**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 FORM
        10-Q
 
 
 [X] QUARTERLY
        REPORT PURSUANT TO SECTION 13 or 15(d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        quarterly period ended October 1, 2005
 
 or
 [  ] TRANSITION
        REPORT PURSUANT TO SECTION 13 or 15(d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
  For
        the transition period from
        _____________ to _____________.
 
 Commission
        File Number: 333-114041
 
 
 **PLY
        GEM HOLDINGS, INC.**
 (Exact
        name of registrant as specified in its charter)
 
 
 Delaware
              3089
              20-0645710(State
                  or other jurisdiction of incorporation or organization)
              (Primary
                  Standard Industrial Classification Code Number)
              (I.R.S.
                  Employer Identification No.)
 
 185
        Platte Clay Way
 Kearney,
        Missouri 64060
 
 Registrant's
        telephone number, including area code: 800-800-2244
 
 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 [X]  No [
        ]
 
 Indicate
        by check mark whether registrant is an accelerated filer (as defined in Rule
        12b-2 of the Act). Yes[ ] No [X]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes [ ]  No [X
        ]
 
 As
        of
        November 14, 2005, there were 100 shares of common stock, $0.01 par value,
        outstanding.
  
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **FORM
        10-Q**
 **QUARTERLY
        PERIOD ENDED OCTOBER 1, 2005**
 
 **CONTENTS**
 
 
 **PART
        I - FINANCIAL INFORMATION**
 
 Item
                    1.Condensed
                    Consolidated Financial StatementsCondensed
                    Consolidated Statements of Operations -Three
                    months ended October 1, 2005 and October 2, 2004
                2Condensed
                    Consolidated and Combined Statements of Operations -Nine
                    months ended October 1, 2005 and October 2, 2004
                3Condensed
                    Consolidated Balance Sheets -October
                    1, 2005 and December 31, 2004
                4Condensed
                    Consolidated and Combined Statements of Cash Flows -Nine
                    months ended October 1, 2005 and October 2, 2004
                5Notes
                    to Condensed Consolidated and Combined Financial Statements
                6Item
                    2.Management’s
                    Discussion and Analysis of Financial ConditionAnd
                    Results of Operations
                28Item
                    3.Quantitative
                    and Qualitative Disclosures about Market Risk
                38Item
                    4.Controls
                    and Procedures
                38**PART
                    II - OTHER INFORMATION**Item
                    5.Other
                    Information
                39Item
                    6.Exhibits
                39Signatures
                40
 
 
  1
  
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1.**  **FINANCIAL
        STATEMENTS**
 
 **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 
 
 **For
                  the Three Months Ended**October
                  1, 2005
              October
                  2, 2004(Amounts
                  in thousands)Net
                  Sales
              
              
              
              
              $
              225,515
              
              
              
              
              $
              178,732Costs
                  and Expenses:Cost
                  of products sold
              
              
              
              
              
              170,472
              
              
              
              
              
              132,771Selling,
                  general and administrative expense
              
              
              
              
              
              21,194
              
              
              
              
              
              19,395Amortization
                  of intangible assets
              
              
              
              
              
              2,439
              
              
              
              
              
              1,974Total
                  Costs and Expenses
              
              
              
              
              
              194,105
              
              
              
              
              
              154,140Operating
                  earnings
              
              
              
              
              
              31,410
              
              
              
              
              
              24,592Foreign
                  currency gain
              
              
              
              
              
              1,282
              
              
              
              
              
              1,596Interest
                  expense
              
              
              
              
              
              (14,482
              )
              
              
              
              
              (10,577
              )Investment
                  income
              
              
              
              
              
              244
              
              
              
              
              
              61Income
                  before provision for income taxes
              
              
              
              
              
              18,454
              
              
              
              
              
              15,672Provision
                  for income taxes
              
              
              
              
              
              7,183
              
              
              
              
              
              6,101Net
                  income
              
              
              
              
              $
              11,271
              
              
              
              
              $
              9,571
 
 See
        accompanying notes to consolidated financial statements.
 
  2
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
  
 
 Consolidated
              
              Consolidated
              
              CombinedPly
                  Gem
              
              Ply
                  Gem
              
              Ply
                  GemHoldings,
                  Inc.
              
              Holdings,
                  Inc.
              
              Industries,
                  Inc.January
                  1, 2005
              
              January
                  23, 2004
              
              January
                  1, 2004to
              
              to
              
              toOctober
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004(Amounts
                  in thousands)Net
                  Sales
              
              $
              627,553
              
              $
              404,507
              
              $
              40,612Costs
                  and Expenses:Cost
                  of products sold
              
              
              483,080
              
              
              303,986
              
              
              33,611Selling,
                  general and administrative expense
              
              
              67,928
              
              
              45,085
              
              
              8,345Amortization
                  of intangible assets
              
              
              7,320
              
              
              3,000
              
              
              201Total
                  Costs and Expenses
              
              
              558,328
              
              
              352,071
              
              
              42,157Operating
                  earnings
              
              
              69,225
              
              
              52,436
              
              
              (1,545
              )Foreign
                  currency gain
              
              
              745
              
              
              1,596
              
              
              -Interest
                  expense
              
              
              (43,157
              )
              
              (23,601
              )
              
              (3,684
              )Investment
                  income
              
              
              467
              
              
              81
              
              
              29Income
                  (loss) before provision (benefit) forincome
                  taxes
              
              
              27,280
              
              
              30,512
              
              
              (5,200
              )Provision
                  (benefit) for income taxes
              
              
              10,756
              
              
              11,740
              
              
              (1,850
              )Net
                  income (loss)
              
              $
              16,524
              
              $
              18,772
              
              $
              (3,350
              )
 
 
 See
        accompanying notes to consolidated financial statements.
 
  3
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED** **** **CONSOLIDATED
        BALANCE SHEETS**
 
 October
                  1,
              
              December
                  31,2005
              
              2004(Amounts
                  in thousands, exceptshare
                  amounts)(Unaudited)**ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              25,834
              
              $
              6,794Accounts
                  receivable, less allowances of $8,385 and $7,940, respectively
              
              
              97,877
              
              
              65,217Inventories:Raw
                  materials
              
              
              32,578
              
              
              30,505Work
                  in process
              
              
              5,082
              
              
              4,260Finished
                  goods
              
              
              22,506
              
              
              26,731Total
                  inventory
              
              
              60,166
              
              
              61,496Prepaid
                  expenses and other current assets
              
              
              12,629
              
              
              9,796Deferred
                  income taxes
              
              
              14,273
              
              
              18,356Total
                  current assets
              
              
              210,779
              
              
              161,659**Property
                  and Equipment:**Land
              
              
              2,021
              
              
              7,257Buildings
                  and improvements
              
              
              15,362
              
              
              46,491Machinery
                  and equipment
              
              
              112,334
              
              
              105,162129,717
              
              
              158,910Less
                  accumulated depreciation
              
              
              (22,916
              )
              
              (11,874
              )Total
                  property and equipment, net
              
              
              106,801
              
              
              147,036**Other
                  Assets:**Goodwill
              
              
              577,987
              
              
              585,150Intangible
                  assets, less accumulated amortization of $13,066 and $5,743,respectively
              
              
              155,334
              
              
              162,657Other
              
              
              39,791
              
              
              47,797Total
                  other assets
              
              
              773,112
              
              
              795,604$
              1,090,692
              
              $
              1,104,299**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities:**Current
                  maturities of long-term debt
              
              $
              1,947
              
              $
              2,784Accounts
                  payable
              
              
              52,006
              
              
              34,600Accrued
                  expenses and taxes
              
              
              53,726
              
              
              61,944Total
                  current liabilities
              
              
              107,679
              
              
              99,328Deferred
                  income taxes
              
              
              68,074
              
              
              72,356Other
                  long term liabilities
              
              
              26,467
              
              
              32,401Long-term
                  debt, less current maturities
              
              
              675,020
              
              
              704,807**Stockholders'
                  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
              
              
              175,687
              
              
              175,427Retained
                  earnings
              
              
              34,206
              
              
              17,682Accumulated
                  other comprehensive income
              
              
              3,559
              
              
              2,298Total
                  Stockholders' Equity
              
              
              213,452
              
              
              195,407$
              1,090,692
              
              $
              1,104,299See
                  accompanying notes to consolidated financial statements.
 
  4
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED** **** **CONSOLIDATED
        AND COMBINED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
   Consolidated
              
              Consolidated
              
              CombinedPly
                  Gem
              
              Ply
                  Gem
              
              Ply
                  GemHoldings,
                  Inc.
              
              Holdings,
                  Inc.
              
              Industries,
                  Inc.January
                  1, 2005
              
              January
                  23, 2004
              
              January
                  1, 2004to
              
              to
              
              toOctober
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004(Amounts
                  in thousands)**Cash
                  flows from operating activities:**Net
                  income (loss)
              
              $
              16,524
              
              $
              18,772
              
              $
              (3,350
              )**Adjustments
                  to reconcile net income****(loss)
                  to cash provided by****operating
                  activities:**Depreciation
                  and amortization expense
              
              
              19,496
              
              
              10,448
              
              
              1,373Write-off
                  of inventory
              
              
              -
              
              
              1,974
              
              
              -Non-cash
                  interest expense, net
              
              
              3,669
              
              
              2,111
              
              
              26Gain
                  on foreign currency transactions
              
              
              (745
              )
              
              (1,596
              )
              
              -Deferred
                  income taxes
              
              
              8,228
              
              
              1,027
              
              
              (1,710
              )**Changes
                  in operating assets and****liabilities,
                  net of effects from****acquisitions:**Accounts
                  receivable, net
              
              
              (32,271
              )
              
              (27,043
              )
              
              1,869Inventories
              
              
              1,556
              
              
              (2,245
              )
              
              (3,224
              )Prepaid
                  expenses and other current assets
              
              
              (2,532
              )
              
              2,512
              
              
              (260
              )Accounts
                  payable
              
              
              17,228
              
              
              8,874
              
              
              7,765Accrued
                  expenses and taxes
              
              
              (10,516
              )
              
              13,497
              
              
              (1,339
              )Other
              
              
              35
              
              
              (83
              )
              
              498**Net
                  cash provided by****operating
                  activities**
              
              
              20,672
              
              
              28,248
              
              
              1,648**Cash
                  flows from investing activities:**Capital
                  expenditures
              
              
              (7,591
              )
              
              (3,477
              )
              
              (718
              )Change
                  in restricted cash
              
              
              -
              
              
              -
              
              
              1,118Proceeds
                  from sale leaseback
              
              
              -
              
              
              36,000
              
              
              -Acquisitions,
                  net of cash acquired
              
              
              380
              
              
              (881,298
              )
              
              -Other
              
              
              -
              
              
              -
              
              
              (5
              )**Net
                  cash provided by (used in)****investing
                  activities**
              
              
              (7,211
              )
              
              (848,775
              )
              
              395**Cash
                  flows from financing activities:**Proceeds
                  from long-term debt
              
              
              35,500
              
              
              690,934
              
              
              -Payments
                  on long-term debt
              
              
              (30,381
              )
              
              (16,874
              )
              
              (89
              )Net
                  transfers to former parent
              
              
              -
              
              
              -
              
              
              (7,362
              )Equity
                  contribution (distribution)
              
              
              261
              
              
              167,007
              
              
              -**Net
                  cash provided by (used in)****financing
                  activities**
              
              
              5,380
              
              
              841,067
              
              
              (7,451
              )Impact
                  of exchange rate movements on cash
              
              
              199
              
              
              -
              
              
              -Net
                  increase (decrease) in cash andcash
                  equivalents
              
              
              19,040
              
              
              20,540
              
              
              (5,408
              )Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              6,794
              
              
              -
              
              
              8,517Cash
                  and cash equivalents at theend
                  of the period
              
              $
              25,834
              
              $
              20,540
              
              $
              3,109See
                  accompanying notes to consolidated financial statements.
 
  5
  **NOTES
        TO CONDENSED CONSOLIDATED AND COMBINED 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”, the “Company”, “we”, “us”, or
“our”) and the combined financial statements of Ply Gem Industries, Inc. and CWD
        Windows and Doors (“Ply Gem Industries, Inc.”) 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 2004
        Annual
        Report on Form 10-K filed with the Securities and Exchange Commission on
        March
        31, 2005. 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 2004 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, 2005 through October 1, 2005 are not necessarily
        indicative of the results that may be expected for the year ended December
        31,
        2005.
 
 The
        condensed consolidated balance sheet at December 31, 2004 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 exactly comparable to the prior and subsequent fiscal
        quarters.
 
 Ply
        Gem
        Holdings, Inc., a wholly owned subsidiary of Ply Gem Investment Holdings,
        Inc.,
        was incorporated on January 23, 2004 for the purpose of acquiring Ply Gem
        Industries, Inc. from Nortek, Inc. (the “Ply Gem Acquisition”). The Ply Gem
        Acquisition was completed on February 12, 2004, as Nortek, Inc. sold Ply
        Gem
        Industries, Inc., to Ply Gem Holdings, Inc., an affiliate of Caxton-Iseman
        Capital, Inc., pursuant to the terms of the Stock Purchase Agreement among
        Ply
        Gem Investment Holdings, Inc., Nortek, Inc., and WDS LLC dated as of December
        19, 2003, as amended (the “Purchase Agreement” ). Prior to
        February 12, 2004, the date of the Ply Gem Acquisition, Ply Gem Holdings,
        Inc.
        had no operations and Ply Gem Industries, Inc. was wholly owned by a
        subsidiary  of
        WDS
        LLC, which was a wholly owned subsidiary of Nortek, Inc. (collectively with
        subsidiaries “Nortek”).
 
 On
        August
        27, 2004 Ply Gem Industries, Inc. acquired all of the outstanding shares
        of
        capital stock of MWM Holding, Inc., (“MWM Holding”), in accordance with a stock
        purchase agreement entered into among Ply Gem Industries, Inc., MWM Holding,
        Inc., and the selling stockholders (the “MW Acquisition”). The accompanying
        financial statements include the operating results of MWM Holding from August
        27, 2004, the date of acquisition.
 
 The
        accompanying financial statements include the consolidated results of operations
        for the Company for the period from January 23, 2004 to October 2, 2004 and
        January 1, 2005 to October 1, 2005, and
        the
        combined results
        of operations of Ply Gem Industries, Inc. for the period from January 1,
        2004 to
        February 11, 2004, consolidated results of operations for the three month
        periods ended October 1, 2005 and October 2, 2004, and consolidated financial
        position for the Company as of
        October 1, 2005 and December 31, 2004. The periods presented for 2004 provide
        the combined operating results of Ply Gem Industries, Inc. from the beginning
        of
        the year, January 1, 2004, until the date of the Ply Gem Acquisition, February
        12, 2004 (see Note 2), as well as the consolidated operating results from
        the
        date of inception of Ply Gem Holdings, Inc., January 23, 2004, through the
        end
        of the third quarter, October 2, 2004. Ply
        Gem
        Holdings, Inc. had no operations during the period from January 23 to February
        11, 2004.
  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.
  6
 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 and
        unemployment.
 
  **Principles
        of Consolidation and Combination**
 
 The
        consolidated and combined financial statements include the accounts of Ply
        Gem
        Holdings, Inc. and its subsidiaries, all of which are wholly owned, or Ply
        Gem
        Industries, Inc. and its subsidiaries combined with CWD Windows and Doors,
        a
        division of Broan-Nutone Canada, Inc. All intercompany accounts and transactions
        have been eliminated.
 
 **Accounting
        Policies and Use of Estimates**
 
 The
        preparation of these consolidated and combined 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 October 1, 2005 and December 31, 2004, approximately $13.1
        million
        and $11.7 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 $1.3
        million higher at October 1, 2005 and $1.2 million higher at December 31,
        2004.
        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 able to be sold in the normal course of business. Accelerating
        the disposal process or incorrect estimates of future sales potential may
        cause
        the actual results to differ from the estimates at the time such inventory
        is
        disposed or sold .
 
 
 
 7
 
 **Related
        Party Transactions**
  Included
        in the combined statement of operations in selling, general and administrative
        expense are former parent company (Nortek) corporate charges of approximately
        $0.3 million for the period from January 1, 2004 to February 11, 2004, related
        to accounting, legal, insurance, treasury and other management services provided
        by Nortek, which have been allocated based upon a combination of the specific
        identification method and as a percentage of Ply Gem Industries, Inc.’s net
        sales to Nortek’s consolidated net sales. In the opinion of the Company’s
        management, this method of allocating such costs was reasonable. Included
        in
        interest expense is approximately $3.5 million for the period from January
        1,
        2004 to February 11, 2004 related to interest owed to a subsidiary which
        was
        wholly owned by Nortek.
  Upon
        completion of the Ply Gem Acquisition, the Company entered into two advisory
        agreements with an affiliate of Caxton-Iseman Capital or related parties,
        or the
“Caxton-Iseman Party”, which we refer to as the “Debt Financing Advisory
        Agreement” and the “General Advisory Agreement”. Under the Debt Financing
        Advisory Agreement, we paid the Caxton-Iseman Party a debt financing arrangement
        and advisory fee, equal to 2.375% of the aggregate amount of the debt financing
        incurred in connection with the Ply Gem Acquisition ($11.4 million), in the
        first quarter of 2004. Also under the Debt Financing Advisory Agreement,
        we paid
        the Caxton-Iseman Party $6.4 million in the fourth quarter of 2004 in connection
        with the MW acquisition. Both of the amounts paid under the Debt Financing
        Advisory Agreement were capitalized as a portion of the Company’s Deferred
        Financing asset and are being amortized over the life of the debt obligations.
        Under the General Advisory Agreement, the Company paid a management fee to
        the
        Caxton-Iseman Party of approximately $1.3 million for the period from January
        23, 2004 to October 2, 2004, and approximately $1.8 million for the period
        from
        January 1, 2005 to October 1, 2005. Management fees of $0.6 million and $0.8
        million were paid for the three month periods ended October 2, 2004 and October
        1, 2005, respectively. All of the payments made under the General Advisory
        Agreement have been expensed as incurred.
   **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
        period January 1, 2005 to October 1, 2005, the Company recorded a gain from
        foreign currency transactions of approximately $0.7 million. As of October
        1,
        2005, and December 31, 2004 accumulated other comprehensive income included
        a
        currency translation adjustment of approximately $3.8 million and $2.6 million,
        respectively.
 
 **Stock
        Options**
  On
        February 12, 2004, Ply Gem Investment Holdings, Inc.’s Board of Directors
        adopted the 2004 Stock Option Plan (the “Plan”) providing for grants of up to
        140,494 shares of Ply Gem Investment Holdings, Inc.’s common stock under
        nonqualified stock options. The Board of Directors subsequently increased
        the
        grants provided under the plan up to 184,065 shares on November 30, 2004.
        Employees of Ply Gem Investment Holdings, Inc. or any majority-owned subsidiary
        are eligible for awards, as specified in the Plan. Ply Gem Investment Holdings,
        Inc.’s Board of Directors or Compensation Committee retains the right to select
        the grantees and set the term of each award, which may not be more than ten
        years. Ply Gem Investment Holdings, Inc.’s Board of Directors also has the power
        to determine the terms of the awards granted, including the number of shares
        subject to each award and other matters as specified in the Plan agreement.
        Generally, the exercise price of an option must be at least the estimated
        fair
        market value of a share as of the grant date. Previously granted awards
        generally vest over five years from the date of grant.
 
 8
 For
        the
        periods January 23, 2004 through October 2, 2004, and January 1, 2005 through
        October 1, 2005, the Company accounted for its stock-based employee compensation
        plan under the recognition and measurement principles of APB Opinion No.
        25, *Accounting
        for Stock Issued to Employees* ,
        and
        related Interpretations.  No stock-based employee compensation cost
        is
        reflected in the statement of operations, as all options granted under those
        plans had an exercise price at least equal to the market value of the underlying
        common stock on the date of grant.  The following table illustrates
        the
        effect on net income if the Company had applied the fair value recognition
        provisions of SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        to
        stock-based employee compensation.
 
 Ply
                  Gem
                Holdings,
                  Inc.
                January
                  1, 2005 -
                October
                  1, 2005
              
              Ply
                  Gem
                Holdings,
                  Inc.
                January
                  23, 2004 -
                October
                  2, 2004*(Amounts
                  in thousands)*Net
                  income as reported
              
              $
              16,524
              
              $
              18,772Deduct:
                  Total stock-based employee compensation expense determined under
                  fair-value method for all awards, net of tax effects
              
              
              (25
              )
              
              (11
              )Pro
                  forma net income
              
              $
              16,499
              
              $
              18,761
 
  **Three
                  Months Ended**October
                  1, 2005
              
              October
                  2, 2004*(Amounts
                  in thousands)*Net
                  income as reported
              $
                  11,271
              
              $
                  9,571Deduct:
                  Total stock-based employee compensation expense determined under
                  fair-value method for all awards, net of tax effects
              (9)
              
              (5)Pro
                  forma net income
              $
                  11,262
              
              $
                  9,566
 
  **Sale
        Leaseback**
 
 On
        August
        27, 2004, Ply Gem Industries, Inc. entered into a sale and leaseback transaction
        with net proceeds of approximately $36.0 million being used to fund a portion
        of
        the acquisition of MWM Holding, Inc. It was the Company’s intention that these
        leases meet the criteria for a sale leaseback transaction and receive accounting
        treatment as operating leases. Following Ply Gem Industries’ review, the
        original lease agreements were executed and treated as a sale leaseback
        transaction and were accounted for as operating leases in the Company’s third
        quarter 2004 results. After further review in connection with the preparation
        of
        the December 31, 2004 financial statements, the Company concluded that for
        the
        periods from August 27, 2004 through October 2, 2004 (Ply Gem Holdings, Inc.’s
        third quarter) and from October 3, 2004 to December 31, 2004 and January
        1, 2005
        until amended leases became effective, these leases did not meet the sale
        leaseback accounting criteria. The primary discrepancy that was identified
        in
        the leases related to default and exchange provisions contained within the
        original leases that resulted in prohibited forms of continuing involvement.
        The
        lease agreement was amended effective March 29, 2005 and as of the end of
        the
        first quarter, April 2, 2005, the assets and financing obligation liability
        had
        been removed from the consolidated balance sheet and the leases have been
        accounted for as operating leases.
  
 9
 **New
        Accounting Pronouncements**
  In
        December 2004, the FASB issued SFAS No. 123 (revised 2004)
        (“SFAS
        123R”), *Share-Based
        Payment* .
        SFAS
        123R establishes standards for the accounting for transactions in which an
        entity exchanges its equity instruments for goods and services or incurs
        liabilities in exchange for goods or services that are based on the fair
        value
        of the entity’s equity instruments or that may be settled by the issuance of
        those equity instruments. SFAS 123R requires a public entity to measure the
        cost
        of employee services received in exchange for an award of equity instruments
        based on the grant-date fair value of the award and to recognize that cost
        over
        the period during which an employee is required to provide service in exchange
        for the award. Due to the Security and Exchange Commission’s delay of the
        effective date, the Company plans to adopt the provisions of SFAS 123R for
        the
        first quarter of our fiscal year ending December 31, 2006. At this time,
        we do
        not anticipate that the adoption of this statement will have a material effect
        on our consolidated financial position or results of operations.
  In
        March 2005, the FASB issued Financial Interpretation No. 47,
        "Accounting for Conditional Asset Retirement Obligations" (FIN 47). FIN 47
        clarifies the term, conditional asset retirement obligation, as used in SFAS
        No. 143 "Accounting for Asset Retirement Obligations," which refers
        to a
        legal obligation to perform an asset retirement activity in which the timing
        and
        (or) method of settlement are conditional on a future event. Uncertainty
        about
        the timing and (or) method of settlement of a conditional asset retirement
        obligation should be factored into the measurement of the liability when
        sufficient information exists. FIN 47 is effective no later than the end
        of
        fiscal years ending after December 15, 2005. We are evaluating the
        effect
        FIN 47 will have on our consolidated financial statements.
  **Concentration
        of Credit Risk**
  T he
        accounts receivable balance related to one customer of our siding, fencing,
        railing and decking segment was approximately $17.1 million and $9.6 million
        at
        October 1, 2005 and December 31, 2004, respectively. This customer accounted
        for
        approximately 18.6% of net sales for the nine month period ended October
        1, 2005
        and approximately 24.3% of net sales for the year ended December 31,
        2004.
  **Fair
        Value of Financial Instruments**
  The
        carrying value of the Company’s senior subordinated notes at October 1, 2005 was
        approximately $360.0 million. The fair value of the Company’s senior
        subordinated notes at October 1, 2005 is estimated to be approximately $302.4
        million based on available market information. The carrying value of the
        Company’s other financial instruments approximates their fair value.
  
 
 **2.**
              **PURCHASE
                  ACCOUNTING**
 
 On
        February 12, 2004, Ply Gem Holdings, Inc. purchased Ply Gem Industries, Inc.
        from Nortek, Inc. 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 Ply Gem Industries, Inc. and its subsidiaries
        based upon fair values as of the date of the purchase. The purchase price,
        including approximately $4.3 million of value attributed to Ply Gem Investment
        Holdings, Inc. phantom stock issued to replace Ply Gem Industries, Inc.
        employees’ forfeited Nortek stock options, was allocated to the assets and
        liabilities based on their estimated fair values.
 
 *(in thousands)*Other
                  current assets, net of cash
              
              $
              68,357Inventories
              
              
              50,293Property,
                  plant and equipment
              
              
              116,626Trademarks/Tradenames
              
              
              25,900Patents
              
              
              12,000Customer
                  relationships
              
              
              16,000Goodwill
              
              
              378,629Other
                  assets
              
              
              38,661Current
                  liabilities
              
              
              (55,964
              )Assumed
                  indebtedness
              
              
              (29,473
              )Other
                  liabilities
              
              
              (68,572
              )Purchase
                  price, net of cash acquired
              
              $
              552,457
 
 
 10
 On
        August
        27, 2004 Ply Gem Industries, Inc. acquired all of the outstanding shares
        of
        capital stock of MWM Holding, Inc. in accordance with a stock purchase agreement
        entered into among Ply Gem, MWM Holding, Inc., and the selling stockholders.
        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 MWM Holding Inc. and its subsidiaries based upon fair values
        as
        of the date of the purchase. The purchase price, including approximately
        $2.0
        million of value attributed to Ply Gem Investment Holdings, Inc. phantom
        stock
        issued to replace MWM Holding, Inc. employees’ forfeited MWM Holding, Inc. stock
        options, was allocated to the assets and liabilities based on their estimated
        fair values.
 
 *(in
                  thousands)*Other
                  current assets, net of cash
              
              $
              22,551Inventories
              
              
              14,437Property,
                  plant and equipment
              
              
              36,525Trademarks/Tradenames
              
              
              32,500Customer
                  relationships
              
              
              82,107Goodwill
              
              
              194,225Other
                  assets
              
              
              14,219Current
                  liabilities
              
              
              (29,955
              )Other
                  liabilities
              
              
              (29,901
              )Purchase
                  price, net of cash acquired
              
              $
              336,708
 
 
 
 Unaudited
        pro forma results of operations for the periods January 1, 2004 to February
        11,
        2004 and January 23, 2004 to October 2, 2004, and for the three month period
        ended October 2, 2004, as if both purchases had occurred at the beginning of the
        period is as follows:
 
 January
                  23, 2004
                to
                October
                  2, 2004
              
              January
                  1, 2004
                to
                February
                  11, 2004(Amounts
                  in thousands)Net
                  sales
              
              $
              560,005
              
              $
              67,757Net
                  income(loss)
              
              
              21,427
              
              
              (3,187
              )
 
 Three
                  months Ended
                October
                  2, 2004(Amounts
                  in thousands)Net
                  sales
              
              $
              223,096Net
                  income
              
              
              9,747
 
 
   
 
 11
 
  **3.**
              **GOODWILL
                  AND INTANGIBLE ASSETS**
 
 The
        table
        that follows presents the components of intangible assets as of October 1,
        2005
        and December 31, 2004:
 
 Average
                Amortization
                Period
                (in
                  Years)
              
              Cost
              
              Accumulated
                Amortization
              
              Net
                  Carrying
                Value*(Amounts
                  in
                  thousands)***As
                  of October 1, 2005:**Patents
              
              13
              $
              12,000
              
              $
              (1,511
              )
              $
              10,489Trademarks/Tradenames
              
              15
              
              25,900
              
              
              (2,872
              )
              
              23,028Customer
                  relationships
              
              14
              
              98,000
              
              
              (8,683
              )
              
              89,317Total
                  intangible assets
              
              
              $
              135,900
              
              $
              (13,066
              )
              $
              122,834Intangible
                  with indefinite lives:Trademarks
              
              
              $
              32,500
              
              $
              --
              
              $
              32,500**As
                  of December 31, 2004:**Patents
              
              13
              $
              12,000
              
              $
              (834
              )
              $
              11,166Trademarks/Tradenames
              
              15
              
              25,900
              
              
              (1,574
              )
              
              24,326Customer
                  relationships
              
              14
              
              98,000
              
              
              (3,335
              )
              
              94,665Total
                  intangible assets
              
              
              $
              135,900
              
              $
              (5,743
              )
              $
              130,157Intangible
                  with indefinite lives:Trademarks
              
              
              $
              32,500
              
              $
              --
              
              $
              32,500
 
 
 Amortization
        expense for the periods from January 1, 2005 to October 1, 2005 and from
        January
        23, 2004 to October 2, 2004 and January 1, 2004 to February 11, 2004 was
        approximately $7.3 million, $3.0 million, and $0.2 million, respectively.
        Amortization expense for the remainder of 2005, and for the five succeeding
        fiscal years is estimated to be approximately $2.4 million, $9.8 million,
        $9.8
        million, $9.8 million, $9.8 million, and $9.8 million,
        respectively.
 
 Goodwill
        decreased by approximately $7.2 million from December 31, 2004 to October
        1,
        2005. A decrease of approximately $8.5 million due to the finalization of
        the
        working capital settlement and other purchase accounting adjustments was
        partially offset by an increase of approximately $1.3 million due to currency
        translation changes.
 
  
 **4.**
              **COMPREHENSIVE
                  INCOME (LOSS)**
 
 Comprehensive
        income (loss) is comprised of the following:
 January
                  1, 2005
                to
                October
                  1, 2005
              
              January
                  23, 2004
                to
                October
                  2, 2004
              
              January
                  1, 2004
                to
                February
                  11, 2004*(Amounts
                  in thousands)*Net
                  income (loss)
              
              $
              16,524
              
              $
              18,772
              
              $
              (3,350
              )Foreign
                  currency translation adjustment
              
              
              1,261
              
              
              (630
              )
              
              (375
              )Comprehensive
                  income (loss)
              
              $
              17,785
              
              $
              18,142
              
              $
              (3,725
              )
 
 **Three
                  Months Ended**October
                  1, 2005
              
              October
                  2, 2004*(Amounts
                  in thousands)*Net
                  income
              
              $
              11,271
              
              $
              9,571Foreign
                  currency translation adjustment
              
              
              1,587
              
              
              (514
              )Comprehensive
                  income
              
              $
              12,858
              
              $
              9,057
 
 
 12
 
 
 
 
 **5.**
              **LONG-TERM
                  DEBT**
 
 Long-term
        debt in the accompanying consolidated balance sheets at October 1, 2005 and
        December 31, 2004 consists of the following:
 
 October
                  1, 2005
              
              December
                  31, 2004*(Amounts
                  in thousands)*Senior
                  term loan facility
              
              $
              302,680
              
              $
              304,501Senior
                  revolver credit facility
              
              
              14,000
              
              
              -Senior
                  subordinated notes
              
              
              360,287
              
              
              360,321Asset
                  financing obligation
              
              
              -
              
              
              35,769Other
                  borrowings
              
              
              -
              
              
              7,000676,967
              
              
              707,591Less
                  current maturities
              
              
              1,947
              
              
              2,784$
              675,020
              
              $
              704,807
 
  The
        Company’s senior credit facility with a syndicate of financial institutions and
        institutional lenders provides for senior secured financing of up to
        $381.0 million, consisting of $311.0 million of term loan facilities
        with a maturity of seven years after the original date of the credit agreement
        (February 12, 2004) and a $70.0 million revolving loan facility, including
        a letter of credit subfacility, with a maturity of five years. The term loan
        facilities were drawn in full in connection with the consummation of the
        Ply Gem
        and MW Acquisitions. The term loan facilities have three tranches, originally
        consisting of: 1) a $170.0 million tranche under which Ply Gem
        Industries, Inc. is the borrower, 2) a $30.0 million tranche under
        which
        our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower, and
        3) a
        $111.0 million tranche under which Ply Gem Industries, Inc. is the
        borrower, which was added to the facility August 27, 2004, as a result of
        the
        financing for the MW acquisition.
  During
        the first quarter of 2005 we borrowed $35.5 million under the revolving credit
        facility and during the second and third quarters of 2005 we repaid $21.5
        million. As of October 1, 2005, we had $54.9 million of availability under
        our
        revolving credit facility.
  On
        July
        25, 2005, the Company entered into an amendment to its credit facility. Under
        the terms of the amended agreement, the Company will be permitted to use
        its
        excess cash flow and/or a portion of its revolving credit facility to repurchase
        up to $25.0 million aggregate principal amount of the Company’s 9% senior
        subordinated notes due 2012. Subject to market conditions, its capital needs
        and
        other factors, the Company may from time to time purchase up to $25.0 million
        aggregate principal amount of its 9% senior subordinated notes due 2012 in
        market transactions, privately negotiated sales or other transactions. As
        of
        October 1, 2005 the Company has not yet purchased any of its Senior Subordinated
        Notes.
 
  The
        interest rates applicable to loans under our senior credit facilities 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
        senior credit facility agreement. Our rates at October 1, 2005 ranged from
        5.6%
        to 6.3%.
  Our
        senior credit facilities (following amendments) require scheduled quarterly
        principal payments on the term loan facilities of approximately $0.5 million
        beginning in the quarter ended July 3, 2004 and for the next 23 calendar
        quarters thereafter, and payments of $45.8 million on June 30, 2010, September
        30, 2010, and December 30, 2010 and $156.6 million on the maturity date,
        allocated pro rata between the three tranches.
  The
        indebtedness of the U.S. borrower (Ply Gem Industries, Inc.) under our senior
        credit facilities is guaranteed by Ply Gem Holdings, Inc., and all
        of our
        existing and future direct and indirect subsidiaries, subject to exceptions
        for
        foreign subsidiary guarantees of the U.S. borrower’s obligations to the extent
        such guarantees are prohibited by applicable law or would result in materially
        adverse tax consequences and other exceptions. The indebtedness of the Canadian
        borrower under our senior credit facilities is guaranteed by Ply Gem
        Holdings, Inc., the U.S. borrower and all of the Canadian borrower’s future
        direct and indirect subsidiaries and is effectively guaranteed by all
        subsidiaries guaranteeing the U.S. borrower’s obligations under our senior
        credit facilities. All indebtedness under our senior credit facilities is
        secured, subject to certain exceptions, by a perfected first priority pledge
        of
        all of our equity interests and those of our direct and indirect subsidiaries,
        and, subject to certain exceptions, perfected first priority security interests
        in, and mortgages on, all tangible and intangible assets; provided that all
        tangible and intangible assets of the Canadian borrower and its subsidiaries
        are
        pledged to secure debt only of the Canadian borrower.
  13
 Our
        senior credit facilities require that we comply on a quarterly basis with
        certain financial covenants, including a minimum interest coverage ratio
        test, a
        maximum leverage ratio test and a maximum capital expenditures level. Our
        covenants also restrict the payment of dividends, with certain exceptions,
        without the lenders consent in writing. The Company is also required at each
        year end to calculate and submit within 90 days a payment of excess cash,
        as
        defined in the Company’s credit agreement. This payment will reduce the
        outstanding balance on the Company’s term loans.
  Concurrently
        with the Ply Gem Acquisition, Ply Gem Industries, Inc. issued $225.0 million
        aggregate principal amount of our 9% senior subordinated notes due 2012,
        which
        are guaranteed by Ply Gem Holdings Inc. and the domestic subsidiaries of
        Ply Gem
        Industries, Inc. Subsequently, in connection with the MW Acquisition, Ply
        Gem
        Industries, Inc. issued an additional $135.0 million of our 9% senior
        subordinated notes due 2012, which are guaranteed by Ply Gem Holdings Inc.
        and
        the domestic subsidiaries of Ply Gem Industries, Inc., including MWM Holding,
        Inc. and it’s subsidiaries.
  Ply
        Gem
        Holdings, Inc. is a holding company and has no operations. Under the terms
        of
        the indenture governing the senior subordinated notes, there are restrictions
        on
        the ability of Ply Gem Industries, Inc. to dividend or distribute cash or
        property to Ply Gem Holdings, Inc.
  To
        fund a
        portion of the acquisition of MWM Holding, Inc. on August 27, 2004, Ply Gem
        Industries, Inc. entered into a sale and leaseback transaction with net proceeds
        of approximately $36.0 million. Due to certain default and exchange provisions
        in these leases, sale/leaseback treatment was not achieved, resulting in
        violations to our senior credit facilities. The Company requested and received
        a
        waiver from its lenders as it related to our lease agreements in that these
        leases would not constitute indebtedness under Ply Gem’s credit agreement for
        the restriction on indebtedness covenant and any lien in connection with
        such
        leases would not constitute liens for the purposes of the restriction on
        liens
        covenant through April 30, 2005 and only so long as these leases did not
        represent more than an aggregate of $36.0 million of financing obligations.
        At
        December 31, 2004 the Company included on its balance sheet an asset financing
        obligation of approximately $35.8 million. The lease agreement was amended
        effective March 29, 2005 and as of the end of the first quarter, April 2,
        2005,
        the financing obligation liability and corresponding assets had been removed
        from the balance sheet. The initial term of the leases is twenty years with
        an
        option to renew the lease for a ten year period following the initial term.
        These leases are net leases and are non-terminable. The basic annual rent
        as of
        October 1, 2005 is approximately $3.6 million with the annual rent being
        subject
        to adjustment for increases in the Consumer Price index upon each anniversary
        following the initial basic rent payment date.
 
  The
        table
        that follows is a summary of maturities of all of the Company’s long-term debt
        obligations due in each twelve month period after October 1, 2005:
 *(Amounts
        in thousands)*
 
 2005
              
              $
              1,9472006
              
              
              1,9472007
              
              
              1,9472008
              
              
              15,9472009
              
              
              92,501Thereafter
              
              
              562,678$
              676,967
 
 At
        October 1, 2005, approximately $1.1 million of letters of credit have been
        issued under our senior credit facility for the purposes of supporting our
        workers compensation plan at one of our subsidiaries. Further, approximately
        $3.2 million of letters of credit were issued apart from the senior credit
        facility to secure certain environmental obligations.
   **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:
 
 January
                  1, 2005
                to
                October
                  1, 2005
              
              January
                  23, 2004
                to
                October
                  2, 2004
              
              January
                  1, 2004
                to
                February
                  11, 2004(Amounts
                  in thousands)Service
                  cost
              
              $
              253
              
              $
              64
              
              $
              11Interest
                  cost
              
              
              1,440
              
              
              539
              
              
              97Expected
                  return on plan assets
              
              
              (1,241
              )
              
              (451
              )
              
              (81
              )Net
                  periodic expense
              
              $
              452
              
              $
              152
              
              $
              27
 
  14
 **7.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
  In
        connection with the Ply Gem Acquisition, Nortek has agreed to indemnify the
        Company for certain liabilities as set forth in the Purchase Agreement. In
        the
        event Nortek is unable to satisfy amounts due under these indemnifications
        then
        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 Purchase Agreement. A receivable related
        to this
        indemnification has been recorded in other long-term assets in the approximate
        amount of $9.6 million.
 
 The
        Company has indemnified third parties in certain transactions involving
        dispositions of former subsidiaries. As of October 1, 2005 and December 31,
        2004, the Company has recorded liabilities included in Accrued expenses and
        Other long term liabilities in relation to these indemnifications of
        approximately $8.6 million and $13.2 million, respectively, consisting of
        the
        following:
  (Amounts
                    in thousands)October
                    1, 2005
                
                December
                    31, 2004Product
                    claim liabilities
                
                $
                3,805
                
                $
                3,813Long-term
                    lease liabilities
                
                
                681
                
                
                5,152Multiemployer
                    pension plan withdrawal liability
                
                
                4,068
                
                
                4,187$
                8,554
                
                $
                13,152
 The
        long-term lease liabilities of approximately $0.7 million and $5.2 million
        at
        October 1, 2005 and December 31, 2004, respectively, relate to the estimated
        amounts to be paid, net of any estimated recoveries where subleases are in
        place, primarily in connection with various facility leases where the Company
        has retained the liability for the lease agreement in connection with the
        sale
        of certain former subsidiaries that utilized the facilities. Accrued costs
        include base rent, additional rent for consumer price index increases as
        defined
        in the leases, taxes, utilities, insurance, repairs and maintenance and,
        if
        applicable, the estimated settlement costs to terminate the leases prior
        to the
        end of their scheduled term. The Company has recorded all long-term lease
        liabilities at the undiscounted gross amount expected to be paid to settle
        the
        liabilities in the future.
  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 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.
 
 Changes
        in the Company’s warranty liabilities are as follows:
 January 1, 2005        
                  to
                October
                  1, 2005
              
              January
                  23, 2004
                to
                October
                  2, 2004
              
              January
                  1, 2004
                to
                February
                  11, 2004*(Amounts
                  in thousands)***Balance,
                  beginning of period**
              
              $
              11,095
              
              $
              9,491
              
              $
              9,499Warranty
                  expense provided during period
              
              
              2,510
              
              
              3,055
              
              
              330Settlements
                  made during period
              
              
              (2,544
              )
              
              (2,621
              )
              
              (338
              )Liability
                  assumed with MW Acquisition
              
              
              
              
              
              3,231Liability
                  assumed by third party
              
              
              -
              
              
              (2,000
              )
              
              -**Balance,
                  end of period**
              
              $
              11,061
              
              $
              11,156
              
              $
              9,491
 
 
 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.
 
 Included
          in the indemnified liabilities as of October 1, 2005, are approximately
          $0.8
          million in accrued expenses to cover the estimated costs of known litigation
          claims, including the estimated cost of legal services, that the Company
          is
          contesting including certain employment and former shareholder litigation
          related to the Company.
 
 It
        is
        impossible to ascertain the ultimate legal and financial liability with respect
        to contingent liabilities, including lawsuits, and therefore no such estimate
        has been made.
 
 15
 
 **8.**
              **ACCRUED
                  EXPENSES, TAXES, AND OTHER LONG-TERM
                  LIABILITIES**
 
 Accrued
        expenses and taxes consist of the following at October 1, 2005 and December
        31,
        2004:
  October
                  1, 2005
              
              December
                  31, 2004*(Amounts
                  in thousands)*Insurance
              
              $
              5,307
              
              $
              4,460Employee
                  compensation and benefits
              
              
              13,150
              
              
              12,730Sales
                  and marketing
              
              
              15,311
              
              
              14,396Product
                  warranty
              
              
              4,270
              
              
              4,040Short-term
                  product claim liability
              
              
              2,321
              
              
              2,321Interest
              
              
              4,508
              
              
              12,134Other,
                  net
              
              
              8,859
              
              
              11,863$
              53,726
              
              $
              61,944
 
  Other
        long-term liabilities consist of the following at October 1, 2005 and December
        31, 2004:
  October
                  1, 2005
              
              December
                  31, 2004*(Amounts
                  in thousands)*Insurance
              
              $
              4,163
              
              $
              3,597Pension
                  liabilities
              
              
              12,369
              
              
              14,454Product
                  warranty
              
              
              6,791
              
              
              7,055Long-term
                  lease liabilities
              
              
              681
              
              
              5,152Long-term
                  product claim liability
              
              
              1,484
              
              
              1,492Other
              
              
              979
              
              
              651$
              26,467
              
              $
              32,401
 
 
 **9.**
              **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) vinyl siding, fencing, railing, and
        decking and 2) windows and doors.
 
 The
        income before provision for income taxes of each segment includes the revenue
        generated on transactions involving products within that segment less
        identifiable expenses. 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. Unallocated corporate assets include deferred
        financing costs, cash and certain non-operating receivables.
 
 
 16
 
 
 Following
        is a summary of the Company’s segment information.
  **For
                  the three months ended**October
                  1, 2005
              
              October
                  2, 2004Net
                  salesSiding,
                  Fencing, Railing and Decking
              
              $
              104,928
              
              $
              106,589Windows
                  and Doors
              
              
              120,587
              
              
              72,143$
              225,515
              
              $
              178,732Operating
                  earningsSiding,
                  Fencing, Railing and Decking
              
              $
              16,736
              
              $
              16,475Windows
                  and Doors
              
              
              16,211
              
              
              9,862Unallocated
              
              
              (1,537
              )
              
              (1,745
              )Total
                  operating earnings
              
              
              31,410
              
              
              24,592Foreign
                  currency gainWindows
                  and Doors
              
              
              1,282
              
              
              1,596Interest
                  expense and investment income
              
              
              (14,238
              )
              
              (10,516
              )Income
                  before provision for income taxesTotal
              
              $
              18,454
              
              $
              15,672
 
 **For
                  the periods**January
                  1, 2005
              
              January
                  23, 2004
              
              January
                  1, 2004to
              
              to
              
              toOctober
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004Net
                  salesSiding,
                  Fencing, Railing and Decking
              
              $
              293,956
              
              $
              272,244
              
              $
              29,546Windows
                  and Doors
              
              
              333,597
              
              
              132,263
              
              
              11,066$
              627,553
              
              $
              404,507
              
              $
              40,612Operating
                  earningsSiding,
                  Fencing, Railing and Decking
              
              $
              35,462
              
              $
              38,921
              
              $
              690Windows
                  and Doors
              
              
              37,444
              
              
              16,711
              
              
              (1,444
              )Unallocated
              
              
              (3,681
              )
              
              (3,196
              )
              
              (791
              )Total
                  operating earnings
              
              
              69,225
              
              
              52,436
              
              
              (1,545
              )Foreign
                  currency gainWindows
                  and Doors
              
              
              745
              
              
              1,596
              
              
              -Interest
                  expense and investment income
              
              
              (42,690
              )
              
              (23,520
              )
              
              (3,655
              )Income
                  before provision for income taxesTotal
              
              $
              27,280
              
              $
              30,512
              
              $
              (5,200
              )October
                  1, 2005
              
              
              December
                  31, 2004Total
                  assetsSiding,
                  Fencing, Railing and Decking
              
              $
              490,192
              
              $
              523,110Windows
                  and Doors
              
              
              535,282
              
              
              555,520Unallocated
              
              
              65,218
              
              
              25,669$
              1,090,692
              
              $
              1,104,299
 
 
 
 17
 
 
 
 **10.
        GUARANTOR / NON-GUARANTOR**
 
 In
        connection with the financing of the Ply Gem Acquisition, Ply Gem Industries,
        Inc. sold $225 million of its 9% senior subordinated notes due 2012 and entered
        into $255 million of new senior credit facilities. As a result of the MW
        Acquisition, an additional $135 million of senior subordinated notes were
        issued
        by Ply Gem Industries, Inc., and the size of the credit facilities was increased
        by $126 million. The senior subordinated notes due 2012 are secured by full
        and
        unconditional guarantees on a joint and several basis from certain of the
        Company’s 100% owned subsidiaries. Accordingly, the following guarantor and
        non-guarantor information is presented as of October 1, 2005 and for the
        periods
        from January 1, 2005 to October 1, 2005, January 1, 2004 to February 11,
        2004,
        and January 23, 2004 to October 2, 2004. The non-guarantor information presented
        represents our Canadian subsidiary.
 
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the Three Month Period Ended October 1, 2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              207,778
              
              $
              17,737
              
              $
              -
              
              $
              225,515Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              158,663
              
              
              11,809
              
              
              -
              
              
              170,472Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              1,548
              
              
              16,918
              
              
              2,728
              
              
              -
              
              
              21,194Intercompany
                  administrativecharges
              
              
              -
              
              
              9,214
              
              
              (9,214
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              2,439
              
              
              -
              
              
              -
              
              
              2,439Total
                  Costs and Expenses
              
              
              -
              
              
              10,762
              
              
              168,806
              
              
              14,537
              
              
              -
              
              
              194,105Operating
                  earnings
              
              
              -
              
              
              (10,762
              )
              
              38,972
              
              
              3,200
              
              
              -
              
              
              31,410Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              1,282
              
              
              -
              
              
              1,282Intercompany
                  interest
              
              
              -
              
              
              36,354
              
              
              (36,090
              )
              
              (264
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (14,039
              )
              
              (42
              )
              
              (401
              )
              
              -
              
              
              (14,482
              )Investment
                  income
              
              
              -
              
              
              96
              
              
              133
              
              
              15
              
              
              -
              
              
              244Income
                  before equity insubsidiaries'
                  income
              
              
              -
              
              
              11,649
              
              
              2,973
              
              
              3,832
              
              
              -
              
              
              18,454Equity
                  in subsidiaries' income
              
              
              11,271
              
              
              4,282
              
              
              -
              
              
              -
              
              
              (15,553
              )
              
              -Income
                  before provisionfor
                  income taxes
              
              
              11,271
              
              
              15,931
              
              
              2,973
              
              
              3,832
              
              
              (15,553
              )
              
              18,454Provision
                  for incometaxes
              
              
              -
              
              
              4,660
              
              
              1,221
              
              
              1,302
              
              
              -
              
              
              7,183Net
                  income
              
              $
              11,271
              
              $
              11,271
              
              $
              1,752
              
              $
              2,530
              
              $
              (15,553
              )
              $
              11,271
  18
  
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the Three Month Period Ended October 2, 2004**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              163,440
              
              $
              15,292
              
              $
              -
              
              $
              178,732Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              122,823
              
              
              9,948
              
              
              -
              
              
              132,771Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              1,548
              
              
              15,563
              
              
              2,284
              
              
              -
              
              
              19,395Intercompany
                  administrativecharges
              
              
              -
              
              
              (6,642
              )
              
              6,642
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              (8
              )
              
              1,982
              
              
              -
              
              
              -
              
              
              1,974Total
                  Costs and Expenses
              
              
              -
              
              
              (5,102
              )
              
              147,010
              
              
              12,232
              
              
              -
              
              
              154,140Operating
                  earnings
              
              
              -
              
              
              5,102
              
              
              16,430
              
              
              3,060
              
              
              -
              
              
              24,592Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              1,596
              
              
              -
              
              
              1,596Intercompany
                  interest
              
              
              -
              
              
              336
              
              
              6
              
              
              (342
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (9,991
              )
              
              (244
              )
              
              (342
              )
              
              -
              
              
              (10,577
              )Investment
                  income
              
              
              -
              
              
              32
              
              
              29
              
              
              -
              
              
              -
              
              
              61Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (4,521
              )
              
              16,221
              
              
              3,972
              
              
              -
              
              
              15,672Equity
                  in subsidiaries' income
              
              
              9,571
              
              
              12,284
              
              
              -
              
              
              -
              
              
              (21,855
              )
              
              -Income
                  before provision(benefit)
                  for income taxes
              
              
              9,571
              
              
              7,763
              
              
              16,221
              
              
              3,972
              
              
              (21,855
              )
              
              15,672Provision
                  (benefit) for incometaxes
              
              
              -
              
              
              (1,808
              )
              
              6,320
              
              
              1,589
              
              
              -
              
              
              6,101Net
                  income
              
              $
              9,571
              
              $
              9,571
              
              $
              9,901
              
              $
              2,383
              
              $
              (21,855
              )
              $
              9,571
 
 
 
  19
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the period from January 1, 2005 to October 1,
                  2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              584,146
              
              $
              43,407
              
              $
              -
              
              $
              627,553Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              453,274
              
              
              29,806
              
              
              -
              
              
              483,080Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              4,441
              
              
              55,926
              
              
              7,561
              
              
              -
              
              
              67,928Intercompany
                  administrativecharges
              
              
              -
              
              
              (5,844
              )
              
              5,844
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              7,320
              
              
              -
              
              
              -
              
              
              7,320Total
                  Costs and Expenses
              
              
              -
              
              
              (1,403
              )
              
              522,364
              
              
              37,367
              
              
              -
              
              
              558,328Operating
                  earnings
              
              
              -
              
              
              1,403
              
              
              61,782
              
              
              6,040
              
              
              -
              
              
              69,225Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              745
              
              
              -
              
              
              745Intercompany
                  interest
              
              
              -
              
              
              36,851
              
              
              (36,090
              )
              
              (761
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (41,099
              )
              
              (999
              )
              
              (1,059
              )
              
              -
              
              
              (43,157
              )Investment
                  income
              
              
              -
              
              
              185
              
              
              251
              
              
              31
              
              
              -
              
              
              467Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (2,660
              )
              
              24,944
              
              
              4,996
              
              
              -
              
              
              27,280Equity
                  in subsidiaries' income
              
              
              16,524
              
              
              18,120
              
              
              -
              
              
              -
              
              
              (34,644
              )
              
              -Income
                before provision (benefit)for
                  income taxes
              
              
              16,524
              
              
              15,460
              
              
              24,944
              
              
              4,996
              
              
              (34,644
              )
              
              27,280Provision
                  (benefit)for income taxes
              
              
              -
              
              
              (1,064
              )
              
              10,122
              
              
              1,698
              
              
              -
              
              
              10,756Net
                  income
              
              $
              16,524
              
              $
              16,524
              
              $
              14,822
              
              $
              3,298
              
              $
              (34,644
              )
              $
              16,524
 
  20
  
 
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the period from January 23, 2004 to October 2,
                  2004**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              371,257
              
              $
              33,250
              
              $
              -
              
              $
              404,507Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              281,918
              
              
              22,068
              
              
              -
              
              
              303,986Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              3,191
              
              
              36,442
              
              
              5,452
              
              
              -
              
              
              45,085Intercompany
                  administrativecharges
              
              
              -
              
              
              (15,262
              )
              
              15,262
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              3,000
              
              
              -
              
              
              -
              
              
              3,000Total
                  Costs and Expenses
              
              
              -
              
              
              (12,071
              )
              
              336,622
              
              
              27,520
              
              
              -
              
              
              352,071Operating
                  earnings
              
              
              -
              
              
              12,071
              
              
              34,635
              
              
              5,730
              
              
              -
              
              
              52,436Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              1,596
              
              
              -
              
              
              1,596Intercompany
                  interest
              
              
              -
              
              
              865
              
              
              2
              
              
              (867
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (22,067
              )
              
              (772
              )
              
              (762
              )
              
              -
              
              
              (23,601
              )Investment
                  income
              
              
              -
              
              
              32
              
              
              49
              
              
              -
              
              
              -
              
              
              81Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (9,099
              )
              
              33,914
              
              
              5,697
              
              
              -
              
              
              30,512Equity
                  in subsidiaries' income
              
              
              18,772
              
              
              24,231
              
              
              -
              
              
              -
              
              
              (43,003
              )
              
              -Income
                  before provision(benefit)
                  for income taxes
              
              
              18,772
              
              
              15,132
              
              
              33,914
              
              
              5,697
              
              
              (43,003
              )
              
              30,512Provision
                  (benefit) for incometaxes
              
              
              -
              
              
              (3,640
              )
              
              13,101
              
              
              2,279
              
              
              -
              
              
              11,740Net
                  income
              
              $
              18,772
              
              $
              18,772
              
              $
              20,813
              
              $
              3,418
              
              $
              (43,003
              )
              $
              18,772
 
 
 
 
 21
 
 
 
 
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  COMBINING STATEMENT OF OPERATIONS****For
                  the period from January 1, 2004 to February 11,
                  2004**Issuer
              
              
              
              Non-Ply
                  Gem
              
              Guarantor
              
              GuarantorIndustries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Combined(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              37,187
              
              $
              3,425
              
              $
              -
              
              $
              40,612Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              30,991
              
              
              2,620
              
              
              -
              
              
              33,611Selling,
                  general andadministrative
                  expense
              
              
              561
              
              
              6,552
              
              
              1,232
              
              
              -
              
              
              8,345Intercompany
                  administrativecharges
              
              
              (3,166
              )
              
              3,166
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              201
              
              
              -
              
              
              -
              
              
              201Total
                  Costs and Expenses
              
              
              (2,605
              )
              
              40,910
              
              
              3,852
              
              
              -
              
              
              42,157Operating
                  earnings (loss)
              
              
              2,605
              
              
              (3,723
              )
              
              (427
              )
              
              -
              
              
              (1,545
              )Interest
                  expense
              
              
              (39
              )
              
              (3,645
              )
              
              -
              
              
              -
              
              
              (3,684
              )Investment
                  income
              
              
              -
              
              
              18
              
              
              11
              
              
              -
              
              
              29Income
                  (loss) before equity insubsidiaries'
                  (loss)
              
              
              2,566
              
              
              (7,350
              )
              
              (416
              )
              
              -
              
              
              (5,200
              )Equity
                  in subsidiaries' loss
              
              
              (5,667
              )
              
              -
              
              
              -
              
              
              5,667
              
              
              -Income
                  (Loss) before benefit forincome
                  taxes
              
              
              (3,101
              )
              
              (7,350
              )
              
              (416
              )
              
              5,667
              
              
              (5,200
              )Benefit
                  for income taxes
              
              
              -
              
              
              (1,683
              )
              
              (167
              )
              
              -
              
              
              (1,850
              )Net
                  Income (Loss)
              
              $
              (3,101
              )
              $
              (5,667
              )
              $
              (249
              )
              $
              5,667
              
              $
              (3,350
              )
 
  22
  **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING BALANCE SHEET****As
                  of October 1, 2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)**ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              -
              
              $
              17,688
              
              $
              4,174
              
              $
              3,972
              
              $
              -
              
              $
              25,834Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              88,894
              
              
              8,983
              
              
              -
              
              
              97,877Inventories:Raw
                  materials
              
              
              -
              
              
              -
              
              
              29,683
              
              
              2,895
              
              
              -
              
              
              32,578Work
                  in process
              
              
              -
              
              
              -
              
              
              3,613
              
              
              1,469
              
              
              -
              
              
              5,082Finished
                  goods
              
              
              -
              
              
              -
              
              
              20,594
              
              
              1,912
              
              
              -
              
              
              22,506Total
                  inventory
              
              
              -
              
              
              -
              
              
              53,890
              
              
              6,276
              
              
              -
              
              
              60,166Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              2,677
              
              
              9,460
              
              
              492
              
              
              -
              
              
              12,629Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              14,273
              
              
              -
              
              
              -
              
              
              14,273Total
                  current assets
              
              
              -
              
              
              20,365
              
              
              170,691
              
              
              19,723
              
              
              -
              
              
              210,779Investments
                  in subsidiaries
              
              
              213,452
              
              
              176,499
              
              
              -
              
              
              -
              
              
              (389,951
              )
              
              -**Property
                  and Equipment, at cost:**Land
              
              
              -
              
              
              -
              
              
              1,870
              
              
              151
              
              
              -
              
              
              2,021Buildings
                  and improvements
              
              
              -
              
              
              106
              
              
              14,637
              
              
              619
              
              
              -
              
              
              15,362Machinery
                  and equipment
              
              
              -
              
              
              49
              
              
              109,602
              
              
              2,683
              
              
              -
              
              
              112,334-
              
              
              
              
              
              155
              
              
              126,109
              
              
              3,453
              
              
              -
              
              
              129,717Less
                  accumulated depreciation
              
              
              -
              
              
              (34
              )
              
              (22,168
              )
              
              (714
              )
              
              -
              
              
              (22,916
              )Total
                  property and equipment,net
              
              
              -
              
              
              121
              
              
              103,941
              
              
              2,739
              
              
              -
              
              
              106,801**Other
                  Assets:**Goodwill
              
              
              -
              
              
              -
              
              
              537,314
              
              
              40,673
              
              
              -
              
              
              577,987Intangible
                  assets, net
              
              
              -
              
              
              -
              
              
              155,334
              
              
              -
              
              
              -
              
              
              155,334Intercompany
                  note receivable
              
              
              -
              
              
              652,746
              
              
              -
              
              
              -
              
              
              (652,746
              )
              
              -Other
              
              
              -
              
              
              39,686
              
              
              105
              
              
              -
              
              
              -
              
              
              39,791Total
                  other assets
              
              
              -
              
              
              692,432
              
              
              692,753
              
              
              40,673
              
              
              (652,746
              )
              
              773,112$
              213,452
              
              $
              889,417
              
              $
              967,385
              
              $
              63,135
              
              $
              (1,042,697
              )
              $
              1,090,692**LIABILITIES
                  AND STOCKHOLDER'S EQUITY****Current
                  Liabilities:**Current
                  maturities of long-termdebt
              
              $
              -
              
              $
              1,698
              
              $
              -
              
              $
              249
              
              $
              -
              
              $
              1,947Accounts
                  payable
              
              
              -
              
              
              582
              
              
              47,653
              
              
              3,771
              
              
              -
              
              
              52,006Accrued
                  expenses and taxes
              
              
              -
              
              
              9,405
              
              
              41,727
              
              
              2,594
              
              
              -
              
              
              53,726Total
                  current liabilities
              
              
              -
              
              
              11,685
              
              
              89,380
              
              
              6,614
              
              
              -
              
              
              107,679Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              66,824
              
              
              1,250
              
              
              -
              
              
              68,074Intercompany
                  note payable
              
              
              -
              
              
              -
              
              
              641,000
              
              
              11,746
              
              
              (652,746
              )
              
              -Other
                  long term liabilities
              
              
              -
              
              
              13,587
              
              
              11,949
              
              
              931
              
              
              -
              
              
              26,467Long-term
                  debt, less currentmaturities
              
              
              -
              
              
              650,693
              
              
              -
              
              
              24,327
              
              
              -
              
              
              675,020**Stockholder's
                  Equity:**Preferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in-capital
              
              
              175,687
              
              
              175,687
              
              
              116,778
              
              
              6,421
              
              
              (298,886
              )
              
              175,687Retained
                  earnings
              
              
              34,206
              
              
              34,206
              
              
              41,714
              
              
              8,027
              
              
              (83,947
              )
              
              34,206Accumulated
                  othercomprehensive
                  income (loss)
              
              
              3,559
              
              
              3,559
              
              
              (260
              )
              
              3,819
              
              
              (7,118
              )
              
              3,559$
              213,452
              
              $
              889,417
              
              $
              967,385
              
              $
              63,135
              
              $
              (1,042,697
              )
              $
              1,090,692
 
  23
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING BALANCE SHEET****As
                  of December 31, 2004**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)**ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              -
              
              $
              1,923
              
              $
              3,483
              
              $
              1,388
              
              $
              -
              
              $
              6,794Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              59,855
              
              
              5,362
              
              
              -
              
              
              65,217Inventories:Raw
                  materials
              
              
              -
              
              
              -
              
              
              27,555
              
              
              2,950
              
              
              -
              
              
              30,505Work
                  in process
              
              
              -
              
              
              -
              
              
              3,389
              
              
              871
              
              
              -
              
              
              4,260Finished
                  goods
              
              
              -
              
              
              -
              
              
              25,186
              
              
              1,545
              
              
              -
              
              
              26,731Total
                  inventory
              
              
              -
              
              
              -
              
              
              56,130
              
              
              5,366
              
              
              -
              
              
              61,496Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              1,004
              
              
              8,169
              
              
              623
              
              
              -
              
              
              9,796Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              18,356
              
              
              -
              
              
              -
              
              
              18,356Total
                  current assets
              
              
              -
              
              
              2,927
              
              
              145,993
              
              
              12,739
              
              
              -
              
              
              161,659Investments
                  in subsidiaries
              
              
              195,407
              
              
              810,462
              
              
              -
              
              
              -
              
              
              (1,005,869
              )
              
              -**Property
                  and Equipment, at cost:**Land
              
              
              -
              
              
              -
              
              
              4,908
              
              
              2,349
              
              
              -
              
              
              7,257Buildings
                  and improvements
              
              
              -
              
              
              -
              
              
              42,648
              
              
              3,843
              
              
              -
              
              
              46,491Machinery
                  and equipment
              
              
              -
              
              
              158
              
              
              102,738
              
              
              2,266
              
              
              -
              
              
              105,162-
              
              
              
              
              
              158
              
              
              150,294
              
              
              8,458
              
              
              -
              
              
              158,910Less
                  accumulated depreciation
              
              
              -
              
              
              (15
              )
              
              (11,372
              )
              
              (487
              )
              
              -
              
              
              (11,874
              )Total
                  property and equipment,net
              
              
              -
              
              
              143
              
              
              138,922
              
              
              7,971
              
              
              -
              
              
              147,036**Other
                  Assets:**Goodwill
              
              
              -
              
              
              -
              
              
              541,730
              
              
              43,420
              
              
              -
              
              
              585,150Intangible
                  assets, net
              
              
              -
              
              
              -
              
              
              162,657
              
              
              -
              
              
              -
              
              
              162,657Intercompany
                  note receivable
              
              
              -
              
              
              9,346
              
              
              -
              
              
              -
              
              
              (9,346
              )
              
              -Other
              
              
              -
              
              
              47,669
              
              
              128
              
              
              -
              
              
              -
              
              
              47,797Total
                  other assets
              
              
              -
              
              
              57,015
              
              
              704,515
              
              
              43,420
              
              
              (9,346
              )
              
              795,604$
              195,407
              
              $
              870,547
              
              $
              989,430
              
              $
              64,130
              
              $
              (1,015,215
              )
              $
              1,104,299**LIABILITIES
                  AND STOCKHOLDER'S EQUITY****Current
                  Liabilities:**Current
                  maturities of long-termdebt
              
              $
              -
              
              $
              1,700
              
              $
              834
              
              $
              250
              
              $
              -
              
              $
              2,784Accounts
                  payable
              
              
              -
              
              
              -
              
              
              32,885
              
              
              1,715
              
              
              -
              
              
              34,600Accrued
                  expenses and taxes
              
              
              -
              
              
              17,125
              
              
              40,232
              
              
              4,587
              
              
              -
              
              
              61,944Total
                  current liabilities
              
              
              -
              
              
              18,825
              
              
              73,951
              
              
              6,552
              
              
              -
              
              
              99,328Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              71,463
              
              
              893
              
              
              -
              
              
              72,356Intercompany
                  note payable
              
              
              -
              
              
              -
              
              
              -
              
              
              9,346
              
              
              (9,346
              )
              
              -Other
                  long term liabilities
              
              
              -
              
              
              17,969
              
              
              13,531
              
              
              901
              
              
              -
              
              
              32,401Long-term
                  debt, less currentmaturities
              
              
              -
              
              
              638,346
              
              
              36,515
              
              
              29,946
              
              
              -
              
              
              704,807**Stockholder's
                  Equity:**Preferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in-capital
              
              
              175,427
              
              
              175,427
              
              
              767,338
              
              
              9,205
              
              
              (951,970
              )
              
              175,427Retained
                  earnings
              
              
              17,682
              
              
              17,682
              
              
              26,892
              
              
              4,729
              
              
              (49,303
              )
              
              17,682Accumulated
                  othercomprehensive
                  income (loss)
              
              
              2,298
              
              
              2,298
              
              
              (260
              )
              
              2,558
              
              
              (4,596
              )
              
              2,298$
              195,407
              
              $
              870,547
              
              $
              989,430
              
              $
              64,130
              
              $
              (1,015,215
              )
              $
              1,104,299
 
 24
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                  STATEMENT OF CASH FLOWS****For
                  the Period from January 1, 2005 to October 1,
                  2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)**Cash
                  flows from operating****activities:**Net
                  income
              
              $
              16,524
              
              $
              16,524
              
              $
              14,822
              
              $
              3,298
              
              $
              (34,644
              )
              $
              16,524**Adjustments
                  to reconcile net****income
                  (loss) to cash provided by****(used
                  in) operating activities:**Depreciation
                  and amortizationexpense
              
              
              -
              
              
              19
              
              
              19,113
              
              
              364
              
              
              -
              
              
              19,496Non-cash
                  interest expense, net
              
              
              -
              
              
              3,669
              
              
              -
              
              
              -
              
              
              -
              
              
              3,669Gain
                  on foreign currency transactions
              
              
              -
              
              
              -
              
              
              -
              
              
              (745
              )
              
              -
              
              
              (745
              )Deferred
                  income taxes
              
              
              -
              
              
              13,707
              
              
              (6,268
              )
              
              789
              
              
              -
              
              
              8,228Equity
                  in subsidiaries' net income
              
              
              (16,524
              )
              
              (18,120
              )
              
              -
              
              
              -
              
              
              34,644
              
              
              -**Changes
                  in operating Assets and****liabilities:**Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              (29,039
              )
              
              (3,232
              )
              
              -
              
              
              (32,271
              )Inventories
              
              
              -
              
              
              -
              
              
              2,240
              
              
              (684
              )
              
              -
              
              
              1,556Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              (2,117
              )
              
              (584
              )
              
              169
              
              
              -
              
              
              (2,532
              )Accounts
                  payable
              
              
              -
              
              
              -
              
              
              15,335
              
              
              1,893
              
              
              -
              
              
              17,228Accrued
                  expenses and taxes
              
              
              -
              
              
              (7,695
              )
              
              (784
              )
              
              (2,037
              )
              
              -
              
              
              (10,516
              )Other
              
              
              -
              
              
              14
              
              
              (1
              )
              
              22
              
              
              -
              
              
              35**Net
                  cash provided by (used in)****operating
                  activities**
              
              
              -
              
              
              6,001
              
              
              14,834
              
              
              (163
              )
              
              -
              
              
              20,672**Cash
                  flows used in investing****activities:**Capital
                  expenditures
              
              
              -
              
              
              (7
              )
              
              (7,143
              )
              
              (441
              )
              
              -
              
              
              (7,591
              )Acquisitions,
                  net of cash acquired
              
              
              -
              
              
              (409
              )
              
              -
              
              
              789
              
              
              -
              
              
              380**Net
                  cash provided by (used in)****investing
                  activities**
              
              
              -
              
              
              (416
              )
              
              (7,143
              )
              
              348
              
              
              -
              
              
              (7,211
              )**Cash
                  flows provided by (used in)****financing
                  activities:**Proceeds
                  from long-term debt
              
              
              -
              
              
              35,500
              
              
              -
              
              
              -
              
              
              -
              
              
              35,500Proceeds
                  from intercompanyinvestment
              
              
              -
              
              
              (2,400
              )
              
              -
              
              
              2,400
              
              
              -
              
              
              -Payments
                  on long-term debt
              
              
              -
              
              
              (23,181
              )
              
              (7,000
              )
              
              (200
              )
              
              -
              
              
              (30,381
              )Equity
                  contribution
              
              
              -
              
              
              261
              
              
              -
              
              
              -
              
              
              -
              
              
              261**Net
                  cash provided by (used in)****financing
                  activities**
              
              
              -
              
              
              10,180
              
              
              (7,000
              )
              
              2,200
              
              
              -
              
              
              5,380Impact
                  of exchange rate movementon
                  cash
              
              
              -
              
              
              -
              
              
              -
              
              
              199
              
              
              -
              
              
              199Net
                  increase (decrease) in cashand
                  cash equivalents
              
              
              -
              
              
              15,765
              
              
              691
              
              
              2,584
              
              
              -
              
              
              19,040Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              -
              
              
              1,923
              
              
              3,483
              
              
              1,388
              
              
              -
              
              
              6,794Cash
                  and cash equivalents at the endof
                  the period
              
              $
              -
              
              $
              17,688
              
              $
              4,174
              
              $
              3,972
              
              $
              -
              
              $
              25,834
 
 
 25
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****COMBINING
                  STATEMENT OF CASH FLOWS****For
                  the Period from January 1, 2004 to February 11,
                  2004**Issuer
              
              
              
              Non-Ply
                  Gem
              
              Guarantor
              
              GuarantorIndustries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Combined(Amounts
                  in thousands)**Cash
                  flows from operating****activities:**Net
                  loss
              
              $
              (3,101
              )
              $
              (5,667
              )
              $
              (249
              )
              $
              5,667
              
              $
              (3,350
              )**Adjustments
                  to reconcile net****loss
                  to cash provided by****(used
                  in) operating activities:**Depreciation
                  and amortizationexpense
              
              
              39
              
              
              1,243
              
              
              91
              
              
              -
              
              
              1,373Non-cash
                  interest expense, net
              
              
              -
              
              
              26
              
              
              -
              
              
              -
              
              
              26Deferred
                  income taxes
              
              
              (5,630
              )
              
              3,920
              
              
              -
              
              
              -
              
              
              (1,710
              )Equity
                  in subsidiaries
              
              
              5,667
              
              
              -
              
              
              -
              
              
              (5,667
              )
              
              -**Changes
                  in operating Assets and****liabilities:**Accounts
                  receivable, net
              
              
              -
              
              
              546
              
              
              1,323
              
              
              -
              
              
              1,869Inventories
              
              
              -
              
              
              (2,742
              )
              
              (482
              )
              
              -
              
              
              (3,224
              )Prepaid
                  expenses and othercurrent
                  assets
              
              
              (45
              )
              
              (185
              )
              
              (30
              )
              
              -
              
              
              (260
              )Accounts
                  payable
              
              
              (27
              )
              
              8,194
              
              
              (402
              )
              
              -
              
              
              7,765Accrued
                  expenses and taxes
              
              
              (820
              )
              
              1,287
              
              
              (1,806
              )
              
              -
              
              
              (1,339
              )Other
              
              
              -
              
              
              498
              
              
              -
              
              
              -
              
              
              498**Net
                  cash provided by (used in)****operating
                  activities**
              
              
              (3,917
              )
              
              7,120
              
              
              (1,555
              )
              
              -
              
              
              1,648**Cash
                  flows provided by (used in)****investing
                  activities:**Capital
                  expenditures
              
              
              -
              
              
              (702
              )
              
              (16
              )
              
              -
              
              
              (718
              )Change
                  in restricted cash
              
              
              -
              
              
              1,118
              
              
              -
              
              
              -
              
              
              1,118Other
              
              
              -
              
              
              1
              
              
              (6
              )
              
              -
              
              
              (5
              )**Net
                  cash provided by (used in)****investing
                  activities**
              
              
              -
              
              
              417
              
              
              (22
              )
              
              -
              
              
              395**Cash
                  flows used in financing****activities:**Payments
                  on long-term debt
              
              
              (35
              )
              
              (54
              )
              
              -
              
              
              -
              
              
              (89
              )Net
                  transfers to former parent
              
              
              -
              
              
              (7,286
              )
              
              (76
              )
              
              -
              
              
              (7,362
              )**Net
                  cash used in financing****activities**
              
              
              (35
              )
              
              (7,340
              )
              
              (76
              )
              
              -
              
              
              (7,451
              )Net
                  increase (decrease) in cashand
                  cash equivalents
              
              
              (3,952
              )
              
              197
              
              
              (1,653
              )
              
              -
              
              
              (5,408
              )Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              3,851
              
              
              2,255
              
              
              2,411
              
              
              -
              
              
              8,517Cash
                  and cash equivalents at the endof
                  the period
              
              $
              (101
              )
              $
              2,452
              
              $
              758
              
              $
              -
              
              $
              3,109
 
  26
  **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                  STATEMENT OF CASH FLOWS****For
                  the Period from January 23, 2004 to October 2,
                  2004**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)**Cash
                  flows from operating****activities:**Net
                  income
              
              $
              18,772
              
              $
              18,772
              
              $
              20,813
              
              $
              3,418
              
              $
              (43,003
              )
              $
              18,772**Adjustments
                  to reconcile net****Income
                  to cash provided by****operating
                  activities:**Depreciation
                  and amortizationexpense
              
              
              -
              
              
              113
              
              
              10,034
              
              
              301
              
              
              -
              
              
              10,448Write
                  off of inventory
              
              
              -
              
              
              -
              
              
              1,974
              
              
              -
              
              
              -
              
              
              1,974Non-cash
                  interest expense, net
              
              
              -
              
              
              2,111
              
              
              -
              
              
              -
              
              
              -
              
              
              2,111Gain
                  on foreign currency transactions
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,596
              )
              
              -
              
              
              (1,596
              )Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              1,027
              
              
              -
              
              
              -
              
              
              1,027Equity
                  in subsidiaries' net income
              
              
              (18,772
              )
              
              (24,231
              )
              
              -
              
              
              -
              
              
              43,003
              
              
              -**Changes
                  in operating Assets and****liabilities**Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              (23,770
              )
              
              (3,273
              )
              
              -
              
              
              (27,043
              )Inventories
              
              
              -
              
              
              -
              
              
              (1,780
              )
              
              (465
              )
              
              -
              
              
              (2,245
              )Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              (689
              )
              
              3,426
              
              
              (225
              )
              
              -
              
              
              2,512Accounts
                  payable
              
              
              -
              
              
              -
              
              
              7,013
              
              
              1,861
              
              
              -
              
              
              8,874Accrued
                  expenses and taxes
              
              
              -
              
              
              8,839
              
              
              1,355
              
              
              3,303
              
              
              -
              
              
              13,497Other
              
              
              -
              
              
              (101
              )
              
              18
              
              
              -
              
              
              -
              
              
              (83
              )**Net
                  cash provided by****operating
                  activities**
              
              
              -
              
              
              4,814
              
              
              20,110
              
              
              3,324
              
              
              -
              
              
              28,248**Cash
                  flows used in investing****activities:**Capital
                  expenditures
              
              
              -
              
              
              (153
              )
              
              (3,111
              )
              
              (213
              )
              
              -
              
              
              (3,477
              )Proceeds
                  from financing obligation
              
              
              -
              
              
              36,000
              
              
              -
              
              
              -
              
              
              -
              
              
              36,000Acquisitions,
                  net of cash acquired
              
              
              -
              
              
              (881,298
              )
              
              -
              
              
              -
              
              
              -
              
              
              (881,298
              )**Net
                  cash used in****investing
                  activities**
              
              
              -
              
              
              (845,451
              )
              
              (3,111
              )
              
              (213
              )
              
              -
              
              
              (848,775
              )**Cash
                  flows provided by (used in)****financing
                  activities:**Proceeds
                  from long-term debt
              
              
              -
              
              
              660,934
              
              
              -
              
              
              30,000
              
              
              -
              
              
              690,934Transfers
                  with subsidiaries
              
              
              -
              
              
              25,498
              
              
              3,744
              
              
              (29,242
              )
              
              -
              
              
              -Payments
                  on long-term debt
              
              
              -
              
              
              (2,480
              )
              
              (14,244
              )
              
              (150
              )
              
              -
              
              
              (16,874
              )Equity
                  contribution
              
              
              -
              
              
              167,007
              
              
              -
              
              
              -
              
              
              -
              
              
              167,007**Net
                  cash provided by (used in)****financing
                  activities**
              
              
              -
              
              
              850,959
              
              
              (10,500
              )
              
              608
              
              
              -
              
              
              841,067Net
                  increase in cash and cashequivalents
              
              
              -
              
              
              10,322
              
              
              6,499
              
              
              3,719
              
              
              -
              
              
              20,540Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Cash
                  and cash equivalents at the endof
                  the period
              
              $
              -
              
              $
              10,322
              
              $
              6,499
              
              $
              3,719
              
              $
              -
              
              $
              20,540
 
 
  27
  **Item
        2.**  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 
 
 The
        information contained in this discussion and in the unaudited Condensed
        Consolidated and Combined 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.
 
 ***General***
 
 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, and vinyl and composite fencing, railing and decking 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 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, railing and decking, and (ii) windows and doors.
 Ply
        Gem
        Holdings, a wholly owned subsidiary of Ply Gem Investment Holdings, Inc.,
        was
        incorporated on January 23, 2004 for the purpose of acquiring Ply Gem
        Industries, Inc. from Nortek (the “Ply Gem Acquisition”). The Ply Gem
        Acquisition was completed on February 12, 2004, when Nortek sold Ply Gem
        Industries, to Ply Gem Holdings, pursuant to the terms of the Stock Purchase
        Agreement among Ply Gem Investment Holdings, Inc., Nortek, Inc., and WDS
        LLC
        dated as of December 19, 2003, as amended. Prior
        to
        February 12, 2004, the date of the Ply Gem Acquisition, Ply Gem Holdings,
        had no
        operations and Ply Gem Industries, was a wholly-owned subsidiary  of
        WDS
        LLC, which was a wholly-owned subsidiary of Nortek.
 
 On
        August
        27, 2004 Ply Gem Industries acquired all of the outstanding capital stock
        of MWM
        Holding, in accordance with a stock purchase agreement entered into among
        Ply
        Gem, MWM Holding and the selling stockholders (the “MW Acquisition”). The
        accompanying financial statements include the operating results of MWM Holding
        from August 27, 2004, the date of acquisition.
 
 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 indenture governing Ply Gem Industries'
        9%
        senior subordinated notes due 2012 place restrictions on the ability of Ply
        Gem
        Industries and our other subsidiaries to pay dividends and otherwise transfer
        assets to us.
 
 ***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.
 
 28
 *Comparability.* The data
        presented for the period ended October 2, 2004 includes predecessor data
        for Ply
        Gem Industries, Inc. from January 1, 2004 to February 11, 2004 and successor
        data for Ply Gem Holdings, Inc. from January 23, 2004 to October 2, 2004
        and
        therefore those periods are not directly comparable. In addition, during
        the
        period January 23, 2004 (inception) through February 11, 2004, Ply Gem Holdings,
        Inc., which ultimately acquired Ply Gem Industries, Inc., conducted no
        operations.
 
 ***Impact
        of commodity pricing***
 
 Our
        principal raw materials, PVC resin and aluminum, have historically been subject
        to rapid price changes. We have in the past been able to substantially pass
        on
        significant cost increases through price increases to our customers. Our
        results
        of operations for individual quarters can and have been impacted by a delay
        between the time of PVC resin and aluminum cost increases and decreases and
        related price changes that we implement in our products.
  ***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 combined and 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 than those assumptions used in our judgments, the results
        could be materially different from our estimates. Management 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 very low based upon our historical experience, a 10%
        change in our allowance for doubtful accounts and our inventory reserve
        estimates at October 1, 2005 would result in a $0.8 million and $0.7 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.
 
 29
 *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 and combined balance sheets
        are
        valued at the lower of cost or market. At October 1, 2005, and December 31,
        2004 approximately
        $13.1 million and $11.7 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
        $1.3 million higher and $1.2 million higher at October 1, 2005 and December
        31,
        2004, 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. 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 the actual results to differ from the estimates
        at the
        time such inventory is disposed or sold.
 
 *Asset
        Impairment.* In
        accordance with SFAS No. 144, we evaluate the realizability of certain
        long-lived assets, which primarily consist of property and equipment and
        intangible assets, based on expectations of non-discounted future cash flows
        for
        each subsidiary 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. Based upon
        our
        most recent analysis, we believe that no material impairment of SFAS No.
        144
        long-lived assets existed at October 1, 2005.
 
 *Goodwill
        Impairment* .
        In
        accordance with SFAS No. 142, we perform an annual test for goodwill impairment.
        We assess goodwill, which is not subject to amortization, 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.
 
 *Insurance
        Liabilities.* We
        record insurance liabilities and related expense for health, workers’
        compensation, product and general liability losses and other insurance reserves
        and 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. We rely heavily
        on
        historical trends and, in certain cases, the advice and calculations of
        third-party actuarial consultants 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.
 
 *Income
        Taxes.* Prior to
        February 12, 2004, federal income taxes have been recorded in our combined
        financial statements based upon our pro rata share of Nortek’s consolidated
        federal tax provision. We account for deferred income taxes using the 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. The amount recorded in our financial statements at December
        31 st of each
        year 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. Subsequent to February 12,
        2004,
        U.S. federal income tax returns are prepared and filed by Ply Gem Investment
        Holdings, Inc. on behalf of itself, Ply Gem Holdings, Inc., Ply Gem Industries,
        Inc. and its subsidiaries. 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 Windows and Doors files separate Canadian income tax returns.
  30
 ***Results
        of Operations***
 
  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 reflect what would have occurred if we had been a separate,
        stand-alone entity during the predecessor periods presented or what will
        occur
        in the future.
  Our
        statement of operations data for the prior year period includes the period
        January 1 through February 11, 2004 for Ply Gem Industries, Inc. and the
        period
        from January 23 to October 2, 2004 for Ply Gem Holdings, Inc. Ply Gem Holdings,
        Inc. had no operations during the period from January 23 to February 11,
        2004.
        The periods were prepared using different bases of accounting and therefore
        are
        not directly comparable. As a result of the Ply Gem Acquisition on February
        12,
        2004, financial statements after that date reflect the impacts of purchase
        accounting.
 
 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.
 
 
 
 **Siding,
        Fencing, Railing and Decking Segment**
 
 
 **For
                  the three months ended**(dollars
                  in thousands)
              
              October
                  1, 2005
              
              October
                  2, 2004(unaudited)
              
              
              
              (unaudited)**Statement
                  of operations data:**Net
                  Sales
              
              
              104,928
              
              
              100.0
              %
              
              106,589
              
              
              100.0
              %Cost
                  of products sold
              
              
              80,866
              
              
              77.1
              %
              
              80,093
              
              
              75.1
              %Gross
                  Profit
              
              
              24,062
              
              
              22.9
              %
              
              26,496
              
              
              24.9
              %S,G&A
                  expense
              
              
              6,522
              
              
              6.2
              %
              
              9,419
              
              
              8.8
              %Amortization
                  of intangible assets
              
              
              804
              
              
              0.8
              %
              
              602
              
              
              0.6
              %Operating
                  earnings
              
              
              16,736
              
              
              15.9
              %
              
              16,475
              
              
              15.5
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the three months ended October 1, 2005 decreased compared to the same
        period
        in 2004 by approximately $1.7 million, or 2%. Net sales were lower than the
        prior year due to lower volume that resulted from soft end use demand in
        repair
        and remodeling markets for our products, partially offset by higher selling
        prices which were increased in response to higher raw material and freight
        costs.
 
 *C* *ost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        three months ended October 1, 2005 increased over the same period in 2004
        by
        approximately $0.8 million, or 1%. The increase in cost of products sold
        was
        primarily due to higher material costs, specifically PVC resin and aluminum,
        both of which saw increases in market prices during the third quarter of
        2005
        compared to the third quarter of 2004 and higher freight expense related
        to
        carrier fuel costs. The increase in material and freight costs were partially
        offset by lower unit sales volume as discussed above. The increase in cost
        of
        products sold as a percentage of net sales was primarily driven by increased
        raw
        material cost and freight cost which have been offset in dollars, but have
        caused margin compression.
 
 
 31
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        three
        months ended October 1, 2005 decreased
        by approximately $2.9 million, or 31%, from the same period in 2004. The
        decrease in SG&A expenses was primarily driven by lower management bonus
        accruals in the third quarter of 2005 and the timing of certain selling and
        administrative expenses. Management does not anticipate SG&A expenses as a
        percentage of sales to change materially going forward.
  **For
                  the nine month periods ended October 1, 2005 and October 2,
                  2004**January
                  1, 2005 to
              
              January
                  23, 2004 to
              
              January
                  1, 2004 to(dollars
                  in thousands)
              
              October
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004(unaudited)
              
              
              
              (unaudited)
              
              
              
              (unaudited)Statement
                  of operations data:Net
                  Sales
              
              
              293,956
              
              
              100.0
              %
              
              272,244
              
              
              100.0
              %
              
              29,546
              
              
              100.0
              %Cost
                  of products sold
              
              
              231,761
              
              
              78.8
              %
              
              207,185
              
              
              76.1
              %
              
              24,281
              
              
              82.2
              %Gross
                  Profit
              
              
              62,195
              
              
              21.2
              %
              
              65,059
              
              
              23.9
              %
              
              5,265
              
              
              17.8
              %S,G&A
                  expense
              
              
              24,317
              
              
              8.3
              %
              
              24,416
              
              
              9.0
              %
              
              4,272
              
              
              14.5
              %Amortization
                  of intangible assets
              
              
              2,416
              
              
              0.8
              %
              
              1,722
              
              
              0.6
              %
              
              303
              
              
              1.0
              %Operating
                  earnings
              
              
              35,462
              
              
              12.1
              %
              
              38,921
              
              
              14.3
              %
              
              690
              
              
              2.3
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the nine months ended October 1, 2005 decreased from the periods January
        1,
        2004 to February 11, 2004 and January 23, 2004 to October 2, 2004 (the “2004
        periods”) by approximately $7.8 million, or 3%. Net sales were lower than prior
        year due to soft customer demand in repair and remodeling markets for both
        our
        vinyl and metal products, partially offset by higher selling prices which
        were
        increased in response to higher raw material and freight costs.
 
 *Cost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        nine months ended October 1, 2005 increased over the 2004 periods by
        approximately $0.3 million. The increase in cost of products sold was due
        to
        higher material costs, specifically PVC resin and aluminum, both of which
        saw
        significant increases in market prices during the first nine months of 2005
        compared to the 2004 periods and higher freight expense related to increased
        market fuel costs. The increase in material and freight costs were partially
        offset by lower unit sales volume as discussed above. The increase in cost
        of
        products sold as a percentage of net sales was primarily driven by increased
        material and freight cost not fully offset by our price increases within
        the
        first nine months of 2005 as compared to the 2004 periods presented.
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for
        the
        nine months ended October 1, 2005 decreased
        by approximately $4.4 million from the 2004 periods. The
        decrease is due to lower marketing expenses as a result of lower sales volume,
        lower management bonus accruals, and the timing of certain selling and
        administrative expenses. Management does not anticipate SG&A expenses as a
        percentage of sales to change materially going forward.
 
 **Windows
        and Doors Segment**
 
 **For
                  the three months ended**(dollars
                  in thousands)
              
              October
                  1, 2005
              
              October
                  2, 2004(unaudited)
              
              
              
              (unaudited)Statement
                  of operations data:Net
                  Sales
              
              
              120,587
              
              
              100.0
              %
              
              72,143
              
              
              100.0
              %Cost
                  of products sold
              
              
              89,606
              
              
              74.3
              %
              
              52,398
              
              
              72.6
              %Gross
                  Profit
              
              
              30,981
              
              
              25.7
              %
              
              19,745
              
              
              27.4
              %S,G&A
                  expense
              
              
              13,135
              
              
              10.9
              %
              
              8,711
              
              
              12.1
              %Amortization
                  of intangible assets
              
              
              1,635
              
              
              1.4
              %
              
              1,172
              
              
              1.6
              %Operating
                  earnings
              
              
              16,211
              
              
              13.4
              %
              
              9,862
              
              
              13.7
              %Currency
                  transaction gain
              
              
              1,282
              
              
              1.1
              %
              
              1,596
              
              
              2.2
              %
 
 32
 *Net
          Sales*
 Net
        sales
        for the three months ended October 1, 2005 increased over the same period
        in
        2004 by approximately $48.4 million. The increase in net sales was primarily
        driven by sales of MW, which contributed approximately $77.9 million to our
        net
        sales during the third quarter of 2005 versus approximately $29.2 million
        for a
        partial third quarter in 2004. Our Western Canadian window sales increased
        by
        $2.4 million, due in part to increased housing starts in the western Canadian
        province of Alberta. Third quarter net sales of our U.S. repair and remodeling
        window products were negatively impacted by general softness in end use demand
        for repair and remodeling windows. Our new repair and replacement window
        products lines that were introduced during the first half of 2005 have been
        well
        received by our customers; however, sales for these new repair and replacement
        windows during the third quarter were dampened by the impact of lower end
        use
        demand in certain regional repair and remodeling markets.
 
 *Cost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        three months ended October 1, 2005 increased
        by approximately $37.2 million over the same period in 2004. The
        increase in cost of products sold was primarily due to net sales contributed
        by
        MW and increased cost of products sold at our Canadian subsidiary related
        to
        higher sales volume. The increase in cost of products sold as a percentage
        of
        net sales was driven by an increased mix of new construction window sales
        contributed by MW. Increased
        raw material costs and freight expenses related to fuel costs were partially
        offset by cost savings and synergies that the Company is realizing from the
        acquisition of MW in August 2004.
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        three
        months ended October 1, 2005 increased
        by approximately $4.4 million over the same period in 2004. The
        increase in SG&A expense was due to the addition of MW operations.
        Management does not anticipate SG&A expenses as a percentage of sales to
        change materially going forward.
  *Amortization
          of intangible assets*
 
 Amortization
          expense for the three months ended October 1, 2005 increased by approximately
          $0.5 million, due to the addition of MW operations during the third quarter
          of
          2004.
   **For
                  the nine month periods ended October 1, 2005 and October 2,
                  2004**January
                  1, 2005 to
              
              January
                  23, 2004 to
              
              January
                  1, 2004 to(dollars
                  in thousands)
              
              October
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004(unaudited)
              
              
              
              (unaudited)
              
              
              
              (unaudited)Statement
                  of operations data:Net
                  Sales
              
              
              333,597
              
              
              100.0
              %
              
              132,263
              
              
              100.0
              %
              
              11,066
              
              
              100.0
              %Cost
                  of products sold
              
              
              251,022
              
              
              75.2
              %
              
              96,822
              
              
              73.2
              %
              
              9,448
              
              
              85.4
              %Gross
                  Profit
              
              
              82,575
              
              
              24.8
              %
              
              35,441
              
              
              26.8
              %
              
              1,618
              
              
              14.6
              %S,G&A
                  expense
              
              
              40,227
              
              
              12.1
              %
              
              17,478
              
              
              13.2
              %
              
              3,040
              
              
              27.5
              %Amortization
                  of intangible assets
              
              
              4,904
              
              
              1.5
              %
              
              1,252
              
              
              0.9
              %
              
              22
              
              
              0.2
              %Operating
                  earning
              
              
              37,444
              
              
              11.2
              %
              
              16,711
              
              
              12.6
              %
              
              (1,444
              )
              
              -13.0
              %Currency
                  transaction gain
              
              
              745
              
              
              0.2
              %
              
              1,596
              
              
              1.2
              %
              
              -
 
 
 *Net
        Sales*
 
 Net
        sales
        for the nine months ended October 1, 2005 increased from the periods January
        1,
        2004 to February 11, 2004 and January 23, 2004 to October 2, 2004 (the “2004
        periods”) by approximately $190.3 million. The increase in net sales was
        primarily driven by sales of MW, which contributed approximately $218.9 million
        to our net sales through the third quarter of 2005 and approximately $29.2
        million during the last month of the third quarter of 2004. Our Western Canadian
        window sales increased by approximately $6.7 million due to favorable economic
        conditions in that region and increased housing starts in the Canadian province
        of Alberta. Net sales for the nine months ended October 1, 2005 of our U.S.
        repair and remodeling window products were negatively impacted by general
        softness in end use demand for repair and remodeling windows and poor weather
        during the mid-February through mid-April timeframe. Additionally, the periods
        presented for 2004 included $1.0 million of net sales attributable to
        Thermal-Gard, which ceased operations in April 2004.
 
 33
 *Cost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        nine months ended October 1, 2005 increased
        by approximately $144.8 million over the 2004 periods. The
        increase in cost of products sold was primarily due to net sales contributed
        by
        MW and increased cost of products sold at our Canadian subsidiary related
        to
        higher sales volume. Thermal-Gard, which ceased operations in April 2004,
        contributed $0.8 million to cost of products sold for the 2004 periods
        presented. The increase in cost of products sold as a percentage of net sales
        was driven by an increased mix of new construction window sales contributed
        by
        MW and the effect of manufacturing inefficiencies that occurred during the
        launch of our new repair and remodeling window product lines during the first
        half of 2005. Increased
        raw material market costs and freight expense related to fuel costs were
        partially offset by cost savings and synergies that the Company is realizing
        from the acquisition of MW in August 2004.
 
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for
        the
        nine months ended October 1, 2005 increased
        by approximately $19.7 million over the 2004 periods. The
        increase in SG&A expense was primarily due to the addition of MW operations,
        which increased SG&A expenses by approximately $19.3 million. Management
        does not anticipate SG&A expenses as a percentage of sales to change
        materially going forward.
  *Amortization
          of intangible assets*
 
 Amortization
          expense for the nine months ended October 1, 2005 increased by
          approximately $3.6 million, due to the addition of MW operations during
          the
          third quarter of 2004.
  **Unallocated
        Operating Earnings, Interest, and Provision for Income Taxes**
 
 **For
                  the Three Months Ended**October
                  1, 2005
              
              October
                  2, 2004(unaudited)
              
              (unaudited)Statement
                  of operations data:Operating
                  earnings
              
              
              (1,537
              )
              
              (1,745
              )Interest
                  expense
              
              
              (14,482
              )
              
              (10,577
              )Investment
                  income
              
              
              244
              
              
              61Income
                  tax provision
              
              
              (7,183
              )
              
              (6,101
              )
 
 
 **For
                  the nine month periods ended October 1, 2005 and October 2,
                  2004**January
                  1, 2005 to
              
              January
                  23, 2004 to
              
              January
                  1, 2004 to(dollars
                  in thousands)
              
              October
                  1, 2005
              
              October
                  2, 2004
              
              February
                  11, 2004(unaudited)
              
              (unaudited)
              
              (unaudited)Statement
                  of operations data:Operating
                  earnings
              
              
              (3,681
              )
              
              (3,196
              )
              
              (791
              )Interest
                  expense
              
              
              (43,157
              )
              
              (23,601
              )
              
              (3,684
              )Investment
                  income
              
              
              467
              
              
              81
              
              
              29Income
                  tax (provision) benefit
              
              
              (10,756
              )
              
              (11,740
              )
              
              1,850
 
 *Interest
        expense* Interest
        expense for the three months ended October 1, 2005 increased by approximately
        $3.9 million over the same period in 2004 as a result of increased borrowings
        due to the MW Acquisition in August of 2004 and higher interest rates on
        our
        variable rate loan. Interest expense for nine months ended October 1, 2005
        increased by approximately $15.9 million over the 2004 periods, primarily
        as a
        result of increased borrowings due to the MW Acquisition and higher interest
        rates in 2005 vs 2004.
 
 *Income
        taxes* The
        income tax expense for the three months ended October 1, 2005 increased
        approximately $1.1 million over the same period in 2004, primarily as a result
        of the greater pre-tax income for the 2005 period versus the 2004 period.
        The
        income tax expense for the nine months ended October 1, 2005 increased
        approximately $0.9 million compared to the 2004 periods, primarily as a result
        of an increase in pre-tax income for the 2005 period versus the 2004
        periods.
 
 
 
 34
 
 
 **Liquidity
        and Capital Resources**
 
 ***Historical***
 
 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
        facility.
 Net
          cash
          provided by operating activities for the first nine months of 2005 and
          the 2004
          periods of January 23, 2004 to October 2, 2004 and January 1, 2004 to February
          11, 2004 was approximately $20.7 million, $28.2 million, and $1.6 million,
          respectively. The decrease in net cash provided by operating activities
          for the
          2005 period compared to the 2004 periods presented was primarily driven
          by two
          semi-annual cash interest payments of bond interest made during 2005 versus
          one
          payment during 2004.
 Net
        cash
        provided by (used in) investing activities for the first nine months of 2005
        and
        the 2004 periods of January 23, 2004 to October 2, 2004 and January 1, 2004
        to
        February 11, 2004 was approximately ($7.2) million, ($848.8) million, and
        $0.4
        million, respectively. The cash used in investing activities during the 2004
        periods was driven by the cash used to fund the Ply Gem and MW Acquisitions.
        Capital expenditures for the first nine months of 2005 increased over the
        2004
        periods presented due to the normal capital requirements of MW which was
        acquired in August 2004.
 
 Net
        cash
        provided by (used in) financing activities for the first nine months of 2005
        and
        the 2004 periods of January 23, 2004 to October 2, 2004 and January 1, 2004
        to
        February 11, 2004 was approximately $5.4 million, $841.1 million and ($7.5)
        million respectively. The cash provided by financing activities for the 2004
        periods was driven by the cash provided from our new capital structure that
        resulted from the consummation of the Ply Gem and MW Acquisitions, which
        includes our senior subordinated notes, senior term loan facilities, our
        senior
        revolving credit facility, and $167.0 million of equity
        contribution.
 
 Our
        capital expenditures for the first nine months of 2005 and the 2004 periods
        of
        and January 23, 2004 to October 2, 2004 and January 1, 2004 to February 11,
        2004
        were approximately $7.6 million, $3.5 million and $0.7 million, respectively.
        The capital expenditures during the first nine months of 2005 includes
        expenditures of approximately $3.7 million for MW, which was purchased during
        the third quarter of 2004.
 
 ***Impact
        of the Ply Gem Acquisition and the MW Acquisition***
 
 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 senior
        credit facilities. As of October 1, 2005, we had $677.0 million of indebtedness
        and $54.9 million of availability under our revolving credit facility. The
        Company’s senior credit facility with a syndicate of financial institutions and
        institutional lenders provides for senior secured financing of up to
        $381.0 million, consisting of $311.0 million of term loan facilities
        with a maturity of seven years after the original date of the credit agreement
        (February 12, 2004) and a $70.0 million revolving loan facility, including
        a letter of credit subfacility, with a maturity of five years. The term loan
        facilities were drawn in full in connection with the consummation of the
        Ply Gem
        and MW Acquisitions. The term loan facilities have three tranches, consisting
        of: i) a $170.0 million tranche under which Ply Gem Industries,
        Inc.
        is the borrower, ii) a $30.0 million tranche under which our Canadian
        subsidiary, CWD Windows and Doors, Inc., is the borrower, and iii) a $111.0
        million tranche under which Ply Gem Industries, Inc. is the borrower,
        which
        was added to the facility August 27, 2004, as a result of the financing for
        the
        MW acquisition. Concurrently with the Ply Gem Acquisition, Ply Gem Industries,
        Inc. issued $225.0 million aggregate principal amount of our 9% senior
        subordinated notes due 2012, which are guaranteed by Ply Gem Holdings Inc.
        and
        the domestic subsidiaries of Ply Gem Industries, Inc. Subsequently, in
        connection with the MW Acquisition, Ply Gem Industries, Inc. issued an
        additional $135.0 million of our 9% senior subordinated notes due 2012, which
        are guaranteed by Ply Gem Holdings Inc. and the domestic subsidiaries of
        Ply Gem
        Industries, Inc.
  During
        December 2004, Ply Gem Industries repaid the entire amount borrowed against
        the
        revolving credit facility. Also during December 2004, Ply Gem Industries
        prepaid
        $5.0 million of the $30.0 million tranche under which our Canadian subsidiary,
        CWD Windows and Doors, Inc. is the borrower.
  35
 During
        the first quarter of 2005, Ply Gem Industries borrowed $35.5 million under
        the
        revolving credit facility to fund our seasonal working capital requirements
        and
        first quarter capital expenditures. During the second and third quarters
        of
        2005, Ply Gem Industries repaid $21.5 million of the amount borrowed against
        the
        revolving credit facility. As of October 1, 2005, we had $54.9 million of
        availability under our revolving credit facility.
  The
        borrowings under the revolving credit facility will be available until its
        maturity to fund our working capital requirements, capital expenditures and
        other general corporate needs. The revolving credit facility will mature
        five
        years after the closing of the Ply Gem Acquisition and will have no scheduled
        amortization or commitment reductions. The term loan facilities will mature
        seven years after the closing of the Ply Gem Acquisition and have quarterly
        scheduled amortizations of $0.5 million beginning in the quarter ended July
        3,
        2004 and for the next 23 calendar quarters thereafter, $45.8 million on each
        of
        June 30, 2010, September 30, 2010, December 31, 2010, and $156.6 million
        on the
        maturity date.
 
 On
        July
        25, 2005, the Company entered into an amendment to its credit facility. Under
        the terms of the amended agreement, the Company will be permitted to use
        its
        excess cash flow and/or a portion of its revolving credit facility to repurchase
        up to $25.0 million aggregate principal amount of the Company’s 9% Senior
        Subordinated Notes due 2012. Subject to market conditions, its capital needs
        and
        other factors, the Company may from time to time purchase up to $25.0 million
        aggregate principal amount of its 9% Senior Subordinated Notes due 2012 in
        market transactions, privately negotiated sales or other transactions. As
        of
        October 1, 2005 the company has not yet purchased any of its Senior Subordinated
        Notes.
 
 The
        senior credit facilities and the indenture for the senior subordinated notes
        impose certain restrictions on Ply Gem Industries, Inc., including restrictions
        on its ability to incur indebtedness, pay dividends, make investments, grant
        liens, sell assets and engage in certain other activities. The terms of the
        senior credit facilities and the senior subordinated notes also significantly
        restrict the ability of Ply Gem Industries, Inc. to pay dividends and otherwise
        distribute assets to Ply Gem Holdings, Inc. In addition, the senior credit
        facilities require Ply Gem Industries, Inc. to comply with certain financial
        ratios. Indebtedness under the senior credit facilities is secured by
        substantially all of Ply Gem Industries Inc.’s assets, including its real and
        personal property, inventory, accounts receivable, intellectual property
        and
        other intangibles. In addition, our U.S. senior credit facilities are guaranteed
        by Ply Gem Holdings, Inc. and secured by its assets (including its equity
        interests), as well as guaranteed and secured by the equity interests and
        substantially all of the assets of our current and, if any, future domestic
        subsidiaries, subject to exceptions.
 
 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 greatest capital needs is experienced during
        the
        first six months of the year and we anticipate the need to borrow funds under
        our existing revolving credit facility to support this requirement. However,
        we
        anticipate that the funds generated by operations and funds available under
        our
        new senior credit facilities will be adequate to finance our ongoing operational
        cash flow needs, capital expenditures (as described above), debt service
        obligations, management incentive expenses, fees payable under the General
        Advisory Agreement with a Caxton-Iseman party, dated February 12, 2004 (the
        “General Advisory Agreement”), and other contractual obligations for the
        foreseeable future.
 
 
 **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.
 
 36
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004)
        (“SFAS
        123R”), “Share-Based Payment”. SFAS 123R establishes standards for the
        accounting for transactions in which an entity exchanges its equity instruments
        for goods and services or incurs liabilities in exchange for goods or services
        that are based on the fair value of the entity’s equity instruments or that may
        be settled by the issuance of those equity instruments. SFAS 123R requires
        a
        public entity to measure the cost of employee services received in exchange
        for
        an award of equity instruments based on the grant-date fair value of the
        award
        and to recognize that cost over the period during which an employee is required
        to provide service in exchange for the award. Due to the Securities and Exchange
        Commission’s delay of the effective date, the Company plans to adopt the
        provisions of SFAS 123R for the first quarter of our fiscal year ending December
        31, 2006. At this time, we do not anticipate that the adoption of this statement
        will have a material effect on our consolidated financial position or results
        of
        operations.
 
 In
        March 2005, the FASB issued Financial Interpretation No. 47,
        "Accounting for Conditional Asset Retirement Obligations" (FIN 47). FIN 47
        clarifies the term, conditional asset retirement obligation, as used in SFAS
        No. 143 "Accounting for Asset Retirement Obligations," which refers
        to a
        legal obligation to perform an asset retirement activity in which the timing
        and
        (or) method of settlement are conditional on a future event. Uncertainty
        about
        the timing and (or) method of settlement of a conditional asset retirement
        obligation should be factored into the measurement of the liability when
        sufficient information exists. FIN 47 is effective no later than the end
        of
        fiscal years ending after December 15, 2005. We are evaluating the
        effect
        FIN 47 will have on our consolidated financial statements.
  **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 indenture governing the notes and our senior credit
                  facilities;
  ·
              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 are set forth
        in
        our 2004 Annual Report on Form 10-K. We undertake no obligation to update
        the
        forward-looking statements in this filing.
  
  37
  
 **Item
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET R** **ISK**
  
 Our
        principal interest rate exposure relates to the term loans outstanding under
        our
        new senior credit facilities. We have approximately $302.7 million of term
        loans
        outstanding, 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. Each quarter point increase or decrease in the interest
        rate on
        the term loans would change our interest expense by approximately $0.8 million
        per year. We also have a revolving credit facility which provides for borrowings
        of up to $70.0 million, which will also bear interest at variable rates in
        the
        same manner as the term loan facilities. Assuming the new revolving credit
        facility is fully drawn, each quarter point increase or decrease in the
        applicable 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 or fixed rate interest payments, to reduce our exposure
        to
        interest rate volatility.
 Our
        term
        loan facility has three tranches. Outstanding balances consist of a $167.2
        million tranche under which Ply Gem Industries, Inc. is the borrower, a $110.9
        million tranche under which Ply Gem Industries, Inc. is the borrower, and
        a
        $24.6 million tranche under which our Canadian subsidiary is the borrower.
 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 nine months
        ended October 1, 2005, the net impact of foreign currency changes to the
        Company’s results of operations was a gain of $0.7 million. The impact of
        foreign currency changes related to translation resulted in an increase in
        stockholder’s equity of approximately $1.3 million for the nine months ended
        October 1, 2005. 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 nine months
        ended October 1, 2005, we did not have any significant outstanding foreign
        currency hedging contracts.
 
  
 **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
        October
        1, 2005 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.
  As
        previously disclosed in our Annual Report of Form 10-K for the year ended
        December 31, 2004, we implemented additional review procedures over the
        application of sale leaseback accounting. There were no other
        changes in our
        internal control over financial reporting that occurred during the quarter
        ended
        October 1, 2005 that have materially affected, or are reasonably likely to
        materially affect, our internal control over financial reporting.
  
   38
  
  **PART
        II - OTHER INFORMATION**
 
 
 **Item
        5.     OTHER INFORMATION**
 
 On
        November 4, 2005 Ply Gem Holdings, Inc. announced that Lee D. Meyer, its
        President and Chief Executive Officer since 2002, informed the Board of
        Directors of his intention to retire in 2006. No
        specific date for Mr. Meyer’s retirement has been established and he has agreed
        to remain with the Company in his current role until a successor has been
        identified and for any transition period that the Company may desire. The
        Board
        of Directors is preparing to initiate a process to identify a successor. Following
        his departure from the Company, Mr. Meyer will maintain a significant financial
        and equity interest in the Company and his services will be retained on an
        advisory basis for an extended period.
 
 
 
  
 **Item
        6.**   **EXHIBITS**
 
 ***(a)***  ***Exhibits***
 
 
 Exhibit
        No.   Description
        of Exhibit
 
 10.1
              Amendment
                  No. 1 to the Second Amended and Restated Credit Agreement dated
                  as ofJuly
                  25, 2005,
                  among Ply Gem Industries, Inc., the guarantors named therein, UBS
                  Securities LLC, and the agents and combined lenders identified
                  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*32.1
              Certification
                  by President and Chief Executive Officer pursuant to 18 U.S.C Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  200232.2
              Certification
                  by Executive Vice President and Chief Financial Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
 
  Filed
        herewith.
  
 
 
 
 
 
 
 39
 
 
 
 **SIGNATURES**
 
 Pursuant
          to the requirements of the Securities Exchange Act of 1934, the
          registrant
          has duly caused this report to be signed on its behalf by the undersigned
          thereunto duly authorized.
  PLY
                    GEM HOLDINGS, INC.
                  (Registrant)Date: November
                  14, 2005
                By:
                /s/ Lee
                  D. MeyerLee
                    D. MeyerPresident
                  and Chief Executive Officer
  PLY
                  GEM HOLDINGS, INC.Date: November
                  14, 2005
                By:
                /s/ Shawn
                  K. PoeShawn
                    K. PoeVice
                    President, Chief Financial Officer,
                  Treasurer
                    and Secretary
    40