expected to continue to be negatively
impacted during the balance of 2008 according to the NAHB’s July 8, 2008
forecast.  Additionally, according to the NAHB’s July 2008 forecast,
single family housing starts are expected to decline in 2008 by 35.4% as
compared to their full year 2007 estimate.  The decrease in net sales
that resulted from industry wide market demand declines was partially offset by
price increases that we implemented in response to increasing raw materials and
freight costs as discussed below in cost of products sold.





Cost of Products
Sold





Cost of
products sold for the three months ended June 28, 2008 decreased compared
to the same period in 2007 by approximately $20.1 million, or
11%.  The decrease in cost of products sold was due to lower sales as
discussed above, but was partially offset by higher raw material costs,
primarily PVC resin and aluminum, as well as higher freight costs driven by
higher oil costs.  Gross profit as a percentage of net sales for the
three months ended June 28, 2008 decreased from the same period in 2007 from
25.3% to 21.5%. The decrease in gross profit as a percentage of sales was driven
by lower unit sales volume and increased raw material and freight costs. We have
implemented selling price increases in response to higher raw material costs and
freight costs, however, our gross profit as a percentage of sales was negatively
impacted by the delay between the time of raw material and freight cost
increases and the price increases that we implemented.  Additionally,
in light of current market conditions for building products, the Company has
adjusted the size of its workforce and reduced its fixed overhead structure,
including reductions in certain fixed expenses related to the vinyl siding
plants in Atlanta, GA and Denison, TX, which ceased production in April of 2007
and February of 2008, respectively.  The Company expects to save
approximately $5.0 million and $10.0 million from the closure of the Atlanta, GA
and the Denison, TX facilities, respectively.





Selling, general and
administrative expense





SG&A
expense for the three months ended June 28, 2008 decreased by approximately $2.4
million, or 10%, from the same period in 2007. The decrease in SG&A expense
was primarily due to lower marketing costs and other fixed expenses that have
been reduced in light of current market conditions for building
products.








-31-








For
      the six months ended(dollars
      in thousands)
            
            June 28, 2008
            
            
            June 30, 2007(unaudited)
            
            
            (unaudited)Statement
      of operations data:Net
      sales
            
            $
            356,310
            
            
            
            100
            %
            
            $
            416,486
            
            
            
            100
            %Cost
      of products sold
            
            
            294,810
            
            
            
            82.7
            %
            
            
            331,984
            
            
            
            79.7
            %Gross
      profit
            
            
            61,500
            
            
            
            17.3
            %
            
            
            84,502
            
            
            
            20.3
            %SG&A
      expense
            
            
            39,456
            
            
            
            11.1
            %
            
            
            43,056
            
            
            
            10.3
            %Amortization
      of intangible assets
            
            
            4,274
            
            
            
            1.2
            %
            
            
            4,738
            
            
            
            1.1
            %Operating
      earnings
            
            $
            17,770
            
            
            
            5.0
            %
            
            $
            36,708
            
            
            
            8.8
            %








Net
Sales





Net sales
for the six months ended June 28, 2008 decreased compared to the same period in
2007 by approximately $60.2 million, or 14%.  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 of the
market and overall softness in repair and remodeling expenditures which
negatively impacted demand for our products. According to the NAHB, second
quarter 2008 single family housing starts are estimated to show a decline of
approximately 28.1% from actual levels achieved in the second quarter of
2007.  The new construction sector of the market is expected to
continue to be negatively impacted during the balance of 2008 according to the
NAHB’s July 8, 2008 forecast.  Additionally, according to the NAHB’s
July 2008 forecast, single family housing starts are expected to decline in 2008
by 35.4% as compared to their full year estimate for 2007.  The
decrease in net sales that resulted from industry wide market demand declines
was partially offset by price increases that we implemented in response to
increasing raw materials and freight costs as discussed below in cost of
products sold.





Cost of Products
Sold





Cost of
products sold for the six months ended June 28, 2008 decreased compared to
the same period in 2007 by approximately $37.2 million, or 11%.  The
decrease in cost of products sold was due to lower sales as discussed above, but
was partially offset by higher raw material costs, primarily PVC resin and
aluminum, as well as higher freight costs driven by higher oil
costs.  Gross profit as a percentage of net sales for the six months
ended June 28, 2008 decreased from the same period in 2007 from 20.3% to 17.3%.
The decrease in gross profit as a percentage of sales was driven by lower unit
sales volume and increased raw material and freight costs. We have implemented
selling price increases in response to higher raw material costs and freight
costs, however, our gross profit as a percentage of sales was negatively
impacted by the delay between the time of raw material and freight cost
increases and the price increases that we implemented.  Additionally,
in light of current market conditions for building products, the Company has
adjusted the size of its workforce and reduced its fixed overhead structure,
including reductions in certain fixed expenses related to the vinyl siding
plants in Atlanta, GA and Denison, TX, which ceased production in April of 2007
and February of 2008, respectively.  The Company expects to save
approximately $5.0 million and $10.0 million from the closure of the Atlanta, GA
and the Denison, TX facilities, respectively.





Selling, general and
administrative expense





SG&A
expense for the six months ended June 28, 2008 decreased by approximately $3.6
million, or 8%, from the same period in 2007. The decrease in SG&A expenses
was primarily due to lower marketing costs and other fixed expenses that have
been reduced in light of current market conditions for building
products.








-32-








Windows
and Doors Segment





For
      the three months ended(dollars
      in thousands)
            
            June 28, 2008
            
            
            June 30, 2007(unaudited)
            
            
            (unaudited)Statement
      of operations data:Net
      sales
            
            $
            132,030
            
            
            
            100
            %
            
            $
            143,723
            
            
            
            100
            %Cost
      of products sold
            
            
            106,821
            
            
            
            80.9
            %
            
            
            108,497
            
            
            
            75.5
            %Gross
      profit
            
            
            25,209
            
            
            
            19.1
            %
            
            
            35,226
            
            
            
            24.5
            %SG&A
      expense
            
            
            21,199
            
            
            
            16.1
            %
            
            
            16,865
            
            
            
            11.7
            %Amortization
      of intangible assets
            
            
            2,775
            
            
            
            2.1
            %
            
            
            2,096
            
            
            
            1.5
            %Operating
      earnings
            
            $
            1,235
            
            
            
            0.9
            %
            
            $
            16,265
            
            
            
            11.3
            %Currency
      transaction gain
            
            
            56
            
            
            
            0.0
            %
            
            
            1,992
            
            
            
            1.4
            %





Net
Sales





Net sales
for the three months ended June 28, 2008 decreased compared to the same period
in 2007 by approximately $11.7 million, or 8%. 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 above, 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 U.S.  The decrease in sales was
partially offset by sales from Pacific Windows which was acquired in September
2007 and increased sales in our Canadian window business.





Cost of Products
Sold





Cost of
products sold for the three months ended June 28, 2008 decreased by
approximately $1.7 million, or 2%, over the same period in 2007.  The
decrease in cost of products sold was due to lower sales as discussed above, but
was partially offset by the cost of products sold from Pacific Windows, which
was acquired in the fourth quarter of 2007.  Gross profit as a
percentage of net sales for the three months ended June 28, 2008 decreased from
the same period in 2007 from 24.5% to 19.1%.  The decrease in gross
profit percentage was driven by lower unit sales volume, increased raw material
and freight costs, as well as Pacific Windows which currently carries a lower
gross profit margin than the Company’s other window and door
products.





Selling, general and
administrative expense





SG&A
expense for the three months ended June 28, 2008 increased by approximately $4.3
million, or 26%, over the same period in 2007, primarily due to the addition of
Pacific Windows and reorganization expense incurred to integrate our U.S. window
companies into one operating group.  The reorganization expense is
primarily comprised of fees paid to third party consultants that are assisting
with  the reorganization and integration of our U.S. window group, as
well as severance cost related to positions that have been
eliminated.  The Company believes that the reorganization of our U.S.
window group will allow us to better serve our customers and markets, while
reducing our operating costs.





Amortization of intangible
assets





Amortization
expense for the three months ended June 28, 2008 increased by $0.7 million
primarily due to the acquisition of Pacific Windows.











-33-











For
      the six months ended(dollars
      in thousands)
            
            June 28, 2008
            
            
            June 30, 2007(unaudited)
            
            
            (unaudited)Statement
      of operations data:Net
      sales
            
            $
            241,343
            
            
            
            100
            %
            
            $
            259,483
            
            
            
            100
            %Cost
      of products sold
            
            
            200,549
            
            
            
            83.1
            %
            
            
            198,996
            
            
            
            76.7
            %Gross
      profit
            
            
            40,794
            
            
            
            16.9
            %
            
            
            60,487
            
            
            
            23.3
            %SG&A
      expense
            
            
            41,563
            
            
            
            17.2
            %
            
            
            32,497
            
            
            
            12.5
            %Amortization
      of intangible assets
            
            
            5,552
            
            
            
            2.3
            %
            
            
            4,198
            
            
            
            1.6
            %Operating
      earnings (loss)
            
            $
            (6,321
            )
            
            
            -2.6
            %
            
            $
            23,792
            
            
            
            9.2
            %Currency
      transaction gain/(loss)
            
            
            (495
            )
            
            
            -0.2
            %
            
            
            2,208
            
            
            
            0.9
            %








Net
Sales





Net sales
for the six months ended June 28, 2008 decreased compared to the same period in
2007 by approximately $18.1 million, or 7%. 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 above, 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 U.S.  The decrease in sales was
partially offset by the sales from Pacific Windows which was acquired in
September 2007 and increased sales in our Canadian window business.





Cost of Products
Sold





Cost of
products sold for the six months ended June 28, 2008 increased by approximately
$1.6 million, or 0.8%, over the same period in 2007.  The increase in
costs of products sold was attributable to Pacific Windows, which was acquired
in the fourth quarter of 2007, but was largely offset by a decrease in cost of
products sold driven by the lower sales levels. Gross profit as a percentage of
net sales for the six months ended June 28, 2008 decreased from the same period
in 2007 from 23.3% to 16.9%.  The decrease in gross profit percentage
was driven by lower unit sales volume, increased raw material and freight costs,
as well as Pacific Windows which currently carries a lower gross profit margin
than the Company’s other window and door products.





Selling, general and
administrative expense





SG&A
expense for the six months ended June 28, 2008 increased by approximately $9.1
million, or 28%, over the same period in 2007, primarily due to the addition of
Pacific Windows and reorganization expense incurred to integrate our U.S. window
companies into one operating group.  The reorganization expense is
primarily comprised of fees paid to third party consultants assisting with the
reorganization and integration of our U.S. window group, as well as severance
costs related to positions that have been eliminated.  The Company
believes that the reorganization of our U.S. window group will allow us to
better serve our customers and markets, while reducing our operating
costs.





Amortization of intangible
assets





Amortization
expense for the six months ended June 28, 2008 increased by $1.4 million
primarily due to the acquisition of Pacific Windows.








-34-








Unallocated
Operating Earnings, Interest, and Provision for Income Taxes





For
      the three months ended(dollars
      in thousands)
            
            June 28, 2008
            
            June 30, 2007(unaudited)
            
            (unaudited)Statement
      of operations data:Operating
      (loss)
            
            $
            (2,333
            )
            
            $
            (1,788
            )Interest
      expense
            
            
            (50,823
            )
            
            
            (25,292
            )Interest
      income
            
            
            86
            
            
            
            153Income
      tax provision (benefit)
            
            
            (10,536
            )
            
            
            10,744








Operating
earnings (loss)    Unallocated operating loss for the
three months ended June 28, 2008 increased by approximately $0.5 million
over the same period in 2007.  The increase was driven by higher
salary and travel and entertainment expenses primarily due to the addition of a
corporate marketing department combined with costs incurred in the second
quarter of 2008 to initiate the transition of back office functions to a
centralized corporate office.





Interest
expense    Interest expense for the three months
ended June 28, 2008 increased by approximately $25.5 million over the same
period in 2007, primarily due to approximately $27.6 million of interest costs
incurred in the second quarter of 2008 related to the issuance of new debt
(approximately $14.0 million deferred financing costs associated with previous
debt, approximately $6.8 million for a prepayment premium, and approximately
$6.8 million of bank amendment fees that was subsequently
retired).  Financing costs of approximately $1.1 million were included
in interest expense recorded in same period in 2007.   Interest
expense also increased by approximately $4.6 million due to interest on the
$700.0 million bonds issued June 9, 2008. This increase was offset by a decrease
of approximately $5.6 million due to a lower variable interest rate on the
Company’s previous term loan and the retirement of the term loan debt effective
June 9, 2008.





Income
taxes   The income tax provision (benefit) for the three
months ended June 28, 2008 changed by approximately $21.3 million from a tax
provision in 2007 to a tax benefit in 2008, primarily as a result of the larger
pre-tax loss for the 2008 period versus the 2007 period.  The
Company’s effective tax rate for the quarter was 35.09%, which is consistent
with our expectations for the full fiscal year.








For
      the six months ended(dollars
      in thousands)
            
            June 28, 2008
            
            June 30, 2007(unaudited)
            
            (unaudited)Statement
      of operations data:Operating
      (loss)
            
            $
            (4,860
            )
            
            $
            (3,741
            )Interest
      expense
            
            
            (73,512
            )
            
            
            (50,037
            )Interest
      income
            
            
            247
            
            
            
            448Income
      tax provision (benefit)
            
            
            (26,400
            )
            
            
            2,294





Operating
earnings (loss)    Unallocated operating loss for the
six months ended June 28, 2008 increased by approximately $1.1 million over
the same period in 2007.  The increase was driven by higher salary and
travel and entertainment expenses primarily due to the addition of a corporate
marketing department combined with costs incurred in the second quarter of 2008
to initiate the transition of back office functions to a centralized corporate
office.





Interest
expense    Interest expense for the six months ended
June 28, 2008 increased by approximately $23.5 million over the same period in
2007, primarily due to approximately $27.6 million of interest costs incurred in
the second quarter of 2008 related to the issuance of new debt (approximately
$14.0 million deferred financing costs associated with previous debt,
approximately $6.8 million for a prepayment premium, and approximately $6.8
million of bank amendment fees that was subsequently retired). Financing costs
of approximately $1.1 million were included in interest expense recorded in same
period in 2007.  Interest expense also increased by approximately $4.6
million due to interest on the $700.0 million bonds issued June 9, 2008.





-35-





This
increase was offset by a decrease of approximately $7.6 million due to a lower
variable interest rate on the Company’s previous term loan and the retirement of
the term loan debt effective June 9, 2008.








Income
taxes   The income tax provision (benefit) for the six
months ended June 28, 2008 changed by approximately $28.7 million from a tax
provision in 2007 to a tax benefit in 2008, primarily as a result of the larger
pre-tax loss for the 2008 period versus the 2007 period.  The benefit
for the first quarter of 2008 included approximately $0.7 million of adjustments
to correct for recent legislative changes in Canada that impact the future
settlement of deferred taxes.  Excluding these adjustments, our
effective tax rate for the quarter was 38.98%, which is consistent with our
expectations for the full fiscal year.








Liquidity
and Capital Resources





Our
primary cash needs are for working capital, capital expenditures and debt
service.  We have historically financed these cash requirements
through internally generated cash flow and funds borrowed under our credit
facilities.





Net cash
used in operating activities for the first six months of 2008 and 2007 was
approximately $65.1 million and $13.4 million, respectively.  The
increase in net cash used in operating activities for the 2008 period compared
to the 2007 period was primarily driven by a higher net loss of approximately
$47.7 million resulting primarily from a declining housing market and the write
off of approximately $14.0 million deferred financing costs associated with
previous debt.  The higher net loss was offset by increased
depreciation and amortization of approximately $5.1 million.





Net cash
provided by (used in) investing activities for the first six months of 2008 and
2007 was approximately $1.6 million and ($7.4) million,
respectively.  Net cash provided by investing activities for the 2008
period consisted of approximately $8.8 million from the sale of assets,
partially offset by capital expenditures of approximately $7.0
million.  Net cash used for capital expenditures was approximately
$7.2 million for the 2007 period.





At
December 31, 2007, the Company had approximately $1,038.1 million of
indebtedness and approximately $70.8 million of availability under the revolving
credit portion of its credit facility, including senior credit facilities and
Senior Subordinated Notes due 2012.  These credit facilities and the
indenture for the Senior Subordinated Notes due 2012 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.  As a result, on May 23, 2008 the senior credit
facility was amended and subsequently paid off on June 9, 2008 with the proceeds
from the Senior Secured Notes offering.





Net cash
provided by financing activities for the first six months of 2008 and 2007 was
approximately $59.9 million and $11.5 million, respectively.  Net cash
provided by financing activities for the first six months of 2008 included
proceeds from the issuance on June 9, 2008 of $700.0 million of Senior Secured
Notes issued at an approximate 1.0% discount yielding proceeds of $693.5
million.  The initial notes and the exchange notes will mature on June
15, 2013 and bear interest at the rate of 11.75% per annum which will
require annual interest payments of approximately $82.0 million. We used
the proceeds from the initial issuance of the Senior Secured Notes to repay all
of the outstanding indebtedness at June 9, 2008 under our existing senior
secured credit facility of approximately $676.2 million.





In
connection with the issuance of the Senior Secured Notes, Ply Gem Industries
entered into a Registration Rights Agreement. Ply Gem Industries will file a
registration statement within 180 days after the date of the initial issuance
and anticipates consummating a registered exchange offer for the Senior Secured
Notes within 280 days after the initial issuance.








-36-








Concurrently
with the Senior Secured Notes offering, we 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 $135.0 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 by CWD.  The ABL Facility will,
however, mature on October 15, 2011 if Ply Gem Industries’ 9% Senior
Subordinated Notes due 2012 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.  Until the administrative agent and collateral agent under
the ABL Facility have completed a collateral audit which is scheduled to be
completed in August 2008, availability under the ABL Facility is limited to
$75.0 million.





Net cash
provided by financing activities for the first six months of 2008 included debt
issuance costs of $24.8 million related to the $700.0 million offering of Senior
Secured Notes on June 9, 2008 and the entry into the ABL
Facility.  Also included in cash provided by financing activities for
the first six months of 2008 was a $30.0 million cash equity contribution that
Ply Gem received from CI Capital Partners LLC as a condition to Ply Gem’s
amendment of its prior credit facility on May 23, 2008.





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 June 28, 2008, we had approximately $1,093.7 million
of indebtedness and $31.1 million of availability 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.








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 $7.3 million, including net
interest of approximately $0.4 million.  The timing of the potential
tax payments is unknown.





As
discussed in the liquidity section, Ply Gem Industries issued $700.0 million of
Senior Secured Notes on June 9, 2008 which will mature on June 15,
2013.  Ply Gem Industries used the proceeds to repay all of the
outstanding indebtedness under their existing senior term facilities of
approximately $691.2 million.  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 for financing of up to $135.0 million which will mature in 2013 or on
October 15, 2011 if Ply Gem Industries Senior Subordinated Notes due 2012 are
not refinanced by such date.





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.





-37-










Recent
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)”. This standard requires employers
to recognize the underfunded or overfunded status of each pension and
postretirement benefit plan as an asset or liability in its balance sheet and to
recognize changes in the funded status in the year in which the changes occur
through accumulated other comprehensive income, which is a component of
stockholders’ equity.  SFAS No. 158 does not change the amount of
actuarially determined expense that is recorded in the consolidated statement of
income. The new reporting requirements and related new footnote disclosure rules
of SFAS No. 158 were effective for our December 31, 2007 financial
statements.  Additionally, SFAS No. 158 requires employers to measure
the funded status of a plan as of its year-end balance sheet.  For our
financial statements as of December 31, 2008, we will change our September 30
measurement date for our plans’ assets and obligations to comply with this
requirement. The Company is currently evaluating the impact of the measurement
date change.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”.  SFAS No. 159
permits entities to choose to measure certain financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS No. 159
is effective for fiscal years beginning January 1, 2008, however the Company did
not elect the option to report any of the selected financial assets and
liabilities at fair value.





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 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 impact to the company from the
adoption of SFAS 141(R) in 2009 will depend on acquisitions at the time.
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.





In
December 2007, the FASB issued SFAS No. 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 Company is currently evaluating the impact that the
implementation of SFAS No. 160 will have on its 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 our balance sheet, results of
operations, or cash flows.





-38-










Special
Note Regarding Forward-Looking Statements






This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those discussed
in, or implied by, these forward-looking statements. Forward-looking statements
are identified by words such as “believe,” “anticipate,” “expect,” “intend,”
“plan,” “will,” “may” and other similar expressions. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The following factors
could cause our actual results to differ materially from those implied by the
forward-looking statements in this Quarterly Report:






·
            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 new 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 2007 Annual Report on
Form 10-K.  We undertake no obligation to update the forward-looking
statements in this filing.















Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK







Our principal interest rate exposure
relates to the loans outstanding under our ABL Facility, which provides for
borrowings of up to $135.0 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 $0.2 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.





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 June 28, 2008, the net
impact of foreign currency changes to the Company’s results of operations was a
gain of $0.1 million, and for the six months ended June 28, 2008, the net impact
of foreign currency changes to the Company’s results of operations was a loss of
$0.5 million.  The impact of foreign currency changes related to
translation resulted in an decrease in stockholders’ equity of approximately
$0.6 million for the six months ended June 28, 2008.  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.  For the six months ended June 28, 2008, we
did not have any outstanding foreign currency hedging contracts.


-39-








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.
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures as of June
28, 2008 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. There have
been no changes in our internal controls over financial reporting during the
three month period ended June 28, 2008, that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.


















-40-










PART
II - OTHER INFORMATION








Item
1A.     RISK FACTORS





Downturns
in the home repair and remodeling and new home construction sectors or the
economy could lower the demand for, and pricing of, our products, which in turn
could cause our net sales and net income to decrease.





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 the availability of consumer credit.  Current market forecasts
indicate that single family housing starts for the new construction market and
home repair and remodeling expenditures will decline in 2008 as compared to the
levels for 2007.  If these market forecasts are correct, our net sales
and net income may be adversely affected.





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





Our cost
of products sold may be significantly impacted by market prices for our primary
raw materials which are PVC resin and aluminum.  Current market
forecasts indicate that market prices for these raw materials will increase in
2008 as compared to market levels in 2007.  In addition, increases in
fuel cost can negatively impact our cost to deliver our products to our
customers and thus increase our cost of products sold.  Fuel costs are
currently forecasted to increase over levels in 2007.  If these market
forecasts are correct, and we are unable to increase the selling price of our
products to our customers, net income may be adversely affected.











Item
6.                                EXHIBITS





(a)                 Exhibits








Exhibit
No.                                        
Description of
Exhibit





*
      4.1
            Indenture,
      dated as of June 9, 2008, among Ply Gem Industries, Inc., the Guarantors
      named therein and U.S. Bank National Association, as Trustee and
      Noteholder Collateral Agent.*
      4.2
            Registration
      Rights Agreement, dated June 9, 2008, among Ply Gem Industries, Inc., the
      Guarantors party thereto and the initial purchasers named in the purchase
      agreement.*
      4.3
            Credit
      Agreement, dated June 9, 2008, among Ply Gem Industries, Inc., Ply Gem
      Holdings, Inc., CWD Windows and Doors, Inc., the other borrowers named
      therein, Credit Suisse, as Administrative Agent, U.S. Swing Line Lender
      and U.S. L/C Issuer, General Electric Capital Corporation, as Collateral
      Agent, Credit Suisse, Toronto Branch, as Canadian Swing Line Lender and
      Canadian L/C Issuer, the other lenders party thereto, Credit Suisse
      Securities (USA) LLC, as Sole Lead Arranger and Sole Bookrunner, and
      General Electric Capital Corporation, as Syndication Agent, and UBS Loan
      Finance LLC, as Documentation
Agent.





-41-








*
      4.4
            Lien
      Subordination and Intercreditor Agreement, dated as of June 9, 2008, among
      General Electric Capital Corporation, as Collateral Agent, U.S. Bank
      National Association, as Trustee and Noteholder Collateral Agent, Ply Gem
      Industries, Inc., Ply Gem Holdings, Inc. and the subsidiaries of Ply Gem
      Industries, Inc. listed on Schedule I thereto.*
      4.5
            Collateral
      Agreement, dated June 9, 2008, among Ply Gem Industries, Inc., Ply Gem
      Holdings, Inc., the Guarantors named therein and U.S. Bank National
      Association, as Noteholder Collateral Agent.*
      4.6
            Intellectual
      Property Collateral Agreement, dated June 9, 2008, by Ply Gem Industries,
      Inc., Ply Gem Holdings, Inc. and the subsidiaries of Ply Gem Industries,
      Inc. listed on the Annex thereto in favor of U.S. Bank National
      Association, as Noteholder Collateral Agent.*
      4.7
            U.S.
      Security Agreement, dated as of June 9, 2008, among Ply Gem Industries,
      Inc., Ply Gem Holdings, Inc., the subsidiaries of Ply Gem Industries, Inc.
      party thereto, General Electric Capital Corporation, as Collateral Agent,
      and Credit Suisse Securities (USA) LLC, as Administrative
      Agent.*
      4.8
            U.S.
      Guaranty, dated as of June 9, 2008, among Ply Gem Industries, Inc., Ply
      Gem Holdings, Inc., the subsidiaries of Ply Gem Industries, Inc. from time
      to time party thereto and and General Electric Capital Corporation, as
      Collateral Agent.*
      4.9
            Intellectual
      Property Security Agreement, dated June 9, 2008, by Ply Gem Industries,
      Inc., Ply Gem Holdings, Inc. and the subsidiaries of Ply Gem Industries,
      Inc. listed on the Annex thereto in favor of General Electric Capital
      Corporation, as Collateral Agent.*
      4.10
            Canadian
      Security Agreement, dated as of June 9, 2008, by CWD Windows and Doors,
      Inc. to General Electric Capital Corporation, as Collateral
      Agent.*
      4.11
            Intellectual
      Property Security Agreement, dated June 9, 2008, by CWD Windows and Doors,
      Inc. in favour of General Electric Capital Corporation, as Collateral
      Agent.*
      4.12
            Fourth
      Supplemental Indenture, dated as of May 29, 2008, among Ply Gem
      Industries, Ply Gem Pacific Windows Corporation and U.S. Bank National
      Association, as trustee.*
      10.1
            Purchase
      Agreement, dated June 2, 2008, among Ply Gem Holdings, Inc., Ply Gem
      Industries, Inc., each of the direct and indirect domestic subisdiaries of
      Ply Gem Industries, Inc. and the initial purchasers named
      therein.*  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.










-42-








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:  August
11, 2008





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











Date:  August
11, 2008





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








-43-