**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 July 1, 2006
 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 [ ]  No [X
        ] *
 
 Indicate
        by check mark whether registrant is a large accelerated filer, an accelerated
        filer, or a non-accelerated filer. See definition of “accelerated filer and
        large accelerated filer” in Rule 12b-2 of the Exchange Act.
 Large
        accelerated filer   [ ]   Accelerated filer  [ ]
    Non-accelerated filer  [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 August 14, 2006, there were 100 shares of common stock, $0.01 par value,
        outstanding.
 
 ***** The
        registrant is not required to file this Quarterly Report on Form 10-Q pursuant
        to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing
        is
        required, however, pursuant to the terms of the indenture governing Ply Gem
        Industries, Inc.’s 9% senior subordinated notes due 2012.
  
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **FORM
        10-Q**
 **QUARTERLY
        PERIOD ENDED JULY 1, 2006**
 
 **CONTENTS**
 
 **PART
                    I - FINANCIAL INFORMATION**Item
                    1.
                Condensed
                    Consolidated Financial StatementsCondensed
                    Consolidated Statements of Operations -Three
                    months ended July 1, 2006 and July 2, 2005
                2Condensed
                    Consolidated Statements of Operations -Six
                    months ended July 1, 2006 and July 2, 2005
                3Condensed
                    Consolidated Balance Sheets -July
                    1, 2006 and December 31, 2005
                4Condensed
                    Consolidated Statements of Cash Flows -Six
                    months ended July 1, 2006 and July 2, 2005
                5Notes
                    to Condensed Consolidated Financial Statements
                6Item
                    2.
                Management’s
                    Discussion and Analysis of Financial ConditionAnd
                    Results of Operations
                26Item
                    3.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                37Item
                    4.
                Controls
                    and Procedures
                37**PART
                    II - OTHER INFORMATION**Item
                    1 A.
                Risk
                    Factors
                38Item
                    6.
                Exhibits
                38Signatures
                
                39
 
 
  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****July
                  1,**
              
              **July
                  2,****2006**
              
              **2005**(Amounts
                  in thousands)Net
                  Sales
              
              $288,111
              
              $230,303Costs
                  and Expenses:Cost
                  of products sold
              
              
              219,251
              
              
              174,842Selling,
                  general and administrative expense
              
              
              31,835
              
              
              23,692Amortization
                  of intangible assets
              
              
              2,971
              
              
              2,441Total
                  Costs and Expenses
              
              
              254,057
              
              
              200,975Operating
                  earnings
              
              
              34,054
              
              
              29,328Foreign
                  currency gain (loss)
              
              
              1,164
              
              
              (233
              )Interest
                  expense
              
              
              (17,198
              )
              
              (14,073
              )Investment
                  income
              
              
              257
              
              
              144Other
                  expense
              
              
              (441
              )
              
              -Income
                  before provision for income taxes
              
              
              17,836
              
              
              15,166Provision
                  for income taxes
              
              
              6,958
              
              
              6,058Net
                  Income
              
              $
              10,878
              
              $
              9,108
  
 See
        accompanying notes to condensed consolidated financial
        statements.
  2
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 
 
 
 **For
                  the six months ended**July
                  1,
              
              July
                  2,2006
              
              2005(Amounts
                  in thousands)Net
                  Sales
              
              $
              504,422
              
              $
              402,038Costs
                  and Expenses:Cost
                  of products sold
              
              
              392,299
              
              
              312,608Selling,
                  general and administrative expense
              
              
              58,316
              
              
              46,734Amortization
                  of intangible assets
              
              
              5,524
              
              
              4,881Total
                  Costs and Expenses
              
              
              456,139
              
              
              364,223Operating
                  earnings
              
              
              48,283
              
              
              37,815Foreign
                  currency gain (loss)
              
              
              1,093
              
              
              (537
              )Interest
                  expense
              
              
              (32,524
              )
              
              (28,675
              )Investment
                  income
              
              
              413
              
              
              223Other
                  expense
              
              
              (2,497
              )
              
              -Income
                  before income taxes andcumulative
                  effect of accounting change
              
              
              14,768
              
              
              8,826Provision
                  for income taxes
              
              
              5,720
              
              
              3,573Income
                  before cumulative effectof
                  accounting change
              
              
              9,048
              
              
              5,253Cumulative
                  effect of accounting change,net
                  of income tax benefit of $57
              
              
              (86
              )
              
              -Net
                  Income
              
              $
              8,962
              
              $
              5,253
  
 See
        accompanying notes to condensed consolidated financial statements.
 
 
  3
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED** **** **CONSOLIDATED
        BALANCE SHEETS**
 **(UNAUDITED)**
 July
                  1,
              
              December
                  31,2006
              
              2005(Amounts
                  in thousands, exceptshare
                  amounts)**ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              25,131
              
              $
              22,173Accounts
                  receivable, less allowances of $8,340 and $8,320, respectively
              
              
              113,675
              
              
              70,357Inventories:Raw
                  materials
              
              
              41,646
              
              
              31,415Work
                  in process
              
              
              7,001
              
              
              5,080Finished
                  goods
              
              
              20,697
              
              
              18,723Total
                  inventory
              
              
              69,344
              
              
              55,218Prepaid
                  expenses and other current assets
              
              
              12,395
              
              
              9,427Deferred
                  income taxes
              
              
              14,918
              
              
              13,330Total
                  current assets
              
              
              235,463
              
              
              170,505**Property
                  and Equipment, at cost:**Land
              
              
              1,377
              
              
              2,020Buildings
                  and improvements
              
              
              13,710
              
              
              15,568Machinery
                  and equipment
              
              
              136,554
              
              
              119,225Total
                  property and equipment
              
              
              151,641
              
              
              136,813Less
                  accumulated depreciation
              
              
              (34,970
              )
              
              (27,085
              )Total
                  property and equipment, net
              
              
              116,671
              
              
              109,728**Other
                  Assets:**Goodwill
              
              
              671,816
              
              
              578,992Intangible
                  assets, less accumulated amortization of $21,030 and $15,506,respectively
              
              
              175,537
              
              
              152,894Other
              
              
              40,409
              
              
              37,879Total
                  other assets
              
              
              887,762
              
              
              769,765$
              1,239,896
              
              $
              1,049,998**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities:**Current
                  maturities of long-term debt
              
              $
              4,000
              
              $
              1,692Accounts
                  payable
              
              
              60,182
              
              
              42,342Accrued
                  expenses and taxes
              
              
              78,392
              
              
              64,019Total
                  current liabilities
              
              
              142,574
              
              
              108,053Deferred
                  income taxes
              
              
              74,076
              
              
              58,184Other
                  long term liabilities
              
              
              34,696
              
              
              32,471Long-term
                  debt, less current maturities
              
              
              755,253
              
              
              635,776**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
              
              
              183,221
              
              
              175,461Retained
                  earnings
              
              
              46,869
              
              
              37,907Accumulated
                  other comprehensive income
              
              
              3,207
              
              
              2,146Total
                  Stockholders' Equity
              
              
              233,297
              
              
              215,514$
              1,239,896
              
              $
              1,049,998
 
 
 
 See
        accompanying notes to condensed consolidated financial
        statements.
  4
  **PLY
        GEM HOLDINGS, INC. AND SUBSIDIARIES**
  **CONDENSED** **** **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
  **(UNAUDITED)**
   **For
                  the six months ended**July
                  1,
              
              July
                  2,2006
              
              2005(Amounts
                  in thousands)**Cash
                  flows from operating activities:**Net
                  Income
              
              $
              8,962
              
              $
              5,253**Adjustments
                  to reconcile net income to****cash
                  provided by operating activities:**Depreciation
                  and amortization expense
              
              
              14,544
              
              
              13,005Fair
                  value premium on purchased inventory
              
              
              304
              
              
              -Non-cash
                  interest expense, net
              
              
              2,662
              
              
              2,377(Gain)
                  loss on foreign currency transactions
              
              
              (1,093
              )
              
              537Loss
                  on sale of asset
              
              
              572
              
              
              -Other
                  non-cash items
              
              
              2,482
              
              
              -Deferred
                  income taxes
              
              
              2,792
              
              
              (1,404
              )**Changes
                  in operating assets and****liabilities,
                  net of effects from acquisitions:**Accounts
                  receivable, net
              
              
              (32,711
              )
              
              (30,073
              )Inventories
              
              
              (7,002
              )
              
              (7,050
              )Prepaid
                  expenses and other current assets
              
              
              2,136
              
              
              (2,210
              )Accounts
                  payable
              
              
              11,502
              
              
              28,585Accrued
                  expenses and taxes
              
              
              7,632
              
              
              (22
              )Other
              
              
              (177
              )
              
              30**Net
                  cash provided by operating activities**
              
              
              12,605
              
              
              9,028**Cash
                  flows from investing activities:**Capital
                  expenditures
              
              
              (10,875
              )
              
              (5,160
              )Proceeds
                  from sale of building
              
              
              497
              
              
              -Acquisition
                  of business, net of cash acquired
              
              
              (120,710
              )
              
              482Other
              
              
              -
              
              
              -**Net
                  cash used in investing activities**
              
              
              (131,088
              )
              
              (4,678
              )**Cash
                  flows from financing activities:**Proceeds
                  from long-term debt
              
              
              122,808
              
              
              -Proceeds
                  from revolver borrowings
              
              
              15,000
              
              
              35,500Payments
                  on long-term debt
              
              
              (1,000
              )
              
              (8,394
              )Payments
                  on revolver borrowings
              
              
              (15,000
              )
              
              (11,500
              )Debt
                  issuance costs
              
              
              (2,249
              )
              
              -Equity
                  contribution
              
              
              1,725
              
              
              (150
              )**Net
                  cash provided by financing activities**
              
              
              121,284
              
              
              15,456Impact
                  of exchange rate movements on cash
              
              
              157
              
              
              7Net
                  increase in cash and cash equivalents
              
              
              2,958
              
              
              19,813Cash
                  and cash equivalents at the beginning of the period
              
              
              22,173
              
              
              6,794Cash
                  and cash equivalents at the end of the period
              
              $
              25,131
              
              $
              26,607
 
  See
        accompanying notes to condensed consolidated financial
        statements.
  5
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
  **1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES** 
 **Basis
        of Presentation**
 
 The
        accompanying unaudited condensed consolidated financial statements of Ply
        Gem
        Holdings, Inc. (referred to herein as “Ply Gem”, the “Company”, “we”, “us”, or
“our”) have been prepared in accordance with U.S. generally accepted accounting
        principles as described in the consolidated financial statements and related
        notes included in our 2005 Annual Report on Form 10-K filed with the Securities
        and Exchange Commission on March 27, 2006. 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 2005 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, 2006 through July
        1,
        2006 are not necessarily indicative of the results that may be expected for
        the
        year ended December 31, 2006.
 
 The
        condensed consolidated balance sheet at December 31, 2005 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.
 
 On
        February 24, 2006, Ply Gem completed the purchase of AWC Holding Company
        (“AWC”,
        and together with its subsidiaries, “Alenco”) (the “Alenco Acquisition”) in
        accordance with a securities purchase agreement entered into among Ply Gem,
        all
        of the direct and indirect stockholders, warrant holders and stock option
        holders of AWC and FNL Management Corp., an Ohio corporation, as their
        representative (the “Securities Purchase Agreement”). Pursuant to the Securities
        Purchase Agreement, Ply Gem purchased all of the issued and outstanding shares
        of common stock, warrants to purchase shares of common stock and options
        to
        purchase common stock of AWC (other than certain shares of common stock of
        AWC
        held by certain members of the senior management of Alenco (the “Rollover
        Shares”) that were contributed separately to Ply Gem Prime Holdings, Inc., the
        new parent company of Ply Gem Investment Holdings, Inc., in exchange for
        shares
        of capital stock of Ply Gem Prime Holdings, Inc.). Immediately following
        the
        completion of the Alenco Acquisition, AWC became a wholly owned subsidiary
        of
        Ply Gem.
 
 On
        February 24, 2006 in connection with the Alenco Acquisition, a new holding
        company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving
        Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc.
        became the sole shareholder of Ply Gem Investment Holdings, Inc., each
        outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was
        converted into a share of a corresponding class of shares of the capital
        stock
        of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed
        Ply Gem
        Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings
        2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock
        Plan.
        In connection therewith, each outstanding stock option and phantom unit of
        Ply
        Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option
        and phantom unit of Ply Gem Prime Holdings, Inc.
 
 The
        accompanying financial statements include the consolidated results of operations
        for the Company for the three month and six month periods ended July 1, 2006
        and
        July 2, 2005, and consolidated financial position for the Company as of
        July
        1, 2006 and December 31, 2005. The
        accompanying financial statements include the results of operations of Alenco
        for the period after the acquisition date of February 24, 2006.
 
 Ply
        Gem
        is a diversified manufacturer of residential and commercial building products,
        which are sold primarily in the United States and Canada, and include a wide
        variety of products for the residential and commercial construction, the
        do-it-yourself and the professional remodeling and renovation
        markets.
 The
        demand for our products is seasonal, particularly in the Northeast and Midwest
        regions of the United States and Western Canada where inclement weather during
        the winter months usually reduces the level of building and remodeling activity
        in both the home repair and remodeling and new home construction sectors.
        Our
        sales are usually lower during the first and fourth quarters.
  6
 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**
 
 The
        consolidated financial statements include the accounts of Ply Gem Holdings,
        Inc.
        and its subsidiaries, all of which are wholly owned. All intercompany accounts
        and transactions have been eliminated.
 
 **Accounting
        Policies and Use of Estimates**
 
 The
        preparation of these consolidated financial statements in conformity with
        generally accepted accounting principles in the United States involves estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities as of the date of the financial
        statements and the reported amounts of income and expense during the reporting
        periods. Certain of the Company’s accounting policies require the application of
        judgment in selecting the appropriate assumptions for calculating financial
        estimates. By their nature, these judgments are subject to an inherent degree
        of
        uncertainty. The Company periodically evaluates the judgments and estimates
        used
        in their critical accounting policies to ensure that such judgments and
        estimates are reasonable for their interim and year-end reporting requirements.
        These judgments are based on the Company’s historical experience, current trends
        and information available from other sources, as appropriate. If different
        conditions result from those assumptions used in the Company’s judgments, the
        results could be materially different from the Company’s estimates.
 
 **Inventories**
 
 Inventories
        in the accompanying consolidated balance sheets are valued at the lower of
        cost
        or market. At July 1, 2006 and December 31, 2005, approximately $11.2 million
        and $9.8 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 $2.8 million higher
        at July 1, 2006 and at December 31, 2005. 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**
  The
        Company has 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 General Advisory Agreement, the Company expensed
        management fees to the Caxton-Iseman Party of approximately $0.8 million
        and
        $0.7 million for the three month periods ended July 1, 2006 and July 2, 2005,
        respectively, and approximately $1.2 million and $1.0 million for the six
        month
        periods ended July 1, 2006 and July 2, 2005, respectively. All of the payments
        made under the General Advisory Agreement have been expensed as
        incurred.
  In
        connection with the Alenco Acquisition, pursuant to the General Advisory
        Agreement, in March 2006 the Company paid the Caxton-Iseman Party a transaction
        fee equal to 2% of the purchase price of AWC Holding Company ($2.4 million).
        Approximately $2.0 million of the fee was included in the AWC purchase price
        and
        approximately $0.4 million related to financing services was
        expensed.
   **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
        six month periods ending July 1, 2006 and July 2, 2005, the Company recorded
        a
        gain from foreign currency transactions of approximately $1.1 million and
        a loss
        of approximately $0.5 million, respectively. As of July 1, 2006, and December
        31, 2005 accumulated other comprehensive income included a currency translation
        adjustment of approximately $4.7 million and $3.6 million,
        respectively.
  **Concentration
        of Credit Risk**
  T he
        accounts receivable balance related to one customer of our siding, fencing,
        railing and decking segment was approximately $19.2 million and $6.3 million
        at
        July 1, 2006 and December 31, 2005, respectively. This customer accounted
        for
        approximately 18.7% of net sales for the six month period ended July 1, 2006
        and
        approximately 18.9% of net sales for the year ended December 31,
        2005.
 
  **Fair
        Value of Financial Instruments**
  The
        carrying value of the Company’s senior subordinated notes at July 1, 2006 and
        December 31, 2005 was approximately $360.3. The fair value of the Company’s
        senior subordinated notes at July 1, 2006 and December 31, 2005 was estimated
        to
        be approximately $327.6 million and $319.5 million, respectively, based on
        available market information. The carrying value of the Company’s other
        financial instruments approximates their fair value.
  
 **New
        Accounting Pronouncements**
 
 In
        June
        2006, the FASB issued Financial Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (FIN
        48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
        in accordance with FASB Statement No. 109, *Accounting
        for Income Taxes* .
        The
        interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. FIN 48 is effective for the fiscal
        year
        ending December 31, 2007. The Company is currently evaluating the effect
        FIN 48
        will have on its consolidated financial statements.
 
   8
 
  **2.**
            **PURCHASE
                ACCOUNTING** 
 
 On
        February 24, 2006, Ply Gem completed the Alenco Acquisition. 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
        Alenco based upon fair values as of the date of the purchase. Alenco is a
        leading regional manufacturer of aluminum and vinyl windows and doors for
        the
        new home construction market in the fast-growing Southern regions of the
        United
        States. The addition of Alenco will expand the Company’s geographical reach into
        the southern regions and completes our window products offering with
        aluminum.
 
 The
        purchase price, including approximately $6.0 million of value attributed to
        Ply Gem Prime Holdings, Inc. common stock issued to replace AWC Holding Company
        employee's forfeited AWC Holding Company stock, was allocated to the assets
        and liabilities based on their estimated fair values.
 
 *(in
                  thousands)*Other
                  current assets, net of cash
              
              $                  
                  16,607Inventories
              
              
              7,312Property,
                  plant and equipment
              
              
              10,580Trademarks
              
              
              7,000Customer
                  relationships
              
              
              21,950Goodwill
              
              
              91,062Other
                  assets
              
              
              198Current
                  liabilities
              
              
              (11,883
              )Other
                  liabilities
              
              
              (16,081
              )Purchase
                  price, net of cash acquired
              
              $
              126,745
 
 We
        have
        estimated the fair value of our assets and liabilities and the lives of those
        assets being amortized or depreciated, as of the Alenco Acquisition date,
        utilizing information available at the time our consolidated financial
        statements were prepared. The company has hired a third-party valuation
        specialist to establish the fair value of Alenco’s property, plant and equipment
        and the fair value of identifiable intangible assets. At the date of this
        filing, the purchase price has been updated for estimates of fair values,
        but
        the appraisals have not yet been finalized. As a result of the final valuations,
        values assigned to property, plant and equipment, identifiable intangible
        assets, and goodwill could change. Management is also assessing certain
        liabilities assumed in the transaction and tax-related assets and
        liabilities.
 
 Expenses
        of approximately $2.5 million were recognized as ‘other expense’ during the
        first six months of 2006 for third-party charges associated
        with acquisition financing costs.
 
 Unaudited
        pro forma results of operations for the six month periods ended July 1, 2006
        and
        July 2, 2005, and the three month period ended July 2, 2005 as if the purchase
        had occurred at the beginning of the
        periods are as follows:
 
 Six
                  months
                Ended
                July
                  1, 2006
              
              Six
                  months
                Ended
                July
                  2, 2005(Amounts
                  in thousands)Net
                  sales
              
              $
              525,685
              
              $
              468,837Net
                  income
              
              
              10,042
              
              
              7,125
 
 Three
                  months
                Ended
                July
                  2, 2005(Amounts
                  in thousands)Net
                  sales
              $
              267,070Net
                  income
              
              10,140
 
 
 
 9
 
 
 **3.**
            **INTANGIBLE
                ASSETS AND GOODWILL** 
 The
        table
        that follows presents the components of intangible assets as of July 1, 2006
        and
        December 31, 2005:
 
 Average
                  Amortization
                  Period
                  (in
                    Years)
                
                Cost
                
                Accumulated
                  Amortization
                
                Net
                    Carrying
                  Value*(Amounts
                    in thousands)***As
                    of July 1, 2006:**Patents
                13
                $
                12,000
                
                $
                (2,191
                )
                $
                9,809Trademarks/Tradenames
                15
                
                32,
                    145
                
                
                (4,320
                )
                
                27,825Customer
                    relationships
                14
                
                119,923
                
                
                (14,520
                )
                
                105,403Total
                    intangible assets
                
                $
                164,068
                
                $
                (21,031
                )
                $
                143,037Intangible
                    with indefinite lives:Trademarks
                
                $
                32,500
                
                $
                --
                
                $
                32,500**As
                    of December 31, 2005:**Patents
                13
                $
                12,000
                
                $
                (1,738
                )
                $
                10,262Trademarks/Tradenames
                15
                
                25,900
                
                
                (3,301
                )
                
                22,599Customer
                    relationships
                14
                
                98,000
                
                
                (10,467
                )
                
                87,533Total
                    intangible assets
                
                $
                135,900
                
                $
                (15,506
                )
                $
                120,394Intangible
                    with indefinite lives:Trademarks
                
                $
                32,500
                
                $
                --
                
                $
                32,500
 
 
 Amortization
        expense for the six month periods ended July 1, 2006 and July 2, 2005 was
        approximately $5.5 million and $4.9 million, respectively. Amortization expense
        for the remainder of 2006, and for the five succeeding fiscal years is estimated
        to be approximately $5.8 million, $11.6 million, $11.6 million, $11.6 million,
        $11.6 million, and $11.5 million, respectively. These estimates are subject
        to
        refinement as the purchase price allocation for the Alenco Acquisition is
        finalized which could impact the value of, and/or amortization period of,
        intangible assets. Due to the Sarver facility closure, intangible asset
        impairments of approximately $0.8 million were recognized as Selling, general
        and administrative expense.
 
 Goodwill
        increased by approximately $91.1 million for the Alenco Acquisition, and
        approximately $1.8 million due to currency translation changes.
 
 
 
 
 **4.**
            **COMPREHENSIVE
                INCOME** 
 Comprehensive
        income is comprised of the following:
  **Three
                  Months Ended**
              
              **Six
                  Months Ended**July
                  1, 2006
              
              July
                  2, 2005
              
              July
                  1, 2006
              
              July
                  2, 2005*(Amounts
                  in thousands)*Net
                  income
              
              $
              10,878
              
              $
              9,108
              
              $
              8,962
              
              $
              5,253Foreign
                  currency translation adjustment
              
              
              1,404
              
              
              (175
              )
              
              1,061
              
              
              (326
              )Comprehensive
                  income
              
              $
              12,282
              
              $
              8,933
              
              $
              10,023
              
              $
              4,927
 
 
 
 10
 **5.**
            **LONG-TERM
                DEBT** 
 Long-term
        debt in the accompanying consolidated balance sheets at July 1, 2006 and
        December 31, 2005 consists of the following:
 
 July
                  1, 2006
              
              December
                  31, 2005*(Amounts
                  in thousands)*Senior
                  term loan facility
              
              $
              399,000
              
              $
              277,192Senior
                  revolving credit facility
              
              
              -
              
              
              -Senior
                  subordinated notes
              
              
              360,253
              
              
              360,276759,253
              
              
              637,468Less
                  current maturities
              
              
              4,000
              
              
              1,692$
              755,253
              
              $
              635,776
 
  The
        Company’s senior credit facility with a syndicate of financial institutions and
        institutional lenders provides for senior secured financing of up to
        $470.0 million, consisting of $400.0 million of term loan facilities
        maturing in August 2011 and a $70.0 million revolving loan facility,
        including a letter of credit subfacility, maturing in February 2009. The
        term
        loan facility was drawn in full in and has two tranches, originally consisting
        of: 1) a $375.0 million tranche under which Ply Gem Industries, Inc.
        is the borrower, and 2) a $25.0 million tranche under which our Canadian
        subsidiary, CWD Windows and Doors, Inc., is the borrower. As of July 1, 2006
        the
        balances of the two tranches are approximately $374.1 million and $24.9 million,
        respectively.
  During
        the first quarter of 2006 the Company borrowed $15.0 million under the revolving
        credit facility and repaid approximately $1.8 million. During the second
        quarter
        of 2006 the Company repaid the remaining $13.2 million. 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 July 1, 2006 ranged from 7.2% to
        7.6%.
  Our
        senior credit facilities require scheduled quarterly principal payments on
        the
        term loan facilities of approximately $1.0 million each quarter through March
        2011 and a payment of $380.0 million on the maturity date, allocated pro
        rata
        between the two 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.
  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.
  Ply
        Gem
        Industries, Inc. has issued $360.0 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.
  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.
  
 11
 
 
 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 July 1, 2006: *(Amounts
        in thousands)*
 
 2006
              $
              4,0002007
              
              4,0002008
              
              4,0002009
              
              4,0002010
              
              3,000Thereafter
              
              740,253$
              759,253
 
 As
        of
        July 1, 2006, the Company had $67.6 million of availability under our revolving
        credit facility. Approximately
        $2.4 million of letters of credit have been issued under our senior credit
        facility. Further, approximately $3.2 million of letters of credit have been
        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:
  For
                  the six
                months
                  ended
                July
                  1, 2006
              
              For
                  the six
                months
                  ended
                July
                  2, 2005*(Amounts
                  in thousands)*Service
                  cost
              
              $
              165
              
              $
              169Interest
                  cost
              
              
              937
              
              
              960Expected
                  return on plan assets
              
              
              (916
              )
              
              (827
              )Net
                  periodic expense
              
              $
              186
              
              $
              302
 
 
 
 
 
 
 
 **7.**
            **COMMITMENTS
                AND CONTINGENCIES** 
  Nortek,
        the former parent of Ply Gem Industries, Inc., has agreed to indemnify the
        Company for certain liabilities. In the event Nortek is unable to satisfy
        amounts due under these indemnifications, the Company would be liable. The
        Company believes
        that Nortek has the financial capacity to honor its indemnification obligations
        and therefore does not anticipate incurring any losses related to liabilities
        indemnified by Nortek. A receivable related to this indemnification has been
        recorded in other long-term assets in the approximate amount of $9.0 million
        as
        of July 1, 2006.
 
 12
 The
        Company has indemnified third parties in certain transactions involving
        dispositions of former subsidiaries. As of July 1, 2006 and December 31,
        2005,
        the Company has recorded liabilities included in Accrued expenses and Other
        long
        term liabilities in relation to these indemnifications of approximately $9.0
        million and $9.1 million, respectively, consisting of the
        following:
 *(Amounts
        in thousands)*
 **July
                    1, 2006**
                
                **December
                    31, 2005**Product
                    claim liabilities
                $
                3,797
                
                $
                3,801Long-term
                    lease liabilities
                
                210
                
                
                231Multiemployer
                    pension plan withdrawal liability
                
                3,944
                
                
                4,028Other
                
                1,047
                
                
                1,054$
                8,998
                
                $
                9,114
   
 
 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. As of July 1, 2006, warranty liabilities of approximately $4.9
        million have been recorded in current liabilities and approximately $7.6
        million
        have been recorded in long term liabilities.
 
 
 Changes
        in the Company’s warranty liabilities are as follows:
 
 For
                  the six
                months
                  ended
                July
                  1, 2006
              
              For the six       months ended
                July
                  2, 2005*(Amounts
                  in thousands)***Balance,
                  beginning of period**
              
              $
              10,790
              
              $
              11,095Warranty
                  expense provided during period
              
              
              832
              
              
              1,429Settlements
                  made during period
              
              
              (601
              )
              
              (1,527
              )Liability
                  assumed with Alenco Acquisition
              
              
              1,461
              
              
              -**Balance,
                  end of period**
              
              $
              12,482
              
              $
              10,997
 
   
 The
        Company is subject to other contingencies, including legal proceedings and
        claims arising out of its businesses that cover a wide range of matters,
        including, among others, environmental matters, contract and employment claims,
        product liability, warranty and modification, adjustment or replacement of
        component parts of units sold, which may include product recalls. Product
        liability, environmental and other legal proceedings also include matters
        with
        respect to businesses previously owned. The Company has used various substances
        in their products and manufacturing operations, which have been or may be
        deemed
        to be hazardous or dangerous, and the extent of its potential liability,
        if any,
        under environmental, product liability and workers’ compensation statutes,
        rules, regulations and case law is unclear. Further, due to the lack of adequate
        information and the potential impact of present regulations and any future
        regulations, there are certain circumstances in which no range of potential
        exposure may be reasonably estimated.  It
        is
        impossible to ascertain the ultimate legal and financial liability with respect
        to contingent liabilities, including lawsuits, and therefore no such estimate
        has been made.
 
 
  13
 
 
 **8.**
            **ACCRUED
                EXPENSES, TAXES, AND OTHER LONG-TERM
                LIABILITIES** 
 Accrued
        expenses and taxes consist of the following at July 1, 2006 and December
        31,
        2005:
  July
                  1, 2006
              
              December
                  31, 2005*(Amounts
                  in thousands)*Insurance
              $
              6,597
              
              $
              4,660Employee
                  compensation and benefits
              
              15,168
              
              
              11,727Sales
                  and marketing
              
              16,951
              
              
              16,061Product
                  warranty
              
              4,931
              
              
              4,331Short-term
                  product claim liability
              
              2,321
              
              
              2,321Interest
              
              15,510
              
              
              16,576Other,
                  net
              
              16,914
              
              
              8,343$
              78,392
              
              $
              64,019
 
  Other
        long-term liabilities consist of the following at July 1, 2006 and December
        31,
        2005:
  July
                  1, 2006
              
              December
                  31, 2005*(Amounts
                  in thousands)*Insurance
              $
              3,116
              
              $
              1,731Pension
                  liabilities
              
              14,290
              
              
              14,974Product
                  warranty
              
              7,551
              
              
              6,459Long-term
                  product claim liability
              
              1,476
              
              
              1,480Contingent
                  tax liability
              
              6,646
              
              
              6,646Other
              
              1,617
              
              
              1,181$
              34,696
              
              $
              32,471
 
 
 **9.**  **STOCK-BASED
        COMPENSATION**
 
 *Stock
        Option Plan*
 
 On
        February 12, 2004, Ply Gem Investment Holdings, Inc.’s Board of Directors
        adopted the Ply Gem Investment Holdings, Inc. 2004 Stock Option Plan (the
        “Plan”) allowing for grants of options to purchase up to 148,050 shares of Ply
        Gem Investment Holdings, Inc.’s common stock under nonqualified stock options or
        incentive stock options and on November 30, 2004, increased the grants allowed
        under the plan up to 184,065 shares. On
        February 24, 2006 in connection with the Alenco Acquisition, a new holding
        company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving
        Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc.
        became the sole shareholder of Ply Gem Investment Holdings, Inc., each
        outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was
        converted into a share of a corresponding class of shares of the capital
        stock
        of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed
        Ply Gem
        Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings
        2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock
        Plan.
        In connection therewith, each outstanding stock option and phantom unit of
        Ply
        Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option
        and phantom unit of Ply Gem Prime Holdings, Inc. Employees,
        directors and consultants of Ply Gem Prime Holdings, Inc. or any of its
        majority-owned subsidiaries are eligible for options, as specified in the
        Plan.
        Ply Gem Prime Holdings, Inc.’s Board of Directors may, among other things,
        select recipients of options grants, determine whether options will be
        nonqualified or incentive stock options, set the number of shares that may
        be
        purchased pursuant to option exercise, and determine other terms and conditions
        of options. The exercise price of an option must be at least the estimated
        fair
        market value of a share of common stock as of the grant date. Options generally
        vest over five years from the date of grant, unless specified otherwise in
        any
        individual option agreement. Generally, options will expire on the tenth
        anniversary of the grant date or in connection with termination of employment.
        The Board of Directors has the discretion to accelerate the vesting and
        exercisability of outstanding options.
 
 14
 Effective
        January 1, 2006 the Company adopted the fair value recognition provisions
        of
        Financial Accounting Standards Board (FASB) Statement of Financial Accounting
        Standards (SFAS) No. 123(R), “Share-Based Payments.” The Company has elected the
        modified prospective transition method as permitted by SFAS No. 123(R) and,
        accordingly, prior periods have not been restated to reflect the impact of
        SFAS
        No. 123(R). In accordance with SFAS No. 123(R), the Company considers these
        options to be liability-classified awards based on the fact that the employee
        has the ability to put shares back to the company in certain circumstances,
        thus
        avoiding exposure to the risk and rewards of ownership for a reasonable period
        of time.
 
 As
        a
        result of adopting SFAS No. 123(R), a cumulative effect of accounting change
        for
        approximately $0.09 million (net of a tax benefit of approximately $0.06
        million) was recognized during the first quarter of 2006. Due to the decrease
        in
        the value of the options, a reduction of compensation expense of approximately
        $0.05 million and $0.06 million was recognized for the three month and six
        months ended July 1, 2006. The implementation of SFAS No. 123(R) did not
        have
        any impact on cash flows during the first six months of 2006.
 
 The
        fair
        value of each option is estimated on the date of grant and updated each
        reporting period using the Black-Scholes option pricing method. The assumptions
        used in the model are outlined in the following table:
 As
                  of
                July
                  1, 2006
              
              As
                  of
                January
                  1, 2006Weighted
                  average fair value
              
              $
              1.58
              
              $
              3.47Weighted
                  average assumptions used:Expected
                  volatility
              
              
              30
              %
              
              30
              %Expected
                  term (in years)
              
              
              5
              
              
              5Risk-free
                  interest rate
              
              
              5.10
              %
              
              4.35
              %Expected
                  dividend yield
              
              
              0
              %
              
              0
              %
 
 Due
        to
        the fact that Ply Gem Prime Holding Inc.’s shares are not publicly traded, a
        third-party valuation specialist was retained to assist in the determination
        of
        the fair value of the shares, which was determined to be $10.00 per share
        and
        $7.00 per share at December 31, 2005 and July 1, 2006, respectively. The
        Company
        estimated its expected volatility through the review of several market
        indicators, including peer companies.
 
 Before
        adopting FASB 123(R), the Company accounted for employee options in accordance
        with APB 25. No stock-based employee compensation cost was reflected in the
        Statement of Operations, as all options granted under the plan had an exercise
        price at least equal to the fair value of the underlying common stock on
        the
        date of grant. For the three and six month periods ended July 2, 2005, the
        Company presented pro forma net income of approximately $9.1 million and
        $5.2
        million, respectively, as if the Company had applied the fair value recognition
        provisions of SFAS No. 123.
 
 A
        summary
        of changes in stock options outstanding during the quarter ended July 1,
        2006 is
        presented below:
 Stock
                  Options
              
              Weighted-Average
                  Exercise
                Price
              
              Weighted-Average
                  Remaining ContractualTerm
                  (Years)Balance
                  at January 1, 2006
              
              134,594
              
              $
              10.00
              
              
              8.47Granted
              
              23,400
              
              $
              10.00
              
              
              9.85Forfeited
                  or expired
              
              (5,900
              )
              $
              10.00
              
              
              -Balance
                  at July 1, 2006
              
              152,094
              
              $
              10.00
              
              
              8.26
 
 As
        of
        July 1, 2006, no options have vested. At July 1, 2006, the Company had
        approximately $0.2 million of total unrecognized compensation expense that
        will
        be recognized over the weighted average period of 3.26 years. Due to the
        fact
        that the options are liability-classified awards, the unrecognized compensation
        expense will vary each quarter as the value of the options change.
 
 15
 *Other
        Share-Based compensation*
 
 Upon
        completion of the acquisition of Ply Gem Industries, Inc. (the “Ply Gem
        Acquisition”) and MWM Holding, Inc. (the “MW Acquisition”), certain members of
        management contributed their investments in predecessor companies in exchange
        for Ply Gem Prime Holdings, Inc.’s phantom common stock units. The phantom stock
        units are governed by the Ply Gem Prime Holdings, Inc. Phantom Stock Plan
        (the
“Plan”) with each participant’s interest in the plan being recorded in a
        bookkeeping account, and these accounts are deemed invested in Ply Gem Prime
        Holdings, Inc.’s stock. No stock was initially issued under the Plan, but upon
        liquidation and payment of a participant’s account under the Plan, the value of
        the account generally may be paid to the participant either in shares of
        Ply Gem
        Prime Holdings, Inc.’s stock having a fair value equal to the account balance or
        in cash, at the discretion of Ply Gem Prime Holdings, Inc. Certain terms
        of the
        Plan are governed by Ply Gem Prime Holdings, Inc.’s Stockholders’ Agreement
        which gives the participant put rights in certain circumstances which allow
        the
        participant to put the stock back to the Company at a price that is determined
        using predefined formulas contained within the Stockholders’ Agreement and the
        Plan. The Stockholders’ Agreement and the Plan contain two separate put right
        price formulas that are used to determine the participants account balance.
        The
        determination of which put right price formula will be applicable to each
        of the
        participants phantom common stock award is based upon reaching certain vesting
        requirements which are defined in the Stockholders’ Agreement. The phantom
        common awards generally vest in the second put right price formula at a rate
        of
        20% per year of service, but may vest earlier if certain events occur. As
        such,
        the Company has accounted for these awards of phantom common shares under
        the
        modified transition method of SFAS No. 123(R) as liability-classified awards.
 
 At
        December 31, 2005 and July 1, 2006 these awards are not recorded as a liability
        on the balance sheet, due to the fact that the repurchase price under the
        put
        right formula is less than $0.
 
 A
        summary
        of changes in phantom common stock units outstanding during the quarter ended
        July 1, 2006 is presented below:
  Phantom
                  Common
                Stock
                  UnitsBalance
                  at January 1, 2006
              
              179,915Granted
              
              -Repurchased
              
              (13,590)Balance
                  at July 1, 2006
              
              166,325
 
 Upon
        completion of the Ply Gem, MW and Alenco Acquisitions, certain members of
        management made a cash contribution to Ply Gem Prime Holdings, Inc. in exchange
        for shares of Ply Gem Prime Holdings, Inc.’s common stock. Management’s shares
        of common stock are governed by the Ply Gem Prime Holdings, Inc. Stockholders’
Agreement which gives the management participants put rights in certain
        circumstances which allow the participants to put the stock back to the Company
        at a price that is determined using defined formulas contained within the
        Stockholders’ Agreement. The Stockholders’ Agreement contains two separate put
        right price formulas that are used to determine the participant’s account
        balance. The determination of which put right price formula will be applicable
        to each of the participants common stock shares is based upon reaching certain
        vesting requirements which are defined in the Stockholders’ Agreement. The
        common shares generally vest in the second put right price formula at a rate
        of
        20% per year of service, but may vest earlier if certain events occur. As
        such,
        the Company has accounted for these awards of common shares under the modified
        transition method of SFAS No. 123(R) as liability-classified awards.
 
 At
        December 31, 2005 and July 1, 2006 these awards are not recorded as a liability
        on the balance sheet, due to the fact that the repurchase price under the
        put
        right formula is less than $0.
 
 Common
                  Stock
                SharesBalance
                  at January 1, 2006
              
              426,904Shares
                  issued
              
              219,450Shares
                  repurchased
              
              (28,710)Balance
                  at July 1, 2006
              
              617,644
 
 
  16
 **10.
        RESTRUCTURING**
 
 During
        the second quarter of 2006, the Company announced the restructuring of it’s
        subsidiary, Napco Window Systems, Inc., which included the closure of the
        production facility located in Sarver, PA. The closure
        of the Sarver facility is expected to reduce costs and increase operating
        efficiencies by increasing capacity utilization. Most of the production of
        the
        Napco Window Systems, Inc.’s brands is expected to be absorbed by other
        locations, primarily the Toledo, OH facility.
 
 Restructuring
        costs included termination benefits and asset impairments. Termination benefits
        of approximately $0.2 million are comprised of severance-related payments
        for
        all employees terminated in connection with the plant closure. Asset impairments
        of approximately $0.8 million were recognized for intangible assets consisting
        of tradenames and customer relationships. Losses of approximately $0.6 million
        were incurred for inventory and equipment write-downs. The restructuring
        costs,
        impairment, and losses from asset write-downs totaling approximately $1.6
        million are recorded in Selling, general and administrative expense in the
        Windows and Doors segment.
 
 The
        Company entered into an agreement to sell the land and building at the Sarver,
        PA location, and finalized the sale during the third quarter of 2006. The
        carrying value of the land and building prior to the sale and write-down
        was
        approximately $4.6 million. In accordance with SFAS No. 144 (Accounting for
        the
        impairment or disposal of long-lived assets), the assets have been written-down
        to the fair market value less costs to sell. As a result, the Company has
        recognized a loss of approximately $0.6 million in Selling, general and
        administrative expense in the Windows and Doors segment .
 
  
 **11.
        SEGMENT INFORMATION**
 
 Statement
        of Financial Accounting Standards No. 131, “ *Disclosures
        about Segments of an Enterprise and Related Information* ”
(SFAS
        131) requires companies to report certain information about operating segments
        in their financial statements and established standards for related disclosures
        about products and services, geographic areas and major customers. SFAS 131
        defines operating segments as components of an enterprise about which separate
        financial information is available that is evaluated regularly by management
        in
        deciding how to allocate resources and in assessing performance. Operating
        segments meeting certain aggregation criteria may be combined into one
        reportable segment for disclosure purposes. Comparative information for prior
        years is presented to conform to our current organizational structure.
 
 The
        Company has two reportable segments: 1) 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.
  Following
        is a summary of the Company’s segment information.
 
 **Three
                  months ended**
              
              **Six
                  months ended**July
                  1, 2006
              
              July
                  2, 2005
              
              July
                  1, 2006
              
              July
                  2, 2005**Net
                  Sales**Siding,
                  Fencing, Railing and Decking
              
              $
              128,652
              
              $
              110,180
              
              $
              229,206
              
              $
              189,028Windows
                  and Doors
              
              
              159,459
              
              
              120,123
              
              
              275,216
              
              
              213,010$
              288,111
              
              $
              230,303
              
              $
              504,422
              
              $
              402,038**Operating
                  earnings**Siding,
                  Fencing, Railing and Decking
              
              $
              20,365
              
              $
              15,014
              
              $
              29,755
              
              $
              18,502Windows
                  and Doors
              
              
              14,765
              
              
              15,196
              
              
              20,989
              
              
              21,022Unallocated
              
              
              (1,076
              )
              
              (882
              )
              
              (2,461
              )
              
              (1,709
              )$
              34,054
              
              $
              29,328
              
              $
              48,283
              
              $
              37,815**As
                  of**
              
              
              **As
                  of****July
                  1, 2006**
              
              
              **December
                  31, 2005****Total
                  Assets**Siding,
                  Fencing, Railing and Decking
              
              $
              490,189
              
              $
              468,679Windows
                  and Doors
              
              
              699,235
              
              
              534,828Unallocated
              
              
              50,472
              
              
              46,491$
              1,239,896
              
              $
              1,049,998
 
  17
  **12.
        GUARANTOR / NON-GUARANTOR FINANCIAL INFORMATION**
 
 The
        senior subordinated notes due in 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 July 1, 2006 and for the three month periods ended July
        1,
        2006 and July 2, 2005. The non-guarantor information presented represents
        our
        Canadian subsidiary.
 
 
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the three months ended July 1, 2006**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              270,757
              
              $
              17,354
              
              $
              -
              
              $
              288,111Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              207,256
              
              
              11,995
              
              
              -
              
              
              219,251Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              1,076
              
              
              27,548
              
              
              3,211
              
              
              -
              
              
              31,835Intercompany
                  administrativecharges
              
              
              -
              
              
              (2,709
              )
              
              2,709
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              2,971
              
              
              -
              
              
              -
              
              
              2,971Total
                  Costs and Expenses
              
              
              -
              
              
              (1,633
              )
              
              240,484
              
              
              15,206
              
              
              -
              
              
              254,057Operating
                  earnings
              
              
              -
              
              
              1,633
              
              
              30,273
              
              
              2,148
              
              
              -
              
              
              34,054Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              1,164
              
              
              -
              
              
              1,164Intercompany
                  interest
              
              
              -
              
              
              15,727
              
              
              (15,516
              )
              
              (211
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (16,713
              )
              
              (42
              )
              
              (443
              )
              
              -
              
              
              (17,198
              )Investment
                  income
              
              
              -
              
              
              125
              
              
              87
              
              
              45
              
              
              -
              
              
              257Other
                  expense
              
              
              -
              
              
              (441
              )
              
              -
              
              
              -
              
              
              -
              
              
              (441
              )Income
                  before equity insubsidiaries'
                  income
              
              
              -
              
              
              331
              
              
              14,802
              
              
              2,703
              
              
              -
              
              
              17,836Equity
                  in subsidiaries' income
              
              
              10,878
              
              
              10,679
              
              
              -
              
              
              -
              
              
              (21,557
              )
              
              -Income
                  before provisionfor
                  income taxes
              
              
              10,878
              
              
              11,010
              
              
              14,802
              
              
              2,703
              
              
              (21,557
              )
              
              17,836Provision
                  for income taxes
              
              
              -
              
              
              132
              
              
              5,907
              
              
              919
              
              
              -
              
              
              6,958Net
                  income
              
              $
              10,878
              
              $
              10,878
              
              $
              8,895
              
              $
              1,784
              
              $
              (21,557
              )
              $
              10,878
 
  18
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the three months ended July 2, 2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              215,232
              
              $
              15,071
              
              $
              -
              
              $
              230,303Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              164,561
              
              
              10,281
              
              
              -
              
              
              174,842Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              1,599
              
              
              19,615
              
              
              2,478
              
              
              -
              
              
              23,692Intercompany
                  administrativecharges
              
              
              -
              
              
              (8,610
              )
              
              8,610
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              2,441
              
              
              -
              
              
              -
              
              
              2,441Total
                  Costs and Expenses
              
              
              -
              
              
              (7,011
              )
              
              195,227
              
              
              12,759
              
              
              -
              
              
              200,975Operating
                  earnings
              
              
              -
              
              
              7,011
              
              
              20,005
              
              
              2,312
              
              
              -
              
              
              29,328Foreign
                  currency loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (233
              )
              
              -
              
              
              (233
              )Interest
                  expense
              
              
              -
              
              
              (13,382
              )
              
              (98
              )
              
              (593
              )
              
              -
              
              
              (14,073
              )Investment
                  income
              
              
              -
              
              
              64
              
              
              67
              
              
              13
              
              
              -
              
              
              144Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (6,307
              )
              
              19,974
              
              
              1,499
              
              
              -
              
              
              15,166Equity
                  in subsidiaries' income
              
              
              9,108
              
              
              12,892
              
              
              -
              
              
              -
              
              
              (22,000
              )
              
              -Income
                  before provision (benefit)for
                  income taxes
              
              
              9,108
              
              
              6,585
              
              
              19,974
              
              
              1,499
              
              
              (22,000
              )
              
              15,166Provision
                  (benefit) for income taxes
              
              
              -
              
              
              (2,523
              )
              
              8,062
              
              
              519
              
              
              -
              
              
              6,058Net
                  income
              
              $
              9,108
              
              $
              9,108
              
              $
              11,912
              
              $
              980
              
              $
              (22,000
              )
              $
              9,108
 
 
 
 
  19
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the six months ended July 1, 2006**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              473,457
              
              $
              30,965
              
              $
              -
              
              $
              504,422Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              370,618
              
              
              21,681
              
              
              -
              
              
              392,299Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              2,461
              
              
              49,814
              
              
              6,041
              
              
              -
              
              
              58,316Intercompany
                  administrativecharges
              
              
              -
              
              
              (4,733
              )
              
              4,733
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              5,524
              
              
              -
              
              
              -
              
              
              5,524Total
                  Costs and Expenses
              
              
              -
              
              
              (2,272
              )
              
              430,689
              
              
              27,722
              
              
              -
              
              
              456,139Operating
                  earnings
              
              
              -
              
              
              2,272
              
              
              42,768
              
              
              3,243
              
              
              -
              
              
              48,283Foreign
                  currency gain
              
              
              -
              
              
              -
              
              
              -
              
              
              1,093
              
              
              -
              
              
              1,093Intercompany
                  interest
              
              
              -
              
              
              29,993
              
              
              (29,572
              )
              
              (421
              )
              
              -
              
              
              -Interest
                  expense
              
              
              -
              
              
              (31,644
              )
              
              -
              
              
              (880
              )
              
              -
              
              
              (32,524
              )Investment
                  income
              
              
              -
              
              
              201
              
              
              146
              
              
              66
              
              
              -
              
              
              413Other
                  expense
              
              
              -
              
              
              (2,497
              )
              
              -
              
              
              -
              
              
              -
              
              
              (2,497
              )Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (1,675
              )
              
              13,342
              
              
              3,101
              
              
              -
              
              
              14,768Equity
                  in subsidiaries' income
              
              
              8,962
              
              
              10,053
              
              
              -
              
              
              -
              
              
              (19,015
              )
              
              -Income
                  before income taxesand
                  cumulative effect of accounting change
              
              
              8,962
              
              
              8,378
              
              
              13,342
              
              
              3,101
              
              
              (19,015
              )
              
              14,768Provision
                  (benefit) for income taxes
              
              
              -
              
              
              (670
              )
              
              5,336
              
              
              1,054
              
              
              -
              
              
              5,720Income
                  before cumulativeeffect
                  of accounting change
              
              
              8,962
              
              
              9,048
              
              
              8,006
              
              
              2,047
              
              
              (19,015
              )
              
              9,048Cumulative
                  effect of accounting change
              
              
              -
              
              
              (86
              )
              
              -
              
              
              -
              
              
              -
              
              
              (86
              )Net
                  income
              
              $
              8,962
              
              $
              8,962
              
              $
              8,006
              
              $
              2,047
              
              $
              (19,015
              )
              $
              8,962
 
 
  20
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING STATEMENT OF OPERATIONS****For
                  the six months ended July 2, 2005**Guarantor
              
              Issuer
              
              
              
              Non-Ply
                  Gem
              
              Ply
                  Gem
              
              Guarantor
              
              GuarantorHoldings,
                  Inc.
              
              Industries,
                  Inc.
              
              Subsidiaries
              
              Subsidiary
              
              Eliminations
              
              Consolidated(Amounts
                  in thousands)Net
                  Sales
              
              $
              -
              
              $
              -
              
              $
              376,368
              
              $
              25,670
              
              $
              -
              
              $
              402,038Costs
                  and Expenses:Cost
                  of products sold
              
              
              -
              
              
              -
              
              
              294,611
              
              
              17,997
              
              
              -
              
              
              312,608Selling,
                  general andadministrative
                  expense
              
              
              -
              
              
              2,893
              
              
              39,008
              
              
              4,833
              
              
              -
              
              
              46,734Intercompany
                  administrativecharges
              
              
              -
              
              
              (15,058
              )
              
              15,058
              
              
              -
              
              
              -
              
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -
              
              
              4,881
              
              
              -
              
              
              -
              
              
              4,881Total
                  Costs and Expenses
              
              
              -
              
              
              (12,165
              )
              
              353,558
              
              
              22,830
              
              
              -
              
              
              364,223Operating
                  earnings
              
              
              -
              
              
              12,165
              
              
              22,810
              
              
              2,840
              
              
              -
              
              
              37,815Foreign
                  currency loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (537
              )
              
              -
              
              
              (537
              )Interest
                  expense
              
              
              -
              
              
              (26,563
              )
              
              (957
              )
              
              (1,155
              )
              
              -
              
              
              (28,675
              )Investment
                  income
              
              
              -
              
              
              89
              
              
              118
              
              
              16
              
              
              -
              
              
              223Income
                  (loss) before equity insubsidiaries'
                  income
              
              
              -
              
              
              (14,309
              )
              
              21,971
              
              
              1,164
              
              
              -
              
              
              8,826Equity
                  in subsidiaries' income
              
              
              5,253
              
              
              13,838
              
              
              -
              
              
              -
              
              
              (19,091
              )
              
              -Income
                  (loss) before provision (benefit)for
                  income taxes
              
              
              5,253
              
              
              (471
              )
              
              21,971
              
              
              1,164
              
              
              (19,091
              )
              
              8,826Provision
                  (benefit) for income taxes
              
              
              -
              
              
              (5,724
              )
              
              8,901
              
              
              396
              
              
              -
              
              
              3,573Net
                  income
              
              $
              5,253
              
              $
              5,253
              
              $
              13,070
              
              $
              768
              
              $
              (19,091
              )
              $
              5,253
  21
  
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING BALANCE SHEET****As
                  of July 1, 2006**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
              
              $
              -
              
              $
              12,021
              
              $
              9,175
              
              $
              3,935
              
              $
              -
              
              $
              25,131Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              104,231
              
              
              9,444
              
              
              -
              
              
              113,675Inventories:Raw
                  materials
              
              
              -
              
              
              -
              
              
              37,446
              
              
              4,200
              
              
              -
              
              
              41,646Work
                  in process
              
              
              -
              
              
              -
              
              
              5,773
              
              
              1,228
              
              
              -
              
              
              7,001Finished
                  goods
              
              
              -
              
              
              -
              
              
              18,497
              
              
              2,200
              
              
              -
              
              
              20,697Total
                  inventory
              
              
              -
              
              
              -
              
              
              61,716
              
              
              7,628
              
              
              -
              
              
              69,344Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              2,792
              
              
              8,921
              
              
              682
              
              
              -
              
              
              12,395Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              14,918
              
              
              -
              
              
              -
              
              
              14,918Total
                  current assets
              
              
              -
              
              
              14,813
              
              
              198,961
              
              
              21,689
              
              
              -
              
              
              235,463Investments
                  in subsidiaries
              
              
              233,297
              
              
              179,023
              
              
              -
              
              
              -
              
              
              (412,320
              )
              
              -**Property
                  and Equipment, at cost:**Land
              
              
              -
              
              
              -
              
              
              1,220
              
              
              157
              
              
              -
              
              
              1,377Buildings
                  and improvements
              
              
              -
              
              
              106
              
              
              12,869
              
              
              735
              
              
              -
              
              
              13,710Machinery
                  and equipment
              
              
              -
              
              
              49
              
              
              131,915
              
              
              4,590
              
              
              -
              
              
              136,554-
              
              
              
              
              
              155
              
              
              146,004
              
              
              5,482
              
              
              -
              
              
              151,641Less
                  accumulated depreciation
              
              
              -
              
              
              (64
              )
              
              (33,756
              )
              
              (1,150
              )
              
              -
              
              
              (34,970
              )Total
                  property and equipment,net
              
              
              -
              
              
              91
              
              
              112,248
              
              
              4,332
              
              
              -
              
              
              116,671**Other
                  Assets:**Goodwill
              
              
              -
              
              
              -
              
              
              629,627
              
              
              42,189
              
              
              -
              
              
              671,816Intangible
                  assets, net
              
              
              -
              
              
              -
              
              
              175,537
              
              
              -
              
              
              -
              
              
              175,537Intercompany
                  note receivable
              
              
              -
              
              
              771,345
              
              
              -
              
              
              -
              
              
              (771,345
              )
              
              -Other
              
              
              -
              
              
              36,127
              
              
              4,282
              
              
              -
              
              
              -
              
              
              40,409Total
                  other assets
              
              
              -
              
              
              807,472
              
              
              809,446
              
              
              42,189
              
              
              (771,345
              )
              
              887,762$
              233,297
              
              $
              1,001,399
              
              $
              1,120,655
              
              $
              68,210
              
              $
              (1,183,665
              )
              $
              1,239,896**LIABILITIES
                  AND STOCKHOLDER'S EQUITY****Current
                  Liabilities:**Current
                  maturities of long-termdebt
              
              $
              -
              
              $
              3,750
              
              $
              -
              
              $
              250
              
              $
              -
              
              $
              4,000Accounts
                  payable
              
              
              -
              
              
              83
              
              
              55,289
              
              
              4,810
              
              
              -
              
              
              60,182Accrued
                  expenses and taxes
              
              
              -
              
              
              20,966
              
              
              54,043
              
              
              3,383
              
              
              -
              
              
              78,392Total
                  current liabilities
              
              
              -
              
              
              24,799
              
              
              109,332
              
              
              8,443
              
              
              -
              
              
              142,574Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              71,481
              
              
              2,595
              
              
              -
              
              
              74,076Intercompany
                  note payable
              
              
              -
              
              
              -
              
              
              761,999
              
              
              9,346
              
              
              (771,345
              )
              
              -Other
                  long term liabilities
              
              
              -
              
              
              12,737
              
              
              20,967
              
              
              992
              
              
              -
              
              
              34,696Long-term
                  debt, less currentmaturities
              
              
              -
              
              
              730,566
              
              
              -
              
              
              24,687
              
              
              -
              
              
              755,253**Stockholder's
                  Equity:**Preferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in-capital
              
              
              183,221
              
              
              183,221
              
              
              115,449
              
              
              6,047
              
              
              (304,717
              )
              
              183,221Retained
                  earnings
              
              
              46,869
              
              
              46,869
              
              
              42,884
              
              
              11,437
              
              
              (101,190
              )
              
              46,869Accumulated
                  othercomprehensive
                  income (loss)
              
              
              3,207
              
              
              3,207
              
              
              (1,457
              )
              
              4,663
              
              
              (6,413
              )
              
              3,207$
              233,297
              
              $
              1,001,399
              
              $
              1,120,655
              
              $
              68,210
              
              $
              (1,183,665
              )
              $
              1,239,896
 
 
 22
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATING BALANCE SHEET****As
                  of December 31, 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
              
              $
              -
              
              $
              9,501
              
              $
              9,130
              
              $
              3,542
              
              $
              -
              
              $
              22,173Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              63,714
              
              
              6,643
              
              
              -
              
              
              70,357Inventories:Raw
                  materials
              
              
              -
              
              
              -
              
              
              27,821
              
              
              3,594
              
              
              -
              
              
              31,415Work
                  in process
              
              
              -
              
              
              -
              
              
              4,249
              
              
              831
              
              
              -
              
              
              5,080Finished
                  goods
              
              
              -
              
              
              -
              
              
              16,891
              
              
              1,832
              
              
              -
              
              
              18,723Total
                  inventory
              
              
              -
              
              
              -
              
              
              48,961
              
              
              6,257
              
              
              -
              
              
              55,218Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              1,372
              
              
              7,699
              
              
              356
              
              
              -
              
              
              9,427Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              13,330
              
              
              -
              
              
              -
              
              
              13,330Total
                  current assets
              
              
              -
              
              
              10,873
              
              
              142,834
              
              
              16,798
              
              
              -
              
              
              170,505Investments
                  in subsidiaries
              
              
              215,514
              
              
              164,946
              
              
              -
              
              
              -
              
              
              (380,460
              )
              
              -**Property
                  and Equipment, at cost:**Land
              
              
              -
              
              
              -
              
              
              1,870
              
              
              150
              
              
              -
              
              
              2,020Buildings
                  and improvements
              
              
              -
              
              
              106
              
              
              14,815
              
              
              647
              
              
              -
              
              
              15,568Machinery
                  and equipment
              
              
              -
              
              
              49
              
              
              115,932
              
              
              3,244
              
              
              -
              
              
              119,225-
              
              
              
              
              
              155
              
              
              132,617
              
              
              4,041
              
              
              -
              
              
              136,813Less
                  accumulated depreciation
              
              
              -
              
              
              (44
              )
              
              (26,192
              )
              
              (849
              )
              
              -
              
              
              (27,085
              )Total
                  property and equipment,net
              
              
              -
              
              
              111
              
              
              106,425
              
              
              3,192
              
              
              -
              
              
              109,728**Other
                  Assets:**Goodwill
              
              
              -
              
              
              -
              
              
              538,588
              
              
              40,404
              
              
              -
              
              
              578,992Intangible
                  assets, net
              
              
              -
              
              
              -
              
              
              152,894
              
              
              -
              
              
              -
              
              
              152,894Intercompany
                  note receivable
              
              
              -
              
              
              650,346
              
              
              -
              
              
              -
              
              
              (650,346
              )
              
              -Other
              
              
              -
              
              
              37,774
              
              
              105
              
              
              -
              
              
              -
              
              
              37,879Total
                  other assets
              
              
              -
              
              
              688,120
              
              
              691,587
              
              
              40,404
              
              
              (650,346
              )
              
              769,765$
              215,514
              
              $
              864,050
              
              $
              940,846
              
              $
              60,394
              
              $
              (1,030,806
              )
              $
              1,049,998**LIABILITIES
                  AND STOCKHOLDER'S EQUITY****Current
                  Liabilities:**Current
                  maturities of long-termdebt
              
              $
              -
              
              $
              1,443
              
              $
              -
              
              $
              249
              
              $
              -
              
              $
              1,692Accounts
                  payable
              
              
              -
              
              
              149
              
              
              38,825
              
              
              3,368
              
              
              -
              
              
              42,342Accrued
                  expenses and taxes
              
              
              -
              
              
              21,477
              
              
              39,667
              
              
              2,875
              
              
              -
              
              
              64,019Total
                  current liabilities
              
              
              -
              
              
              23,069
              
              
              78,492
              
              
              6,492
              
              
              -
              
              
              108,053Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              56,947
              
              
              1,237
              
              
              -
              
              
              58,184Intercompany
                  note payable
              
              
              -
              
              
              -
              
              
              641,000
              
              
              9,346
              
              
              (650,346
              )
              
              -Other
                  long term liabilities
              
              
              -
              
              
              12,855
              
              
              18,664
              
              
              952
              
              
              -
              
              
              32,471Long-term
                  debt, less currentmaturities
              
              
              -
              
              
              611,512
              
              
              -
              
              
              24,264
              
              
              -
              
              
              635,776**Stockholder's
                  Equity:**Preferred
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in-capital
              
              
              175,461
              
              
              175,461
              
              
              103,161
              
              
              5,637
              
              
              (284,259
              )
              
              175,461Intercompany
                  dividends
              
              
              -
              
              
              1,100
              
              
              -
              
              
              (1,100
              )
              
              -
              
              
              -Retained
                  earnings
              
              
              37,907
              
              
              37,907
              
              
              44,039
              
              
              9,964
              
              
              (91,910
              )
              
              37,907Accumulated
                  othercomprehensive
                  income (loss)
              
              
              2,146
              
              
              2,146
              
              
              (1,457
              )
              
              3,602
              
              
              (4,291
              )
              
              2,146$
              215,514
              
              $
              864,050
              
              $
              940,846
              
              $
              60,394
              
              $
              (1,030,806
              )
              $
              1,049,998
   23
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                  STATEMENT OF CASH FLOWS****For
                  the six months ended July 1, 2006**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
              
              $
              8,962
              
              $
              8,962
              
              $
              8,006
              
              $
              2,047
              
              $
              (19,015
              )
              $
              8,962**Adjustments
                  to reconcile net****income
                  to cash provided by****operating
                  activities:**Depreciation
                  and amortizationexpense
              
              
              -
              
              
              20
              
              
              14,253
              
              
              271
              
              
              -
              
              
              14,544Fair
                  value premium on purchased
              
              
              -
              
              
              -
              
              
              304
              
              
              -
              
              
              -
              
              
              304inventoryNon-cash
                  interest expense, net
              
              
              -
              
              
              2,662
              
              
              -
              
              
              -
              
              
              -
              
              
              2,662Gain
                  on foreign currency transactions
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,093
              )
              
              -
              
              
              (1,093
              )Loss
                  on sale of asset
              
              
              -
              
              
              -
              
              
              572
              
              
              -
              
              
              -
              
              
              572Other
                  non-cash items
              
              
              -
              
              
              1,094
              
              
              1,388
              
              
              -
              
              
              -
              
              
              2,482Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              1,535
              
              
              1,257
              
              
              -
              
              
              2,792Equity
                  in subsidiaries' net income
              
              
              (8,962
              )
              
              (10,053
              )
              
              -
              
              
              -
              
              
              19,015
              
              
              -**Changes
                  in operating assets and****liabilities:**Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              (30,280
              )
              
              (2,431
              )
              
              -
              
              
              (32,711
              )Inventories
              
              
              -
              
              
              -
              
              
              (5,934
              )
              
              (1,068
              )
              
              -
              
              
              (7,002
              )Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              (1,303
              )
              
              3,718
              
              
              (279
              )
              
              -
              
              
              2,136Accounts
                  payable
              
              
              -
              
              
              (66
              )
              
              10,308
              
              
              1,260
              
              
              -
              
              
              11,502Accrued
                  expenses and taxes
              
              
              -
              
              
              (744
              )
              
              7,094
              
              
              1,282
              
              
              -
              
              
              7,632Other
              
              
              -
              
              
              -
              
              
              (2
              )
              
              (175
              )
              
              -
              
              
              (177
              )**Net
                  cash provided by****operating
                  activities**
              
              
              -
              
              
              572
              
              
              10,962
              
              
              1,071
              
              
              -
              
              
              12,605**Cash
                  flows from investing activities:**Capital
                  expenditures
              
              
              -
              
              
              -
              
              
              (9,616
              )
              
              (1,259
              )
              
              -
              
              
              (10,875
              )Proceeds
                  from sale of building
              
              
              -
              
              
              -
              
              
              497
              
              
              -
              
              
              -
              
              
              497Acquisitions,
                  net of cash acquired
              
              
              -
              
              
              (120,710
              )
              
              -
              
              
              -
              
              
              -
              
              
              (120,710
              )Other
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  cash used in investing****activities**
              
              
              -
              
              
              (120,710
              )
              
              (9,119
              )
              
              (1,259
              )
              
              -
              
              
              (131,088
              )**Cash
                  flows from financing activities:**Proceeds
                  from long-term debt
              
              
              -
              
              
              122,320
              
              
              -
              
              
              488
              
              
              -
              
              
              122,808Proceeds
                  from revolver borrowings
              
              
              -
              
              
              15,000
              
              
              -
              
              
              -
              
              
              -
              
              
              15,000Proceeds
                  from intercompanyinvestment,
                  net
              
              
              -
              
              
              1,798
              
              
              (1,798
              )
              
              -
              
              
              -
              
              
              -Payments
                  on long-term debt
              
              
              -
              
              
              (936
              )
              
              -
              
              
              (64
              )
              
              -
              
              
              (1,000
              )Payment
                  on revolver borrowings
              
              
              -
              
              
              (15,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              (15,000
              )Debt
                  issuance costs
              
              
              -
              
              
              (2,249
              )
              
              -
              
              
              -
              
              
              -
              
              
              (2,249
              )Equity
                  contribution
              
              
              -
              
              
              1,725
              
              
              -
              
              
              -
              
              
              -
              
              
              1,725**Net
                  cash provided by****financing
                  activities**
              
              
              -
              
              
              122,658
              
              
              (1,798
              )
              
              424
              
              
              -
              
              
              121,284Impact
                  of exchange rate movementon
                  cash
              
              
              -
              
              
              -
              
              
              -
              
              
              157
              
              
              -
              
              
              157Net
                  increase (decrease) in cashand
                  cash equivalents
              
              
              -
              
              
              2,520
              
              
              45
              
              
              393
              
              
              -
              
              
              2,958Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              -
              
              
              9,501
              
              
              9,130
              
              
              3,542
              
              
              -
              
              
              22,173Cash
                  and cash equivalents at the endof
                  the period
              
              $
              -
              
              $
              12,021
              
              $
              9,175
              
              $
              3,935
              
              $
              -
              
              $
              25,131
 
 24
 **PLY
                  GEM HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATING
                  STATEMENT OF CASH FLOWS****For
                  the six months ended July 2, 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
              
              $
              5,253
              
              $
              5,253
              
              $
              13,070
              
              $
              768
              
              $
              (19,091
              )
              $
              5,253**Adjustments
                  to reconcile net****income
                  (loss) to cash provided by****(used
                  in) operating activities:**Depreciation
                  and amortizationexpense
              
              
              -
              
              
              9
              
              
              12,775
              
              
              221
              
              
              -
              
              
              13,005Non-cash
                  interest expense, net
              
              
              -
              
              
              2,377
              
              
              -
              
              
              -
              
              
              -
              
              
              2,377Loss
                  on foreign currency transactions
              
              
              -
              
              
              -
              
              
              -
              
              
              537
              
              
              -
              
              
              537Deferred
                  income taxes
              
              
              -
              
              
              3,576
              
              
              (5,342
              )
              
              362
              
              
              -
              
              
              (1,404
              )Equity
                  in subsidiaries' net income
              
              
              (5,253
              )
              
              (13,838
              )
              
              -
              
              
              -
              
              
              19,091
              
              
              -**Changes
                  in operating assets and****liabilities:**Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              (27,819
              )
              
              (2,254
              )
              
              -
              
              
              (30,073
              )Inventories
              
              
              -
              
              
              -
              
              
              (6,572
              )
              
              (478
              )
              
              -
              
              
              (7,050
              )Prepaid
                  expenses and othercurrent
                  assets
              
              
              -
              
              
              (1,790
              )
              
              (508
              )
              
              88
              
              
              -
              
              
              (2,210
              )Accounts
                  payable
              
              
              -
              
              
              -
              
              
              25,282
              
              
              3,303
              
              
              -
              
              
              28,585Accrued
                  expenses and taxes
              
              
              -
              
              
              (108
              )
              
              2,555
              
              
              (2,469
              )
              
              -
              
              
              (22
              )Other
              
              
              -
              
              
              (767
              )
              
              (2
              )
              
              799
              
              
              -
              
              
              30**Net
                  cash provided by (used in)****operating
                  activities**
              
              
              -
              
              
              (5,288
              )
              
              13,439
              
              
              877
              
              
              -
              
              
              9,028**Cash
                  flows used in investing****activities:**Capital
                  expenditures
              
              
              -
              
              
              (8
              )
              
              (4,831
              )
              
              (321
              )
              
              -
              
              
              (5,160
              )Acquisitions,
                  net of cash acquired
              
              
              -
              
              
              -
              
              
              482
              
              
              -
              
              
              -
              
              
              482**Net
                  cash provided by (used in)****investing
                  activities**
              
              
              -
              
              
              (8
              )
              
              (4,349
              )
              
              (321
              )
              
              -
              
              
              (4,678
              )**Cash
                  flows provided by (used in)****financing
                  activities:**Proceeds
                  from long-term debt
              
              
              -
              
              
              35,500
              
              
              -
              
              
              -
              
              
              -
              
              
              35,500Proceeds
                  from intercompanyinvestment,
                  net
              
              
              -
              
              
              (2,400
              )
              
              -
              
              
              2,400
              
              
              -
              
              
              -Payments
                  on long-term debt
              
              
              -
              
              
              (12,696
              )
              
              (7,061
              )
              
              (137
              )
              
              -
              
              
              (19,894
              )Return
                  of equity contribution
              
              
              -
              
              
              (150
              )
              
              -
              
              
              -
              
              
              -
              
              
              (150
              )**Net
                  cash provided by (used in)****financing
                  activities**
              
              
              -
              
              
              20,254
              
              
              (7,061
              )
              
              2,263
              
              
              -
              
              
              15,456Impact
                  of exchange rate movementon
                  cash
              
              
              -
              
              
              -
              
              
              -
              
              
              7
              
              
              -
              
              
              7Net
                  increase (decrease) in cashand
                  cash equivalents
              
              
              -
              
              
              14,958
              
              
              2,029
              
              
              2,826
              
              
              -
              
              
              19,813Cash
                  and cash equivalents at thebeginning
                  of the period
              
              
              -
              
              
              1,923
              
              
              3,483
              
              
              1,388
              
              
              -
              
              
              6,794Cash
                  and cash equivalents at the endof
                  the period
              
              $
              -
              
              $
              16,881
              
              $
              5,512
              
              $
              4,214
              
              $
              -
              
              $
              26,607
 
 
 
 25
    **Item
        2.**  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 
 
 The
        information contained in this discussion and in the unaudited Condensed
        Consolidated Financial Statements and Accompanying Notes presented in this
        Form 10-Q should be read in conjunction with information set forth in Ply
        Gem
        Holdings, Inc.’s Annual Report on Form 10-K. Certain statements in this
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations” are “forward-looking statements.” See “Special Note Regarding
        Forward-Looking Statements.” As used in this Quarterly Report on Form 10-Q, the
“Company”, “we”, “us”, and “our” refer to Ply Gem Holdings, Inc. and its
        subsidiaries, except where the context otherwise requires or as otherwise
        indicated.
 
 ***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 ,
        aluminum windows ,
        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.
  On
        February 24, 2006, Ply Gem completed the purchase of AWC Holding Company
        (“AWC”,
        and together with its subsidiaries, “Alenco”) (the “Alenco Acquisition”) in
        accordance with a securities purchase agreement entered into among Ply Gem,
        all
        of the direct and indirect stockholders, warrant holders and stock option
        holders of AWC and FNL Management Corp., an Ohio corporation, as their
        representative (the “Securities Purchase Agreement”). Pursuant to the Securities
        Purchase Agreement, Ply Gem purchased all of the issued and outstanding shares
        of common stock, warrants to purchase shares of common stock and options
        to
        purchase common stock of AWC (other than certain shares of common stock of
        AWC
        held by certain members of the senior management of Alenco (the “Rollover
        Shares”) that were contributed separately to Ply Gem Prime Holdings, Inc., the
        new parent company of Ply Gem Investment Holdings, Inc., in exchange for
        shares
        of capital stock of Ply Gem Prime Holdings, Inc.). Immediately following
        the
        completion of the Alenco Acquisition, AWC became a wholly owned subsidiary
        of
        Ply Gem.
 
 On
        February 24, 2006 in connection with the Alenco Acquisition a new holding
        company, Ply Gem Prime Holdings, Inc., was formed pursuant to a merger involving
        Ply Gem Investment Holdings, Inc. As a result, Ply Gem Prime Holdings, Inc.
        became the sole shareholder of Ply Gem Investment Holdings, Inc., each
        outstanding share of capital stock of Ply Gem Investment Holdings, Inc. was
        converted into a share of a corresponding class of shares of the capital
        stock
        of Ply Gem Prime Holdings, Inc. and Ply Gem Prime Holdings, Inc. assumed
        Ply Gem
        Investment Holdings, Inc.’s obligations under the Ply Gem Investment Holdings
        2004 Stock Option Plan and the Ply Gem Investment Holdings Phantom Stock
        Plan.
        In connection therewith, each outstanding stock option and phantom unit of
        Ply
        Gem Investment Holdings, Inc. was converted on a 1:1 basis into a stock option
        and phantom unit of Ply Gem Prime Holdings, Inc.
 
 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.
 
 26
 *Selling,
        general and administrative expense.* Selling,
        general and administrative expense, or “SG&A expense,” includes all
        non-product related operating expenses, including selling, marketing, research
        and development costs, information technology and other general and
        administrative expenses.
 
 *Operating
        earnings.* Operating earnings represents net sales less cost of products sold, SG&A
        expense and amortization of intangible assets.
 
 *Comparability.* The data
        presented for the period ended July 1, 2006 includes the addition of Alenco
        for
        the period February 25, 2006 through July 1, 2006. As a result, the 2006
        period
        will not be directly comparable to the 2005 period.
 
 ***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 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 July 1, 2006 would result in a $0.8 million and $0.8 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.
 
 27
 *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 July 1, 2006, and December 31,
        2005 approximately
        $11.2 million and $9.8 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
        $2.8 million higher at July 1, 2006 and December 31, 2005. 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
        purchased intangible assets subject to amortization, 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.
 
 *Goodwill
        and Indefinite Lived Intangibles Impairment* .
        In
        accordance with SFAS No. 142, we perform annual tests for goodwill and
        indefinite lived intangibles impairment. We assess goodwill and indefinite
        lived
        intangibles which are 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. Based upon our most recent analysis and the fact that no adverse
        events have been identified, we believe that no impairment of goodwill or
        indefinite lived intangibles existed at July 1, 2006 or December 31,
        2005.
 
 *Insurance
        Liabilities.* We
        record insurance liabilities and related expenses for health, workers’
compensation, product and general liability losses and other insurance expenses
        in accordance with either the contractual terms of their policies or, if
        self-insured, the total liabilities that are estimable and probable as of
        the
        reporting date. Insurance liabilities are recorded as current liabilities
        to the
        extent they are expected to be paid in the succeeding year with the remaining
        requirements classified as long-term liabilities. The accounting for
        self-insured plans requires that significant judgments and estimates be made
        both with respect to the future liabilities to be paid for known claims and
        incurred but not reported claims as of the reporting date. The Company relies
        on
        historical trends when determining the appropriate health insurance reserves
        to
        record in our consolidated balance sheets. The Company relies heavily on
        the
        advice and calculations of 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. In certain cases where partial insurance coverage exists,
        the
        Company must estimate the portion of the liability that will be covered by
        existing insurance policies.
 
 *Income
        Taxes.* We
        account for deferred income taxes using the liability method in accordance
        with
        SFAS No. 109 “Accounting for Income Taxes,” 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 reflects estimates of final amounts due to timing
        of
        completion and filing of actual income tax returns. Estimates are required
        with
        respect to, among other things, the appropriate state income tax rates to
        use in
        the various states that we and our subsidiaries are required to file, the
        potential utilization of operating and capital loss carry-forwards for both
        federal and state income tax purposes and valuation allowances required,
        if any,
        for tax assets that may not be realized in the future. We establish reserves
        when, despite our belief that our tax return positions are fully supportable,
        certain positions could be challenged, and the positions may not be fully
        sustained. During 2005, the Company established reserves relating to net
        operating losses acquired in the MW Acquisition and transaction costs associated
        with the Ply Gem and MW Acquisitions. If the benefits for which a reserve
        has
        been provided are subsequently recognized, they will reduce goodwill resulting
        from the application of the purchase method of accounting for these
        transactions. 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.
  *Purchase
        accounting.* Business
        acquisitions are accounted for using the purchase method of accounting. The
        cost
        of the acquired company is allocated to identifiable tangible and intangible
        assets based on estimated fair value generally determined by third party
        valuation specialists, with the excess allocated to goodwill.
  28
 
 Results
        of Operations
  The
        following table summarizes net sales and operating earnings by segment and
        is
        derived from the accompanying condensed consolidated statements of operations
        included in this report.
  Three
                  months ended
              
              Six
                  months endedJuly
                  1, 2006
              
              July
                  2, 2005
              
              July
                  1, 2006
              
              July
                  2, 2005**Net
                  Sales**Siding,
                  Fencing, Railing and Decking
              $
              128,652
              
              $
              110,180
              
              $
              229,206
              
              $
              189,028Windows
                  and Doors
              
              159,459
              
              
              120,123
              
              
              275,216
              
              
              213,010**Operating
                  earnings**Siding,
                  Fencing, Railing and Decking
              
              20,365
              
              
              15,014
              
              
              29,755
              
              
              18,502Windows
                  and Doors
              
              14,765
              
              
              15,196
              
              
              20,989
              
              
              21,022Unallocated
              
              (1,076
              )
              
              (882
              )
              
              (2,461
              )
              
              (1,709
              )**Foreign
                  currency gain (loss)**Windows
                  and Doors
              
              1,164
              
              
              (233
              )
              
              1,093
              
              
              (537
              )**Interest
                  expense, net**Siding,
                  Fencing, Railing and Decking
              
              59
              
              
              (42
              )
              
              101
              
              
              (442
              )Windows
                  and Doors
              
              (370
              )
              
              (315
              )
              
              (769
              )
              
              (1,048
              )Unallocated
              
              (16,630
              )
              
              (13,572
              )
              
              (31,443
              )
              
              (26,962
              )**Other
                  expense**Unallocated
              
              (441
              )
              
              -
              
              
              (2,497
              )
              
              -**Income
                  tax expense**Unallocated
              
              (6,958
              )
              
              (6,058
              )
              
              (5,720
              )
              
              (3,573
              )**Net
                  loss before cumulative effect****of
                  accounting change**
              
              10,878
              
              
              9,108
              
              
              9,048
              
              
              5,253**Cumulative
                  effect of accounting change**
              
              -
              
              
              -
              
              
              (86
              )
              
              -**Net
                  income**
              $
              10,878
              
              $
              9,108
              
              $
              8,962
              
              $
              5,253
 
 In
        view
        of the seasonality of our business, it must be emphasized that the results
        of
        operations for the periods presented are not necessarily indicative of the
        results for a full fiscal year.
  The
        following tables set forth our results of operations based on the amounts
        and
        the percentage relationship of the items listed to net sales for the periods
        indicated. However, our results of operations set forth in the tables below
        may
        not necessarily be representative of our future operating results.
  This
        review of performance is organized by business segment, reflecting the way
        we
        manage our business. Each business group leader is responsible for operating
        results down to operating earnings. We use operating earnings as a performance
        measure as it captures the income and expenses within the management control
        of
        our business leaders. Corporate management is responsible for making all
        financing decisions. Therefore, each segment discussion focuses on the factors
        affecting operating earnings, while interest expense and income taxes and
        certain other unallocated expenses are separately discussed at the corporate
        level.
 
 
 29
 **Siding,
        Fencing, Railing and Decking Segment**
 
 **For
                  the three months ended**(dollars
                  in thousands)
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              
              (unaudited)**Statement
                  of operations data:**Net
                  Sales
              $
              128,652
              
              100.0
              %
              
              $
              110,180
              
              100.0
              %Cost
                  of products sold
              
              97,648
              
              75.9
              %
              
              
              84,851
              
              77.0
              %Gross
                  Profit
              
              31,044
              
              24.1
              %
              
              
              25,329
              
              23.0
              %S,G&A
                  expense
              
              9,833
              
              7.6
              %
              
              
              9,508
              
              8.6
              %Amortization
                  of intangible assets
              
              806
              
              0.6
              %
              
              
              807
              
              0.7
              %Operating
                  earnings
              $
              20,365
              
              15.8
              %
              
              $
              15,014
              
              13.6
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the three months ended July 1, 2006 increased compared to the same period
        in
        2005 by approximately $18.5 million, or 17%. The
        increase in net sales was driven by increased unit volume sold, as well as
        higher selling prices that were increased in response to industry wide increases
        in raw material and freight costs. The increase in units sold was driven
        by
        growth with new vinyl siding customers that were obtained during 2005. As
        a
        result, the Company believes that our unit volume growth of vinyl siding
        sales
        outperformed the industry during the second quarter of 2006 and that our
        market
        share of the vinyl siding industry increased for the second quarter of 2006
        as
        compared to the second quarter of 2005.
 
 *C* *ost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        three months ended July 1, 2006 increased over the same period in 2005 by
        approximately $12.8 million, or 15%. The increase in cost of products sold
        was
        primarily due to increased sales volume and market wide increases in raw
        material costs, specifically PVC resin and aluminum, and higher freight expense
        related to carrier fuel costs. The market wide increase in raw material and
        freight costs were fully offset by selling price increases and material
        strategic sourcing and other cost savings initiatives that management
        implemented during the past twelve months.
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        three
        months ended July 1, 2006 increased
        by approximately $0.3 million, or 3%, from the same period in 2005. The
        increase in SG&A expenses was primarily driven by higher selling and
        marketing expenses related to the increase in net sales.
 
 
 
 **For
                  the six months ended**(dollars
                  in thousands)
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              
              (unaudited)**Statement
                  of operations data:**Net
                  Sales
              $
              229,206
              
              100.0
              %
              
              $
              189,028
              
              100.0
              %Cost
                  of products sold
              
              179,185
              
              78.2
              %
              
              
              151,070
              
              79.9
              %Gross
                  Profit
              
              50,021
              
              21.8
              %
              
              
              37,958
              
              20.1
              %S,G&A
                  expense
              
              18,655
              
              8.1
              %
              
              
              17,844
              
              9.4
              %Amortization
                  of intangible assets
              
              1,611
              
              0.7
              %
              
              
              1,612
              
              0.9
              %Operating
                  earnings
              $
              29,755
              
              13.0
              %
              
              $
              18,502
              
              9.8
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the six months ended July 1, 2006 increased compared to the same period
        in
        2005 by approximately $40.2 million, or 21%. The increase in net sales was
        driven by increased unit volume sold, as well as higher selling prices that
        were
        increased in response to industry wide increases in raw material and freight
        costs. The increase in units sold was driven by growth with new vinyl siding
        customers that were obtained during 2005. As a result, the Company believes
        that
        our unit volume growth of vinyl siding sales outperformed the industry during
        the first six months of 2006 and that our market share of the vinyl siding
        industry increased for the first six months of 2006 as compared to the first
        six
        months of 2005.
 
 30
 *C* *ost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        six months ended July 1, 2006 increased over the same period in 2005 by
        approximately $28.1 million, or 19%. The increase in cost of products sold
        was
        primarily due to increased sales volume and market wide increases in raw
        material costs, specifically PVC resin and aluminum, and higher freight expense
        related to carrier fuel costs. The market wide increase in raw material and
        freight costs were fully offset by selling price increases and material
        strategic sourcing and other cost savings initiatives that management
        implemented during the past twelve months.
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        six
        months ended July 1, 2006 increased
        by approximately $0.8 million, or 5%, from the same period in 2005. The
        increase in SG&A expenses was primarily driven by higher selling and
        marketing expenses related to the increase in net sales.
 
 
 
 **Windows
        and Doors Segment**
 
 **For
                  the three months ended**(dollars
                  in thousands)
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              
              (unaudited)Statement
                  of operations data:Net
                  Sales
              $
              159,459
              
              100.0
              %
              
              $
              120,123
              
              100.0
              %Cost
                  of products sold
              
              121,603
              
              76.3
              %
              
              
              89,991
              
              74.9
              %Gross
                  Profit
              
              37,856
              
              23.7
              %
              
              
              30,132
              
              25.1
              %S,G&A
                  expense
              
              20,926
              
              13.1
              %
              
              
              13,302
              
              11.1
              %Amortization
                  of intangible assets
              
              2,165
              
              1.4
              %
              
              
              1,634
              
              1.4
              %Operating
                  earnings
              $
              14,765
              
              9.3
              %
              
              $
              15,196
              
              12.7
              %Currency
                  transaction gain/(loss)
              
              1,164
              
              0.7
              %
              
              
              (233)
              
              -0.2
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the three months ended July 1, 2006 increased over the same period in
        2005
        by approximately $39.3 million, or 33%. The increase in net sales was driven
        by
        the sales of Alenco, which was purchased in February of 2006 and contributed
        $39.7 of sales for the three months ended July 1, 2006. In addition, net
        sales
        were favorably impacted by higher selling prices that were increased in response
        to industry wide increases in raw material and freight costs. The favorable
        impact on net sales from higher selling prices was offset by lower demand
        for
        our Great Lakes Window brand repair and replacement window products that
        resulted from our inability to convert new customers during 2005 due to
        operational difficulties that we incurred in introducing our new repair and
        remodeling window product lines. Sales were also reduced by our transition
        of
        customers from an unprofitable mechanical window product that was produced
        at
        our Sarver, PA facility, which was closed in June of 2006, to other more
        efficient products that we produce at our other window manufacturing
        facilities.
 
 *Cost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        three months ended July 1, 2006 increased
        by approximately $31.6 million, or 35%, over the same period in 2005. The
        increase in cost of products sold was driven by higher sales volume,
        primarily from the additional sales volume from Alenco. Market wide
        increases in raw material and freight costs were offset by price increases
        and
        material cost synergies and savings in our new construction window and door
        products. In our repair and remodeling window and door products, raw material
        costs exceeded prior year costs primarily due to increases in PVC lineal
        costs
        during our transition from external sourcing to producing lineals within
        our MW
        lineal production facility. This transition will continue through the remainder
        of 2006.
 
 31
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        three
        months ended July 1, 2006 increased
        by approximately $7.6 million, or 57%, over the same period in 2005. The
        increase in SG&A expense was driven by the addition of Alenco and timing on
        certain SG&A expenses within the year, as well as, costs incurred in our
        repair and remodeling business related to changes in management and consulting
        costs incurred to improve business performance. SG&A costs for the three
        months ended July 1, 2006 also include approximately $1.6 million of
        restructuring costs due to the closure of the Sarver, PA facility, and
        approximately $0.6 million due to the loss on the sale of the Sarver
        building.
 
 *Amortization
        of intangible assets*
 
 Amortization
        expense for the three months ended July 1, 2006 increased by approximately
        $0.5
        million or 32%, due to the addition of Alenco operations during March 2006.
 
 
 
 **For
                  the six months ended**(dollars
                  in thousands)
              
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              
              (unaudited)Statement
                  of operations data:Net
                  Sales
              
              $
              275,216
              
              100.0
              %
              
              $
              213,010
              
              100.0
              %Cost
                  of products sold
              
              
              213,114
              
              77.4
              %
              
              
              161,538
              
              75.8
              %Gross
                  Profit
              
              
              62,102
              
              22.6
              %
              
              
              51,472
              
              24.2
              %S,G&A
                  expense
              
              
              37,200
              
              13.5
              %
              
              
              27,181
              
              12.8
              %Amortization
                  of intangible assets
              
              
              3,913
              
              1.4
              %
              
              
              3,269
              
              1.5
              %Operating
                  earnings
              
              $
              20,989
              
              7.6
              %
              
              $
              21,022
              
              9.9
              %Currency
                  transaction gain/(loss)
              
              
              1,093
              
              0.4
              %
              
              
              (537)
              
              -0.3
              %
 
 *Net
        Sales*
 
 Net
        sales
        for the six months ended July 1, 2006 increased over the same period in 2005
        by
        approximately $62.2 million, or 29%. The increase in net sales was primarily
        driven by sales of Alenco. Alenco contributed $53.7 million in sales during
        the
        first six months of 2006. The increase in net sales was also driven by increased
        demand for our new construction window and door products in both the U.S.
        and
        Canada, but was partially offset by lower demand for our Great Lakes Window
        repair and remodeling brand products that resulted from our inability to
        convert
        new customers during 2005 due to operational difficulties that we incurred
        in
        introducing our new repair and remodeling window product lines. Sales were
        also
        reduced by our transition of customers from an unprofitable mechanical window
        product that was produced at our Sarver, PA facility, which was closed in
        June
        of 2006, to other more efficient products that we produce at our other window
        manufacturing facilities.
 
 *Cost
        of Products Sold*
 
 Cost
        of
        products sold for
        the
        six months ended July 1, 2006 increased
        by approximately $51.6 million, or 32%, over the same period in 2005. The
        increase in cost of products sold was primarily driven by higher sales volume
        which includes the additional sales volume from Alenco. Market wide increases
        in
        raw material and freight costs were offset by price increases and material
        cost
        synergies and savings in our new construction window and door products. In
        our
        repair and remodeling window and door products, raw material costs exceeded
        prior year costs primarily due to increases in PVC lineal costs during our
        transition from external sourcing to producing lineals within our MW lineal
        production facility. This transition will continue through the remainder
        of
        2006.
 
 *Selling,
        general and administrative expense*
 
 SG&A
        expense for the
        six
        months ended July 1, 2006 increased
        by approximately $10.0 million, or 37%, over the same period in 2005. The
        increase in SG&A expense was driven by the addition of Alenco and timing on
        certain SG&A expenses within the year, as well as, costs incurred in our
        repair and remodeling business related to changes in management and consulting
        costs incurred to improve business performance. SG&A costs for the 2006
        period also include approximately $1.6 million of restructuring costs due
        to the
        closure of the Sarver, PA facility, and approximately $0.6 million due to
        the
        loss on the sale of the Sarver building.
 
 
 *Amortization
        of intangible assets*
 
 Amortization
        expense for the six months ended July 1, 2006 increased by approximately
        $0.6
        million, due to the addition of Alenco operations during March 2006.
 
 
 32
 
  **Unallocated
        Operating Earnings, Interest, and Provision for Income Taxes**
 
 
 **For
                  the Three Months Ended**(dollars
                  in thousands)
              
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              (unaudited)Statement
                  of operations data:Operating
                  earnings (loss)
              
              
              (1,076
              )
              
              
              (882
              )Interest
                  expense
              
              
              (17,198
              )
              
              
              (14,073
              )Investment
                  income
              
              
              257
              
              
              
              144Other
                  expense
              
              
              (441
              )
              
              
              -Income
                  tax provision
              
              
              (6,958
              )
              
              
              (6,058
              )
 
 *Interest
        expense* Interest
        expense for the three months ended July 1, 2006 increased by approximately
        $3.1
        million over the same period in 2005 as a result of increased borrowings
        due to
        the Alenco Acquisition in February 2006 and higher interest rates on our
        variable rate debt.
 
 *Other
        expense* Expenses
        recognized as ‘other expense’ during the three months ended July 1, 2006 include
        approximately $0.4 million for third-party charges associated
        with acquisition financing costs.
 
 *Income
        taxes* The
        income tax provision for the three months ended July 1, 2006 increased
        approximately $0.9 million over the same period in 2005, primarily as a result
        of the higher pre-tax income for the 2006 period versus the 2005
        period.
 
 
 
 **For
                  the Six Months Ended**(dollars
                  in thousands)
              
              July
                  1, 2006
              
              
              July
                  2, 2005(unaudited)
              
              
              (unaudited)Statement
                  of operations data:Operating
                  earnings (loss)
              
              
              (2,461
              )
              
              
              (1,709
              )Interest
                  expense
              
              
              (32,524
              )
              
              
              (28,675
              )Investment
                  income
              
              
              413
              
              
              
              223Other
                  expense
              
              
              (2,497
              )
              
              
              -Income
                  tax provision
              
              
              (5,720
              )
              
              
              (3,573
              )Cumulative
                  effect of accounting change
              
              
              (86
              )
              
              
              -
 
 *Interest
        expense* Interest
        expense for the six months ended July 1, 2006 increased by approximately
        $3.8
        million over the same period in 2005 as a result of increased borrowings
        due to
        the Alenco Acquisition in February 2006 and higher interest rates on our
        variable rate debt.
 
 *Other
        expense* Expenses
        recognized as ‘other expense’ during the first six months of 2006 include
        approximately $2.5 million for third-party charges associated
        with acquisition financing costs.
 
 *Income
        taxes* The
        income tax provision for the six months ended July 1, 2006 increased
        approximately $2.1 million over the same period in 2005, primarily as a result
        of the higher pre-tax income for the 2006 period versus the 2005
        period.
 
 
 33
 
 
 **Liquidity
        and Capital Resources**
 
 Our
        primary cash needs are for working capital, capital expenditures and debt
        service. We have historically financed these cash requirements through
        internally generated cash flow and funds borrowed under our credit
        facility.
 
 Net
        cash
        provided by operating activities for the first six months of 2006 and 2005
        was
        approximately $12.6 million and $9.0 million, respectively. The increase
        in net
        cash provided by operating activities for the 2006 period compared to the
        2005
        period was primarily driven by larger net income generated in the first half
        of
        2006.
 
 Net
        cash
        used in investing activities for the first six months of 2006 and 2005 was
        approximately $131.1 million and $4.7 million, respectively. The increased
        cash
        used in investing activities during the 2006 period was driven by the cash
        used
        to fund the Alenco Acquisition. Our capital expenditures for the first six
        months of 2006 and 2005 were approximately $10.9 million and $5.2 million,
        respectively.
 
 Net
        cash
        provided by financing activities for the first six months of 2006 and 2005
        was
        approximately $121.3 million and $15.5 million, respectively. The cash provided
        by financing activities for the 2006 period was driven by the cash provided
        from
        our new capital structure that resulted from the consummation of the Alenco
        Acquisition, which includes our senior term loan facilities and $1.7 million
        of
        equity contribution.
 
 In
        connection with the Alenco Acquisition, on February 24, 2006, the Company
        entered into an amendment to its credit facility.  Under the terms of the
        amended agreement, the Company borrowed $375.0 million in U.S. term loans
        to
        refinance $252.7 million of outstanding U.S. Term loans, repay approximately
        $1.8 million in revolving credit loans and fund the Alenco Acquisition, which
        was completed on February 24, 2006.  Additionally, under the terms of the
        amended agreement, the Company’s Canadian borrower borrowed $25.0 million to
        refinance approximately $24.5 million of outstanding Canadian term
        loans.
 
 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 July 1, 2006, we had $759.3 million of indebtedness
        and
        $67.6 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
        $470.0 million, originally consisting of $400.0 million of term loan
        facilities maturing in August 2011 and a $70.0 million revolving loan
        facility, including a letter of credit subfacility, maturing in February
        2009.
        The term loan facilities were originally drawn in full and have two tranches,
        consisting of: i) a $375.0 million tranche under which Ply Gem
        Industries, Inc. is the borrower, ii) a $25.0 million tranche under which
        our Canadian subsidiary, CWD Windows and Doors, Inc., is the borrower. As
        of
        July 1, 2006 the balances of the two tranches are approximately $374.1 million
        and $24.9 million, respectively. Ply Gem Industries, Inc. issued $360.0 million
        aggregate principal amount of its 9% senior subordinated notes due 2012 (the
        “Senior Subordinated Notes”), which are guaranteed by Ply Gem Holdings Inc. and
        the domestic subsidiaries of Ply Gem Industries, Inc.
  During
        the first quarter of 2006, we borrowed $15.0 million under the revolving
        credit
        facility to fund our seasonal working capital requirements and first quarter
        capital expenditures. Approximately $1.8 million was repaid during February
        2006. During the second quarter of 2006, the remaining balance borrowed under
        the revolving credit facility was repaid.
  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
        in
        February 2009 and has no scheduled amortization or commitment reductions.
        The
        term loan facilities will mature in August 2011 and have quarterly scheduled
        amortizations of $1.0 million and a final payment of $380.0 on the maturity
        date.
 
 On
        July
        25, 2005, we entered into an amendment to the credit facility. Under the
        terms
        of the amended agreement, we are permitted to use the excess cash flow and/or
        a
        portion of the revolving credit facility to repurchase up to $25.0 million
        aggregate principal amount of the Senior Subordinated Notes. Subject to market
        conditions, our capital needs and other factors, we may from time to time
        purchase up to $25.0 million aggregate principal amount of the 9% Senior
        Subordinated Notes in market transactions, privately negotiated sales or
        other
        transactions. As of July 1, 2006, we had not yet purchased any of our Senior
        Subordinated Notes.
 
 34
 
 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.
 
 
 **Recent
        Accounting Pronouncements**
  In
        June
        2006, the FASB issued Financial Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (FIN
        48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
        in accordance with FASB Statement No. 109, *Accounting
        for Income Taxes* .
        The
        interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. FIN 48 is effective for the fiscal
        year
        ending December 31, 2007. The Company is currently evaluating the effect
        FIN 48
        will have on its consolidated financial statements.
   35
  **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 2005 Annual Report on Form 10-K. We undertake no obligation to update
        the
        forward-looking statements in this filing.
  
  36
  
 **Item
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK**
  
 Our
        principal interest rate exposure relates to the term loans outstanding under
        our
        new senior credit facilities. We have approximately $399.0 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 $1.0 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 for fixed rate interest payments, to reduce our exposure
        to
        interest rate volatility.
 Our
        term
        loan facility has two tranches. Outstanding balances consist of a $374.0
        million
        tranche under which Ply Gem Industries, Inc. is the borrower, and a $25.0
        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 three months
        ended July 1, 2006, the net impact of foreign currency changes to the Company’s
        results of operations was a gain of $1.2 million. The impact of foreign currency
        changes related to translation resulted in an increase in stockholder’s equity
        of approximately $1.1 million for the six months ended July 1, 2006. The
        revenue
        or expense reported by us as a result of currency fluctuations will be greater
        in times of U.S. dollar devaluation and less in times of U.S. dollar
        appreciation. We generally do not enter into derivative financial instruments
        to
        manage foreign currency exposure. For the six months ended July 1, 2006,
        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
        July 1,
        2006 were effective to ensure that information required to be disclosed by
        us in
        reports that we file or submit under the Securities Exchange Act of 1934
        is
        recorded, processed, summarized and reported within the time periods specified
        in Securities and Exchange Commission’s rules and forms. There
        have been no changes in our internal controls over financial reporting during
        the three-month period ended July 1, 2006, that have materially affected,
        or are
        reasonably likely to materially affect, our internal controls over financial
        reporting.
 
 
  
   37
  
  **PART
        II - OTHER INFORMATION**
   **Item
            1A.**  **RISK
            FACTORS**
 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.  Current market forecasts indicate that single family housing
          starts for the new construction market will delcine in the second half
          of 2006
          and in 2007.  If these market forecasts are correct, our sales may be
          adversely affected.
 
 
 **Item
        6.**   **EXHIBITS**
 
 ***(a)***  ***Exhibits***
 
  Exhibit
        No.   Description
        of Exhibit
 
 *
                  31.1
              Certification
                  by President and Chief Executive Officer pursuant to Rule 13a-14(a)
                  of the
                  Securities Exchange Act of 1934*
                  31.2
              Certification
                  by Vice President and Chief Financial Officer pursuant to Rule
                  13a-14(a)
                  of the Securities Exchange Act of 1934
 
  *
        Filed
        herewith.
  
  38
  
 **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has duly caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
 
 PLY
        GEM
        HOLDINGS, INC.
 (Registrant)
 
 
 Date:
        August 14, 2006
  By:
        /s/ Lee D. Meyer
 Lee
        D.
        Meyer
 President
        and Chief Executive Officer
 
 
 Date: August
        14, 2006
 
 By: /s/
        Shawn K. Poe
 Shawn
        K.
        Poe
 Vice
        President, Chief Financial Officer,
 Treasurer
        and Secretary
 
 39